FAR Module 9 Part 4

Question 1

The County Road & Bridge fund is funded by gas taxes whose use is restricted by law to road construction and is properly classified as a special revenue fund. The fund maintains inventories of road signage and road construction materials. Resources associated with those inventories would be classified within fund balance as:

Unassigned
Non-spendable
Assigned
Restricted

Answer 1

Inventories are considered non-spendable. Non-spendable fund balances 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).

Question 2

The city of Curtain had the following interfund transactions during the month of May:

Billing by the internal service fund to a department financed by the general fund, for services rendered in the amount of $5,000

Transfer of $200,000 from the general fund to establish a new enterprise fund

Routine transfer of $50,000 from the general fund to debt service fund.

What was the total reciprocal interfund activity for Curtain during May?

$5,000
$200,000
$55,000
$255,000

Answer 2

Reciprocal interfund activity for the city of Curtain is $5,000.

Reciprocal interfund activity includes interfund loans and interfund services provided and used. Billing by the internal service fund to a department financed by the general fund for services provided and used. Billing by the internal service fund to a department financed by the general fund for services rendered is the only transaction meeting the definition. Nonreciprocal transfers include interfund transfers (which are displayed as either other financing sources or uses on the governmental fund financial statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements (which are not shown on the face of the financial statements).

Question 3

Debt service fund resources that are subject to the terms and conditions of a bond indenture would be classified within fund balance as:

Restricted
Assigned
Committed
Non-spendable

Answer 3

Restricted fund balances represent resources whose use has been limited by such external sources as creditors (e.g., debt covenants), contributors, other governments, laws, constitutional provisions or enabling legislation.

Question 4

Which internal account should Spring Township credit when it issues a purchase order for supplies?

Vouchers payable
Encumbrance control
Appropriations control
Budgetary control

Answer 4

A purchase order is a binding document and thus is recorded when issued. The journal entry made for internal accounting when a purchase order is issued is:

DR Encumbrances XXX
Cr Budgetary control XXX

Question 5

The most restrictive classification of governmental fund balances listed below is titled:

Committed
Unassigned
Assigned
Reserved

Answer 5

The most restrictive classification of governmental funds listed in the answer section is the “committed” classification. Committed funds are internally limited by formal action of the government’s highest level of decision-making authority.

Question 6

A budgetary control (open purchase orders) account balance in excess of a balance of encumbrances indicates:

An excess of appropriations over encumbrances
A recording error
An excess of purchase orders over invoices received
An excess of vouchers payable over encumbrances

Answer 6

The budgetary control account (open purchase orders) represents a portion of the budgetary control balance that has been segregated for expenditure on vendor performance, usually being goods ordered but not yet received. Remember the entry to record a purchase order:

DR Encumbrances XXX
CR Budgetary control XXX

Likewise, the encumbrance balance represents purchase orders outstanding. For the budgetary control (open purchase orders) to exceed the encumbrance balance, a recording error must have been made.

Question 7

Encumbrances outstanding at year-end in a state’s general fund would most likely be reported as:

Liability in the general fund
Fund balance commitment in the general fund
Fund balance restriction in the general fund
Liability in the general long-term debt account group

Answer 7

Encumbrances are commitments or assignments of fund balance representing the amount of unperformed contracts for goods or services. Encumbrances at year-end do not constitute expenditures or liabilities. Therefore, at year-end encumbrances are reclassified as a commitment of assignment of fund balance that is not appropriable for expenditure.

Question 8

Encumbrances would not appear in which fund?

General
Capital projects
Enterprise
Special Revenue

Answer 8

An enterprise fund would not use encumbrance accounting. Encumbrance accounting is used in the governmental (GRaSPP) funds but not used in the proprietary (SE) or fiduciary (PAPI) funds.

Question 9

In which situation (s) should property taxes due to a governmental unit be recorded as deferred inflows of resources?

I. Property taxes receivable are recognized in advance of the year for which they are levied.
II. Property taxes are collected in advance of the year in which they are levied.

Answer 9

Both

Question 10

Which of the following funds of a local government would report transfers to other funds as an other financing use?

Enterprise
Pension trust
Internal service
General

Answer 10

Only governmental funds (General, special Revenue, debt Service, capital Projects, Permanent) report transfers to other funds as an “other financing use.”

Question 11

A city council designates funds in the enterprise fund for future equipment replacement. The enterprise fund should report this as:

A restricted component of net position
A net investment in capital assets
An unrestricted component of net position
A designated component of net position

Answer 11

designations of an enterprise fund’s net position for future equipment replacement would be displayed as unrestricted net position. Internal designations are classified as unrestricted.

Question 12

For which of the following funds do interfund transfers affect the results of operations in their fund financial statements?

Governmental funds
Proprietary funds

Answer 12

Both funds.

Even though they are accounted for differently.

Question 13

Gold County received goods that had been approved for purchase but for which payment had not yet been made. Should the accounts listed below be increased?

Encumbrances
Expenditures

Answer 13

When goods are received that had been approved for purchase the:

Encumbrances account should be decreased
Expenditures account should be increased
Receipt of goods prior to payment results in an accrual of the expenditure.

Question 14

Which of the following fund types used by a government most likely would have a fund balance non-spendable inventory of supplies?

Capital projects
General
Internal Service
Private Purpose

Answer 14

The general funds is most likely to have a fund balance classified as non-spendable inventory of supplies. General fund will normally have supplies on hand at the end of the period.

Question 15

The budgetary control account of a governmental-type fund is increased when:

A purchase order is approved
Supplies previously ordered are received
The Estimated Revenue account is closed
Appropriations are recorded

Answer 15

When a purchase order is approved, the budgetary control account of a governmental fund is increased.

Question 16

A government’s assets include inventory of $2 million, roads constructed of $25 million with accumulated depreciation of $10 million, and equipment acquired for $5 million with accumulated depreciation of $1 million. Its liabilities include an outstanding balance of $5 million for bonds payable issued to construct the roads and a $1 million short-term loan for inventory purchases. What amount should be reported as the net investment in capital assets in the government-wide statement of net position?

$10 million
$26 million
$14 million
$25 million

Answer 16

Roads
- Accumulated Depreciation
\+ Equipment
-Accumulated Depreciation
-Debt (road construction bond)
= Net investment in capital assets

Question 17

When a capital lease of a governmental unit represents the acquisition of a general fixed asset, the acquisition should be reflected in fund financial statement as:

An expenditure but not as an other financing source

Neither an expenditure nor an other financing source

Both an expenditure and an other financing source

An other financing source but not as an expenditure

Answer 17

The journal entry in the acquiring fund is:

DR Expenditure - Capital Lease
CR Other Financing source - Capital Lease

Question 18

Wood City, which is legally obligated to maintain a debt service fund, issued the following general obligation bonds on July 1, Year 1:

Term of bonds 10 yrs
Face amount $1,000,000
Issue Price 101
Stated interest rate 6%

Interest is payable January 1 and July 1. What amount of bond premium should be amortized in Wood’s debt service fund for purposes of fund financial reporting for the year ended December 31, Year 1?

$500
$250
$1,000
$0

Answer 18

Since the measurement focus is sources and uses of financial resources, bond premium/discount is not amortized in its governmental funds, including the debt service fund.

Question 19

On March 2, Year 1, Finch City issued 10-year general obligation bonds at face amount, with interest payable March 1 and September 1. The proceeds were to be used to finance the construction of a civic center over the period April 1, Year 1, to March 31, Year 2. During the fiscal year ended June 30, Year 1, no resources has been provided to the debt service fund for the payment of principal and interest. On June 30, Year 1, Finch’s financial statements should report the construction in progress for the civic center in the:

Capital project funds
Government-wide financial statements

Answer 19

Would not be capital projects fund since each year’s capital project activities are closed out at year end.

Government-wide state of net position should report the construction in progress for the civic center in the governmental activities column.

Question 20

Grove Township issued $, of bond anticipation notes at face amount in Year and placed the proceeds into its capital projects fund. All legal steps were taken to refinance the notes, but Grove was unable to consummate refinancing. In the capital projects fund, what account should be credited to record the $50,000 proceeds?

Deferred inflows of resources
Other financing sources control
Revenues control
Bond anticipation notes payable

Answer 20

The $50,000 proceeds of bond anticipation notes, when received in the capital projects fund, should be credited to bond anticipation notes payable because the notes could not be refinanced.