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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

Chapter 17 Governmental Entities: Introduction and General Fund Accounting
Multiple Choice Questions

1. Under the modified accrual basis of accounting, revenue should be recognized when it is: A. measurable and earned. B. received in cash. C. available and earned. D. measurable and available.

2. Which of the following statements is(are) correct about the funds used by governmental entities?

A. I only B. II only C. I and II D. Neither I nor II

3. Which of the following funds should use the accrual basis of accounting? A. Enterprise and private-purpose trust funds. B. Permanent funds and internal service funds. C. Debt service and agency funds. D. Special revenue and capital projects funds.

4. Which of the following funds should use the modified accrual basis of accounting? A. Private-purpose trust and agency funds. B. Capital projects and special revenue funds. C. Internal service and enterprise funds. D. Debt service and private-purpose trust funds.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

5. Which of the following funds are classified as fiduciary funds? A. Agency and Special revenue funds. B. Internal service and Enterprise funds. C. Private-purpose trust and Agency funds. D. Capital projects and Debt service funds.

6. Which of the following funds are classified as proprietary funds? A. Agency and special revenue funds. B. Enterprise and internal service funds. C. Debt service and capital projects funds. D. Agency and pension trust funds.

7. Which of the following funds are classified as governmental funds? A. Internal service and capital projects funds. B. Internal service and debt service funds. C. Enterprise and agency funds. D. The general and special revenue funds.

8. Which organization has the authority to establish generally accepted accounting principles for state and local government entities? A. The National Council on Governmental Accounting B. The Governmental Accounting Standards Board C. The Financial Accounting Standards Board D. The Municipal Officers Finance Organization

9. What is the correct sequence in the expenditure process in governmental accounting? A. Appropriation, Encumbrance, Expenditure, and Disbursement. B. Encumbrance, Expenditure, Disbursement, and Appropriation. C. Expenditure, Encumbrance, Disbursement, and Appropriation. D. Appropriation, Expenditure, Encumbrance, and Disbursement.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

10. Which of the following observations concerning encumbrances is NOT true? A. Their purpose is to ensure that the expenditures within a period do not exceed the budgeted appropriations. B. They provide a control system and safeguard for governmental unit administrators. C. They are a unique element of governmental accounting. D. They are recognized only at the time disbursements are made.

11. The City of Ames uses the consumption method to report its inventory of supplies on its general fund balance sheet. What account is debited in the general fund when Ames acquires supplies? A. Expenditures B. Inventory of Supplies C. Supplies Expense D. Fund Balance-Reserved for Inventories

12. On July 25, 2008, the city of Pullman, which reports on a calendar-year basis, ordered five police cars at an estimated cost of $200,000. On August 26, 2008, the police cars were received, and the actual cost amounted to $197,000. Pullman encumbered the appropriation for police cars in its general fund when the cars were ordered. When the police cars were received, the general fund of Pullman should: A. Credit Budgetary Fund Balance Reserved for Encumbrances for $197,000. B. Debit Encumbrances for $200,000. C. Debit Expenditures for $197,000. D. Credit Budgetary Fund Balance Reserved for Expenditures for $200,000.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

13. What amount should be reported as expenditures for the current fiscal year when accounting for inventories of supplies under the purchase method and under the consumption method?

A. Option A B. Option B C. Option C D. Option D

14. The Town of Pasco has no supplies inventory in its general fund on January 1, 2008. During 2008, Pasco incurred expenditures of $200,000 for the acquisition of supplies. On December 31, 2008, Pasco's inventory of supplies amounted to $30,000. Assume Pasco uses the purchase method of accounting for supplies in its general fund and that the village reports on the calendar year. On December 31, 2008, the general fund of Pasco should credit: A. Expenditures for $170,000. B. Fund Balance-Unreserved for $170,000. C. Fund Balance-Reserved for Inventories for $30,000. D. Expenditures for $30,000.

15. Which of the following funds provides goods and services only to other departments or agencies of the government on a cost-reimbursement basis? A. Internal service funds B. Enterprise funds C. Special revenue funds D. The general fund

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

16. The following information was obtained from the general fund balance sheet of Lima Village on June 30, 2009, the close of its fiscal year:

On June 30, 2009, what was Lima's unreserved fund balance in its general fund? A. $84,000 B. $44,000 C. $34,000 D. $24,000

17. The general fund of Park City acquired computer equipment at a cost of $50,000 on May 18, 2009. To record acquisition of this equipment, the general fund of Park City should debit: A. expenditures. B. encumbrances. C. equipment. D. vouchers payable.

18. Which of the following characteristics are emphasized in the accounting for state and local government entities? I. Revenues should be matched with expenditures to measure success or failure of the government entity. II. There is an emphasis on expendability of resources to accomplish objectives of the governmental entity. A. I only B. II only C. I and II D. Neither I nor II

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

19. Works of art and historical treasures purchased by the general fund should be reported as:

A. I only. B. II only. C. Both I and II D. Neither I nor II.

20. Identify the legal term that allows the general fund to make expenditures. A. Exceptions B. Appropriations C. Encumbrances D. Consumption

21. Under the modified accrual basis of accounting for the general fund, expenditures should be recognized in the period in which the related liability is:

A. I only B. II only C. Both I and II D. Neither I nor II

22. In accounting for governmental funds, which of the following items could appear only on government-wide financial statements?

A. I only B. I and II C. I and III D. I, II, III

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

23. The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30, 2009. The purchase order for the fire truck was recorded on February 15, 2009. Hatteras' acquisition of the fire truck required which of the following sequences of accounting activities? I. Appropriation II. Encumbrance III. Expenditure A. II, I, III. B. I, III, II. C. III, II, I. D. I, II, III.

24. Blue Ridge Township uses the consumption method of accounting for its inventory of supplies. On the December 31, 2007 balance sheet for the general fund, the township reported $10,000 of supplies inventory. During 2008, expenditures for supplies amounted to $40,000, and, at December 31, 2008, unused supplies totalled $7,000. In the adjusting entry for supplies at December 31, 2008, A. Expenditures should be credited for $3,000. B. Expenditures should be debited for $3,000. C. Fund Balance-Reserved for Inventories should be debited for $7,000. D. Fund Balance-Reserved for Inventories should be credited for $7,000.

Gotham City acquires $25,000 of inventory on November 1, 2007, having held no inventory previously. On December 31, 2007, the end of Gotham City's fiscal year, a physical count shows $8,000 still in stock. During 2008, $6,500 of this inventory is used, resulting in a $1,500 remaining balance of supplies on December 31, 2008.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

25. Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the purchase method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

26. Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the purchase method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

27. Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the consumption method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

28. Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the consumption method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

29. Which of the following accounts are debited when closing entries are made for the general fund (assume outstanding encumbrances lapse at year-end)?

A. I, II, III, VI. B. I, II, IV. C. I, IV, V, VI. D. III, IV, V.

30. The general fund of the City of Columbia transferred money to establish an internal service fund for the city's data processing needs. The general fund of Columbia should account for this transaction as a(n): A. expenditure. B. interfund transfer. C. interfund reimbursement. D. loan.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

31. In a town's general fund operating budget for the year, the amount of its estimated revenues exceeded the amount of its appropriations. This excess should be: A. credited to Budgetary Fund Balance-Unreserved. B. debited to Budgetary Fund Balance-Unreserved. C. credited to Fund Balance-Unreserved. D. debited to Fund Balance-Unreserved.

32. The general fund of the Town of Dean levied property taxes of $3,000,000 for the fiscal year beginning on January 1, 2008. It was estimated that 1% of the levy would be uncollectible. During the period January 1, 2008, through December 31, 2008, $2,960,000 of the property tax levy was collected. At December 31, 2008, Dean estimated that $10,000 of property taxes levied in 2008 would be collected during the first 60 days of 2009. What amount of property tax revenue should be reported by the general fund for the year ended December 31, 2008? A. $2,960,000 B. $3,000,000 C. $2,970,000 D. $2,990,000

33. The general fund of the City of Atlanta received a check for $10,000 from an Atlanta resident on July 1, 2008. Of the amount received, $4,800 represented full payment of property taxes for 2008, and the remaining $5,200 represented an advance payment for property taxes of 2009. On July 1, 2008, the general fund should record the receipt by debiting Cash for $10,000 and by crediting A. Revenue-Property Tax for $10,000. B. Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200. C. Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200. D. Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

34. The general fund of Caldwell had the following operating budget for the fiscal year beginning July 1, 2009:

When the general fund records its operating budget on July 1, 2009, Budgetary Fund BalanceUnreserved should be A. credited for $600,000. B. debited for $900,000. C. debited for $600,000. D. credited for $900,000.

35. The general fund of Richmond was billed $22,000 on August 15, 2008, for using the services of one of its internal service funds (ISF). What accounts should be debited and credited, respectively, in the general fund on August 15, 2008, to record this transaction? A. Expenditures and Transfer Out to ISF B. Expenditures and Due to ISF C. Encumbrances and Due to ISF D. Encumbrances and Transfer Out to ISF

36. The general fund of Battle Creek budgeted a transfer to its capital projects fund for $110,000 to be used in operations during the year ended June 20, 2009. On September 15, 2008, the general fund transferred $110,000 to the capital projects fund. What account should be debited in the general fund on September 15 to record this transfer? A. Appropriations B. Expenditures C. Budgetary Fund Balance—Reserved For Encumbrances D. Other Financing Uses—Transfer Out to Capital Projects Fund

37. The general fund of Sun City was billed $7,000 for using the services of one of its internal service funds. The general fund should account for this transaction as a(n) A. interfund transfer. B. interfund loan. C. interfund service. D. interfund reimbursement for services rendered.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

38. The general fund of Athens ordered computer equipment on December 1, 2008, for $32,000. The order was appropriately encumbered on this date. Athens received the computer equipment on January 25, 2009, and issued a voucher to pay the vendor $32,400. Athens uses the calendar year for reporting, and all outstanding encumbrances lapse at year-end. Athens' governing board honors all outstanding encumbrances by including them in the following year's appropriations. On January 25, 2009, the general fund of Athens should debit: A. Encumbrances for $32,000. B. Fund Balance-Reserved for Encumbrances for $32,400. C. Expenditures-2008 for $32,400. D. Expenditures for $32,400.

39. The general fund of Loveland ordered a new fire truck on November 12, 2008, for $150,000. The order was appropriately encumbered on this date. Loveland received the fire truck on January 15, 2009, and issued a voucher to the manufacturer for $148,600. Loveland uses the calendar year for reporting, and outstanding encumbrances at December 31, 2008, are lapsing. On January 15, 2009, the general fund of Loveland should debit: A. Fund Balance-Reserved for Encumbrances for $148,600. B. Expenditures for $148,600. C. Expenditures-2008 for $148,600. D. Encumbrances for $148,600.

40. Which combination of fund and measurement basis is correct?

A. Option A B. Option B C. Option C D. Option D

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

41. The general fund of Wold Township ordered office furniture for the mayor's office on August 1, 2008. The office furniture was estimated to cost $12,000. The office furniture was received on September 1, 2008, with the actual cost being $11,800. Which of the following accounts decreased on September 1, 2008? A. Encumbrances only. B. Expenditures only. C. Encumbrances and Budgetary Fund Balance-Reserved for Encumbrances. D. Expenditures and Budgetary Fund Balance-Reserved for Encumbrances.

42. At the end of the fiscal year, uncollected property taxes in the general fund should be: A. reclassified from current to delinquent. B. written off as uncollectible. C. charged against unreserved fund balance. D. reclassified from current to noncurrent.

43. The Town of Baker reported the following items on the June 30, 2009, balance sheet of its general fund:

At June 30, 2009, what amount should be reported for Fund Balance-Unreserved? A. $46,000 B. $40,000 C. $30,000 D. $16,000

44. Which of the financial statements described below is prepared by the general fund of a state or local government? A. A statement of cash flows. B. An income statement. C. A statement of revenues, expenses, and changes in retained earnings. D. A statement of revenues, expenditures, and changes in fund balance.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

45. Which accounts described below would have non-zero balances after the accounts are closed in the general fund of a state or local government?

A. I, II, III. B. I, II, IV. C. IV, V, VI. D. III, IV, V.

46. Due to an error, the general fund of Pueblo did not record an encumbrance for police equipment which had been ordered but not received on June 30, 2009, the end of its fiscal year. Pueblo's outstanding encumbrances at year-end are nonlapsing. What was the effect of this error on the balance sheet of Pueblo's general fund? A. Assets are overstated. B. Liabilities are understated. C. Total fund balance is overstated. D. Unreserved fund balance is overstated.

47. In a statement of revenues, expenditures, and changes in fund balance, the unreserved fund balance will be increased by: I. a decrease in the fund balance reserved for inventories. II. an excess of other financing sources over other financing uses. A. I only B. II only C. Both I and II D. Neither I nor II

48. Assuming there is a budget surplus, which of the following accounts are credited when the general fund records its operating budget at the beginning of the year? A. Appropriations Control and Budgetary Fund Balance—Unreserved. B. Estimated Revenues Control and Estimated Residual Equity Transfer Out. C. Budgetary Fund Balance—Reserved For Encumbrances and Expenditures. D. Estimated Residual Equity Transfer Out and Estimated Transfer In.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

49. Revenues from parking meters and parking fines should be reported in the general fund when: A. received. B. measurable and available. C. measurable and earned. D. available.

50. The general fund of Gillette levied property taxes of $400,000 on November 1, 2008. However, the property taxes are not collectible until May and August of 2009. Assume Gillette reports on the calendar year. On Gillette's general fund balance sheet at December 31, 2008, the property taxes levied on November 1 should: A. be reported as an asset and as a decrease in unreserved fund balance. B. be reported as an asset and as an increase in unreserved fund balance. C. be reported as an asset and as a reservation of fund balance. D. be reported as an asset and as a deferred revenue.

51. Which of the following items should not be included as revenue for a state government? A. Property taxes levied in the current fiscal year. B. Private property for which a state takes custody when the legal owner cannot be found. C. Amounts received from other financing sources. D. Fines and licensing fees for which amounts cannot be budgeted.

52. GASB 31 "Accounting for Financial Reporting for Certain Investments and for External Reporting Investment Pools," establishes a general rule that government entities value investments in option contracts, open-ended mutual funds, and debt securities for balance sheet presentation at: A. lower of cost or market. B. fair value. C. cost. D. amortized cost.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

53. All of the following funds have a financial resources measurement focus with the exception of which fund? A. debt service fund B. special revenue fund C. capital projects fund D. private-purpose trust fund

54. When an internal service fund (ISF) enters into a capital lease the transaction is recorded in the: I. fixed assets of the ISF. II. long-term debt of the ISF. A. I only B. II only C. Both I and II D. Neither I nor II

55. Which of the following items is not recognized as revenue by a governmental unit? A. sales tax proceeds B. property tax levies C. bond proceeds D. grants received from other governmental units

56. GASB 34 established four types of interfund activities. Interfund activities are recognized as revenue in a governmental fund for an:

A. Option A B. Option B C. Option C D. Option D

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

57. The general ledger of Broadway contains the following selected account balances:

Broadway wants to order additional goods and services before the fiscal year end. What is the unencumbered balance of the budget that may be expended by Broadway? A. $850,000 B. $760,000 C. $180,000 D. $130,000

58. At any time, the remaining appropriating authority available to the fund managers is equal to: A. Appropriations minus Expenditures B. Appropriations minus (Encumbrances + Expenditures) C. Appropriations minus (Encumbrances - Expenditures) D. Appropriations minus Encumbrances

59. Which of the following observations concerning interfund transfers is true? A. They are expected to be repaid. B. They are classified as fund revenues or expenditures. C. The receiving fund recognizes these transfers as revenue. D. These transfers are classified under "Other Financing Sources or Uses."

60. According to the latest GASB exposure draft, which of the following is the only governmental fund type that may report an unassigned fund balance? A. General fund B. Special revenue fund C. Capital projects fund D. Permanent fund

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

61. Which governmental fund includes resources that are legally restricted so that the governmental entity must maintain the principal and can use only the earnings from the fund's resources to benefit the government's programs for all of its citizens? A. General fund B. Special revenue fund C. Capital projects fund D. Permanent fund

Essay Questions

62. Briefly discuss the various types of governmental funds and proprietary funds.

63. Discuss major differences between a governmental entity's uses of the modified accrual method and a for-profit corporation's use of the accrual method.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

64. The town of Stow was incorporated and began governmental operations on July 1, 2008. Stow's transactions and events for the fiscal year ended June 30, 2009, are listed below. Stow uses the consumption method of accounting for purchases of supplies. Encumbrances do not lapse at year end. Required: Prepare the journal entry (ies) required in the general fund for each of the following transactions or events. a. The town budget was approved, providing for revenues of $800,000, a $40,000 transfer to establish an internal service fund (ISF), and expenditures of $750,000. b. Property taxes were levied in the amount of $700,000, with 4 percent of the total estimated to be uncollectible. c. Purchase orders were issued in the amount of $90,000 for equipment, and $635,000 for other goods and services. d. Collections for fines and licenses totaled $99,000 for the year. e. Property taxes collected amounted to $680,000; the balance was reclassified as delinquent, and the allowance for uncollectible taxes was reduced to $15,000. f. The equipment ordered was received, and a voucher was issued for the final invoice cost of $91,000. g. All but $12,000 of the other goods and services ordered was received. Vouchers were issued for the invoice cost of $622,000. h. All but $10,000 of the vouchers issued during the year was paid. i. A transfer in the amount of $40,000 was made to establish an internal service fund for the town. The general fund received services of $7,000 from the internal service fund during the year, with $2,000 remaining unpaid at year end. j. Expenditures recorded for the year included the purchase of supplies. The estimated balance of supplies on hand at year end was $2,000. k. A reserve was established at year end for the outstanding encumbrances, all of which will be honored in the next fiscal year. l. Closing entries were made.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

65. Accounting processes differ between a for-profit entity and a governmental entity. Discuss three differences between a governmental entity and a for-profit entity.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

66. The adjusted trial balance for White River for the fiscal year ended June 30, 2009, is presented below.

Required: a. Prepare a statement of revenues, expenditures, and changed in fund balance for White River for the year ended June 30, 2009. Assume there were no supplies or outstanding encumbrances at the beginning of the year. b. Prepare a balance sheet for White River at June 30, 2009.

Chapter 17 Governmental Entities: Introduction and General Fund Accounting Answer Key

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

Multiple Choice Questions

1. Under the modified accrual basis of accounting, revenue should be recognized when it is: A. measurable and earned. B. received in cash. C. available and earned. D. measurable and available.

AACSB: Reflective Thinking AICPA: Decision Making

2. Which of the following statements is(are) correct about the funds used by governmental entities?

A. I only B. II only C. I and II D. Neither I nor II

AACSB: Reflective Thinking AICPA: Decision Making

3. Which of the following funds should use the accrual basis of accounting? A. Enterprise and private-purpose trust funds. B. Permanent funds and internal service funds. C. Debt service and agency funds. D. Special revenue and capital projects funds.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

4. Which of the following funds should use the modified accrual basis of accounting? A. Private-purpose trust and agency funds. B. Capital projects and special revenue funds. C. Internal service and enterprise funds. D. Debt service and private-purpose trust funds.

AACSB: Reflective Thinking AICPA: Decision Making

5. Which of the following funds are classified as fiduciary funds? A. Agency and Special revenue funds. B. Internal service and Enterprise funds. C. Private-purpose trust and Agency funds. D. Capital projects and Debt service funds.

AACSB: Reflective Thinking AICPA: Decision Making

6. Which of the following funds are classified as proprietary funds? A. Agency and special revenue funds. B. Enterprise and internal service funds. C. Debt service and capital projects funds. D. Agency and pension trust funds.

AACSB: Reflective Thinking AICPA: Decision Making

7. Which of the following funds are classified as governmental funds? A. Internal service and capital projects funds. B. Internal service and debt service funds. C. Enterprise and agency funds. D. The general and special revenue funds.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

8. Which organization has the authority to establish generally accepted accounting principles for state and local government entities? A. The National Council on Governmental Accounting B. The Governmental Accounting Standards Board C. The Financial Accounting Standards Board D. The Municipal Officers Finance Organization

AACSB: Reflective Thinking AICPA: Decision Making

9. What is the correct sequence in the expenditure process in governmental accounting? A. Appropriation, Encumbrance, Expenditure, and Disbursement. B. Encumbrance, Expenditure, Disbursement, and Appropriation. C. Expenditure, Encumbrance, Disbursement, and Appropriation. D. Appropriation, Expenditure, Encumbrance, and Disbursement.

AACSB: Reflective Thinking AICPA: Decision Making

10. Which of the following observations concerning encumbrances is NOT true? A. Their purpose is to ensure that the expenditures within a period do not exceed the budgeted appropriations. B. They provide a control system and safeguard for governmental unit administrators. C. They are a unique element of governmental accounting. D. They are recognized only at the time disbursements are made.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

11. The City of Ames uses the consumption method to report its inventory of supplies on its general fund balance sheet. What account is debited in the general fund when Ames acquires supplies? A. Expenditures B. Inventory of Supplies C. Supplies Expense D. Fund Balance-Reserved for Inventories

AACSB: Reflective Thinking AICPA: Decision Making

12. On July 25, 2008, the city of Pullman, which reports on a calendar-year basis, ordered five police cars at an estimated cost of $200,000. On August 26, 2008, the police cars were received, and the actual cost amounted to $197,000. Pullman encumbered the appropriation for police cars in its general fund when the cars were ordered. When the police cars were received, the general fund of Pullman should: A. Credit Budgetary Fund Balance Reserved for Encumbrances for $197,000. B. Debit Encumbrances for $200,000. C. Debit Expenditures for $197,000. D. Credit Budgetary Fund Balance Reserved for Expenditures for $200,000.

AACSB: Analytic AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

13. What amount should be reported as expenditures for the current fiscal year when accounting for inventories of supplies under the purchase method and under the consumption method?

A. Option A B. Option B C. Option C D. Option D

AACSB: Reflective Thinking AICPA: Decision Making

14. The Town of Pasco has no supplies inventory in its general fund on January 1, 2008. During 2008, Pasco incurred expenditures of $200,000 for the acquisition of supplies. On December 31, 2008, Pasco's inventory of supplies amounted to $30,000. Assume Pasco uses the purchase method of accounting for supplies in its general fund and that the village reports on the calendar year. On December 31, 2008, the general fund of Pasco should credit: A. Expenditures for $170,000. B. Fund Balance-Unreserved for $170,000. C. Fund Balance-Reserved for Inventories for $30,000. D. Expenditures for $30,000.

AACSB: Reflective Thinking AICPA: Decision Making

15. Which of the following funds provides goods and services only to other departments or agencies of the government on a cost-reimbursement basis? A. Internal service funds B. Enterprise funds C. Special revenue funds D. The general fund

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

16. The following information was obtained from the general fund balance sheet of Lima Village on June 30, 2009, the close of its fiscal year:

On June 30, 2009, what was Lima's unreserved fund balance in its general fund? A. $84,000 B. $44,000 C. $34,000 D. $24,000

AACSB: Analytic AICPA: Measurement

17. The general fund of Park City acquired computer equipment at a cost of $50,000 on May 18, 2009. To record acquisition of this equipment, the general fund of Park City should debit: A. expenditures. B. encumbrances. C. equipment. D. vouchers payable.

AACSB: Reflective Thinking AICPA: Decision Making

18. Which of the following characteristics are emphasized in the accounting for state and local government entities? I. Revenues should be matched with expenditures to measure success or failure of the government entity. II. There is an emphasis on expendability of resources to accomplish objectives of the governmental entity. A. I only B. II only C. I and II D. Neither I nor II

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

19. Works of art and historical treasures purchased by the general fund should be reported as:

A. I only. B. II only. C. Both I and II D. Neither I nor II.

AACSB: Reflective Thinking AICPA: Decision Making

20. Identify the legal term that allows the general fund to make expenditures. A. Exceptions B. Appropriations C. Encumbrances D. Consumption

AACSB: Reflective Thinking AICPA: Decision Making

21. Under the modified accrual basis of accounting for the general fund, expenditures should be recognized in the period in which the related liability is:

A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

22. In accounting for governmental funds, which of the following items could appear only on government-wide financial statements?

A. I only B. I and II C. I and III D. I, II, III

AACSB: Reflective Thinking AICPA: Decision Making

23. The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30, 2009. The purchase order for the fire truck was recorded on February 15, 2009. Hatteras' acquisition of the fire truck required which of the following sequences of accounting activities? I. Appropriation II. Encumbrance III. Expenditure A. II, I, III. B. I, III, II. C. III, II, I. D. I, II, III.

AACSB: Reflective Thinking AICPA: Decision Making

24. Blue Ridge Township uses the consumption method of accounting for its inventory of supplies. On the December 31, 2007 balance sheet for the general fund, the township reported $10,000 of supplies inventory. During 2008, expenditures for supplies amounted to $40,000, and, at December 31, 2008, unused supplies totalled $7,000. In the adjusting entry for supplies at December 31, 2008, A. Expenditures should be credited for $3,000. B. Expenditures should be debited for $3,000. C. Fund Balance-Reserved for Inventories should be debited for $7,000. D. Fund Balance-Reserved for Inventories should be credited for $7,000.

AACSB: Analytic AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

Gotham City acquires $25,000 of inventory on November 1, 2007, having held no inventory previously. On December 31, 2007, the end of Gotham City's fiscal year, a physical count shows $8,000 still in stock. During 2008, $6,500 of this inventory is used, resulting in a $1,500 remaining balance of supplies on December 31, 2008.

25. Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the purchase method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

AACSB: Analytic AICPA: Measurement

26. Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the purchase method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

AACSB: Analytic AICPA: Measurement

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

27. Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the consumption method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

AACSB: Analytic AICPA: Measurement

28. Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the consumption method of accounting for inventories?

A. Option A B. Option B C. Option C D. Option D

AACSB: Analytic AICPA: Measurement

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

29. Which of the following accounts are debited when closing entries are made for the general fund (assume outstanding encumbrances lapse at year-end)?

A. I, II, III, VI. B. I, II, IV. C. I, IV, V, VI. D. III, IV, V.

AACSB: Reflective Thinking AICPA: Decision Making

30. The general fund of the City of Columbia transferred money to establish an internal service fund for the city's data processing needs. The general fund of Columbia should account for this transaction as a(n): A. expenditure. B. interfund transfer. C. interfund reimbursement. D. loan.

AACSB: Reflective Thinking AICPA: Decision Making

31. In a town's general fund operating budget for the year, the amount of its estimated revenues exceeded the amount of its appropriations. This excess should be: A. credited to Budgetary Fund Balance-Unreserved. B. debited to Budgetary Fund Balance-Unreserved. C. credited to Fund Balance-Unreserved. D. debited to Fund Balance-Unreserved.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

32. The general fund of the Town of Dean levied property taxes of $3,000,000 for the fiscal year beginning on January 1, 2008. It was estimated that 1% of the levy would be uncollectible. During the period January 1, 2008, through December 31, 2008, $2,960,000 of the property tax levy was collected. At December 31, 2008, Dean estimated that $10,000 of property taxes levied in 2008 would be collected during the first 60 days of 2009. What amount of property tax revenue should be reported by the general fund for the year ended December 31, 2008? A. $2,960,000 B. $3,000,000 C. $2,970,000 D. $2,990,000

AACSB: Analytic AICPA: Measurement

33. The general fund of the City of Atlanta received a check for $10,000 from an Atlanta resident on July 1, 2008. Of the amount received, $4,800 represented full payment of property taxes for 2008, and the remaining $5,200 represented an advance payment for property taxes of 2009. On July 1, 2008, the general fund should record the receipt by debiting Cash for $10,000 and by crediting A. Revenue-Property Tax for $10,000. B. Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200. C. Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200. D. Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200.

AACSB: Analytic AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

34. The general fund of Caldwell had the following operating budget for the fiscal year beginning July 1, 2009:

When the general fund records its operating budget on July 1, 2009, Budgetary Fund BalanceUnreserved should be A. credited for $600,000. B. debited for $900,000. C. debited for $600,000. D. credited for $900,000.

AACSB: Analytic AICPA: Decision Making

35. The general fund of Richmond was billed $22,000 on August 15, 2008, for using the services of one of its internal service funds (ISF). What accounts should be debited and credited, respectively, in the general fund on August 15, 2008, to record this transaction? A. Expenditures and Transfer Out to ISF B. Expenditures and Due to ISF C. Encumbrances and Due to ISF D. Encumbrances and Transfer Out to ISF

AACSB: Reflective Thinking AICPA: Decision Making

36. The general fund of Battle Creek budgeted a transfer to its capital projects fund for $110,000 to be used in operations during the year ended June 20, 2009. On September 15, 2008, the general fund transferred $110,000 to the capital projects fund. What account should be debited in the general fund on September 15 to record this transfer? A. Appropriations B. Expenditures C. Budgetary Fund Balance—Reserved For Encumbrances D. Other Financing Uses—Transfer Out to Capital Projects Fund

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

37. The general fund of Sun City was billed $7,000 for using the services of one of its internal service funds. The general fund should account for this transaction as a(n) A. interfund transfer. B. interfund loan. C. interfund service. D. interfund reimbursement for services rendered.

AACSB: Reflective Thinking AICPA: Decision Making

38. The general fund of Athens ordered computer equipment on December 1, 2008, for $32,000. The order was appropriately encumbered on this date. Athens received the computer equipment on January 25, 2009, and issued a voucher to pay the vendor $32,400. Athens uses the calendar year for reporting, and all outstanding encumbrances lapse at year-end. Athens' governing board honors all outstanding encumbrances by including them in the following year's appropriations. On January 25, 2009, the general fund of Athens should debit: A. Encumbrances for $32,000. B. Fund Balance-Reserved for Encumbrances for $32,400. C. Expenditures-2008 for $32,400. D. Expenditures for $32,400.

AACSB: Analytic AICPA: Decision Making

39. The general fund of Loveland ordered a new fire truck on November 12, 2008, for $150,000. The order was appropriately encumbered on this date. Loveland received the fire truck on January 15, 2009, and issued a voucher to the manufacturer for $148,600. Loveland uses the calendar year for reporting, and outstanding encumbrances at December 31, 2008, are lapsing. On January 15, 2009, the general fund of Loveland should debit: A. Fund Balance-Reserved for Encumbrances for $148,600. B. Expenditures for $148,600. C. Expenditures-2008 for $148,600. D. Encumbrances for $148,600.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

40. Which combination of fund and measurement basis is correct?

A. Option A B. Option B C. Option C D. Option D

AACSB: Reflective Thinking AICPA: Decision Making

41. The general fund of Wold Township ordered office furniture for the mayor's office on August 1, 2008. The office furniture was estimated to cost $12,000. The office furniture was received on September 1, 2008, with the actual cost being $11,800. Which of the following accounts decreased on September 1, 2008? A. Encumbrances only. B. Expenditures only. C. Encumbrances and Budgetary Fund Balance-Reserved for Encumbrances. D. Expenditures and Budgetary Fund Balance-Reserved for Encumbrances.

AACSB: Reflective Thinking AICPA: Decision Making

42. At the end of the fiscal year, uncollected property taxes in the general fund should be: A. reclassified from current to delinquent. B. written off as uncollectible. C. charged against unreserved fund balance. D. reclassified from current to noncurrent.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

43. The Town of Baker reported the following items on the June 30, 2009, balance sheet of its general fund:

At June 30, 2009, what amount should be reported for Fund Balance-Unreserved? A. $46,000 B. $40,000 C. $30,000 D. $16,000

AACSB: Analytic AICPA: Measurement

44. Which of the financial statements described below is prepared by the general fund of a state or local government? A. A statement of cash flows. B. An income statement. C. A statement of revenues, expenses, and changes in retained earnings. D. A statement of revenues, expenditures, and changes in fund balance.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

45. Which accounts described below would have non-zero balances after the accounts are closed in the general fund of a state or local government?

A. I, II, III. B. I, II, IV. C. IV, V, VI. D. III, IV, V.

AACSB: Reflective Thinking AICPA: Decision Making

46. Due to an error, the general fund of Pueblo did not record an encumbrance for police equipment which had been ordered but not received on June 30, 2009, the end of its fiscal year. Pueblo's outstanding encumbrances at year-end are nonlapsing. What was the effect of this error on the balance sheet of Pueblo's general fund? A. Assets are overstated. B. Liabilities are understated. C. Total fund balance is overstated. D. Unreserved fund balance is overstated.

AACSB: Reflective Thinking AICPA: Decision Making

47. In a statement of revenues, expenditures, and changes in fund balance, the unreserved fund balance will be increased by: I. a decrease in the fund balance reserved for inventories. II. an excess of other financing sources over other financing uses. A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

48. Assuming there is a budget surplus, which of the following accounts are credited when the general fund records its operating budget at the beginning of the year? A. Appropriations Control and Budgetary Fund Balance—Unreserved. B. Estimated Revenues Control and Estimated Residual Equity Transfer Out. C. Budgetary Fund Balance—Reserved For Encumbrances and Expenditures. D. Estimated Residual Equity Transfer Out and Estimated Transfer In.

AACSB: Reflective Thinking AICPA: Decision Making

49. Revenues from parking meters and parking fines should be reported in the general fund when: A. received. B. measurable and available. C. measurable and earned. D. available.

AACSB: Reflective Thinking AICPA: Decision Making

50. The general fund of Gillette levied property taxes of $400,000 on November 1, 2008. However, the property taxes are not collectible until May and August of 2009. Assume Gillette reports on the calendar year. On Gillette's general fund balance sheet at December 31, 2008, the property taxes levied on November 1 should: A. be reported as an asset and as a decrease in unreserved fund balance. B. be reported as an asset and as an increase in unreserved fund balance. C. be reported as an asset and as a reservation of fund balance. D. be reported as an asset and as a deferred revenue.

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

51. Which of the following items should not be included as revenue for a state government? A. Property taxes levied in the current fiscal year. B. Private property for which a state takes custody when the legal owner cannot be found. C. Amounts received from other financing sources. D. Fines and licensing fees for which amounts cannot be budgeted.

AACSB: Reflective Thinking AICPA: Decision Making

52. GASB 31 "Accounting for Financial Reporting for Certain Investments and for External Reporting Investment Pools," establishes a general rule that government entities value investments in option contracts, open-ended mutual funds, and debt securities for balance sheet presentation at: A. lower of cost or market. B. fair value. C. cost. D. amortized cost.

AACSB: Reflective Thinking AICPA: Decision Making

53. All of the following funds have a financial resources measurement focus with the exception of which fund? A. debt service fund B. special revenue fund C. capital projects fund D. private-purpose trust fund

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

54. When an internal service fund (ISF) enters into a capital lease the transaction is recorded in the: I. fixed assets of the ISF. II. long-term debt of the ISF. A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Reflective Thinking AICPA: Decision Making

55. Which of the following items is not recognized as revenue by a governmental unit? A. sales tax proceeds B. property tax levies C. bond proceeds D. grants received from other governmental units

AACSB: Reflective Thinking AICPA: Decision Making

56. GASB 34 established four types of interfund activities. Interfund activities are recognized as revenue in a governmental fund for an:

A. Option A B. Option B C. Option C D. Option D

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

57. The general ledger of Broadway contains the following selected account balances:

Broadway wants to order additional goods and services before the fiscal year end. What is the unencumbered balance of the budget that may be expended by Broadway? A. $850,000 B. $760,000 C. $180,000 D. $130,000

AACSB: Analytic AICPA: Measurement

58. At any time, the remaining appropriating authority available to the fund managers is equal to: A. Appropriations minus Expenditures B. Appropriations minus (Encumbrances + Expenditures) C. Appropriations minus (Encumbrances - Expenditures) D. Appropriations minus Encumbrances

AACSB: Reflective Thinking AICPA: Decision Making

59. Which of the following observations concerning interfund transfers is true? A. They are expected to be repaid. B. They are classified as fund revenues or expenditures. C. The receiving fund recognizes these transfers as revenue. D. These transfers are classified under "Other Financing Sources or Uses."

AACSB: Reflective Thinking AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

60. According to the latest GASB exposure draft, which of the following is the only governmental fund type that may report an unassigned fund balance? A. General fund B. Special revenue fund C. Capital projects fund D. Permanent fund

AACSB: Reflective Thinking AICPA: Decision Making

61. Which governmental fund includes resources that are legally restricted so that the governmental entity must maintain the principal and can use only the earnings from the fund's resources to benefit the government's programs for all of its citizens? A. General fund B. Special revenue fund C. Capital projects fund D. Permanent fund

AACSB: Reflective Thinking AICPA: Decision Making

Essay Questions

62. Briefly discuss the various types of governmental funds and proprietary funds. Five types of governmental funds are used to provide basic governmental services to the public. These are: (1) general fund, (2) special revenue funds, (3) capital projects funds, (4) debt service funds, and (5) permanent funds. The number of governmental funds maintained by the governmental entity is based on its legal and operating requirements. The five governmental funds use the current financial resources measurement focus. The two types of proprietary funds typically used by governmental entities are (6) enterprise funds and (7) internal service funds. Some activities of a governmental unit are similar to those of commercial enterprises. The objective of the governmental unit is to recover its costs in such operations through a system of user charges. Accounting and reporting for a proprietary fund are similar to accounting for a commercial operation.

AACSB: Communication AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

63. Discuss major differences between a governmental entity's uses of the modified accrual method and a for-profit corporation's use of the accrual method. The modified accrual method of accounting is used to measure revenues that are available to finance current expenditures and to measure the expenditures made during the period. The accrual method is used to measure the revenues and expenses during a period with the purpose of measuring profitability.

AACSB: Communication AICPA: Critical Thinking

17-44

Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

64. The town of Stow was incorporated and began governmental operations on July 1, 2008. Stow's transactions and events for the fiscal year ended June 30, 2009, are listed below. Stow uses the consumption method of accounting for purchases of supplies. Encumbrances do not lapse at year end. Required: Prepare the journal entry (ies) required in the general fund for each of the following transactions or events. a. The town budget was approved, providing for revenues of $800,000, a $40,000 transfer to establish an internal service fund (ISF), and expenditures of $750,000. b. Property taxes were levied in the amount of $700,000, with 4 percent of the total estimated to be uncollectible. c. Purchase orders were issued in the amount of $90,000 for equipment, and $635,000 for other goods and services. d. Collections for fines and licenses totaled $99,000 for the year. e. Property taxes collected amounted to $680,000; the balance was reclassified as delinquent, and the allowance for uncollectible taxes was reduced to $15,000. f. The equipment ordered was received, and a voucher was issued for the final invoice cost of $91,000. g. All but $12,000 of the other goods and services ordered was received. Vouchers were issued for the invoice cost of $622,000. h. All but $10,000 of the vouchers issued during the year was paid. i. A transfer in the amount of $40,000 was made to establish an internal service fund for the town. The general fund received services of $7,000 from the internal service fund during the year, with $2,000 remaining unpaid at year end. j. Expenditures recorded for the year included the purchase of supplies. The estimated balance of supplies on hand at year end was $2,000. k. A reserve was established at year end for the outstanding encumbrances, all of which will be honored in the next fiscal year. l. Closing entries were made.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

AACSB: Analytic AICPA: Measurement

17-47

Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

65. Accounting processes differ between a for-profit entity and a governmental entity. Discuss three differences between a governmental entity and a for-profit entity. The major differences between a governmental entity and a for-profit entity include: • Governmental accounting must recognize that governmental units collect resources and make expenditures to fulfil societal needs. • Except for some proprietary activities such as utilities, governmental entities do not have a general profit motive. • Governmental operations have legal authorization for their existence, conduct revenue raising through the power of taxation, and have mandated expenditures they must make to provide their services. • Governmental entities use comprehensive budgetary accounting, which services as a significant control mechanism and provides the basis for comparing actual operations against budgeted amounts. • The primary emphasis in governmental fund accounting is to measure and report on management's stewardship of the financial resources committed to the objectives of the governmental unit. • Governmental entities typically are required to establish separate funds to carry out their various missions. • Many fund entities do not record fixed assets or long-term debt in their funds.

AACSB: Communication AICPA: Decision Making

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

66. The adjusted trial balance for White River for the fiscal year ended June 30, 2009, is presented below.

Required: a. Prepare a statement of revenues, expenditures, and changed in fund balance for White River for the year ended June 30, 2009. Assume there were no supplies or outstanding encumbrances at the beginning of the year. b. Prepare a balance sheet for White River at June 30, 2009.

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

a)

b)

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Chapter 17 - Governmental Entities: Introduction and General Fund Accounting

AACSB: Analytic AICPA: Measurement

17-51