Beams Aa13e TB 21

Advanced Accounting, 13e, Global Edition (Beams et al.
)
Chapter 21 Accounting for State and Local Governmental Units - Proprietary and
Fiduciary Funds
21.1 Multiple Choice Questions
1) What basis of accounting is used by proprietary funds?

A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Fair value accounting
Answer: B
Objective: LO21.1 Review the appropriate accounting and financial reporting for proprietary funds.
Difficulty: Easy
AACSB: Analytical thinking
2) Enterprise funds are accounted for in a manner similar to

A) internal service funds.
B) capital project funds.
C) special revenue funds.
D) debt service funds.
Answer: A
Difficulty: Easy
3) On January 1, 2014, the General Fund contributes $200,000 cash to the Internal Service Fund. On
January 1, 2014, the General Fund also loans $100,000 cash to the Internal Service Fund. On January 1,
2014, what journal entry does the Internal Service Fund prepare?
A) debit Cash $300,000, credit Other Financing Sources $300,000
B) debit Cash $300,000, credit Other Financing Sources $200,000, credit Advance from General Fund
$100,000
C) debit Cash $300,000, credit Advance from General Fund $300,000
D) debit Cash $300,000, credit Contributed Capital $200,000, credit Advance from General Fund $100,000
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
4) The accounting equation for the Proprietary fund is

A) assets = liabilities.
B) current assets + current liabilities = fund balance.
C) current assets - current liabilities = net position.
D) current assets + noncurrent assets - current liabilities - noncurrent liabilities = net position.
Answer: D
Difficulty: Easy
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5) The fixed assets and long-term liabilities associated with Proprietary Funds are reported on the
A) financial statements of governmental funds.
B) financial statements of fiduciary funds.
C) financial statements of proprietary funds.
D) financial statements of trust funds.
Answer: C
Difficulty: Easy
6) On January 1, 2014, the Enterprise Fund for a local city receives an intergovernmental capital grant of
$100,000 from the state government. Upon receipt of the cash on February 1, 2014, qualifying expenses of
$100,000 for the operating grant will be incurred. What journal entry did the Enterprise Fund prepare on
January 1, 2014?
A) Debit Cash $100,000, credit Deferred Revenue $100,000
B) Debit Due From Other Governments $100,000, credit Contributed Capital $100,000
C) Debit Restricted Cash $100,000, credit Nonoperating Revenues $100,000
D) Debit Due From Other Governments $100,000, credit Other Financing Sources - operating grant
$100,000
Answer: B
Objective: LO21.2 Recognize the proper treatment of internal service funds in the government-wide statements.
7) In a Statement of Cash Flows for a proprietary fund, what are the primary categories of cash flow
activities?
A) Operating, Financing, Investing
B) Operating, Noncapital Financing, Capital and Related Financing, Investing
C) Operating, Financing, Noncapital Investing, Capital and Related Investing
D) Noncapital Operating, Capital and Related Operating, Investing, Financing
Answer: B
Objective: LO21.3 Introduce the differences between a proprietary fund statement of cash flows and its commercial
business counterpart.
Difficulty: Easy
8) The financial statements of proprietary funds are similar to business enterprises with the exception that
proprietary funds do not
A) report fixed assets.
B) report property taxes.
C) separate current and noncurrent assets.
D) report noncurrent liabilities.
Answer: B
Difficulty: Easy
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9) GASB requires ________ method(s) for the cash flow statement for proprietary funds.
A) the reconciliation
B) the indirect
C) the direct
D) either the direct or indirect
Answer: C
Difficulty: Easy
10) An enterprise fund collects $100,000 cash for customer deposits to insure timely payment for services.
What journal entry did the enterprise fund prepare?
A) Debit Cash $100,000, credit Revenue $100,000
B) Debit Cash $100,000, credit Deferred Revenue $100,000
C) Debit Restricted Cash $100,000, credit Customer Deposits $100,000
D) Debit Restricted Cash $100,000, credit Revenue $100,000
Answer: C
11) At December 31, 2014, an Enterprise Fund has the following adjusted accounts outstanding:
Insurance Expense $2,000

Depreciation Expense 3,000
Supplies Expense 10,000
Salaries Expense 100,000
Service Revenues 123,000
When preparing the closing entry for the temporary accounts at December 31, 2014, the Enterprise Fund's
accountant will
A) credit Retained Earnings $8,000.
B) credit Net Cash, $8,000.
C) credit Net Position, Unrestricted $8,000.
D) credit Invested Capital Assets, Net of Related Debt, $8,000.
Answer: C
12) What is a significant difference for agency funds when compared to governmental funds?
A) An agency fund has a separate ledger.
B) An agency fund does not report revenues.
C) Agency funds are not associated with any governmental unit.
D) An agency fund will not balance because there is no fund balance account.
Answer: B
Objective: LO21.4 Prepare journal entries and fund financial statements for fiduciary funds.
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13) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
Answer: B
Difficulty: Easy
14) Platinum City collects state sales taxes quarterly from local businesses and then gives the state
revenue department the money at the end of the year. The sales taxes would go in Platinum City's
A) special revenue fund.
B) general fund.
C) agency fund.
D) enterprise fund.
Answer: C
15) On the Statement of Net Position, in place of stockholders' equity, proprietary funds report
A) Retained Earnings only.
B) Restricted Cash only.
C) Unrestricted Cash only.
D) Net Position.
Answer: D
Difficulty: Easy
16) Proceeds from bonds issued for the construction of capital assets are classified on the Statement of
Cash Flows for an Enterprise Fund as
A) Cash Flows from Operating Activities.
B) Cash Flows from Noncapital Financing Activities.
C) Cash Flows from Capital and Related Financing Activities.
D) Cash Flows from Investing Activities.
Answer: C
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17) Interest payments on loans outstanding that do not relate to acquiring, constructing or improving
capital assets are classified as ________ on the cash flow statement for an Enterprise Fund.
A) Cash Flows from Operating Activities
B) Cash Flows from Noncapital Financing Activities
C) Cash Flows from Capital and Related Financing Activities
D) Cash Flows from Investing Activities
Answer: B
18) The financial statements of a proprietary fund are similar to those of a business enterprise except for
A) proprietary funds do not report income taxes on the operating statement.
B) proprietary funds do not have paid-in capital or capital stock.
C) proprietary funds use modified accrual accounting.
D) proprietary funds may have account titles such as due from general fund.
Answer: C
Difficulty: Easy
19) The trust fund for a school library is required to prepare financial statements that include
A) Balance Sheet and Income Statement.
B) Statement of Revenues, Expenses and Changes in Fiduciary Net Assets.
C) Statement of Fund Balance and Statement of Changes in Fund Balance.
D) Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.
Answer: D
20) Proprietary funds are required to prepare financial statements that include:
A. Statement of Activities
B. Statement of Revenues, Expenditures and Changes in Fund Balance
C. Balance Sheet
D. Statement of Cash Flows
E. Statement of Net Position
F. Statement of Revenues, Expenses and Changes in Net Position
A) C, D, F
B) A, B, D
C) B, C, D
D) D, E, F
Answer: D
Difficulty: Easy
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21.2 Exercises
1) The City's municipal golf course had the following transactions.
1. Received a beautification (operating) grant from the state for $600,000. Received cash of $600,000.
2. Incurred and paid qualifying expenses under the state grant program in (1) above of $280,000.
3. Incurred and paid construction costs on an uncompleted clubhouse for $1,200,000.
4. Received $1,000,000 cash from a grant to assist with construction costs for the clubhouse.
Required:
Given that the golf course is operated based on user fees for upkeep, prepare the necessary journal entries
for each of these transactions.
Answer:
1. Restricted Cash 600,000
Revenue Collected in Advance - grant 600,000
2. Expenses - beautification program 280,000

Restricted Cash 280,000
Revenue Collected in Advance - grant 280,000

Nonoperating Revenue - grant 280,000
3. Construction in Progress 1,200,000

Cash 1,200,000
4. Restricted Cash 1,000,000

Contributed Capital - Grant 1,000,000
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2) Jefferson County had the following transactions in 2014.
1. $27,000 in membership fees was collected at the municipal pool.
2. A county collects $130,000 in sales taxes on behalf of the cities within its boundaries.
3. A $500,000 bond offering was issued at 102 to fund the construction of a new city hall. The premium
on the bonds was transferred to the Debt Service Fund (nonreciprocal).
4. A private foundation contributes a stock portfolio with a fair value of $100,000 to the county. A trust
agreement specifies the earnings on the fund is to be used by the local park which is owned and operated
by a private foundation, and the principal is to be held intact indefinitely.
5. The county sends bills out for water and sewer provided to residents, amounting to $340,000.
Required:
Prepare the necessary journal entries for each of the above transactions for all funds affected. Be sure to
identify the fund type for each entry.
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Answer:
1. Enterprise Fund
Cash 27,000
Operating Revenue 27,000
2. Agency Fund
Cash 130,000
Taxes Receivable for local governments 130,000
3. Capital Projects Fund

Cash 510,000
Other financing sources - bond issue 510,000
Capital Projects Fund

Other financing uses - nonreciprocal transfer to
Debt Service Fund 10,000
Cash 10,000
Debt Service Fund

Cash 10,000
Other financing sources - nonreciprocal
transfer from Capital Project Fund 10,000
4. Private Purpose Trust Fund

Investments 100,000
Contributions - Foundations 100,000
5. Enterprise Fund
Accounts receivable 340,000
Charges for Services 340,000
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3) Willborough County had the following transactions in 2014.
1. A central motor pool was established with a $200,000 nonreciprocal transfer from the General Fund.
2. The water and sewer authority, which provides services to residents for a fee, issued a bond offering
at $750,000 par. Bonds proceeds are restricted to renovating the treatment facility.
3. Willborough received a grant from the state to be used for renovation of the courthouse amounting to
$800,000. The General Fund will temporarily provide $100,000 cash, because the grant is set up on a
reimbursement basis and will not be distributed until proper expenditures are documented.
4. Willborough's central motor pool bills out automobile usage to various government agencies
amounting to $42,000.
5. The General Fund transfers $67,000 out of the operating budget to fund the county employees'
pension plan.
Required:
Prepare the necessary journal entries for each of the above transactions for all funds affected. Be sure to
identify the fund type for each entry.
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Answer:
1. General Fund
Other Financing Uses - nonreciprocal transfer to
Internal Service Fund 200,000
Cash 200,000
Internal Service Fund

Cash 200,000
Nonreciprocal transfer from General Fund 200,000
2. Enterprise Fund
Restricted Cash 750,000
Bonds Payable 750,000
3. General Fund
Other Financing Uses - reciprocal transfer to
Capital Projects Fund 100,000
Cash 100,000
Capital Projects Fund

Cash 100,000
Other Financing Sources - reciprocal
transfer from General Fund 100,000
4. Internal Service Fund

Due from other governmental agencies 42,000
Service Revenue 42,000
5. General Fund
Other Financing Use - nonreciprocal transfer
to Pension Trust Fund 67,000
Cash 67,000
Pension Trust Fund

Cash 67,000
Contribution 67,000
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4) The City of Sill established an Internal Service Fund to provide cleaning services to all city offices and
departments. The following transactions took place with respect to this event.
1. The General Fund contributed cash of $49,000 to the Internal Service Fund. The General Fund
provided a $10,000 loan to the Internal Service Fund.
2. On January 1, 2014, the Internal Service Fund acquired a floor waxing machine for cash of $5,000. It
has a 5 year life with no salvage value, and the city uses straight-line depreciation on their assets.
3. The cleaning services department billed other government agencies and departments $226,000 and
collected $187,000.
4. The cleaning services department incurred and paid the following expenses: cleaning personnel
wages, $65,000; payroll taxes, $10,000; cleaning supplies, $13,000; and office rental and utilities, $77,000.
The cleaning services department also repaid the general fund for the loan.
5. The cleaning services department prepared the journal entry to depreciate their assets for the year
ending December 31, 2014.
Required:
Prepare the necessary journal entries for each of the above transactions for the Internal Service Fund.
Answer:
1. Cash 59,000
Nonreciprocal transfer from General Fund 49,000
Advance from General Fund 10,000
2. Equipment 5,000
Cash 5,000
3. Due from various funds 226,000

Cash 187,000
Due from various funds 187,000
4. Wage Expense 65,000

Payroll Tax Expense 10,000
Cleaning Supplies Expense 13,000
Office Rent and Utility Expense 77,000
Cash 165,000

Cash 10,000
5. Depreciation Expense - Equipment 1,000

Accumulated Depreciation - Equipment 1,000
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5) The following transactions relate to a municipal golf course and tennis club, financed with debt
secured by membership fees.
1. The General Fund loaned $25,000,000 cash to the Enterprise Fund. The note is not interest-bearing.
2. The municipal golf course and tennis club purchased land and constructed the facilities which totaled
expenditures of $23,700,000.
3. Bonds were issued by the municipal golf course and tennis club for $20,000,000, par value of the
bonds.
4. Membership fees were billed in the amount of $4,800,000. $4,200,000 was collected.
5. $5,000,000 was repaid to the general fund, with the anticipation of repaying $5,000,000 more per year
for the next four years.
Required:
Prepare the necessary journal entries for each of the above transactions for the Enterprise Fund.
Answer:
1. Cash 25,000,000
Note Payable - General Fund 25,000,000
2. Land and Buildings 23,700,000

Cash 23,700,000
3. Cash 20,000,000
Bonds Payable 20,000,000
4. Fees Receivable 4,800,000

Revenue - Membership fees 4,800,000
Cash 4,200,000
Fees Receivable 4,200,000
5. Note Payable - General Fund 5,000,000

Cash 5,000,000
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6) Thoroughgood County has a municipal golf course and tennis club which is funded by the
membership fees it charges. The club also has 6% bonds outstanding amounting to $20,000,000 on which
it pays interest semi-annually. The club had the following transactions.
1. An addition to the golf clubhouse was added for $2,000,000, funded out of operations.
2. The following expenses were incurred and paid: $80,000 wages; $10,000 payroll taxes; $45,000 water
bill; and $12,000 equipment repair.
3. Interest on the bonds was paid amounting to $600,000.
4. $5,000,000 of operating cash excess was repaid to the general fund for a previous loan.
5. Depreciation of $500,000 was recorded for the buildings.
Required:
Prepare the necessary journal entries for each of the above transactions for the Enterprise Fund.
Answer:
1. Buildings 2,000,000
Cash 2,000,000
2. Wage Expense 80,000

Payroll Tax Expense 10,000
Water Utility Expense 45,000
Equipment Repair Expense 12,000
Cash 147,000
3. Interest Expense 600,000

Cash 600,000
4. Note payable - General Fund 5,000,000

Cash 5,000,000
5. Depreciation Expense - Buildings 500,000

Accumulated Depreciation - Buildings 500,000
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7) An adjusted trial balance is provided below for the Dade County copy services department at June 30,
2014.
Cash $ 21,000
Due from Enterprise Fund 6,000
Due from Debt Service Fund 2,000
Supplies inventory 5,000
Supplies used 3,000
Equipment 32,000
Salary expense 25,000
Utility expense 9,000
Depreciation expense 6,000
Operating transfer to General Fund 4,000
$113,000
Accumulated depreciation $ 24,000

Accounts payable 2,000
Advance from General Fund (not for capital assets) 10,000
Capital Contribution from General Fund 1,000
Net position (beginning) 28,000
Revenue - services billed 48,000
$113,000
Required:
1. Prepare a statement of revenues, expenses and changes in net position for the copy services
department for the year ended June 30, 2014.
2. Prepare a statement of net position for the copy services department at June 30, 2014. Assume all
assets are not externally or internally restricted.
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Answer:
Requirement 1:
Dade County
Copy Services
Statement of Revenues, Expenses,
and Changes in Net Position
For the Year Ended June 30, 2014
Operating Revenues:
Revenue - services billed $48,000
Operating Expenses:
Supplies $ 3,000
Salary 25,000
Utility 9,000
Depreciation 6,000 43,000
Operating income 5,000

Add: Capital contribution 1,000
Less: Transfers out (4,000)
Change in Net Position 2,000

Net Position June 30, 2013 28,000
Net Position June 30, 2014 $30,000
Requirement 2:
Dade County
Copy Services
Statement of Net Position
As of June 30, 2014
Assets:
Current Assets:
Cash $ 21,000
Due from various funds 8,000
Supplies inventory 5,000 $34,000
Noncurrent Assets:
Equipment 32,000
Less: Accum. Depr. 24,000 8,000
Total Assets $42,000
Liabilities:
Current Liabilities:
Accounts payable $ 2,000
Total Liabilities $12,000
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Net Position:
Invested in Capital Assets,
net of related debt 8,000
Unrestricted 22,000
Total Net Position $30,000
Difficulty: Difficult
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8) A trust fund was created to assist local students in financial need. The following transactions occurred
in the trust.
1. The committee forming the fund was able to raise $700,000 and invested the funds so that the
principal would remain indefinitely, and the earnings would be used to aid needy students.
2. During the year, the fund earned $65,000 interest. Earnings remain invested in the trust until
withdrawn to distribute, so the interest was invested.
3. $50,000 of the investments were sold, withdrawn, and distributed to provide scholarships.
4. The fund-raising committee contributed an additional $200,000 cash to the fund. This cash was
deposited into the account and invested.
5. Interest earned but not yet deposited into the investment account was accrued at $17,000.
Required:
Prepare the necessary journal entries for each of the above transactions for the trust fund.
Answer:
1. Cash 700,000
Contribution 700,000
Investment 700,000
Cash 700,000
2. Cash 65,000
Interest Income 65,000
Investments 65,000
Cash 65,000
3. Cash 50,000
Investments 50,000
Distribution for scholarships 50,000

Cash 50,000
4. Cash 200,000
Contribution 200,000
Investments 200,000
Cash 200,000
5. Accrued Interest Receivable 17,000

Interest Income 17,000
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9) Static City started a department to provide copy, printing and mailing services for all departments and
agencies of the city.
During the fiscal year from July 1, 2013 through June 30, 2014, the copy services department had the
following transactions:
1. Paper and toner inventory was purchased for $58,000, on account.
2. The paper and toner inventory physical count showed only $8,000 on hand at June 30, 2014.
3. The department billed other departments for services rendered to them amounting to: General Fund,
$43,000; Enterprise Fund, $24,000; Debt Service Fund, $21,000; and Trust Fund, $16,000. All receivables
were collected with the exception of $6,000 from the Trust Fund which is expected to be collected in July,
2014.
4. The department incurred and paid the following expenses: salaries and wages, $23,000; Electric,
$8,000; Other operating expenses, $6,000. Also, $63,000 of the Accounts Payable were paid during the
year.
5. Depreciation Expense on Equipment amounted to $6,000 for the year ending June 30, 2014.
6. The department prepared the closing entries on June 30, 2014.
Required:
For the fiscal year ended June 30, 2014, prepare the journal entries to record the transactions for the
Internal Service Fund.
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Answer:
1. Supplies Inventory 58,000
Accounts Payable 58,000
2. Supplies Expense 50,000

Supplies Inventory 50,000
3. Due from General Fund 43,000

Due from Trust Fund 16,000
Cash 98,000
Due from General Fund 43,000
Due from Trust Fund 10,000
4. Salary and wage expense 23,000

Electric expense 8,000
Other operating expenses 6,000
Cash 37,000
Accounts payable 63,000

Cash 63,000
5. Depreciation expense - Equipment 6,000

Accumulated depreciation-Equipment 6,000
6. Service Revenue 104,000

Supplies Expense 50,000
Salary and Wage Expense 23,000
Electric Expense 8,000
Other operating expense 6,000
Depreciation Expense 6,000
Net Position, Unrestricted 11,000
Net position, invested in capital assets,

net of related debt 6,000
Net position, unrestricted 6,000
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10) Journalize the following utility transactions in the Quest County Enterprise Fund:
1. Billings to external customers $1,600,000; billings to Quest County governmental funds $130,000.
2. Collected refundable deposits from new customers $10,000.
3. Collected 95% of all billings by fiscal year-end.
4. Refunded $4,000 in deposits to former customers.
5. Unbilled services to outside customers at year-end $14,000.

Answer:
1. Accounts receivable 1,600,000
Due from other governmental funds 130,000
Charges for services 1,730,000
2. Restricted cash 10,000

Customer deposits 10,000
3. Cash 1,643,500
Accounts receivable 1,520,000
Due from other governmental funds 123,500
4. Customer deposits 4,000

Restricted cash 4,000
5. Accounts receivable 14,000

Charges for Service 14,000
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11) Prepare journal entries in an Internal Service Fund of Union County to record each of the following
transactions.
1. Purchased equipment on September 1, 2014 by paying $25,000 down and borrowing $100,000 on a
6%, 2-year note.
2. In 2014, billed General Fund $620,000 for services provided. Billings to the Enterprise Fund totaled
$165,000. All billings were collected by December 31, 2014 except for $100,000 charged to the General
Fund.
3. Accrued year-end adjustments at December 31, 2014 for interest expense and depreciation. The
useful life of the equipment is 5 years with no salvage value.
Answer:
1. Equipment 125,000
Cash 25,000
Notes payable 100,000

Service revenues 785,000
Cash 685,000
3. Interest expense 2,000

Interest payable 2,000
($100,000 × .06 × 4/12 = $2,000)
Depreciation expense - Equipment 8,333

Accumulated depreciation - Equipment 8,333
($125,000 / 5 years) × 4/12 = $8,333
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12) Prepare journal entries in the motor pool department of Hill County to record each of the following
transactions.
1. The General Fund contributed $50,000 cash to the motor pool department. The motor pool
department purchased four vehicles on July 1, 2014 by paying $50,000 down and borrowing $70,000 on a
5%, 3-year note.
2. Billed General Fund departments $430,000 for services provided to those departments. Billings to the
Enterprise Fund totaled $210,000. All billings were collected by year-end (June 30, 2015) except for
$80,000 charged to the General Fund.
3. Accrued year-end adjustments at June 30, 2015 for interest expense and depreciation. The useful life
of the equipment is 5 years with no salvage value.
Answer:
1. Cash 50,000
Nonreciprocal transfer from
General Fund 50,000
Vehicles 120,000
Cash 50,000
Notes payable 70,000

Service revenues 640,000
Cash 560,000

($70,000 × .05 × 12/12 = $3,500)
Depreciation expense -Equipment 24,000

($120,000 / 5 years) × 12/12 = $24,000
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13) Journalize the following utility transactions in the Hazzard County Enterprise Fund:
1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1, 2014 (an interest payment date). The
bond proceeds are to be used for new plant construction and the issue will mature in 20 years. Interest is
paid semi-annually on July 1 and January 1.
2. Depreciation for the year-ended December 31, 2014 included $300,000 for buildings and $190,000 for
equipment.
3. The utility paid $600,000 in construction costs for the new plant. The plant is still under construction.
4. Interest on the revenue bonds was accrued at year-end, December 31, 2014. Straight-line amortization
is used for bond discounts and premiums.
Answer:
1. Restricted cash 3,920,000
Discount on bonds payable 80,000
Bonds payable 4,000,000
2. Depreciation expense - Building 300,000

Depreciation expense - Equipment 190,000
Accumulated depreciation - Building 300,000
3. Construction in progress 600,000


(Interest payable = $4,000,000 × 6.5% × 1/2 = $130,000)

(Discount amortization = $80,000/20 × 1/2 = $2,000)
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14) Journalize the following municipal zoo transactions in the Lackluster County Enterprise Fund:
1. The zoo issued $1,000,000 of 5% revenue bonds at 99 on July 1, 2014 (an interest payment date). The
bond proceeds are to be used for a new polar bear exhibit and the issue will mature in 20 years. Interest is
paid on January 1 and July 1.
2. Depreciation for the year-ended December 31, 2014 included $175,000 for buildings and $105,000 for
outdoor exhibit areas.
3. The zoo paid $800,000 in construction costs for the new exhibit. The exhibit is still under construction.
4. Interest on the revenue bonds was accrued at year-end, December 31, 2014. Straight-line amortization
is used for bond discounts and premiums.
Answer:
Bonds payable 1,000,000
2. Depreciation expense - Building 175,000

Depreciation expense - Exhibits 105,000
Accumulated depreciation -Building 175,000
Accumulated depreciation - Exhibits 105,000
3. Construction in progress 800,000


Discount on bonds payable 250
(Interest payable = $1,000,000 × 5% × 1/2 = $25,000)

(Discount amortization = $10,000/20 × 1/2 = $250)
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15) Prepare journal entries to record the following grant-related transactions of an Enterprise Fund.
1. Received an operating grant in cash from the state, $2,500,000.
2. Incurred and paid qualifying operating expenses on the state grant program, $1,600,000.
3. Received a federal grant to finance construction of a plant, $4,500,000 (cash received in advance).
4. Incurred and paid construction costs on the plant, $3,000,000. The plant is not completed.
Answer:
Revenue Collected
in Advance — grant 2,500,000
2. Operating expenses 1,600,000

Restricted cash 1,600,000
Revenue Collected
in Advance - grant 1,600,000
Nonoperating revenues — grants 1,600,000

Revenue Collected in Advance —
Capital Grant 4,500,000
4. Construction in progress 3,000,000

Restricted cash 3,000,000

Capital Grant 3,000,000
Contributed capital — grant 3,000,000
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16) Prepare journal entries to record the following grant-related transactions of the municipal swimming
pool, which is funded primarily by membership fees.
1. Received an operating grant in cash from the state for $200,000, to be used for life-saving and first-aid
training.
2. Incurred and paid qualifying expenses on the state grant program by providing training, $165,000.
3. Received a federal grant to finance purchase of an energy efficient heating system for the pool,
$120,000 (cash received in advance).
4. New heating system installed and paid, $115,000.

Answer:
Revenue Collected
in Advance — Grant 200,000
2. Operating expenses 165,000

Revenue Collected
in Advance — Grant 165,000
Nonoperating revenues — grants 165,000

Capital Grant 120,000
4. Pool equipment 115,000


Capital Grant 115,000
Contributed capital — grant 115,000
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17) Based upon the cash flow information provided below for the year ended December 31, 2014, prepare
a cash flow statement for the Bloomfield Municipal Golf Course, an enterprise fund.
Green fees received $400,000

Membership fees received 160,000
League outing fees received 90,000
Interest revenue received 2,000
Cash received from short-term note payable (not used
for capital assets) 75,000
Payments to employees 350,000
Payments to suppliers 198,000
Cash paid to the General Fund - Noncapital loan 60,000
Payments for capital improvements 85,000
Interest paid on short-term loan (loan not used for capital assets) 5,000
Unrestricted cash and cash equivalents, January 1, 2014 17,000
Answer: Bloomfield Municipal Golf Course Fund
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows from Operating Activities:

Green fees received $400,000
Membership fees received 160,000
League outing fees received 90,000
Cash paid to employees (350,000)
Cash paid to suppliers (198,000)
Net Cash Provided by Operating Activities $102,000
Cash Flows from Noncapital Financing Activities:

Cash received from short-term note 75,000
Cash paid for interest (5,000)
Cash paid to General Fund - Noncapital loan (60,000)
Net Cash Provided by Noncapital Financing Activities 10,000
Cash Flows from Capital and Related Financing Activities:

Cash paid on capital improvements (85,000)
Net Cash Used by Capital and Related Financing Activities (85,000)
Cash Flows from Investing Activities:

Interest received 2,000
Net Cash Provided by Investing Activities 2,000
Net increase in unrestricted cash and cash equivalents 29,000
Unrestricted cash (and cash equiv.), January 1, 2014 17,000
Unrestricted cash (and cash equiv.), December 31, 2014 $ 46,000
27
18) The four cash flow categories required in an Enterprise Fund's Statement of Cash Flows are listed
below and assigned a letter code.
A) Cash flows from operating activities

B) Cash flows from noncapital financing activities
C) Cash flows from capital and related financing activities
D) Cash flows from investing activities
Required:
Use the correct letter code to indicate where each of the following ten items associated with an Enterprise
Fund should be reported in the Statement of Cash Flows.
1. An enterprise fund's fixed asset was sold for cash.

2. Cash paid to suppliers for goods.
3. Paid principal, $100,000, and interest, $5,000, on a mortgage.
4. Cash proceeds from sale of investments, $65,000.
5. Cash paid for new equipment, $18,000.
6. Cash received from the general fund; restricted to cover part of the cost of plant expansion, $900,000.
7. Cash received from another fund as a 6-month loan for the sole purpose of financing purchase of
equipment, $47,000.
8. Cash proceeds from issuing bonds for an enterprise fund's construction project.
9. Cash paid to employees for salaries.
10. Cash received from interest earned on investments.
Answer: 1. C, 2. A, 3. C, 4. D, 5. C, 6. C, 7. C, 8. C, 9. A, 10. D
28
19) Based upon the flow information provided below for the year ending December 31, 2014, prepare a
cash flow statement for the Downtown City Motor Pool, an internal service fund.
Cash received from customers $830,000

Cash received from General Fund (noncapital loan) 20,000
Interest revenue received 1,000
Cash received from short-term note payable (not used for capital assets) 40,000
Payments to employees 450,000
Payments to suppliers 250,000
Cash paid to the General Fund - noncapital loan 65,000
Payments for capital improvements 60,000
Interest paid on short-term note payable above 2,000
Principal paid on capital debt 50,000
Interest paid on capital debt 5,000
Unrestricted Cash (and cash equivalents), January 1, 2014 13,000
Answer: Downtown City Motor Pool Fund
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash Flows from Operating Activities:

Cash received from customers $ 830,000
Cash paid to employees (450,000)
Cash paid to suppliers (250,000)
Net Cash Provided by Operating Activities $ 130,000
Cash Flows from Noncapital Financing Activities:

Cash received from short-term note payable 40,000
Cash received from General Fund - Noncapital loan 20,000
Cash paid for interest (2,000)
Cash paid to General Fund - noncapital loan (65,000)
Net Cash Used for Noncapital Financing Activities (7,000)
Cash Flows from Capital and Related Financing Activities:

Principal paid on capital debt (50,000)
Interest paid on capital debt (5,000)
Cash paid on capital improvements (60,000)
Net Cash Used for Capital and Related Financing Activities (115,000)
Cash Flows from Investing Activities:

Interest received 1,000
Net Cash Provided by Investing Activities 1,000
Net increase in unrestricted cash (and cash equiv.) 9,000
Unrestricted cash (and cash equiv.), January 1, 2014 13,000
Unrestricted cash (and cash equiv.), December 31, 2014 $ 22,000
29
21.3 True/False
1) Governments use proprietary funds to account for business-type activities.

Answer: TRUE
Difficulty: Easy
2) The accounting equation for proprietary funds: Current Assets - Noncurrent Assets + Current
Liabilities - Noncurrent Liabilities = Net position.
Answer: FALSE
3) The three financial statements for a proprietary fund: statement of net position; statement of revenues,
expenses, and changes in fund net position; and statement of cash flows.
Answer: TRUE
Difficulty: Easy
4) Enterprise funds primarily provide goods and services to government agencies.

Answer: FALSE
5) Internal service funds primarily provide goods and services to other departments or agencies.
Answer: TRUE
Difficulty: Easy
6) Enterprise funds use full accrual accounting procedures.

Answer: TRUE
7) Restricted net position for proprietary funds is composed of restricted assets reduced by liabilities and
deferred inflows of resources related to those assets.
Answer: TRUE
30
8) GASB Statement No. 34 mandates that the indirect method be used for the cash flow statement of
proprietary funds.
Answer: FALSE
Difficulty: Easy
9) GASB Statement No. 9 separates financing activities on the cash flow statement into two components:
noncapital and capital related.
Answer: TRUE
10) Fiduciary funds are to account for assets held in a trustee or agency capacity on behalf of others
internal to the governmental entity.
Answer: FALSE
11) Trust funds are fiduciary funds used to account for multigovernment external investment pools
sponsored by the governmental entity.
Answer: TRUE
Difficulty: Easy
31

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Beams Aa13e TB 21

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Advanced Accounting, 13e, Global Edition (Beams et al.

21.1 Multiple Choice Questions

1) What basis of accounting is used by proprietary funds?

2) Enterprise funds are accounted for in a manner similar to

4) The accounting equation for the Proprietary fund is

Insurance Expense $2,000

1) The City's municipal golf course had the following transactions.

3. Incurred and paid construction costs on an uncompleted clubhouse for $1,200,000.

2. Expenses - beautification program 280,000

Revenue Collected in Advance - grant 280,000

3. Construction in Progress 1,200,000

4. Restricted Cash 1,000,000

1. $27,000 in membership fees was collected at the municipal pool.

3. Capital Projects Fund

Capital Projects Fund

Debt Service Fund

4. Private Purpose Trust Fund

Internal Service Fund

Capital Projects Fund

4. Internal Service Fund

Pension Trust Fund

3. Due from various funds 226,000

4. Wage Expense 65,000

Advance from General Fund 10,000

5. Depreciation Expense - Equipment 1,000

2. Land and Buildings 23,700,000

4. Fees Receivable 4,800,000

5. Note Payable - General Fund 5,000,000

3. Interest on the bonds was paid amounting to $600,000.

5. Depreciation of $500,000 was recorded for the buildings.

2. Wage Expense 80,000

3. Interest Expense 600,000

4. Note payable - General Fund 5,000,000

5. Depreciation Expense - Buildings 500,000

Accumulated depreciation $ 24,000

Operating income 5,000

Change in Net Position 2,000

Distribution for scholarships 50,000

5. Accrued Interest Receivable 17,000

1. Paper and toner inventory was purchased for $58,000, on account.

6. The department prepared the closing entries on June 30, 2014.

2. Supplies Expense 50,000

3. Due from General Fund 43,000

4. Salary and wage expense 23,000

Accounts payable 63,000

5. Depreciation expense - Equipment 6,000

6. Service Revenue 104,000

Net position, invested in capital assets,

2. Collected refundable deposits from new customers $10,000.

3. Collected 95% of all billings by fiscal year-end.

4. Refunded $4,000 in deposits to former customers.

5. Unbilled services to outside customers at year-end $14,000.

2. Restricted cash 10,000

4. Customer deposits 4,000

5. Accounts receivable 14,000

2. Due from General Fund 620,000

3. Interest expense 2,000

Depreciation expense - Equipment 8,333

2. Due from General Fund 430,000

3. Interest expense 3,500

Depreciation expense -Equipment 24,000

2. Depreciation expense - Building 300,000

3. Construction in progress 600,000