FAR Module 9 Part 3 Flashcards
A major exception to the general rule of expenditure accrual for governmental funds under the modified accrual basis relates to unmatured:
Principal of General Long-term Debt?
Interest in General Long-term Debt?
The treatment of interest and principal payments for long-term debt, both are recorded when they become due and payable not when they accrue.
On January 2, the city of Walton issued $500,000, 10-year, 7% general obligation bonds. Interest is payable annually, beginning January 2 of the following year. What amount of bond interest is Walton required to report in the statement of revenues, expenditures, and changes in fund balance of its governmental funds at the close of this fiscal year, September 30?
$17,500
$35,000
$0
$26,250
The city of Walton would not record any interest expenditures in its current year financial statements. Interest expenditures should be recorded when legally payable per the bond agreement. Interest expenditures should not be accrued between payment dates. Bonds were issued January 2, the balance sheet date is September 30 and the payment date is the following January 2. No interest expenditure would be recognized.
Lake County received the following proceeds that are legally restricted to expenditure for specified purposes:
Levies on affected property owners to install sidewalks $500,000
Gasoline taxes to finance road repairs $900,000
What amount should be accounted for in Lake’s special revenue funds?
$500,000
$0
$900,000
$1,400,000
The $900,000 in gasoline taxes to finance road repairs is accounted for in a special revenue fund. Road repairs may or may not be capital outlay expenditures and specifically might relate to repairs that are not eligible for capitalization. Revenue from this tax is properly classified as a special revenue.
The following financial resources were among those affected by Seco City during Year 1:
For acquisition of major capital facilities $6,000,000
To create a non-expendable trust (e.g. an inmate/jail commissary) $2,000,000
With respect to the foregoing resources, what amount should be recorded in special revenue funds?
$6,000,000
$2,000,000
$0
$8,000,000
With respect to foregoing resources, the amount recorded in the special revenue funds should be $0.
The $6,000,000 for acquisition of major capital facilities should be recorded to the capital projects fund
The $2,000,000 to create a non-expendable trust should be recorded in the private purpose trust fund.
Rock County has acquired equipment through a noncancelable lease-purchase agreement dated December 31, Year 0. This agreement requires no down payment and the following minimum lease payments:
Year 1 Principal: $50,000 Interest: $15,000 Total: $65,000
Year 2 Principal: $50,000 Interest: $10,000 Total: $60,000
Year 3 Principal: $50,000 Interest: $5,000 Total: $55,000
If the lease payments are required to be made from a debt service fund, what account or accounts should be debited in the debt service fund for the December 31, Year 1 lease payment of $65,000?
The expenditure control account should be debited in the debt service fund to record the payment of principal and interest.
DR Expenditure control
CR Cash
For state and local governmental units, generally accepted accounting principles require that encumbrances outstanding at year-end be reported as:
Expenditures
Restricted fund balance
A component of committed or assigned fund balance
A disclosure only
For state and local governmental units GAAP requires that encumbrances outstanding at year end be reported as a component of committed or assigned fund balance so that funds will be available when the goods and/or services are received.
Enterprise funds recognize revenue:
In the period when the revenue is earned.
A country’s balance in the general fund included the following:
Appropriations $745,000
Encumbrances $37,250
Expenditures $298,000
Vouchers payable $55,875
What is the remaining amount available for use by the country?
$353,875
$409,750
$391,125
$447,000
Appropriations is a budgetary account. This account represents the governmental units approved spending (in this case $745,000). Expenditures represent the total amount incurred, whether paid in cash or accrued as vouchers payable, and serve to reduce available appropriations. Vouchers payable, alone, are excluded from this computation of available appropriations since the amount accrued is already included in expenditures. Encumbrances are either commitments or assignments of the fund balance for purchase orders and represent a reduction of available appropriations.
Appropriations
- Expenditures
- Encumbrances
= Remaining available appropriations
Japes City issued $1,000,000 general obligation bonds at 101 to build a new city hall. As part of the bond issue, the city also paid a $500 underwriter fee and $2,000 in debt issue costs. What amount should Japes City report as other financing sources?
$1,007,500
$1,008,000
$1,010,000
$1,000,000
Japes City would account for proceeds from the issuance of general obligation bonds (both face amount and premium) as other financing sources. Debt related transaction costs would not be netted against debt proceeds. Other financing sources are computed as follows:
Bond face amount $1,000,000
Bond premium 101
Total Proceeds = $1,010,000
Underwriter’s fees of $500 and other debt issues costs of $2,000 would be accounted for as debt service expenditures.
When Rolan County adopted its budget for the year ending June 30, Year 1, $20,000,000 was recorded for estimated revenues control. Actual revenues for the year ended June 30, Year 1, amounted to $17,000,000. In closing the budgetary accounts at June 30, Year 1:
Revenues control should be credited for $20,000,000
Estimated revenues control should be debited for $3,000,000
Estimated revenues control should be credited for $20,000,000
Revenues control should be debited for $3,000,000
In closing the budgetary accounts at June 30, Year 1, the estimated revenues control account should be credited for $20,000,000 to offset the $20,000,000 debit balance that existed before closing.
DR Appropriations control $20,000,000
CR Estimated revenues control $20,000,000
Debt service fund resources that are subject to the terms and conditions of a bond indenture would be classified within fund balance as:
Committed
Restricted
Assigned
Non-spendable
Restricted fund balances represent resources whose use has been limited by such external sources as creditors (e.g., debt covenants), contributions, other governments, laws, constitutional provisions or enabling legislation.
Non-spendable
Fund balances that represent resources in a form that cannot be spent (e.g., inventories or prepaid expenditures) or are legally or contractually required to remain whole (e.g., permanent fund principal).
Committed
Fund balances that represent resources that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority.
Assigned
Fund balances that are constrained by the government’s intent to be used for specific purposes but are neither restricted nor committed.
The employee net pension liability for the Golf City Fire Department increased by $200,000 from Year 1 to Year 2 as a result of a change in the formula used to compute benefits from retiring firemen. The change includes $150,000 of cost attributable to prior service. As a result of this change, Golf City will display the following on their Year 2 govern-wide financial statements:
Deferred outflows of resources of $50,000
Pension Expense of $200,000
Deferred inflows of resources of $50,000
Deferred outflows of resources of $150,000
Golf City would recognize deferred outflows of resources of $50,000. the deferred outflow represents the change in pension liability not required for immediate recognition, calculated as follows:
Increase in liability
- Prior service cost (expensed)
= Deferred outflow of resources
The calculated increase in pension liability, likely provided by the actuary, would be recorded as follows:
DR Pension Exp $150,000
DR Deferred outflow of resources $50,000
CR Pension liability $200,000
