Final exam review

Question 1

In a fiduciary fund

Answer 1

Resources being held by the reporting entity (as agent or trustee) are not for the benefit of the government.

Question 2

With fiduciary funds

Answer 2

• A government either has custody of certain assets or has the ability to direct the use of the assets for the benefit of others outside the government.
• The assets are not derived from the government’s own-source revenue, such as charges for services or taxes.

Question 3

Fiduciary funds are reported by fund type in the fund-level financial statements only

Answer 3

o Statement of Fiduciary Net Position, and
o Statement of Changes in Fiduciary Net Position

Question 4

Fiduciary assets are excluded from the government-wide statements because

Answer 4

governments merely have custody, not ownership, of fiduciary resources

Question 5

As a general rule ___ and ___ are used

Answer 5

accrual basis and economic resources measurement focus

Question 6

Residual equity of fiduciary funds is

Answer 6

restricted net position

Question 7

The account titles additions and deductions are used in place of

Answer 7

Revenues and expenses

Question 8

Private-purpose trust funds are used when the government

Answer 8

is in a fiduciary relationship governed by a formal trust agreement other than those reported in a pension or investment trust fund

Question 9

Endowments are created

Answer 9

when individuals or organizations contribute resources with the agreement that principal and/ or income will be used to benefit individuals, organizations, or other governments.

• When the principal is held intact, these are called endowments or nonexpendable funds
• in other cases, both the principal and income can be spent (expended) for specific purposes

Question 10

Special revenue fund

Answer 10

When a Trust is to be used to benefit the government or its citizenry and it is Expendable: Trust does not distinguish between earnings and principal. Both may be expended for the purpose provided.

Question 11

Permanent fund

Answer 11

When a Trust is to be used to benefit the government or its citizenry and it is Nonexpendable: Trust stipulates that earnings only (not principal) may be expended for the purpose provided.

Question 12

Private-purpose trust fund

Answer 12

When Trust is to benefit individuals, private organizations, or other governments and the trust is nonexpendable (but doesn’t have to be)

Question 13

Defined benefit plans

Answer 13

o The employer must pay a guaranteed level of benefit, computed using a formula. The benefit is paid out regardless of the amount available in the plan. It is possible for the fund to have unfunded liabilities.
o The risk of additional future liability is on the employer.

Question 14

Defined contribution plans

Answer 14

o The employer has no obligation for pension benefits beyond what has been accumulated in investment earnings, e.g., a 401(k) plan.
o No promise on the future benefits paid out to the employees
o The risk of insufficient retirement pay lies with the employee, not the employer.

Question 15

An investment trust fund exists when

Answer 15

the government is the sponsor of a multi-government investment pool and accounts for the external portion of the trust assets.

It is important to note that
* Investments are carried at fair value.
* Holding gains and losses (changes in the fair value) are reported as “Net increase (decrease) in fair value of investments.”
o Changes in value from completed exchanges (realized gains or losses), and
o Changes from year-end adjustments to fair value for investment balance (unrealized gains or losses).

Question 16

Custodial fund

Answer 16

A government temporarily acting as agent for one or more other governments units or for individuals or private organizations

Question 17

Entity-wide statements are prepared at year end by

Answer 17

A. Converting government funds to the economic resources measurement focus and the accrual basis of accounting, including, long-term assets and long-term liabilities
B. Adding in the asset and liability balances from internal service funds along with any income earned through transactions with external parties.
C. Consolidating fund statements (other than fiduciary funds).

Question 18

Journal entry for recording capital assets

Answer 18

Capital assets (net) DR
Net position beginning of year CR

Question 19

JE for removing expenditures for capital outlays

Answer 19

Capital Assets (net) Dr.
Capital Expenditures CR

Question 20

JE for recording depreciation

Answer 20

Depreciation expense DR
Capital assets (net) CR

Question 21

JE for converting sales of capital assets to the accrual basis

Answer 21

Proceeds from sale of capital assets DR
Capital assets (net) CR
Gain on sale of capital assets CR

Question 22

Recording long term liabilities

Answer 22

Net Position beginning of year Dr.
Bonds Payable Cr.

Question 23

Changing “proceeds of bonds” to increases in debt “bond liability” (and premium if applicable) JE for it

Answer 23

Proceeds from sale of bonds DR
Proceeds from bond premium DR
Bonds payable CR
Bond premium CR

Question 24

Changing expenditures for debt service principle to reduction of liabilities JE

Answer 24

Bonds payable DR
Expenditure - principle on bonds CR

Question 25

Amortizing premiums/discount JE

Answer 25

Bond Premium DR
Interest expense CR

Question 26

Adjusting to convert revenue recognition to the accrual basis

Answer 26

• Revenues are recognized when the underlying exchange has occurred, regardless of when it is to be collected.
• Property tax revenues should be recognized in the government-wide statements in the period for which the taxes are levied. The 60-day rule does not apply here. An adjustment to revenues for the deferrals resulting from the 60-day rule is required.

Question 27

4. Adjusting expenses to the accrual basis.

Answer 27

• Expenses not recorded in government funds under their current economic resources model may need to be accrued
• Accrue interest on bonds outstanding and other accruals as necessary.

Question 28

Special purpose entities

Answer 28

may be a component unit of a General Purpose government, including fire protection districts, park districts, public colleges and public authoritie

Question 29

• If the special entity is engaged in governmental and business type activities.

Answer 29

o report both fund-basis and government-wide financial statements.

Question 30

If the special entity is engaged in multiple governmental activities

Answer 30

o report both fund-basis and government-wide financial statements
o omit enterprise funds statements

Question 31

• If the special entity is engaged in a single governmental activity.

Answer 31

o The entity can prepare governmental fund, government-wide statements, and reconciliation effects all on one combined statement.

Question 32

If the special entity is engaged only in business-type activities

Answer 32

o The entity can prepare enterprise fund financial statements
 Statement of Net Position
 Statement of Revenues, Expenses, and Changes in Net Position
 Statement of Cash Flows

Question 33

If the special entity is engaged only in fiduciary-type activities

Answer 33

o The entity can prepare fiduciary fund financial statements:
 Statement of Fiduciary Net Position
 Statement of Changes in Fiduciary Net Position

Question 34

Special assessment

Answer 34

a tax levy that is assessed only against certain taxpayers – those taxpayers who are deemed to benefit from the service or project paid for by the proceeds of the special assessment.

Question 35

Service type

Answer 35

The government will use whatever fund they normally use for that service to record the special assessment tax revenue
* For example, if the assessment is for extra policing and police costs are in the General Fund, then the assessments will be treated as General Fund revenues.
* If the assessment were for service normally accounted for in a special revenue or enterprise fund, then use those funds.

Question 36

Construction type

Answer 36

The accounting treatment for construction-type depends on the agreement between the government and the property owners, to what the extent the government is liable for the debt
* When Government is primarily or secondarily liable for the debt in the event that taxpayer revenues are insufficient:
o The effect is to treat the debt and related project as if it were a governmental project.
o Record debt proceeds and the construction expenditures in Capital Project fund.
o Record debt repayment and debt service expenditures in Debt Service fund.
o Report the assets constructed and the special assessment debt in the government-wide Statement of Net Position.

Question 37

Government is ___ for debt,

Answer 37

not liable, either legally or by choice, even in the event that taxpayer payments are insufficient, special assessment tax collections and remittance to debtholders are handled in a custodian fund.

Question 38

No debt is reported in the government-wide Statement of Net Position since it not an

Answer 38

obligation of the government

Question 39

Short-term leases

Answer 39

are sometimes called operating leases and do not result in the recording of liabilities in either proprietary or governmental type funds. * The periodic payments (usually monthly) are simply charged to expense or expenditure in the month due.

Question 40

Leases exceeding 12 months

Answer 40

result in the reporting of capital leases and a liability on statements reporting under the accrual basis of accounting.

Question 41

Lease obligation

Answer 41

is recorded at the present value of the lease payments where the payments are (1) interest on the outstanding obligation and (2) payment of principal

JE example
Expenditures - capital outlay DR
Cash CR
other financing sources - Capital lease agreement CR

Question 42

Lease asset

Answer 42

is recognized for the present value of payments plus any down payment made at the inception of the lease.
- The lease asset is amortized to expense over the shorter of the lease term or the underlying asset’s estimated useful life.

Question 43

GASB for state and local governments, including

Answer 43

governmentally related not-for-profits.

Question 44

FASB for private organizations

Answer 44

• Private not-for-profits: 1) commonly financed through membership dues or voluntary contributions; 2)operate for purposes other than to provide goods or services for profit; 3) no identifiable individual(s) who hold an enforceable residual claim to the net assets.

Question 45

Three required statements

Answer 45

• Statement of Financial Position.
  o Net Assets (equities) are classified as:
• Without Donor Restrictions.
• With Donor Restrictions.
• Statement of Activities.
  o The statement must distinguish changes in net assets that are without donor restrictions from those with donor restrictions.
  o As donor restrictions are satisfied, reclassifications are reported as “net assets released from restriction.”
  o All expenses are reported in the “without donor restrictions” column and classified as program or supporting services.
• Statement of Cash Flows.

Question 46

Unconditional pledges

Answer 46

are recorded as receivable (net of an allowance for estimated uncollectible) at the present value. * If there is expected to be an extended time period before cash is received, record the receivable at its present value:
o The present value will increase as the expected date of receipt approaches. The change in present value is recorded as additional contribution revenue rather than interest.