Chapter 19 Test Bank

ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS -

GOVERNMENTAL FUNDS

Multiple Choice Questions

LO1
1. When a capital lease is used to acquire general fixed assets,
the governmental fund acquiring the fixed assets records a(n)
__________________at the _____________________.

a. expenditure, lease payment cost.

b. fixed asset, lease payment cost.
c. expenditure, present value of the minimum lease payments.
d. fixed asset, present value of the minimum lease payments.

LO1
2. The estimated revenues control account of Star City general
fund is eliminated when

a. the city’s tax receipts are measurable and available.

b. the budget is recorded.
c. appropriations are made.
d. budgetary accounts are closed.

LO1
3. When recording an approved budget into the general fund, which
of the following accounts would be credited?

a. Appropriations.
b. Transfers in.
c. Estimated revenues.
d. Deferred revenues.

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LO1
4. A fund balance increase resulting from an operating transfer to
a governmental fund would have a

a. credit to other financing sources.

b. debit to other financing sources.
c. credit to revenues.
d. debit to revenues.

LO2
5. The proceeds from a bond issuance for the building of a new
public school should be recorded in the ______________ fund at
the time the bonds are sold. The fund balance increase is
classified as ______________.

a. capital projects, revenues

b. general, revenues
c. general, other financing sources
d. capital projects, other financing sources

LO2
6. A fire station that the city of Plenty constructed many years
ago is sold and is accounted for as an other financing source.
Where should entries be made?

a. In the general fund only.

b. In the general fund and capital projects fund.
c. In the general fund, capital projects fund and general
fixed asset group.
d. In the special revenue fund.

LO2
7. Capital improvement costs incurred for general government
special assessments projects require recognition in the

a. general fund.
b. capital projects fund.
c. trust fund.
d. special revenue fund.

LO3
8. The purpose of encumbrance accounting is to prevent

a. spending more than an appropriation.

b. making unreasonable appropriations.
c. spending more than deferred revenue.
d. wasteful spending.

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LO3
9. The proper sequence of events is

a. order, appropriation, encumbrance, expenditure.

b. order, encumbrance, expenditure, appropriation.
c. appropriation, encumbrance, order, expenditure.
d. appropriation, order, encumbrance, expenditure.

LO3
10. According to the GASB Codification, the "collected soon enough
after year-end to pay liabilities for current expenditures"
criterion for revenue recognition means collected within a
period not exceeding

a. 30 days after the fiscal year end.

b. 60 days after the fiscal year end.
c. 90 days after the fiscal year end.
d. 120 days after the fiscal year end.

LO3
11. Which of the following approaches is used to recognize
governmental fund revenues?

a. The gross amounts earned approach.

b. The gross amounts levied approach.
c. The net of estimated uncollectible accounts approach.
d. The net of related expenditures approach.

LO3
12. At any point in time, a government will be able to spend an
amount equal to

a. appropriations minus expenditures.

b. appropriations minus expenditures minus encumbrances.
c. appropriations minus encumbrances.
d. expenditures minus encumbrances.

LO4
13. Which of the following items would be presented in a Statement
of Revenues, Expenditures, and Changes in Fund Balance?

a. Appropriations.
b. Encumbrances.
c. Other financing sources.
d. Unreserved fund balance.

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LO4
14. Which of the following funds has similar accounting and
reporting to the special revenue fund?

a. The proprietary fund.

b. The trust fund.
c. The general fund.
d. The agency fund.

LO4
15. Which financial statement(s) is (are) required for governmental
funds with legally adopted annual budgets?

I. The statement of cash flows

II. The statement of revenues, expenditures and changes in fund
balance-budget and actual

a. I only.
b. II only.
c. I and II.
d. Neither I nor II.

LO4
16. Which statement below is correct with respect to the general
fund financial statements?

a. A budgetary comparison must be presented.

b. Encumbrances must be included on the statements.
c. Capital leases must be included on the statements.
d. All governmental fixed assets and long-term debt must be
included on the statements.

LO4
17. General fund operating lease payments are typically reported as

a. overhead expenditures.
b. rental expenditures.
c. general government expenses.
d. capital outlay expenditures.

LO5
18. Infrastructure costs in government-wide financial statements

a. must be recorded and depreciated by government.

b. may be recorded and depreciated at the option of government
as long as footnote disclosures are made.
c. must be recorded and depreciated by a government unless a
modified approach is used, in which case, depreciation is
optional.
d. must be expended in the year that they are incurred.

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LO5
19. All of the following government fund items must be reconciled
in government-wide financial statements except

a. deferred revenue.
b. long-term liabilities.
c. construction expenditures.
d. encumbrances.

LO5
20. Which statement below is incorrect with respect to the
government wide financial statements?

a. All fund categories must convert to the modified accrual

basis of accounting.
b. Internal service fund transactions with other governmental
funds must be excluded from the statements.
c. Capital leases must be included on the statements.
d. All governmental fixed assets and long-term debt must be
included on the statements.

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LO1
Exercise 1

The City of Sharpesburg entered the following transactions during

2006:

1. The city authorized a bond issue of $2,500,000 par to finance

construction of a fountain in the city square. The bonds were
issued for $2,560,000. The premium was transferred to the fund
for which the debt will be serviced.

2. The city entered into a contract for construction of the fountain

at an estimated cost of $2,425,000.

3. The city received and paid a bill for $2,445,000 from the
contractor upon completion of and approval of the fountain.

4. The unused bond proceeds were set aside for debt service on the
bonds. Accordingly, those resources were paid to the appropriate
fund.

Required:

Prepare journal entries for each of the above transactions. Identify

the appropriate fund or funds used by Sharpesburg.

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LO1
Exercise 2

1. The city issued $6 million of refunding bonds at par.

2. The city transferred $3,700,000 from its General Fund to its Debt
Service Fund to provide the additional resources needed to defease
the bonds in substance.

3. The city paid $9,700,000 into an irrevocable trust established at

the First Seaside Bank to defease the bonds in substance.

Required:

Prepare journal entries for each of the above transactions. Identify

the appropriate fund or funds used by the city of Plaza Royal.

LO1
Exercise 3

Prepare journal entries to record the following grant-related

transactions for a municipality special revenue fund.

1. Awarded an operating grant from the state, $2,500,000 (cash will

be received after qualified expenditures are made).
2. Incurred and paid qualifying expenditures on the grant program,
$1,600,000.
3. Received a federal grant to finance construction of a new school,
$4,500,000 (cash received in advance).
4. Incurred and paid construction cost on the school building,
$3,000,000.

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LO1
Exercise 4

The general fund trial balance for Overland City held the following
balances at September 30, 2006, just before closing entries were
made:

Due from other funds $ 750

Unreserved fund balance 5,000
Estimated revenues 20,000
Revenues 18,950
Appropriations 19,000
Expenditures - current year 16,800
Expenditures - prior year 2,500
Encumbrances 1,200
Operating transfers in 4,000
Reserve for encumbrances 1,200
Reserve for encumbrances - prior year 2,500

Required

Prepare the necessary closing entries.

LO1
Exercise 5

The general fund trial balance for Owens Creek City held the
following balances at June 30, 2006, just before closing entries were
made:

Due from other funds $ 2,700

Unreserved fund balance 51,000
Estimated revenues 208,000
Revenues 198,900
Appropriations 196,500
Expenditures - current year 193,800
Expenditures - prior year 4,500
Encumbrances 3,200
Operating transfers in 6,000
Reserve for encumbrances 3,200
Reserve for encumbrances - prior year 4,500

Required

Prepare the necessary closing entries.

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LO1&2
Exercise 6

El Dorado County incurred the following transactions during 2006:

1. Marketable securities were donated to support the county's bike

and nature trails. The donor acquired the securities for $35,000
ten years earlier; however, their current market value was
$200,000. The donor specified that all income from the
securities be used for the trails. The principal is to be held
intact for an indefinite period of time.

2. Computer equipment was ordered for general fund departments. The

estimated cost was $48,000.

3. The county received the computer equipment. The actual cost was
$47,750, of which $42,000 was paid to the vendor before year-
end.

4. The county sold a (general government) dump truck that originally

cost $55,000. The county sold the truck at auction for $3,300.

5. The government leased equipment under a capital lease agreement.

The capitalized cost was $120,000. The county made an initial
down payment of $10,000.

Required:

Prepare journal entries for each of the above transactions. Identify

the appropriate fund or funds used by El Dorado County.

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LO1&2
Exercise 7

Johnson County incurred the following transactions during 2006:

1. The county authorized a new general obligation bond issue of $5

million par to purchase an office building with a contract price of
$4,975,000. The bonds were issued for $4,960,000.

2. The county levied real property taxes of $10,000,000. Sixty per

cent of the taxes levied were for local municipal governments. By
fiscal year-end, 85% of the taxes were collected and remitted to
the municipalities. Two per cent of the total levy was estimated to
be uncollectible.

3. The escrow for the office building closed and the county paid the
contract price.

4. The county paid $200,000 for interest on the bonds.

Required:

Prepare journal entries for each of the above transactions. Identify

the appropriate fund or funds used by Johnson County.

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LO3
Exercise 8

Address the following situations separately.

1.For the budgetary year beginning July 1, 2006, Center Township
expected the following cash flow resources:

Property taxes, licenses, and fees..........$3,000,000

Proceeds of debt issue.......................1,000,000
Interfund transfers from debt service..........750,000

In the budgetary entry, what amount did Center Township record for
estimated revenues?

2. During the fiscal year ended June 30, 2006, Pacific City issued
purchase orders totaling $7,000,000. Pacific City received
$6,500,000 of invoiced goods at the encumbered amounts and paid
$6,100,000 toward them before year-end.

How much were Pacific City's encumbrances on July 1, 2006?

3.The following information pertains to property taxes levied

($1,035,000 total) by Palm Lake City for the calendar year 2006:

Expected collections during 2006 $750,000

Expected collections in first 60 days of 2007 200,000
Expected collections during the remainder of 2007 50,000
Expected collections during January 2008 30,000
Estimated to be uncollectible 5,000

What amount did Palm Lake City report for property tax revenues in
2006?
4.The following information pertains to Dodge City's general fund for
2006:

Appropriations..............................$7,000,000
Expenditures.................................5,500,000
Other financing sources......................1,000,000
Other financing uses.........................3,000,000
Revenues ................................ 9,000,000

At what amount will Dodge City's total fund balance increase

(decrease) in 2006?

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LO4
Exercise 9

The following information regarding the fiscal year ended September

30, 2006, was drawn from the accounts and records of the Jasper
County general fund:

Revenues and other asset inflows:

Taxes $ 12,000,000
Licenses and permits 2,500,000
Intergovernmental grants 1,000,000
Proceeds of short-term note issuances 1,200,000
Collection of interfund advance to other fund 800,000
Receipt of net assets of terminated fund 1,800,000
Expenditures and other asset outflows:
General government expenditures 7,500,000
Public safety expenditures 2,000,000
Judicial system expenditures 1,200,000
Health and welfare expenditures 1,750,000
Equipment purchases 750,000
Payment to debt service fund to cover future debt
service on general government bonds 500,000
Total fund balance, October 1, 2005 $ 3,000,000

Required
Prepare a statement of revenues, expenditures, and
changes in fund balance for the Jaspar County general
fund for the year ended September 30, 2006.

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LO4
Exercise 10

The unadjusted trial balance for the general fund of the City of
Pegasus at June 30, 2006 is as follows:

Debits
Accounts receivable $ 40,000
Cash 75,000
Due from agency fund 25,000
Encumbrances 60,000
Estimated revenues 975,000
Expenditures 750,000
Taxes receivable 250,000

Credits
Allowance for doubtful accounts 5,000
Allowance for uncollectible taxes 50,000
Appropriations 785,000
Due to utility fund 40,000
Unreserved fund balance 30,000
Reserve for encumbrances 60,000
Revenues 990,000
Taxes received in advance 15,000
Vouchers payable 200,000

Supplies on hand at June 30, 2006 totaled $8,000. The

$60,000 encumbrance relates to equipment ordered but
not received by fiscal year-end.

Required

Prepare a balance sheet for the general fund of the

City of Pegasus at June 30, 2006.

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Multiple Choice Questions

1. c

2. d

3. a

4. b

5. d

6. a

7. b

8. a

9. d

10. b

11. c

12. b

13. c

14. c

15. b

16. a

17. b

18. a

19. d

20. a

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Exercise 1

1.
CPF
Cash....................................... 2,560,000
Other financing sources-bond proceeds. . . 2,560,000

Other financing uses-operating

transfers out........................ 60,000
Cash.................................... 60,000

DSF
Cash....................................... 60,000
Other financing sources-operating
transfers in ........................ 60,000

2.
CPF
Encumbrances............................... 2,425,000
Reserve for encumbrances................ 2,425,000

3.
CPF
Reserve for encumbrances................... 2,425,000
Encumbrances............................ 2,425,000

Expenditures-capital outlay................ 2,445,000

Cash.................................... 2,445,000

4.
CPF
Residual equity transfers out.............. 55,000
Cash.................................... 55,000

DSF
Cash....................................... 55,000
Residual equity transfers in............ 55,000

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Exercise 2

1.
DSF
Cash....................................... 6,000,000
Other financing sources-refunding
bond proceeds........................... 6,000,000

2.
GF
Other financing uses-operating
transfers out........................... 3,700,000
Cash.................................... 3,700,000

DSF
Cash....................................... 3,700,000
Other financing sources-operating
transfers in............................ 3,700,000

3.
DSF
Expenditures-payment to refunded bond
escrow agent............................ 3,700,000
Other financing uses-payment to
refunded bond escrow agent.............. 6,000,000
Cash.................................... 9,700,000

Exercise 3

1. No entry

2. Expenditures......................... 1,600,000
Cash............................. 1,600,000

Cash................................. 1,600,000
Other financing sources-
reciprocal transfer from GF. . . . . 1,600,000

Accounts receivable-grant........... 1,600,000

Grant revenue.................... 1,600,000

3. Cash................................. 4,500,000
Deferred grant revenue........... 4,500,000

4. Expenditures......................... 3,000,000
Cash............................. 3,000,000

Deferred grant revenue............... 3,000,000

Grant revenue 3,000,000

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Exercise 4

Appropriations............................. 19,000
Unreserved fund balance.................... 1,000
Estimated revenues...................... 20,000

Revenues................................... 18,950
Operating transfers in..................... 4,000
Expenditures............................ 16,800
Encumbrances............................ 1,200
Unreserved fund balance................. 4,950

Reserve for encumbrances-prior year........ 2,500

Expenditures-prior year................. 2,500

Exercise 5

Appropriations............................. 196,500
Unreserved fund balance.................... 11,500
Estimated revenues...................... 208,000

Revenues................................... 198,900
Operating transfers in..................... 6,000
Expenditures............................ 193,800
Encumbrances............................ 3,200
Unreserved fund balance................. 7,900

Reserve for encumbrances-prior year........ 4,500

Expenditures-prior year................. 4,500

Exercise 6

1.
PF
Investments-marketable securities.......... 200,000
Revenues-additions to permanent endowments 200,000

2.
GF
Encumbrances............................... 48,000
Reserve for encumbrances................ 48,000

3.
GF
Reserve for encumbrances................... 48,000
Encumbrances............................ 48,000

Expenditures-capital outlay................ 47,750

Cash.................................... 42,000

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 Vouchers payable........................ 5,750

4.
GF
Cash....................................... 3,300
Other financing sources-proceeds from
sale of general fixed assets......... 3,300

5.
GF
Expenditures-capital outlay................ 120,000
Cash.................................... 10,000
Other financing sources-increase in
capital lease liabilities............ 110,000

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Exercise 7

1.
GF
Cash....................................... 4,960,000
Other financing sources-bond proceeds. . . 4,960,000

Encumbrances............................... 4,975,000
Reserve for encumbrances................ 4,975,000

2.
AF
Taxes receivable........................... 10,000,000
Liability to municipalities............. 6,000,000
Liability to county..................... 4,000,000

Cash....................................... 8,500,000
Taxes receivable........................ 8,500,000

Liability to county........................ 3,400,000

Liability to municipalities................ 5,100,000
Cash.................................... 8,500,000

GF
Taxes receivable........................... 4,000,000
Allowance for uncollectible taxes....... 80,000
Property tax revenue.................... 3,920,000

Cash....................................... 3,400,000
Taxes receivable........................ 3,400,000

3.
GF
Reserve for encumbrances................... 4,975,000
Encumbrances............................ 4,975,000

Expenditures-capital outlay................ 4,975,000

Cash.................................... 4,975,000

4.
DSF
Expenditures............................... 200,000
Cash.................................... 200,000

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Exercise 8

1.Center Township $ 3,000,000

2.Pacific City $ 500,000

3.Palm Lake City

Collections during 2006 $ 750,000
Expected collections in first 60 days of 2007 200,000
2006 property tax revenue $ 950,000

4.Dodge City
Revenues $ 9,000,000
Long-term debt proceeds 1,000,000
Expenditures (5,500,000)
Operating transfer out (3,000,000)
Fund balance increase $ 1,500,000

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Exercise 9

Jasper County
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended September 30, 2006

Revenues:
Taxes...................................... $12,000,000
Licenses and permits....................... 2,500,000
Intergovernmental grants................... 1,000,000
Total revenues.......................... 15,500,000

Expenditures:
Current operating expenditures:
General government......................... 7,500,000
Public safety.............................. 2,000,000
Judicial................................... 1,200,000
Health and welfare......................... 1,750,000
Total current operating................. 12,450,000
Capital Outlay............................. 750,000
Total expenditures...................... 13,200,000

Excess of revenues over expenditures....... 2,300,000

Other financing sources (uses):

Operating transfer to debt service fund. . . . (500,000)

Excess of revenues and other financing sources

over (under) expenditures and other
financing uses............................. 1,800,000

Fund Balance, October 1, 2005.............. 3,000,000

Residual equity transfer in................ 1,800,000

Fund Balance, September 30, 2006........... $6,600,000

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Exercise 10

City of Pegasus
General Fund
Balance Sheet
June 30, 2006

Assets:
Cash....................................... $75,000
Taxes receivable (net of estimated
uncollectible of $50,000)................. 200,000
Accounts receivable (net of estimated
uncollectible of $5,000).................. 35,000
Due from other funds....................... 25,000
Supplies................................... 8,000
Total assets............................ $343,000

Liabilities and Fund Balance:

Liabilities:
Vouchers payable........................... 200,000
Due to enterprise fund..................... 40,000
Taxes received in advance.................. 15,000
Total liabilities....................... 255,000

Fund Balance:
Reserved for encumbrances.................. 60,000
Reserved for inventory..................... 8,000
Unreserved................................. 20,000
Total fund balance...................... 88,000
Total liabilities and fund balance...... $343,000

Computation of Unreserved Fund Balance:

Pre-closing balance..................... $ 30,000
Add:
Revenues......................... $990,000
Appropriations................... 785,000 1,775,000
Deduct:
Expenditures..................... $750,000
Encumbrances..................... 60,000
Estimated revenues............... 975,000 1,785,000
Post-closing balance.................... $ 20,000

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