19.9

Question 1

A government-wide statement of net position must include which of the following?

Answer 1

A distinction between governmental and business-type activities.

Government-wide financial statements report information about the government as a whole. Thus, they do not display funds or fund types. The governmental activities and business-type activities of the primary government are separately presented. Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds. Business-type activities are financed at least in part by fees charged to external parties for goods and services. They are reported in enterprise funds.

Question 2

A local government is preparing its government-wide statements. Certain eliminations and reclassifications are necessary. They include

Answer 2

Reclassification of a payable to a fiduciary fund as a payable to an external party.

Receivables from or payables to fiduciary funds are reclassified as receivables from or payables to external parties because fiduciary funds report only balances held for individuals, private organizations, and other governments.

Question 3

Jonn City entered into a capital lease for equipment during the year. How should the asset obtained through the lease be reported in Jonn City’s government-wide statement of net position?

Answer 3

General Capital Asset.

In the government-wide financial statements, a capital lease obligation associated with general governmental activities is recorded as a general capital asset and a liability under the accrual basis of accounting. In governmental fund financial statements, the asset financed by a capital lease is debited to an expenditure, and the lease financing is credited to another financing source under the modified accrual basis of accounting.

Question 4

A local governmental entity classified the following as extraordinary items in its government-wide statement of activities:

Loss on write-down of inventory: $15,000
Loss on write-off of receivables: 20,000
Gain on sale of capital assets: 25,000
Loss on write-off of an intangible asset: 5,000

The entity most likely should report an extraordinary gain (loss) of

Answer 4

$0

Certain gains (losses) are not extraordinary because they are usual in nature or may be expected to recur in customary and continuing operations. Examples are (1) write-downs or write-offs of receivables, inventories, and intangible assets; (2) gains (losses) from sale or abandonment of capital operating assets; and (3) gains (losses) from exchange or transaction of foreign currencies. Accordingly, the most likely extraordinary gain (loss) is $0.

Question 5

In preparing Chase City’s reconciliation of the statement of revenues, expenditures, and changes in fund balances to the government-wide statement of activities, which of the following items should be subtracted from changes in fund balances?

Answer 5

Book value of capital assets sold during the year.

In the statement of activities, only the gain or loss on the sale of a capital asset is reported. (The acquisition was recorded in the governmental funds as an expenditure for its full amount.) But in the governmental funds, the proceeds are recorded as an increase in resources. Consequently, the change in net position (statement of activities) differs from the change in fund balances by the carrying amount of the capital assets sold. This item requires a reconciling subtraction from the change in fund balance.

Question 6

Meen County approved an annual budget for the general fund with estimated revenues of $2,000,000,000, appropriations of $1,850,000,000, and approved transfers of $100,000,000. Which amount is required to reconcile the governmental fund financial statements to the government-wide financial statements?

Answer 6

$0

One step in preparing government-wide financial statements is to convert the modified accrual data in the governmental fund financial statements. Thus, reconciliation adjustments are necessary to convert the data to the full accrual basis. The conversion is performed at the total governmental fund summary level, not at the individual fund level. However, a government-wide journal entry is not required because budget entries are not reported.

Question 7

How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its statement of revenues, expenses, and changes in net position?

Answer 7

Nonoperating revenues.

Receipt of a state appropriation is recognized as a revenue from a government-mandated nonexchange transaction. This kind of transaction occurs when one government provides resources to a government at another level and requires that they be used for a specific purpose. These activities ordinarily are reported in an enterprise fund (a proprietary fund). A proprietary fund reports all revenues, including capital contributions, in its statement of revenues, expenses, and changes in fund net position. This statement separately displays operating revenues, nonoperating revenues, capital contributions, and various other items. Grants (appropriations) made for operating purposes are generally classified as nonoperating revenues rather than operating revenues.

Question 8

Which of the following activities should be excluded when governmental fund financial statements are converted to government-wide financial statements?

Answer 8

Fiduciary activities.

Fiduciary funds account for resources held by the government in trust or as an agent for (1) specific individuals, (2) private organizations, or (3) other governments. These resources are not available to finance the government’s programs. Consequently, they are reported only in the fund statements (statements of fiduciary net position and changes in fiduciary net position).

Question 9

Preparation of government-wide financial statements requires elimination of

Answer 9

Internal balances from the total primary government column in the statement of net position.

Numerous eliminations and reclassifications are necessary in preparing the government-wide statements. Thus, interfund receivables and payables are eliminated in the governmental and business-type activities columns of the statement of net position, except for net residual amounts due (presented as internal balances). However, the total primary government column excludes internal balances.

Question 10

A government has the following liabilities at the end of the year:

General obligation bonds: $1,500,000
Compensated absences: 120,000
Salaries payable: 40,000

What amount of liabilities should be reported in the governmental activities column of the government-wide statement of net position?

Answer 10

$1,660,000.

Government-wide financial statements report information about the government as a whole. Governmental activities normally are financed by nonexchange revenues (taxes, etc.). They are reported in governmental and internal service funds. The statement of net position reports all financial and capital resources. General obligation bonds, compensated absences, and salaries payable are all included in the governmental activities column of the government-wide statement of net position if they are not financed through enterprise funds.

Question 11

If a government reports eligible infrastructure assets using the modified approach,

Answer 11

No depreciation expense is required to be recognized.

Under the modified approach, infrastructure assets that are part of a network or subsystem of a network (eligible infrastructure assets) need not be depreciated if the government uses an asset management system with certain characteristics and documents that the assets are being preserved approximately at (or above) a condition level established and disclosed by the government. An asset management system should (1) include an updated inventory of eligible infrastructure assets, (2) perform condition assessments and summarize results using a measurement scale, and (3) make annual estimates of the annual amounts needed to maintain the assets at the established condition level.

Question 12

The government-wide financial statements report purchased capital assets

Answer 12

At historical cost, including ancillary charges.

General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds. Purchased capital assets are reported at historical cost, including ancillary charges (e.g., for freight and site preparation) only in the governmental activities column of the government-wide statement of net position.

Question 13

Government-wide financial statements are prepared using the

Economic Resources Measurement Focus:
Current Financial Resources Measurement Focus:
Accrual:
Modified Accrual:

Answer 13

Yes
No
Yes
No

Government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting and should report all of the government’s assets, liabilities, revenues, expenses, gains, and losses. The economic resources focus measures revenues and expenses in the same way as in for-profit accounting. It also emphasizes a longer-range measure of revenues earned or levied (and accrued immediately if measurable) and cost of services. The accrual basis recognizes most transactions when they occur, regardless of when cash is received or paid.

Question 14

Which of the following is a required financial statement for an investment trust fund?

Answer 14

Statement of changes in fiduciary net position.

A sponsoring governmental entity should report the external portion of each of its external investment pools as an investment trust fund. Separate statements of fiduciary net position and changes in fiduciary net position should be presented for each such fund. The external portion belongs to legally separate entities not included in the reporting entity.

Question 15

The government-wide statement of activities of a state or local government does not

Answer 15

Include extraordinary items and special items in program revenues.

The following are reported separately at the bottom of the statement of activities: (1) contributions to endowments, (2) contributions to permanent fund principal, (3) transfers between governmental and business-type activities, and (4) special and extraordinary items. Extraordinary items are unusual in nature and infrequent in occurrence. Special items are reported separately before extraordinary items. They are (1) unusual or infrequent but not both and (2) within the control of management.

Question 16

The following are the city of Boa’s capital assets:

Capital assets used in proprietary fund activities:: $1,000,000
Capital assets used in trust funds: 1,800,000
All other capital assets: 9,000,000

What aggregate amount should Boa account for as general capital assets?

Answer 16

$9,000,000.

General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds.

Question 17

Kingwood Town, at the beginning of the year, paid $22,000 cash for a flatbed trailer to be used in the general operations of the town. The expected useful life of the trailer is 6 years with an estimated $7,000 salvage value. Which of the following amounts should be reported?

Answer 17

$22,000 increase in general capital assets.

Capital assets related to proprietary funds are accounted for in the government-wide financial statements and in the fund financial statements. Capital assets related to fiduciary funds are reported only in the statement of fiduciary net position. All other capital assets are general capital assets reported only in the governmental activities column in the government-wide statement of net position. Capital assets are recorded at historical cost or at estimated fair value if donated. Thus, general capital assets should be debited for $22,000, the historical cost of the equipment.

Question 18

In the government-wide statement of activities, a significant event that is infrequent in occurrence but not unusual in nature or within the control of management should be

Answer 18

Disclosed in the notes.

Significant transactions or other events that are either unusual or infrequent but not within the control of management should be disclosed in the notes to the government-wide statement of activities.

Question 19

Seaview City received a pass-through grant from the state. The money is to be distributed to families who, as determined by the state, are eligible for summer camp scholarships for their children. Seaview does not have administrative or direct financial involvement in the program. In which fund should Seaview record the grant?

Answer 19

Agency.

Agency funds account for resources held temporarily in a purely custodial capacity. For example, they may account for certain grants and other financial assistance to be transferred to secondary recipients (individuals, private organizations, or other governments). However, if the custodian of the resources has administrative or direct financial involvement in the program, the pass-through grant is accounted for in an appropriate governmental, proprietary, or trust fund, not in an agency fund. Thus, the recipient should record the grant in an agency fund. It holds the pass-through grant solely in a custodial capacity and has no administrative or direct financial involvement.

Question 20

Program revenues reported in the government-wide statement of activities do not include

Answer 20

All taxes.

Components of program revenues on the statement of activities include (1) charges for services, (2) program-specific operating grants and contributions, and (3) program-specific capital grants and contributions. General revenues are not required to be reported as program revenues. They are reported separately after total net (expense) revenue for all functions. All taxes, including those levied for a special purpose, are general revenues. General revenues are reported at the bottom of the statement of activities to determine the change in net position for the period.