Government Accounting Missed Questions Flashcards

Question

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 A No No B No Yes C Yes No D Yes Yes ```

Answer 1

The correct answer is: B Explanation: The following entries would be made by a governmental unit when ordering and receiving goods: To record purchase order issued when goods were approved for purchase: Encumbrances (expected cost) XX Reserve for encumbrances XX To record expenditure upon receipt of the goods: Reserve for encumbrances XX Encumbrances XX Expenditures (actual) XX Vouchers payable XX Thus, upon receipt of the goods, the Encumbrance account decreases and the Expenditures account increases.

Answer 2

The correct answer is: D Explanation: Government-wide financial statements aggregate information for all governmental and business-type activities. GASB 34 requires an economic resources measurement focus and accrual basis of accounting for all amounts in the government-wide financial statements.

Answer 3

The correct answer is: A Explanation: The correct answer is (A) Assigned fund balance is based on management’s intent, but cannot create a deficit in unassigned fund balance. Assigned fund balance cannot set aside resources that are not available. Assigned fund balance may be reported in any governmental fund. Residual balances in special revenue funds may be classified as assigned since management has created these funds for specific purposes. There is no requirement for a committed fund balance before assignments may be reported.

Answer 4

The correct answer is: C Explanation: Purchased assets are reported in the governmental activities column at cost ($22,000). Long-term (capital) assets are not recorded in any governmental fund.

Answer 5

The correct answer is: B Explanation: The PERS is responsible for multiple plans when assets are accumulated in separate reserves restricted for benefits of specific classes or groups of employees. Assets being accumulated for benefit payments available to pay benefits for any of the plan members is a characteristic of the single plan. The government serving as a custodian for the accumulated assets and distributing funds based on instructions from member governments describes an agency fund. Creditor access is not a distinguishing feature for pension trust plans.

Answer 6

The correct answer is: B Explanation: Enterprise funds must be used to account for a government’s business-type operations that are financed and operated like private businesses—where the government’s intent is that all costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis are to be financed or recovered primarily through user charges (operating revenue). Most government-owned public utilities (e.g., electricity, gas, water, and sewage systems) must be accounted for as enterprise funds.

Answer 7

The correct answer is: B Explanation: Committed fund balances reflect amounts that can only be used for specific purposes based on constraints imposed by formal action of the government’s highest level of decision-making authority. Constraints imposed by external parties through grants or contracts are reported as restricted fund balance, not committed. Amounts set aside for specific purposes based on management’s intent are reported as assigned fund balance, not committed. A restriction or assignment is not a prerequisite for fund balance classifications.

Answer 8

The correct answer is: C Explanation: Funds available for use = Appropriations (budgeted) - Encumbrances - Expenditures ( $435,000 - $18,000 - $164,000 ) = $253,000. Option (a) is incorrect because vouchers payable is excluded in available for funds calculations. Option (b) is incorrect because encumbrances are not excluded, instead vouchers payable are excluded from appropriations. Option (d) is incorrect because encumbrances should be excluded from appropriations to arrive at funds available.

Answer 9

The correct answer is: D Explanation: The correct answer is (D). The motor pool internal service fund is reported under the proprietary fund in the fund financial statements. The proprietary fund uses the accrual basis of accounting which records operating revenues, operating expenses and non-operating revenues and non-operating expenses to get the change in net position. Vann County’s motor pool internal service sold two vehicles for $5,000. Both vehicles together have a cost of $6,000 and a carrying value of $4,000. Because the carrying value was $4,000 and the vehicles sold for $5,000, Vann County’s motor pool internal service fund should report a gain of $1,000.

Answer 10

The correct answer is: B Explanation: The distinction between general purpose and special-purpose governments is based on the entity’s programs and services, not how the government was created. Special-purpose governments only provide limited services; unlike cities, counties, states, towns or villages that provide a broad range of services. It is possible that a special purpose government may only manage fiduciary programs. Governance structure is not the distinguishing feature of special-purpose governments.

Answer 11

Explanation: The correct answer is (A). The General Fund uses modified accrual accounting, in which the purchase of a fixed asset is an expenditure, which would affect the excess of revenue over expenditure. Option (B) is incorrect because transfers out are reported as other financing uses which are presented below the excess of revenues (deficiency) over expenditure. Option (C) is incorrect because special items are presented below the excess of revenues (deficiency) over expenditure. Option (D) is incorrect because proceeds from the sale are reported in special items, which is presented below the excess of revenues (deficiency) over expenditure.

Answer 12

The correct answer is: C Explanation: The basic financial statements include both the government-wide statements and the fund statements, as well as the notes, but not the statistical section.

Answer 13

Explanation: The correct answer is (D). Required Supplementary Information is the information that is mandated to be disclosed by the reporting entity. This information, though not a part of the financial statements, are considered a prerequisite for a complete understanding and overview of financial information. One such information is Management Discussion and Analysis (MD&A), which is the assessment of the organization’s performance for the said period by the management. MD&A are a compulsory part of Required Supplementary Information for general purpose external financial reporting of a local government.

Answer 14

The correct answer is: B Explanation: The correct answer is (B). Property taxes are considered the enforceable legal claim and is always recognized when billed. A government can expect to collect the amount billed to taxpayers once a property tax assessment is made as these taxes are mandatory. As a result, property taxes that have been billed usually satisfy the requirements of being measurable and available, and are accrued in advance of collection. However, an allowance for uncollectible must be established. Dr. Property Taxes Receivable-Current $1,000,000 Cr. Property Tax Revenue $1,000,000

Answer 15

The correct answer is: D Explanation: Imposed nonexchange revenues represent assessments imposed on non-governmental entities and include property taxes and fines or forfeitures. Taxes on earnings or consumption are classified as derived tax revenues. Certain grants, entitlements, and donations are classified as voluntary nonexchange transactions. Voluntary nonexchange transactions result from legislative or contractual agreements involving parties that may or may not be governmental entities, but do not involve an exchange of equal value.

Answer 16

The correct answer is: C Explanation: Government-wide statements (GWS) aggregate information for all governmental and business-type activities. GASB 34 requires an economic resources measurement focus and accrual basis of accounting for all amounts in the GWS. There are four required columns in the GWS, one each for: governmental activities, business-type activities, the primary government (sum of the previous two), and component units. Most component units should be included in the financial reporting entity by discrete presentation (reported in columns separate from primary government).

Answer 17

The correct answer is: A Explanation: Only general obligation long-term debt should be serviced through debt service funds. Fiduciary and proprietary fund debt are rarely general government obligations.

Answer 18

The correct answer is: A Explanation: The GASB’s mission includes research and development of standards that will improve accounting and financial reporting for state and local governments. The GASB’s mission includes providing a framework to educate users and support public policies, investments, and management by those users.

Answer 19

The correct answer is: C Explanation: Fund accounting is used when there are legal separations between sources and uses of funds. Fund accounting may be used to account for assets aside from cash and cash equivalents. Combined or combining financial statements may be used with or without fund accounting. The resources may be physically in the same account or location.

Answer 20

The correct answer is: D Explanation: Governments are focused on programs and services that will improve the quality of life in their communities. Governmental entities must provide accountability for how they raised resources for those programs and explain how they managed and safeguarded those public resources.

Answer 21

The correct answer is: A Explanation: Governmental-type funds pose problems for developing a meaningful government-wide cash flows statement. Only funds for business-type activities are required in the statement of cash flows.

Answer 22

The correct answer is: C Explanation: SEA reporting emphasizes performance results and is designed to help public policy-makers evaluate which programs are critical for a community.

Answer 23

The correct answer is: C Explanation: While goods and services committed for by purchase order or contract are encumbered in governmental funds to avoid overspending appropriations, some expenditures are controlled by other means and need not be encumbered. Salaries and wages are set by contract and controlled by established payroll procedures and are not encumbered. Salaries and wages expense would not be appropriate for a governmental-type fund. Salaries and wages should be recorded as follows: Expenditures control 800,000 Vouchers payable 800,000

Answer 24

The correct answer is: D Explanation: Governments are encouraged to present budgetary comparisons as part of required supplementary information (RSI). There was significant discussion about whether these reports should be part of the basic financial statements, in part to ensure that audit coverage provided additional credibility for the reports. The GASB allowed governments to elect to present budgetary comparisons as statements within the basic financial statements, but not as part of other supplementary information or notes to the financial statements.

Answer 25

The correct answer is: B Explanation: Appropriations is a budgetary account which will also be closed. However, since closing the budgetary accounts (which are not all given) simply reverses the entry to record the budget, their closing has no effect on fund balance. The closing entry for the activity accounts given would increase the fund balance, as follows: ``` Revenues 8,000,000 Other financing sources 1,500,000 Expenditures 5,000,000 Other financing uses 2,000,000 Unassigned fund balance (difference) 2,500,000 ```

Answer 26

The correct answer is: D Explanation: Capital contributions is not a category used on the government-wide statement of net position. Net position will be displayed in the same three categories that we used on the government-wide statement of net position: invested in capital assets, net of related debt; restricted net position; and unrestricted net position.

Answer 27

The correct answer is: A Explanation: All pension trust fund contributions and earnings are accounted for as fund revenues. The pension trust fund makes the following entry to record employer contributions: Cash 11,000 Revenues control—employer contribution 11,000

Answer 28

The correct answer is: D Explanation: The balance sheet is a fund level financial statement and thus uses the modified accrual method of accounting. This means that the $1,000,000 related to the bonds will not be reported, and the answer is the $50,000 in accrued payroll and the $25,000 in accounts payable.

Answer 29

The correct answer is: A Explanation: The correct answer is (A). In leases other than a short-term lease and contracts that transfer ownership, the lessee recognizes a right-to-use asset in its books. The asset is required to be amortized over the life of the asset or the lease term, whichever is less. In the given question, the useful life of 2 years is less than the lease term of 3 years. The value of the ROU asset shall be amortized over a period of 2 years. Annual amortization = 120,000/2 = $60,000

Answer 30

The correct answer is: B Explanation: A government’s primary mission is the delivery of programs and services. Fund accounting allows governments to track specific functions and ensure that operations comply with any legal restrictions that apply. Governments may have component units that are similar to subsidiaries in the private sector, but there are no profit objectives in governmental financial reporting. The GASB discourages the use of too many funds; the general fund is the only required fund. GASB Statement No. 34 reorganized funds to create a primary focus for each fund category, but statutory identification is not a primary objective for fund organization.

Answer 31

A. Activity is financed with debt that is secured by a pledge of the net revenues from fees and charges of the activity. Explanation: GASB Statement No. 34 listed three criteria, any one of which requires the use of an enterprise fund. Activity being financed with debt that is secured by a pledge of the net revenues from fees and charges of the activity is the first of the listed criteria. User fees charged to external users for goods and services is an optional reason for using an enterprise fund. The General Fund might provide a subsidy, but this financing does not require the use of an enterprise fund. Surplus funds may be returned to the General Fund, but this transfer does not require the use of an enterprise fund.

Answer 32

The correct answer is: B Explanation: Because Park's appropriations do not lapse at year-end, the Budgetary Fund Balance Reserved for Encumbrances account is converted from an offsetting memorandum account in the general ledger to a true commitment of fund balance year-end. The amount that Park should report as Unassigned Fund Balance in its general fund balance sheet is computed as follows: Total assets $1,000,000 Less: Total liabilities 600,000 Total fund balance $ 400,000 Less: Committed fund balance 100,000 Unassigned fund balance, December 31 $ 300,000

Answer 33

The correct answer is: A Explanation: The correct answer is (A). The various elements of the basic financial statements of a government entity are: Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Hence, out of the given options, fund financial statements qualifies as the minimum required report for the basic financial statements of a government entity.

Answer 34

The correct answer is: C Explanation: An enterprise fund is one of the governmental proprietary funds. Governments should present a statement of cash flows for proprietary funds based on the provisions of GASB statements. The GASB states the direct method of presenting cash flows from operating activities (including a reconciliation of operating cash flows to operating income) should be used.

Answer 35

The correct answer is: C Explanation: The comprehensive annual financial report contains the following sections: Introduction Section; Financial Section; and the Statistical Section.

Answer 36

The correct answer is: B Explanation: Grants, entitlements, and shared revenues received by proprietary funds should be reported as nonoperating revenues unless they are externally restricted to capital acquisitions.

Answer 37

The correct answer is: A Explanation: The distinction between RSI and OSI is generally based on whether the GASB has specified the requirement to present the information, not the public’s demand for the information. Management can certainly add to RSI, but additional information must be presented separately so that users can consistently compare reports among governmental entities.

Answer 38

The correct answer is: D Explanation: Expenditures differ from expenses (as defined in commercial accounting) because expenditures include—in addition to current operating expenditures that benefit the current period—capital outlays for general fixed assets and repayment of general long-term debt principal. Payments of principal on long-term debt $100,000 Payments to vendors 500,000 Purchase of a computer 300,000 Total expenditures $900,000 Option (a) is incorrect because payment to vendors and payment of principal on long-term debt is excluded. Option (b) is incorrect because payment of principal on long-term debt and purchase of computer is excluded. Option (c) is incorrect because payment of principal on long-term debt is excluded.

Answer 39

The correct answer is: C Explanation: Interfund receivables and payables are reported as amounts due to and due from other funds. They are not reported as reservations of fund balance or additions to or reductions from the unassigned fund balance. The option of eliminating the interfund assets and liabilities is allowed, but requires that such eliminations be apparent from the headings, or be disclosed in the notes to the financial statements.

Answer 40

The correct answer is: D Explanation: Expenditures are recorded when fund liabilities are incurred or assets are expended, except in regard to inventory items, interest on general long-term debt, and prepaids such as insurance. This is due to the emphasis on the flow of financial resources in governmental accounting.

Answer 41

The correct answer is: C Explanation: General funds use modified accrual accounting. Both capital purchases and operating expenditures are considered spending of funds and are treated as current year expenditure. Routine employer contribution to a pension trust fund is an expenditure. Option (a) is incorrect because contribution of enterprise fund capital by the general fund is not an expenditure. Option (b) is incorrect because operating transfers are reported as other financing uses under modified accrual accounting. Option (d) is incorrect because transfers out is treated as other financing uses and not expenditure

Answer 42

The correct answer is: B Explanation: Noncapital financing activities include cash receipts from grants and subsidies except (1) those specifically restricted for capital purposes and (2) those for specific activities that are considered to be operating activities of the grantor government. Operating activities include cash inflows, receipts, and payments that do not result from transactions defined as capital and related financing, noncapital financing, or investing activities. Capital and related financing activities include acquiring and disposing of capital assets used in providing services or producing goods; borrowing money for acquiring, constructing, or improving capital assets and repaying the amounts borrowed, including interest; and paying for capital assets obtained from vendors on credit. Investing activities include making and collecting loans (except program loans) and acquiring and disposing of debt or equity instruments.

Answer 43

The correct answer is: C Explanation: Fund accounting and budgetary reporting are key elements for demonstrating accountability for public resources and provide cornerstones for governmental financial reporting. They are the characteristics that trigger unique accounting standards for governmental entities.

Answer 44

The correct answer is: C Explanation: Assisting users with an assessment of the government’s operating results, level of services provided, and the ability to meet cash requirements is a broad principle and is the second objective outlined in Concepts Statement No. 1. While assisting users in understanding funding objectives for public retirement systems and the potential tax burden on future taxpayers may be one of the significant elements for any governmental financial report, it is not specifically discussed as a reporting objective. Assisting users in identifying management’s policies for selection of critical programs and services to provide and the annual tax burden to finance those programs is an example of a specific reporting issue, not a broad principle. Assisting users in determining the annual tax burden per capita for each of the major programs provided by the governmental entity is an example of specific information that is critical to users, but not discussed as a primary broad objective.

Answer 45

The correct answer is: A Explanation: The cash collected under the For feiture Act, can only be used for law enforcement activities. It should be accounted for in a special revenue fund because the Act does not require the preservation of fund principal and the principal may be used for Arlen’s benefit . An agency fund is established to account for assets received by a government in its capacity as an agent for individuals, businesses, or other governments. Therefore, the sales taxes collected by Arlen to be distributed to other governments are accounted for in an agency fund.

Answer 46

The correct answer is: C Explanation: Equipment and facilities included in the estimated total current cost of closure and postclosure care are not reported as current expenses, but as a reduction of the liability. A liability that would be excluded from the “capital-related debt” portion of the statement of net position is the liability for closure and postclosure care associated with a municipal solid waste landfill.

Answer 47

The correct answer is: B Explanation: General fixed assets acquired by foreclosure are recorded at the lower of (1) the amount due for taxes, special assessments, penalties and interest, plus foreclosure costs or (2) appraised fair market value. Therefore, since the $20,000 Palm incurred for taxes, liens, and other costs incidental to acquiring ownership and perfecting title is less than the land's $60,000 fair market value at the forfeiture date, the land should be reported in the governmental activities column of government-wide financial statements at $20,000.

Answer 48

The correct answer is: B Explanation: Governmentsare required to present budgetary comparisons for the general fund and all major special revenue funds in the general purpose external financial reports, but not for proprietary funds.

Answer 49

The correct answer is: B Explanation: Other postemployment benefits (OPEB) are typically in the form of health care coverage. Most entities fund their OPEB on a pay-as-you-go basis, paying only the amount equal to benefits claimed. GASB believes the pay-as-you-go approach does not reflect the true OPEB liability, and issued GASB 45 outlining OPEB reporting and disclosure requirement. The objective is to systematically and rationally allocate the present value of the projected cost of benefits over the working life of benefiting employees. This allocation is done with an actuarial valuation. The amount allocated to a given year is known as the annual required contribution (ARC), which is the basic amount of expense (i.e., $500,000). The present value of benefits earned to date by employees is known as the actuarial accrued liability. The difference between this amount and any resources placed in trust is known as the unfunded actuarial accrued liability.

Answer 50

The correct answer is: A Explanation: The correct answer is (A). Although the special assessment debt for which the government is not obligated in any manner is not reported as government debt, the government usually acts as a debt service agent for the special assessment district. The government has a fiduciary responsibility to collect the special assessments and to remit the collections to the bondholders when the debt service payments come due. However, if collections are insufficient to cover required debt service payments, the government is not obligated to pay the difference and does not intend to do so. Thus, the government is acting in a custodial capacity with respect to the debt service transactions, and these transactions should be accounted for in a Custodial Fund.

Answer 51

The correct answer is: D Explanation: Enterprise funds must be used to account for a government’s business-type operations that are financed and operated like private businesses—where the government’s intent is that all costs of providing goods or services to the general public on a continuing basis are to be financed or recovered primarily through users charges. Governments are permitted to account for virtually any type of self-contained business-type activity in enterprise funds if it prefers to do business-type accounting rather than general government accounting. An enterprise fund is a proprietary fund.

Answer 52

A. Charges for services Explanation: On the government-wide statement of activities, the net revenue (expense) format and net program cost format are used. Charges for services are one of the program revenues reported on a local government’s government-wide statement of activities. Taxes levied, proceeds from the sale of a capital asset, and interest revenues would fall under general revenues.

Answer 53

The correct answer is: A Explanation: Economic and demographic information can help users gauge the economic health of a community, and thus, the demands for governmental services as well as the key factors that will impact revenues. The debt burden per capita is presented in the debt capacity tables. Overlapping debt information is presented in the debt capacity tables.

Answer 54

The correct answer is: C Explanation: In accounting for municipal solid waste landfill (MSWLF) costs, a portion of the estimated total current costs must be recognized as an expense and as a liability in each period during which the MSWLF accepts solid waste. The estimated total current costs of MSWLF closure and postclosure care should include those costs which result in disbursements near, or after, the date that the MSWLF stops accepting solid waste and during the postclosure period, including the cost of a final cover and monitoring equipment.

Answer 55

The correct answer is: B Explanation: The most prevalent fiduciary fund is the pension trust fund, not the custodial fund, the investment trust fund, or the private-purpose trust fund.

Answer 56

The correct answer is: C Explanation: All taxes are considered general revenues, even if restricted to a specific program. GASB Statement No. 34 shifted the governmental operating statement to a program focus that first matches the costs of program revenues and the sources of revenues for those programs. The statement of activities divides the operations of the government not into traditional line items—but into program or operational categories. Governmental services will likely show large deficits in the net (expense) revenue column. This allocation is optional, but governments are allowed to allocate the administrative and overhead costs from the general government category.

Answer 57

The correct answer is: C Explanation: Both governmental and proprietary funds could issue long-term debt in the form of bonds payable. The differences would lie in the reporting of the bond proceeds and the related liabilities on the financial statements.

Answer 58

The correct answer is: B Explanation: The correct answer is (B). Year-end closing entries close the budgetary accounts for open encumbrances (i.e., orders that were placed during the year but not fulfilled as of the end of the year). Also, unreserved fund balance on the books is reduced since an encumbrance represents a legal commitment to purchase. Between October 15 and December 31, six vehicles were delivered at the rate of two per month, while an encumbrance was created for 12 vehicles at $264,000. Therefore, $132,000 was paid for the delivery of six vehicles. Dr: Unassigned Fund Balance $132,000 Cr: Reserved for encumbrances $132,000 Note: The schedule was for two vehicles per month starting October 15 for a total of 12 vehicles. As all vehicles were delivered as planned, two vehicles each for October, November, and December will total to six vehicles.

Answer 59

The correct answer is: A Explanation: The correct answer is (A) Custodial funds should be used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities). These funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. Custodial funds generally have neither capital assets nor expenses, and as such would not have depreciation expense

Answer 60

The correct answer is: C Explanation: Governmental funds use the modified accrual basis of accounting, under which revenues susceptible to accrual (e.g., property taxes) are recognized when they become measurable and available for use. 'Available for use' means that the revenues will be collected within the current period or collected early enough in the next period (i.e., within 60 days or so) to be used to pay for expenditures incurred in the current period. Therefore, for year 1, Oak should report property tax revenues of $600,000, the sum of the of property taxes levied and collected in year 1 and the expected property tax collections during the first 60 days of year 2.

Answer 61

The correct answer is: D Explanation: The correct answer is (D). A MSWLF (Municipal Solid Waste Landfill) is accounted for in a government-type fund and should accrue the cost of assets required for closure and post-closure on an annual basis with a corresponding liability. When the available cash is used to purchase equipment, it has no effect on the asset but the liability would be reduced. Equipment, facilities, services, and final expenses included in the estimated total current cost of closure and post-closure care should be reported as a reduction of the reported liability for closure and post-closure care when they are acquired.

Answer 62

The correct answer is: D Explanation: The correct answer is (D). Interfund transactions appear in the operating statements of the affected funds. In governmental funds, transfers are reported as Other Financing Sources (Uses). In proprietary funds, transfers should be reported as Transfers In (Out). Only the general fund is a governmental fund and would report transfers to other funds as an other financing use. The enterprise and internal service funds are proprietary funds that would report transfers to other funds as transfers out. The pension trust fund is a fiduciary fund that is accounted for in essentially the same manner as proprietary funds.

Answer 63

The correct answer is: B Explanation: The three primary columns shown on the face of the government-wide statement of net position are governmental activities, business-type activities, and component units if applicable. The balances for the general fund would be shown on the balance sheet of the governmental fund

Answer 64

The correct answer is: C Explanation: The correct answer is (C). For Governmental Accounting, the lease term is calculated the same way as it is in Financial Accounting under the FASB. The lease term or tenure of the lease is calculated as follows: Non-cancellable period: 5 years. Renewal periods “reasonably certain” of exercise Periods covered by a termination option reasonably certain not to be exercised: 1 Year Renewal periods (non-termination periods) controlled by lessor: 2 Years. Total: 8 Years. In the given case of Baker City, all periods are included except for the renewal period which is not certain to be exercised.

Answer 65

D Explanation: Governments are focused on programs and services that will improve the quality of life in their communities. Governmental entities must provide accountability for how they raised resources for those programs and explain how they managed and safeguarded those public resources.

Answer 66

D Explanation: The encumbrance system is used in governmental funds (general, special revenue, and capital projects funds) to prevent over-expenditure and to demonstrate compliance with legal requirements.The enterprise fund is a proprietary fund and does not use the encumbrance system.Option (a), (b) and (c) are incorrect because these funds can have encumbrances.

Answer 67

Explanation: The correct answer is (B). The general long-term debt of a state or local government is reported: Government-wide financial statements: Accrual basis of accounting. Governmental Funds (Debt Service Funds): Modified Accrual basis of accounting. In Government Funds (Debt Service Funds) under Modified Accrual basis of accounting costs are recognized using the expenditure principle, and recorded in the period the obligation to pay arises, irrespective of when the goods/services are being actually used by the government entity. Accordingly, the modified accrual basis does not allow for amortization of issue costs and debt insurance premiums, which must be recognized in full when the liability is incurred. The amount deferred and amortized over the life of the bonds is $0. $490,000 is expensed in the period incurred.

Answer 68

Explanation: The correct answer is (B). The government-wide statements should display information about the reporting government as a whole, except for its fiduciary activities. Governmental-Wide Financial Statement’s, Statement of Net Position has four columns as follows: Governmental activities: Presents consolidated results of all the Governmental Funds and the Internal Service Funds including all component units subject to blended presentation Business-type activities: Presents consolidated results of all Enterprise Funds Total: Presents a total of Governmental Activities & Business-type Activities Component units: Presents results of all the component units subject to discrete presentation Component units are legally separate organizations for which elected officials of the primary government are financially accountable. A unit classifies for a discreet presentation (within the component unit’s column) when it meets the following criteria or else it is presented as a blended component within the Governmental activities column. Services provided by the government are not primary to the government Management of the unit consists of separately elected officials i.e. a separately elected governing board. Separate Legal Entity Fiscally Independent i.e. power to determine its own budget, levy taxes, and issue bonds. Dale Town's public-school system has separately elected governing board but it is not a separate legal entity and does not have the power to levy taxes or issue bonds (i.e. not fiscally independent) and hence it fails the criteria for discreet presentation and will be presented as a blended component within Governmental activities column.

Answer 69

C Explanation: A specific governmental unit is not accounted for through a single accounting entity. Instead, the accounts of a government are divided into several funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.

Answer 70

A Explanation: The distinction between RSI and OSI is generally based on whether the GASB has specified the requirement to present the information, not the public’s demand for the information. Management can certainly add to RSI, but additional information must be presented separately so that users can consistently compare reports among governmental entities.

Answer 71

B Explanation: The governmental category in the fund statements summarizes those programs funded with general types of revenues (generally taxes and grants). This category includes the general fund, special revenue, debt service, capital projects, and permanent funds. Fiduciary funds are not available to support the government’s own programs. Proprietary funds include: enterprise funds and internal service funds.

Answer 72

C Explanation: Since this is an enterprise fund, accrual accounting applies. Interest expense for the year includes the $30,000 ($1,000,000 × 6% × 1/2 year) paid on October 1st and the $15,000 ($1,000,000 × 6% × 1/4 year) accrued expense from October 1st through December 31 for a total of $45,000.

Answer 73

B Explanation: Component units should be presented discretely unless either (a) the components unit’s governing body is substantively the same as the governing body of the primary government, or (b) the component unit provides services almost entirely to the primary government, or almost exclusively benefits the primary government although it does not provide services directly to it.

Answer 74

B Explanation: The statement of activities is a government-wide financial statement which uses the accrual method of accounting. The fire truck would be reported as a capital asset on the government-wide statement of net position, and $100,000 in depreciation would be reported on the statement of activities.

Answer 75

D Explanation: The underlying securities owned with regard to reverse repurchase and fixed coupon reverse repurchase agreements should be reported as "Investments." Related assets and liabilities and interest cost and interest earned should not be netted. Credit risk related to such agreements must be disclosed.

Answer 76

C Explanation: The encumbrance system is used by governmental funds to prevent overexpenditure and to demonstrate compliance with legal requirements. When a purchase order is issued, the estimated amount of the planned expenditure is encumbered by debiting Encumbrances and crediting Fund Balance Reserved for Encumbrances. When the related invoice is received, the encumbrance entry is reversed and the actual expenditure is recorded. Thus, the balance of the Encumbrance account will always equal the outstanding purchase order amounts until the books are closed at year-end.

Answer 77

Explanation: The correct answer is (A). The debt service fund should be reported as part of local government’s governmental activities column in its government-wide statements. Reporting capital assets and long-term liabilities are required in the government-wide statements. Custodial, private-purpose trust, and pension trust funds are all fiduciary funds. Fiduciary activities are not included in the government-wide statements because the assets and liabilities cannot be used to support the government’s own programs. Option (b), (c) and (d) are incorrect because they are fiduciary funds and excluded from government-wide F/S.

Answer 78

B Explanation: Governmental funds use the modified accrual basis of accounting, under which, revenues are recognized when they become measurable and available for use. 'Available for use' means that the revenues will be collected within the current period or collected early enough in the next period (e.g., within 60 days or so) to be used to pay for expenditures incurred in the current period. Therefore, for the year ended June 30, year 2, Pine should recognize property tax revenue of $2,200,000. This amount is comprised of (1) $1,000,000 (i.e., $920,000 + $80,000) of property taxes levied in January of year1 which were collected in October and December of year 1 and (2) $1,200,000 (i.e., $1,100,000 + $60,000 + $40,000) of property taxes levied in January year 2 which were collected in May, July, and August year 2.

Answer 79

C Explanation: Entity-wide statements, the government-wide statements, are done under normal accrual accounting. Only fund financial statements, done under modified accrual, would take into account any 60-day criteria. Under normal accrual accounting the amount of property tax revenue reported would be the $2,000,000 property taxes levied less the 1% ($20,000) for estimated uncollectible taxes for a total of $1,980,000. The entry would be: Taxes receivable - current 2,000,000 Estimated uncollectible taxes 20,000 Revenues control 1,980,000To record property tax revenue.

Answer 80

A Explanation: On the government-wide statement of activities, the net revenue (expense) format and net program cost format are used. Charges for services are one of the program revenues reported on a local government’s government-wide statement of activities. Taxes levied, proceeds from the sale of a capital asset, and interest revenues would fall under general revenues.

Answer 81

Explanation: The correct answer is (C). In the government-wide financial statements, all government and proprietary funds are included (but not fiduciary funds) along with discreetly presented component units in the statement of net position. (A), (B) and (D) are incorrect because these are included in the statement of net position.

Answer 82

B Explanation: The correct answer is B. Estimated revenues are revenues that are expected to be available to be spent in the period. Ref Summary Amount a Property taxes $5,000,000 b Licenses & Permits $400,000 c Inter-governmental revenues $150,000 d Estimated Revenue (a+b+c) $5,550,000 Transfers in from other funds are not considered because it is an estimated other financing source, not revenue. Inter-governmental revenue is included in the calculation of estimated revenue. Transfers in from other funds of $350,000 are not included in the calculation for estimated revenue.

Answer 83

A Explanation: (a) GASB 34 requires the economic resources measurement focus and accrual basis of accounting for all amounts in the government-wide financial statements. Option (b) and (c) are incorrect as per the above explanation. Option (d) is incorrect because it applies to governmental funds; not to government-wide F/S.

Answer 84

Explanation: The correct answer is (B). Business type activities that are normally financed through user charges and reports the consolidated results of all enterprise funds. It does not include internal service funds, which are accounted for in governmental activities. The employee pension fund is a fiduciary fund and not included in business-type activities. The $12,000 increase in net position from Water enterprise is included. (A) is incorrect because the motor pool internal service fund is excluded from business-type activities. (C) is incorrect because the calculation also includes motor pool internal service fund which should be excluded. (D) is incorrect because the motor pool Internal service fund and employee pension trust fund should be excluded from business-type activities.

Answer 85

B Explanation: Special revenue fund sources includes fees, grants, specific taxes, and other earmarked revenue sources. The gasoline taxes to finance road repairs for $900,000 would be a specific tax, accounted under special revenue funds. Levies on affected property owners to install sidewalks is usually accounted for under the agency fund. It may also be accounted for in a debt service fund, for example: the levies are used to repay a bond that was issued to install the sidewalks. Options (a), (c) and (d) are incorrect based on the above explanation.

Answer 86

D Explanation: A governmental unit would issue bond anticipation notes (BANs) to provide funds to defray costs expected to be incurred before the related bonds are issued. Such notes are treated as long-term debt, even if due within one year, if (1) they are to be repaid with the proceeds of the bond issue, (2) all legal steps have been taken to refinance the notes, and (3) the intent is supported by an ability to refinance the short-term notes on a long-term basis. Since all of these criteria are not met for the bond anticipation notes in question, they are reported as a liability of the capital projects fund.

Answer 87

Explanation: The correct answer is (D). The general fund of a local government is used to report transfers to other funds as an “other financing use.” Only governmental funds (general, special revenue, debt service, capital projects, and permanent) report transfers to other funds as “other financing use.”

Answer 88

A Explanation: Although internal service funds are proprietary funds, they appear in the government-wide statements as governmental activities in the new reporting model.

Answer 89

B Explanation: The distinction between general purpose and special-purpose governments is based on the entity’s programs and services, not how the government was created. Special-purpose governments only provide limited services; unlike cities, counties, states, towns or villages that provide a broad range of services. It is possible that a special purpose government may only manage fiduciary programs. Governance structure is not the distinguishing feature of special-purpose governments.

Answer 90

Explanation: The correct answer is (A). In leases other than a short-term lease and contracts that transfer ownership, the lessee recognizes a right-to-use asset in its books. The asset is required to be amortized over the life of the asset or the lease term, whichever is less. In the given question, the useful life of 2 years is less than the lease term of 3 years. The value of the ROU asset shall be amortized over a period of 2 years. Annual amortization = 120,000/2 = $60,000

Answer 91

C Explanation: Fern should report $3,400,000 as long-term capital debt. This amount is comprised of (1) $3,000,000 of long-term bonds for financing of capital asset acquisition and (2) $400,000 of bond anticipation notes due in six months that were issued as part of a long-term financing plan for capital purposes. Although the bond anticipation notes (BANs) are due in six months, the intent is to refinance the bond anticipation notes on a long-term basis. The vendor financing is not reported as long-term capital debt because it is not part of a long-term financing plan.

Answer 92

C Explanation: An enterprise fund is one of the governmental proprietary funds. Governments should present a statement of cash flows for proprietary funds based on the provisions of GASB statements. The GASB states the direct method of presenting cash flows from operating activities (including a reconciliation of operating cash flows to operating income) should be used.

Answer 93

Explanation: The correct answer is (B). Bonds issued to finance city hall construction is recorded in its Capital Projects Fund, which is a Governmental Fund. Governmental Funds are accounted on a modified accrual basis and a Statement of Cash Flows is not presented for Governmental Funds. Under governmental accounting, a Statement of Cash Flows is prepared only for Proprietary Funds. A cash flows statement includes receipts and payments resulting only from the Proprietary Fund's activities. The payments in lieu of property taxes are from an operating activity of an Enterprise Fund (Proprietary).

Answer 94

Explanation: The GWS governmental activities column includes the governmental funds plus most internal service funds and capital assets not specific to business-type activities or fiduciary funds. $25,000 + $9,000 = $34,000. The water enterprise fund is a business-type activity. The employee pension fund is a fiduciary fund; it doesn’t appear in the GWS.

Answer 95

B Explanation: Proprietary funds report the current amounts due for any bonds outstanding on its statement of net position. At the fund level, governmental funds do not report the current portions of principal or interest due.

Answer 96

Explanation: The correct answer is (A). The various elements of the basic financial statements of a government entity are: Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Hence, out of the given options, fund financial statements qualifies as the minimum required report for the basic financial statements of a government entity.

Answer 97

C Explanation: Governmental activities include those programs funded with taxes, grant revenues, and other nonexchange resources (not social service activities or intergovernmental activities). Business-type activities are financed in whole or in part by fees charged to external parties for goods and services. Enterprise funds are used to account for these programs.

Answer 98

C Explanation: Operating transfers should be recorded in Other Financing Sources Uses or Other Financing accounts and reported after revenues and expenditures or expenses, but before determining the results of operations in the operating statement.

Answer 99

A Explanation: The capital projects fund is a governmental fund, whereas the enterprise fund is a proprietary fund. A statement of cash flows should be presented for all proprietary funds, but not for governmental funds.

Answer 100

D Explanation: Proprietary funds account for their fixed assets in the same manner as commercial enterprises; therefore, the expenditure for the parking meters should be recorded in the fund’s fixed asset accounts. Enterprise funds and internal service funds are the two types of proprietary funds. The fund in question is an enterprise fund because it is a self-supporting fund which provides goods and/or services to the general public. Parking meter is an so its a fixed asset Net Income = 600k -96k-94k =410k

Answer 101

D Explanation: The balance sheet is a fund level financial statement and thus uses the modified accrual method of accounting. This means that the $1,000,000 related to the bonds will not be reported, and the answer is the $50,000 in accrued payroll and the $25,000 in accounts payable.

Answer 102

C Explanation: Endowments are donations and donations are recorded as revenue at fair value, regardless of their cost to the donor, and reported at fair value at statement dates.

Answer 103

B Explanation: Imposed nonexchange revenues are assessments on non-governmental entities, and include property taxes and fines or forfeitures.

Answer 104

C Explanation: Restricted, committed, or assigned resources for governmental capital outlays are reported in a capital projects fund. Sewer services, water utilities, and landfills are usually reported in an enterprise fund because these services are funded with user fees. Enterprise fund capital assets are not reported in a capital projects fund.

Answer 105

Explanation: The correct answer is (B). The Permanent Fund accounts and reports assets whose principal is restricted and may not be spent, but must be invested on a permanent basis. Since land is restricted by the donor and income generated from the land can be spent, Tang city would record in permanent fund. Option (a) is incorrect because special revenue fund accounts for and reports specific revenues from earmarked sources that are restricted or committed to be used to finance designated activities other than capital projects and debt service. Option (c) is incorrect because private-purpose trust fund accounts for resources that are being held for benefit of private persons, organizations or other governments. Option (d) is incorrect because agency funds accounts for collected amounts that must be transferred to other funds or outsiders.

Answer 106

D Explanation: The governmental fund measurement focus is on determination of financial position and changes in financial position, rather than on net income determination. In governmental funds, the primary emphasis is on the flow of financial resources.

Answer 107

C Explanation: The government-wide financial statements (GWS) reports all general government capital assets (fixed assets plus infrastructure) in the governmental activities column ($9,000 + $1,800 = $10,800). Enterprise funds appear in the business-type activities column in the GWS.

Answer 108

C Explanation: Governments rely on grants and other types of contributions to fund a variety of programs. The note disclosing how the government applies restricted resources when they have a choice between using restricted versus unrestricted resources provides users with information to evaluate how ending balances may be applied to continuation of programs and services in future periods (not whether the government made improper payments or whether the government complied with laws and regulations).

Answer 109

A Explanation: The GASB’s mission includes research and development of standards that will improve accounting and financial reporting for state and local governments. The GASB’s mission includes providing a framework to educate users and support public policies, investments, and management by those users.

Answer 110

C Explanation: Funds available for use = Appropriations (budgeted) - Encumbrances - Expenditures ( $435,000 - $18,000 - $164,000 ) = $253,000. Option (a) is incorrect because vouchers payable is excluded in available for funds calculations. Option (b) is incorrect because encumbrances are not excluded, instead vouchers payable are excluded from appropriations. Option (d) is incorrect because encumbrances should be excluded from appropriations to arrive at funds available.

Answer 111

C Explanation: The compensated absences liability ordinarily is measured using the pay rates in effect at the balance sheet date. Liabilities for compensated absences should be inventoried at the end of each accounting period and adjusted to current salary costs.

Answer 112

Explanation: The correct answer is (B) General Funds, Special Revenue Funds, Capital Projects Fund, Debt Service Fund, and Permanent Fund use modified accrual accounting. Under the modified accrual basis of accounting, revenue is recognized in the period it is measurable and available to spend. Costs are recorded in the period that the obligation to pay them arises, whether this is before or after the period in which the government is actually using the assets or services. The Capital Projects Fund uses the same basis of accounting as the Special Revenue Fund.

Answer 113

Explanation: The correct answer is (D). A city’s government-wide financial statements are required to be completed on the accrual basis of accounting.

Answer 114

B Explanation: Goals and objectives for governmental programs and services should be established by management, elected officials, and the government’s stake-holders.

Answer 115

A Explanation: GASB Statement No. 34 shifted away from fund type reporting to highlight the government’s larger funds. Users do not have much interest in fund types, but they are focused on the government’s larger funds. Major fund reporting concentrates on fewer details and combines the government’s smaller funds to simplify reporting and focus on significant activities. While the determination of major funds is based on a mathematical relationship, management does have the ability to include other significant funds.

Answer 116

D Explanation: The modified accrual basis is the appropriate basis of accounting for governmental funds (i.e., General, Special Revenue, Capital Projects, Permanent, and Debt Service Funds).

Answer 117

A Explanation: The appropriate basis of accounting for proprietary and fiduciary funds is the accrual basis, under which revenues are recognized in the accounting period in which they are earned and become measurable.

Answer 118

D Explanation: GASB 34 requires the economic resources measurement focus and accrual basis of accounting for all amounts in the government-wide financial statements.

Answer 119

D Explanation: Both governmental activities and business-type activities are included on the face of the government-wide financial statements. The government-wide financial statements use the full accrual method of accounting, which means that D is the correct answer. All amounts on the government-wide financial statements are reported using the accrual method.

Answer 120

C Explanation: GASB 39 provides additional guidance to determine whether certain entities for which a primary government is not accountable financially must be reported as component units based on the nature and significance of their relationship with the primary government. Legally separate, tax-exempt entities that meet all three criteria must be presented discretely as component units: (1) economic resources received or held by the separate entity are totally (or nearly totally) for the direct benefit of the primary government, its component units, or its constituents; (2) the primary government, or its component units, is entitled to a majority of the economic resources received or held by the separate entity; and (3) the economic resources received or held by an individual entity that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government.

Answer 121

idk maybe B Explanation: Infrastructure assets that are part of a network or a sub-system of a network (eligible infrastructure assets) are not required to be depreciated, if the government: documents that eligible infrastructure assets are preserved approximately at (or above) a condition level established and disclosed by the government; has an up-to-date inventory of eligible infrastructure assets; consistently performs condition assessments of eligible assets at least tri-annually and summarizes the results using a measurement scale; and annually estimates the amount to preserve the eligible assets at a condition level established and disclosed by the government. .

Answer 122

A Explanation: All funds use the economic resources measurement focus and accrual basis of accounting in the government-wide statements.Only business-type activities appear in the statement of cash flows. (The governmental funds pose problems for developing meaningful information for a government-wide cash flows statement.) .

Answer 123

Explanation: The correct answer is (C). $14,000,000 should be reported as the net investment in capital assets in the government-wide statement of net position. Net assets on the government-wide statement of financial position are divided into - Restricted, Unrestricted and Net Investment in Capital Assets. Assets: Roads Constructed $25,000,000 Accum. Depreciation ($10,000,000) $15,000,000 Equipment $5,000,000 Accum. Depreciation ($1,000,000) $4,000,000 Liabilities: Bonds Payable $(5,000,000) Net Investment in Capital Assets $14,000,000 Note: Inventory is not a capital asset and therefore both the inventory and liability related to the purchase of inventory is also excluded.

Answer 124

D Explanation: Governmental financial statements provide accountability for public resources. This objective is not addressed in commercial accounting standards. The "bottom line profit" is not a major focus for the governmental operating statement. Governmental entities, even enterprise utility systems, are not financed with public stock offerings, therefore, earnings per share is not a relevant measure for these governmental entities. Financial reporting standards for both governmental and commercial accounting include provisions for reporting related organizations and disclosing the primary entity’s responsibilities for these reporting entities.

Answer 125

A Explanation: As the name implies, internal service funds provide a centralized management of shared services and allocate the costs of those services across the departments or agencies who participate. General capital assets are not included as a cost element in internal service funds, only the assets used directly in the operations. Enterprise funds are more likely to issue revenue debt. Accumulation of resources to repay bonded indebtedness describes a governmental debt service fund.

Answer 126

B Explanation: Internal service funds are accounted for in a similar manner to enterprise funds. A revenues or billings to others account is used for services provided to other departments or other governments. Appropriations accounts are budgetary accounts. Interfund exchanges would be between departments in the same governmental unit. Intergovernmental transfers are used when the same entity is doing the accounting for both governments.

Answer 127

D Explanation: The interfund receivables and payables of a governmental fund should not be netted. Therefore, the special revenue fund should report an asset of $10,000 for the amount due from the general fund and a liability of $4,000 for the amount due to the custodial fund.

Answer 128

A Explanation: A major exception to the general rule of expenditure accrual relates to unmatured principal and interest on general long-term debt. This deals with the criterion related to the expenditure recognition on debt known as the "when due" criterion. Entities that budget cash outflows for debt when they legally become due include budget appropriations for debt in the year in which the cash outflow occurs. Because the financial flow of funds to make payment has not been budgeted for, interest and principal payments are not subject to accrual.

Answer 129

A Explanation: The basis of accounting used depends on the nature of the fund. The modified accrual basis is used in the governmental fund type statements (i.e., general, special revenue, capital projects, and debt service funds). The accrual basis is used in proprietary fund statements (i.e., internal service and enterprise funds), where revenues and expenses are recorded and net income (loss) is reported. The accrual basis is also used in fiduciary fund statements.Option (b), (c) and (d) are incorrect because these funds are part of governmental funds which uses modified accrual accounting.

Answer 130

Explanation: The correct answer is (C). Land and other real estate held as investments by endowments should always be reported at fair value. And changes in fair value during the period should be reported as investment income/loss. (A) and (B) are incorrect as per the above explanation. (D) is incorrect because the cost of disposal is not required to be deducted from fair value.

Answer 131

D Explanation: II and III. An Enterprise Fund is a Proprietary Fund. Its measurement focus is on income determination and its customers are the general public. "I" is incorrect because services provided by one governmental unit to other governmental units on a cost-reimbursement basis are accounted for in an Internal Service Fund.

Answer 132

Explanation: The correct answer is (A). Although the special assessment debt for which the government is not obligated in any manner is not reported as government debt, the government usually acts as a debt service agent for the special assessment district. The government has a fiduciary responsibility to collect the special assessments and to remit the collections to the bondholders when the debt service payments come due. However, if collections are insufficient to cover required debt service payments, the government is not obligated to pay the difference and does not intend to do so. Thus, the government is acting in a custodial capacity with respect to the debt service transactions, and these transactions should be accounted for in a Custodial Fund.

Answer 133

Explanation: The correct answer is Option (A). Sea is acting as a custodian of the money collected and the Custodial fund is used to account for the custodial activities of the governmental unit. The debt service fund is used to account for the repayment of the general long-term debt. The capital projects fund accounts for the project itself, not the repayment of debt.

Answer 134

A Explanation: There are various types of non-exchange transactions for governmental units; imposed non-exchange transactions, government-mandated non-exchange transactions, and voluntary non-exchange transactions. The difference between an exchange transaction and a non-exchange transaction is the relationship between the amount of value given and received. In an exchange transaction the presumption is the amount of value given and received is the same. A nonexchange transaction does not involve an exchange of equal value.

Answer 135

C Explanation: When beneficiaries are the general public, the resources are accounted for and reported in a special revenue fund. When there are specific third-party beneficiaries, a private-purpose trust is more appropriate. Program costs do not affect the type of fund used for governmental activities. Cash basis of accounting is not a factor for determining the type of fund used for a specific activity.

Answer 136

C ``` Explanation: Internal Service Fund journal entry: dr. Cash, cr. Transfer-in, and General Fund journal entry: dr. Transfer out, cr. Cash ``` Interfund transfers are flows of assets (such as cash or goods) without equivalent flows of assets in return and without a requirement for repayment. This category includes payments in lieu of taxes that are not payments for, and are not reasonably equivalent in value to, services provided. In governmental funds, transfers should be reported as other financing uses in the funds making transfers and as other financing sources in the funds receiving transfers. In proprietary funds, transfers should be reported after nonoperating revenues and expenses as transfers in or transfers out

Answer 137

D Explanation: The GASB has a broad mission to develop standards that provide useful information for users of financial reports as well as educating the public about governmental financial issues. Management, not GASB, determines the funding policies for public pension plans. Performance measurement standards are not within the scope of governmental accounting and reporting guidance. Management, not GASB, selects the appropriate budget strategy for the governmental organization.

Answer 138

Explanation: The enterprise fund generally reports net position. The capital projects and special revenue funds are governmental-type funds, and thus report a fund balance. Expendable trusts (under the outgoing reporting model) use fund balance accounts also.

Answer 139

C Explanation: Custodial funds do not have revenues or a fund balance. Seaside County's tax custodial fund should record all levies as follows: Taxes Receivable for Other Units XX Due to Other Funds and Units XX The fund should record the taxes collected for the county's municipalities during the period as follows: Cash 1,000,000 Taxes Receivable for Other Units 1,000,000 Upon the collection of the taxes, the fund should make the following entry to record the fund's liability for the distribution of the collections: Due to Other Funds and Units 1,000,000 Due to Municipalities 990,000 Due to General Fund 10,000

Answer 140

A Explanation: All fiduciary funds are accounted for on the accrual basis in essentially the same manner as proprietary funds. Governments do not have a choice of using modified accrual basis of accounting for fiduciary funds. The modified accrual method is used for governmental funds only. The flow of economic capital is not a basis recognized for governmental accounting purposes.

Answer 141

A Explanation: The government-wide statements, which include the statement of activities, are designed to provide operational accountability by showing an economic longterm view of a government's ability to provide services. Operational accountability includes the periodic economic cost of the services provided.

Answer 142

C Explanation: Fund accounting and budgetary reporting are key elements for demonstrating accountability for public resources and provide cornerstones for governmental financial reporting. They are the characteristics that trigger unique accounting standards for governmental entities.

Answer 143

A Explanation: A permanent fund is used to account for nonexpendable resources that may be used for the government’s programs to generate and disperse money, to benefit the reporting entity or its citizens, such as the library in this question. The name of the fund comes from the purpose of the fund: a sum of equity used to permanently generate payments to maintain some financial obligation. A fund can only be classified as a permanent fund if the money is used to report the status of a restricted financial resource. The resource is restricted in the sense that only earnings from the resource are used and not the principal.

Answer 144

Explanation: When acting in a fiduciary capacity, the government can spend the fiduciary funds only for specific purposes as spelled out in the law or trust agreement or returned to the owners. Fiduciary funds are restricted for use for specific purposes as described by the trust agreement or law. Fiduciary fund transactions occur all year, not just at the end of the year. Pension funds aren’t the only kind of fiduciary funds.

Answer 145

A Explanation: Interest on general long-term debt, usually accounted for in debt service funds, normally are recorded as an expenditure on its due date rather than being accrued prior to its due date. Only the interest cost actually paid in the period is included in interest expense. Accordingly, this answer is correct. Since no interest was paid during the year, interest expense is $0.

Answer 146

A Explanation: The government-wide financial statements use normal accrual accounting. The bond interest should be the $1,000,000 times 0.03 (because the 6% interest is paid every 6 months) for a total of $30,000 on each due date. The interest expense would be the $30,000 for the period March 1 to September 1 plus $20,000 for the four month period September 1 to December 31 ($30,000 × 4/6 = $20,000) for a total of $50,000. Because the $20,000 for the last four months will not be paid until the next March 1, it would be the interest payable at the close of the fiscal year on December 31.

Answer 147

B Explanation: Component units should be presented discretely unless either (a) the components unit’s governing body is substantively the same as the governing body of the primary government, or (b) the component unit provides services almost entirely to the primary government, or almost exclusively benefits the primary government although it does not provide services directly to it

Answer 148

C Explanation: If the individual component units are consolidated in any fashion on the combined statements, the data for individual units must be presented in either the notes to the financial statements or in combining statements in the basic financial statements (but not in consolidated statements or a separately issued report).

Answer 149

Explanation: The correct answer is (D). Government-wide financial statements are the second section of the government financial report. Prepared on the economic resources measurement focus and accrual basis of accounting. The amount of liabilities reported in the governmental activities column of the government-wide statement of net position is $1,660,000. Summary Amount General obligation bonds $1,500,000 Compensated Absences $120,000 Salaries payable $40,000 Total Liabilities $1,660,000

Answer 150

C Explanation: The Significant Accounting Policies section includes a number of explanations about what policies the government has adopted for recognition, such as how revenues are recognized, asset capitalization, program revenues, and the government’s definition of operating transactions. Disclosures do not describe how the government complied with applicable laws and regulations, why the government exceeded its statutory budgetary authority, or why the notes are necessary.

Answer 151

C Explanation: General funds use modified accrual accounting. Both capital purchases and operating expenditures are considered spending of funds and are treated as current year expenditure. Routine employer contribution to a pension trust fund is an expenditure. Option (a) is incorrect because contribution of enterprise fund capital by the general fund is not an expenditure. Option (b) is incorrect because operating transfers are reported as other financing uses under modified accrual accounting. Option (d) is incorrect because transfers out is treated as other financing uses and not expenditure

Answer 152

A Explanation: Governmental-type funds pose problems for developing a meaningful government-wide cash flows statement. Only funds for business-type activities are required in the statement of cash flows.

Answer 153

Explanation: The correct answer is (A). The accounting records showed a debit balance of $50,000 in the Budgetary Fund Balance account. This means that the appropriations are $50,000 greater than estimated revenues. When Goodville adopted its budget, estimated revenues are debited and appropriations are credited. A debit or credit to the budgetary fund balance is used when the budget does not balance. The budgetary fund balance is debited ($50,000) when appropriations are greater than estimated revenues. See the example below. Estimated Revenue Control $40,000 Budgetary Fund Balance $50,000 Appropriations Control $90,000

Answer 154

B Explanation: The budgetary comparison schedule includes the original and final budgets as well as actual inflows, outflows, and balances, stated on the government's budgetary basis of accounting, with a reconciliation between the budgetary and GAAP information. The schedule may have the same format as the budget documents or the statement of revenues, expenditures, and changes in fund balances. A column reporting the variances between the final budget and actual amounts is encouraged, but not required.

Answer 155

Explanation: The comprehensive annual financial report contains the following sections: Introduction Section; Financial Section; and the Statistical Section.

Answer 156

A Explanation: Quasi-external transactions payment from one fund to another for goods or services that are being provided. These are reciprocal transactions, involving an earnings process, unlike the operating and residual equity transfers, in which transfer is made without any benefit received by the transferor. The only transaction which is the billing by the internal service fund for services rendered for $5,000 is the reciprocal inter-fund activity. Option (b) is incorrect because routine transfer is an operating transfer and not reciprocal transaction. Option (c) is incorrect because there is no benefit received in return, it is a transfer to set up new fund. Option (d) is incorrect because operating transfer and transfer to set up new fund are both non-reciprocal transfers, there is no benefit received in return.

Answer 157

C Explanation: The rule of thumb for measuring available revenues in the modified accrual method of accounting is to use revenues received within 60 days after the end of the reporting period.

Answer 158

A Explanation: All pension trust fund contributions and earnings are accounted for as fund revenues. The pension trust fund makes the following entry to record employer contributions: Cash 11,000 Revenues control—employer contribution 11,000

Answer 159

A Explanation: A budgetary comparison schedule is presented on the budgetary basis of accounting for the general fund and for each major special revenue fund that has a legally adopted annual budget. The schedule presents both the original and final budget, as well as actual inflows, outflows, and balances. A local government would need the original budget to prepare any budgetary comparison schedules. An explanation of variances would come after the computation of variances from budget to actual which comes after the budgetary comparison schedule is prepared. A description of the local government's budgeting process is not needed to have a budget and produce a budgetary comparison schedule.

Answer 160

Explanation: The correct answer is (B). Property tax revenue for an amount deferred because it was not available should only be included for governmental activities in the government-wide statement of activities. Property tax revenue that is not currently available is not reported at the governmental fund level but is reported in the government-wide statement. This would be a reconciliation item between the governmental fund balance and the government-wide statement of net position.

Answer 161

B Explanation: The statement of activities is part of the government-wide financial statements, meaning that the revenue reported would be calculated using the accrual method. For this reason, the amount collected within 60 days does not apply to this question. Smith City will report $990,000, which is the 99% of the levy that it expects to collect.

Answer 162

B Explanation: For those potential component units that are legally separate, the next step is to determine whether or not the primary government (not the voters) appoints (not elects) a voting majority of the unit’s board.

Answer 163

Explanation: The correct answer is (B). Management discussion and analysis (MD&A) is the portion of a public company's annual report in which management addresses the company's performance over the previous twelve months. It is a major part of the financial statement, not just supplementary material. MD&A covers major points but does not go into details for each fund. MD&A is not for the purpose of outlining condensed financial information from the fund financial statements. As part of MD&A, there is a requirement to compare current-year results to the prior year with an emphasis on the current year. (A) is incorrect because MD&A is presented separately and RSI is other than MD&A. (C) is incorrect because MD&A includes analysis of overall financial position and results of operation including reasons for changes from the prior year; not for each fund. (D) is incorrect because MD&A should present condensed financial information derived from government-wide financial statements, not from fund financial statements.

Answer 164

D Explanation: The statement of revenues, expenditures, and changes in fund balance is a fund-level financial statement for the governmental funds and uses the modified accrual method of accounting. The $1,000,000 for the firetruck would have been reported as an expenditure, and the truck itself would not have been capitalized at the fund level. Therefore, no depreciation would be reported on the statement of revenues, expenditures, and changes in fund balance.

Answer 165

B Explanation: Fiduciary funds do not use the major fund reporting outlined for govern-mental and proprietary funds. The fiduciary fund statements are focused on the fund type and the specific reporting requirements for each type. Fiduciary funds should present the statement of fiduciary net position and the statement of changes in fiduciary net position in accordance with the guidance for each type of fund.

Answer 166

A Explanation: The major fund financial statements are presented before the notes to the financial statements, as part of the basic financial statements, not RSI. The basic financial statements should be preceded by MD&A, which is required supplementary information. The basic financial statements should include (1) the government-wide statements that display information about the reporting government as a whole, except for its fiduciary activities, (2) fund financial statements for the primary government's governmental, proprietary, and fiduciary funds should be presented after the government-wide statements, and notes to the financial statements. Except for MD&A, required supplementary information, including the required budgetary comparison information, should be presented immediately following the notes to the financial statements.

Answer 167

A Explanation: The general fund records the expected $9,000,000 of inflows of resources for property taxes, licenses, and fines as estimated revenues in the entry to record the adoption of the budget. In this same entry, the expected inflows of resources from the proceeds of the debt issue and the interfund transfers for debt service are recorded as other financing sources.

Answer 168

D Explanation: When the purchase order for the supplies was issued, the following entry was made: Encumbrances control (estimated cost of supplies) 5,000 Reserve for encumbrances 5,000 Upon receipt of the supplies and invoice, the following entries were made: Reserve for encumbrances (reverse original entry) 5,000 Encumbrances control 5,000 Expenditures (actual cost) 4,950 Vouchers payable 4,950

Answer 169

Explanation: Internal Service fund is part of the proprietary funds which use the accrual basis of accounting with economic resources approach. Statement of revenue, expenses, and changes in net position: Operating revenues - Operating expenses +/- Non operating revenues (expenses) = Change in net position Depreciate capital assets Options (a), (b) and (d) are incorrect because governmental funds include Special Revenue Fund, Capital Projects Fund, and Debt Service Fund use modified accrual accounting with financial resources approach

Answer 170

B Explanation: The PERS is responsible for multiple plans when assets are accumulated in separate reserves restricted for benefits of specific classes or groups of employees. Assets being accumulated for benefit payments available to pay benefits for any of the plan members is a characteristic of the single plan. The government serving as a custodian for the accumulated assets and distributing funds based on instructions from member governments describes an agency fund. Creditor access is not a distinguishing feature for pension trust plans.

Answer 171

B Explanation: The government-wide statements should display information about the reporting government as a whole, except for its fiduciary activities. A pension plan is a fiduciary activity, and thus a pension trust fund is reported in the fund financial statements, but not the government-wide statements. Fiduciary statements should include financial information for fiduciary funds and similar component units.

Answer 172

Explanation: | Fiduciary funds are accounted for using the accrual basis of accounting.

Answer 173

B Explanation: The following entry is made when a purchase order for $50 is approved: Encumbrances (estimated cost) 50 Budgetary Fund balance reserve for encumbrances 50 The following entries would be made to record the receipt of the related goods for $55 and the vouchers payable: Budgetary Fund balance reserved for encumbrances 50 Encumbrances (estimated cost) 50 Expenditures (actual cost) 55 Vouchers payable 55

Answer 174

Explanation: The correct answer is (A). The General Fund uses modified accrual accounting, in which the purchase of a fixed asset is an expenditure, which would affect the excess of revenue over expenditure. Option (B) is incorrect because transfers out are reported as other financing uses which are presented below the excess of revenues (deficiency) over expenditure. Option (C) is incorrect because special items are presented below the excess of revenues (deficiency) over expenditure. Option (D) is incorrect because proceeds from the sale are reported in special items, which is presented below the excess of revenues (deficiency) over expenditure.

Answer 175

Explanation: The correct answer is (C). Fiduciary Funds include: ``` Pension Trust Fund Investment Trust Fund Private Purpose Trust Fund Custodial Fund Option (a) and (b) are incorrect because these are part of governmental funds. Option (d) is incorrect because the internal service fund is part of proprietary funds. ```

Answer 176

A Explanation: Governmental entities invest large amounts of resources in non-revenue producing capital assets such as government office buildings, highways, bridges, and sidewalks.

Answer 177

D Explanation: The debt service fund accounts for and reports the resources that are restricted, committed or assigned for this long-term debt purpose. This fund is responsible for accumulating and making both interest and principal payments on the tax supported debts of the government fund. Thus, both the accumulated principal and the interest payments will be accounted for in the debt service fund for $5,300,000. Only activities not accounted for in other funds will be reported in the general fund. Options (a), (b) and (c) are incorrect based on the above explanation.

Answer 178

D Explanation: Government-wide financial statements aggregate information for all governmental and business-type activities. GASB 34 requires an economic resources measurement focus and accrual basis of accounting for all amounts in the government-wide financial statements.

Answer 179

A Explanation: Debt proceeds should be recognized by a capital projects fund at the time the debt is incurred, rather than the time the debt is authorized or when the proceeds are expended. Debt proceeds should be reported in the capital projects fund as Other Financing Sources rather than as Revenues. The entry in the capital projects fund to record the issuance of the bonds is as follows: Cash 4,000,000 Other Financing Sources—Bond Proceeds 4,000,000

Answer 180

A Explanation: The journal entry to record the adoption of the budget is as follows: Estimated Revenues Control 100,000 Appropriations Control 80,000 Budgetary Fund Balance--Unreserved 20,000

Answer 181

Explanation: The correct answer is (A). Custodial funds account for collected amounts that must be transferred to other funds or outsiders. Seaview city received a pass-through grant from the state to distribute scholarship to the eligible children for the summer-camp and holding the cash temporarily and is not obligated. Thus, this is reported in the Custodial fund.

Answer 182

A maybe idk lol ``` Explanation: GASB 34 (para. 8) states, "The basic financial statements should be preceded by MD&A, which is required supplementary information. MD&A should provide an objective and easily readable analysis of the government's financial activities based on currently known facts….". ```

Answer 183

D Explanation: Remember that the statement of net position is a government-wide financial statement, which means that it will use the accrual method of accounting. The accrual method does not defer property tax revenues that are not received within 60 days of year end, so the answer to this question is $0.

Answer 184

C Explanation: The estimated revenues control account is a budgetary account. Budgetary accounts are generally opened with balances opposite of the corresponding actual account.

Answer 185

D Explanation: The entry when a purchase order is issued is as follows: Encumbrances XX Reserve for encumbrances XX When a corresponding invoice is received for $105, the following two entries are made: Reserve for Encumbrances XX Encumbrances XX Expenditures (actual cost) YY Vouchers Payable YY

Answer 186

C Explanation: While goods and services committed for by purchase order or contract are encumbered in governmental funds to avoid overspending appropriations, some expenditures are controlled by other means and need not be encumbered. Salaries and wages are set by contract and controlled by established payroll procedures and are not encumbered. Salaries and wages expense would not be appropriate for a governmental-type fund. Salaries and wages should be recorded as follows: Expenditures control 800,000 Vouchers payable 800,000

Answer 187

B Explanation: Resources for capital project funds may arise from bond issue proceeds, grants, or interest earnings. Revenues based on rates that will recover the costs of capital assets required to deliver services describes the approach used in enterprise fund accounting. Donations restricted such that only investment earnings can be used for maintenance would be accounted for in a permanent fund. The encumbrance system is used in governmental funds (general, special revenue, and capital projects funds) to prevent over-expenditure and to demonstrate compliance with legal requirements. Encumbrances are a budgetary measurement element, not a criterion for determining fund type.

Answer 188

B Explanation: The governmental-type funds and internal service funds usually appear in the government activities column in the government-wide financial statements. Enterprise funds generally appear in the business-type activities column in the government-wide financial statements. Internal service fund assets and liability balances that are not eliminated in the statement of net position should normally be reported in the governmental activities column. Although internal service funds are reported as proprietary funds, the activities accounted for in them are usually more governmental than business-type in nature. If enterprise funds are the predominant participants in an internal service fund, however, the government should report that internal service fund's residual assets and liabilities within the business-type activities column in the statement of net position.

Answer 189

D Explanation: Expenditures are recorded when fund liabilities are incurred or assets are expended, except in regard to inventory items, interest on general long-term debt, and prepaids such as insurance. This is due to the emphasis on the flow of financial resources in governmental accounting.

Answer 190

C Explanation: Governmental employers identify in the notes to the financial statements the types of employees covered under the defined contribution pension plan and the employer's and employees' obligations to contribute to the fund.

Answer 191

Explanation: The correct answer is (C). The note on significant accounting policies should include descriptive comments about the purposes and scope of the statements of net position and activities. The note on significant accounting policies will only focus on the government-wide statements and does not include comments about other or required supplementary information. There is no statement of net liabilities.

Answer 192

B Explanation: Other postemployment benefits (OPEB) are typically in the form of health care coverage. Most entities fund their OPEB on a pay-as-you-go basis, paying only the amount equal to benefits claimed. GASB believes the pay-as-you-go approach does not reflect the true OPEB liability, and issued GASB 45 outlining OPEB reporting and disclosure requirement. The objective is to systematically and rationally allocate the present value of the projected cost of benefits over the working life of benefiting employees. This allocation is done with an actuarial valuation. The amount allocated to a given year is known as the annual required contribution (ARC), which is the basic amount of expense (i.e., $500,000). The present value of benefits earned to date by employees is known as the actuarial accrued liability. The difference between this amount and any resources placed in trust is known as the unfunded actuarial accrued liability.

Answer 193

A Explanation: Special revenue funds are used to account for financial resources that are restricted by law or by contractual agreement to specific purposes other than for permanent funds or major capital projects. Thus, neither the $8,000 of proceeds of the short-term notes to be used for advances to permanent fund nor the $90,000 of proceeds on long-term debt to be used for a major capital project should be accounted for in a special revenue fund.

Answer 194

Explanation: The correct answer is (A). Hunt Community Development Agency provides loans as its operating activity, not as financing or investing activities. As defined under Para 19 of GASB 9, these would be program loans that are made and collected as a part of a government program. The operational purpose of this entity is to disburse loans. The loan disbursement of $500,000 would be reported under Operating Activities in the Statement of Cash Flows.

Answer 195

Explanation: Governments are encouraged to present budgetary comparisons as part of required supplementary information (RSI). There was significant discussion about whether these reports should be part of the basic financial statements, in part to ensure that audit coverage provided additional credibility for the reports. The GASB allowed governments to elect to present budgetary comparisons as statements within the basic financial statements, but not as part of other supplementary information or notes to the financial statements.

Answer 196

Explanation: Both capital purchases and operating expenditures are considered spending of funds and are treated as current year expenditure. Dr: Expenditure XXXX Cr: Voucher Payable XXXX (Government fund purchases police cars). Option (a) is incorrect because purchase of police cars is a current year expenditure not a non-current asset. Option (c) is incorrect because purchase of police cars is a current year expenditure not expense. Option (d) is incorrect because purchase of police cars is a current year expenditure not PP&E which are non-current assets.

Answer 197

Explanation: The budgetary fund balance reserved for encumbrances is increased when a purchase order is approved. The budgetary fund balance reserved for encumbrances is not affected when the budget (along with the related appropriations) is recorded. Upon receipt of the item previously ordered, The budgetary fund balance reserved for encumbrances is decreased. The following entry is made when a purchase order of $50 is approved: Encumbrances XX Budgetary fund balance reserved for encumbrances XX

Answer 198

Explanation: The modified accrual (not accrual) basis of accounting provides the most direct link to the budgeting process and highlights that current focus that still drives the planning process in most governments.

Answer 199

Explanation: The correct answer is (B). The modified accrual basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures, and changes in fund balances. Under the modified accrual basis of accounting, revenue is recognized in the period it is measurable and available to spend. Costs are recorded in the period that the obligation to pay them arises, whether this is before or after the period in which the government is actually using the assets or services.

Answer 200

Explanation: The correct answer is (A) Revenues of the Government are reported in the Statement of Activities under the following two major headings: Program Revenues: Includes charges levied for services, program-specific operating grants & contributions, and program-specific capital grants & contributions General Revenues: All revenues other than ‘program revenues’ It is clear from the definition of ‘program revenues’ that taxes collected for improvement to roads do not qualify as program revenues. They are to be classified as general revenues. (B) is incorrect because taxes are not reported in program revenues. (C) is incorrect because taxes collected from citizens cannot be called contributions. (D) is incorrect because ‘special items’ is meant for items which are unusual or infrequent. Tax collection isn’t an unusual or infrequent event.

Answer 201

Explanation: The amount of Cliff’s encumbrances that were outstanding at June 30 is $500,000 (i.e., $5,000,000– $4,500,000). When the purchase orders were issued, the following entry was made: ``` Encumbrances Control (estimated cost) 5,000,000 ``` Reserve for Encumbrances 5,000,000 Upon receipt of the goods and related invoices, the following entries were made: Reserve for Encumbrances 4,500,000 Encumbrances Control 4,500,000 Expenditures (actual cost) 4,200,000 Vouchers Payable 4,200,000

Answer 202

Explanation: The management’s discussion and analysis (MD&A) provides an analysis of the government’s financial performance for the year, provides comparisons of the current-year results to the previous year, and discusses both the positive and negative aspects of the comparison. Overall, the emphasis should be on the current year and the focus should be on the primary government. Although considered RSI, the MD&A is presented before the basic financial statements. The MD&A should present condensed financial information derived from government-wide financial statements, not fund financial statements, comparing the current year to the prior year. Although the MD&A should include an analysis of balances and transactions of individual funds, the AICPA provided answer choice b, not c, as the correct answer response.

Answer 203

Explanation: The correct answer is (D). The motor pool internal service fund is reported under the proprietary fund in the fund financial statements. The proprietary fund uses the accrual basis of accounting which records operating revenues, operating expenses and non-operating revenues and non-operating expenses to get the change in net position. Vann County’s motor pool internal service sold two vehicles for $5,000. Both vehicles together have a cost of $6,000 and a carrying value of $4,000. Because the carrying value was $4,000 and the vehicles sold for $5,000, Vann County’s motor pool internal service fund should report a gain of $1,000.

Answer 204

Explanation: The correct answer is (A). General capital assets are not specifically related to activities reported in proprietary or fiduciary funds. They are associated with and generally arise from, governmental activities. They should not be reported as assets in governmental funds but should be reported in the governmental activity’s column in the government-wide statement of net position.

Answer 205

D Explanation: Comparability, consistency, and timeliness in SEA reporting are readily accomplished for a single governmental entity. Ensuring that reported performance yardsticks measure goals and desired effects is more complex.

Answer 206

C Explanation: Government-wide statements (GWS) aggregate information for all governmental and business-type activities. GASB 34 requires an economic resources measurement focus and accrual basis of accounting for all amounts in the GWS. There are four required columns in the GWS, one each for: governmental activities, business-type activities, the primary government (sum of the previous two), and component units. Most component units should be included in the financial reporting entity by discrete presentation (reported in columns separate from primary government).

Answer 207

Explanation: The correct answer is (A). Custodial Funds account for collected amounts that must be transferred to other funds or outsiders. Harland County is collecting and holding the cash temporarily and not obligated, so the cash is reported in the Custodial Fund. (B) is incorrect because the General Fund accounts for and reports any activity or function by the government unit that is not being accounted for in another fund. (C) is incorrect because the Special Revenue Fund accounts for and reports specific revenues from earmarked sources that are restricted or committed to be used to finance designated activities other than Capital Projects and Debt Service. (D) is incorrect because the Private Purpose Trust Fund accounts for resources that are being held for benefit of private persons, organizations or other governments

Answer 208

Explanation: The correct answer is (B). Property taxes are considered the enforceable legal claim and is always recognized when billed. A government can expect to collect the amount billed to taxpayers once a property tax assessment is made as these taxes are mandatory. As a result, property taxes that have been billed usually satisfy the requirements of being measurable and available, and are accrued in advance of collection. However, an allowance for uncollectible must be established. Dr. Property Taxes Receivable-Current $1,000,000 Cr. Property Tax Revenue $1,000,000

Answer 209

A Explanation: GASB Statement No. 34 listed three criteria, any one of which requires the use of an enterprise fund. Activity being financed with debt that is secured by a pledge of the net revenues from fees and charges of the activity is the first of the listed criteria. User fees charged to external users for goods and services is an optional reason for using an enterprise fund. The General Fund might provide a subsidy, but this financing does not require the use of an enterprise fund. Surplus funds may be returned to the General Fund, but this transfer does not require the use of an enterprise fund.

Answer 210

Explanation: Governmental fund measurement focus is on determination of financial position and changes in financial position (sources, uses, and balances of financial resources), rather than on net income determination.

Answer 211

C Explanation: The annual pension cost differs from the pension expenditure/expense reported in the financial statements. The annual pension cost is the period cost of an employer's participation in a defined benefit pension plan. The pension expenditure/expense is the amount recognized by an employer in each accounting period for contributions to a pension plan.Therefore, the $10,000 contribution represents the pension expenditure for year 1.

Answer 212

Explanation: Program-specific operating grants and contributions are nonexchange revenues that are restricted to the operations of specific programs or functions.

Answer 213

Explanation: Budgets play a key role in managing public funds. Governments adopt a budget with legislative approval providing a legal mandate for the expenditure of public funds.

Answer 214

Explanation: The capital projects fund reports unrestricted grants received from other governmental units as revenue. Therefore, the $400,000 grant from the state is reported as revenue in Fir's capital projects fund's operating statement. The capital projects fund reports long-term debt proceeds and operating transfers from other funds as other financing sources. Therefore, the $500,000 proceeds from the general obligation bond issue and the $100,000 transfer from Fir's general fund are reported as other financing sources of $600,000 in the capital projects fund's operating statement.

Answer 215

B Explanation: General government fixed assets and long-term debt are not recorded in the governmental funds, but are shown in the governmental activities column of the governmental-wide financial statements. General long-term debt to be repaid from general resources of the government should not be reported in any fund.

Answer 216

Explanation: The correct answer is (B) Custodial Funds are used to account for resources held by a government as an agent for individuals or other governmental units. Taxes, for example, are occasionally collected by one governmental unit on behalf of another. Until that, money is physically transferred to the proper authority, it is recorded in a Custodial Fund. A Trust Fund accounts for assets received and held by a governmental unit acting in the capacity of trustee or custodian. The aim in Trust Fund accounting is to ensure that the money or other resources are handled in accordance with the terms of the trust agreement and/or applicable trust laws. Special Revenue Funds are used to account for revenues that have been legally restricted as to expenditure (e.g., a state gasoline tax collected in order to maintain streets). Internal Service Funds are used to account for any department or custodian that provides services within the government on a cost-reimbursement basis.

Answer 217

B Explanation: The three funds using the accrual basis of accounting are the (1) internal service fund, (2) airport enterprise fund, and (3) pension trust fund (fiduciary fund). The modified accrual basis of accounting is used by the general fund, capital projects fund, special revenue fund, and debt service fund.

Answer 218

Explanation: The correct answer is (C). Governmental businesses, unlike commercial enterprises, have a mission strategy to improve quality of life for community whereas private sector commercial entities are focused on generating a net profit for shareholders. Both governmental and private sector enterprises aim to charge fees sufficient to recover costs and depreciation based on estimated service lives. Either type of entity would likely issue revenue debt to finance capital expansions.

Answer 219

Explanation: Expenditures differ from expenses (as defined in commercial accounting) because expenditures include—in addition to current operating expenditures that benefit the current period—capital outlays for general fixed assets and repayment of general long-term debt principal. Payments of principal on long-term debt $100,000 Payments to vendors 500,000 Purchase of a computer 300,000 Total expenditures $900,000 Option (a) is incorrect because payment to vendors and payment of principal on long-term debt is excluded. Option (b) is incorrect because payment of principal on long-term debt and purchase of computer is excluded. Option (c) is incorrect because payment of principal on long-term debt is excluded.

Answer 220

A Explanation: The notes to the basic financial statements of governmental entities do not contain disclosures related to required supplementary information. The Management's Discussion and Analysis (MD&A) is the required supplementary information in the government's general purpose external report and it is presented before the financial statements. .

Answer 221

Maybe A idk Explanation: GASB Statement No. 38 expanded the disclosures required related to interfund balances and transfers. The disclosures weren’t required because governments considered the details to be essential to demonstrating budgetary compliance. Although more details could muddy the waters for users, in this case, users wanted more detail because they expressed concern about how

Answer 222

A Explanation: The general fund is the one most likely to be the fund that taxpayers recognize as the central funding source for basic services, such as police, fire, or recreation. Users seemed to have little interest in accounting designations of special revenue versus debt service and more interest in the results for a specific program.

Answer 223

Explanation: The correct answer is (C). When a lease represents the acquisition of a general capital asset, it is accounted for as a Contract that transfers ownership. The acquisition or construction of that asset should be reflected as an expenditure and Other Financing Source, consistent with the accounting and financial reporting for general obligation bonded debt.

Answer 224

Explanation: | Fixed assets donated to a governmental unit are recorded at fair value when received.

Answer 225

A Explanation: The link between government-wide and governmental fund statements requires a reconciliation to convert the governmental funds to the economic resources measurement focus and accrual basis of accounting.

Answer 226

D Explanation: An internal service fund’s net income is not affected by temporary transfers. Internal service funds report residual equity transactions as Transfers In or Out. They are reported after non operating revenues and expenses as a capital transaction. An internal service fund’s net income is affected by operating revenues and expenses, non operating revenues and expenses, and operating and residual equity transfers.

Answer 227

D Explanation: Special revenue funds are used to account for revenues that have been legally restricted as to expenditure. The NCGA provides several examples of revenues which would fall under this heading: (1) a state gasoline tax collected in order to maintain streets, (2) proceeds from parking meters which finance the local traffic court, and (3) state juvenile rehabilitation grants used to operate and maintain juvenile rehabilitation centers. In each of these cases, a service is being provided, but the funding comes from a specific source rather than from property taxes or any other general revenues. The donation mandated to provide meals for the needy should be accounted for in an private purpose trust fund. Special revenue funds are used to account for resources held in trust by a government for a specific purpose where both the principal and any earnings may be expended for government programs. Private-purpose trust funds resources are to be expended for the benefit of individuals, organizations or other governments.

Answer 228

C Explanation: There are two constraints that create “restricted net assets” in the government-wide statement of net position: constraints externally imposed by creditors, grantors, contributors, or laws or regulations of other governments and constraints imposed by law through constitutional provisions or enabling legislation.

Answer 229

A Explanation: Finch did not provide debt service fund resources during the current fiscal year for the payment of the interest on the general obligation bonds. Therefore, the interest expenditure related to the general obligation bonds should be recorded when it is due to be paid (i.e., September 1, year 2) rather than being accrued at year-end (i.e., June 30, year 2). Only if debt service fund resources had been provided during the current fiscal year for the payment of the interest, could the expenditure and related liability be recognized in the debt service fund.

Answer 230

B Explanation: Commitments made by a government are encumbrances. Appropriations are amounts budgeted to be spent. Expenditures are amounts that have been spent. A fixed assets account is debited when the property is placed in service.

Answer 231

C Explanation: Governmental fund financial statements present a reconciliation to the government-wide statements. Cash flows statements appear only in the fund statements for proprietary funds. Individual component unit information is presented in individual columns in the government-wide statements, after the primary government’s fund statements, or in the notes to the financial statements. Governmental fund financial statements do not include major fiduciary funds. Even fiduciary fund statements present fund types, not major funds.

Answer 232

A Explanation: Net position is the residual of assets and deferred outflows less liabilities and deferred inflows. A deficit in any of the three components would indicate that liabilities probably exceed assets and deferred outflows. Assets may be fully depreciated if associated debt exceeds the net value of capital assets; however, this component could have a deficit if the debt amortization period is longer than the asset depreciation schedule even before assets are fully depreciated. Net position is certainly in jeopardy if any of the components have negative balances; however, the change in net position could have improved if the deficit is lower than the previous year. Internal balances are eliminated and reclassified for the government-wide statements and should not cause deficits in components of net position.

Answer 233

D Explanation: Governments are encouraged, but not required, to capitalize a collection of works of art or historical treasures (and all additions to that collection) whether donated or purchased that meets all of the following conditions. The collection is 1) held for public exhibition, education, or research in furtherance of public service rather than financial gain, 2) protected, kept encumbered, cared for, and preserved, and 3) subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections. Capitalized collections or individual items that are exhaustible, such as exhibits whose useful lives are diminished by display or educational or research applications, should be depreciated over their estimated useful lives. Depreciation is not required for collections or individual items that are inexhaustible.

Answer 234

D Explanation: Three types of operating information are required in the statistical section of the CAFR: number of government employees, operating indicators, and capital asset information.

Answer 235

D Explanation: When a governmental unit is the administrator of a multiple-jurisdiction deferred compensation plan, it should report all of the plan assets and liabilities (e.g., $40,000,000) in Custodial Fund because the governmental unit is acting as an agent for both its own employees and other governments participating in the plan.

Answer 236

Explanation: The correct answer is (D). Required Supplementary Information is the information that is mandated to be disclosed by the reporting entity. This information, though not a part of the financial statements, are considered a prerequisite for a complete understanding and overview of financial information. One such information is Management Discussion and Analysis (MD&A), which is the assessment of the organization’s performance for the said period by the management. MD&A are a compulsory part of Required Supplementary Information for general purpose external financial reporting of a local government.

Answer 237

B Explanation: The capital projects fund reports unrestricted grants received from other governmental units as revenue. Therefore, the $300,000 grant from the state is reported as revenue in the capital projects fund’s operating statement. The capital projects fund reports long-term debt proceeds and operating transfers from other funds as other financing sources. Therefore, the $450,000 transfer from the general fund is reported as other financing sources in the capital project fund’s operating statement.

Answer 238

C Explanation: Property taxes are considered enforceable legal claim and is always recognized when billed. Government can expect to collect the amount billed to taxpayers once a property tax assessment is made as these taxes are mandatory. As a result, property taxes that have been billed usually satisfy the requirements of being measurable and available, and are accrued in advance of collection. However, an allowance for uncollectible must be established. Option (a) is incorrect because, J/E does not provide for allowance for uncollectible for property taxes. Option (b) is incorrect because the J/E debits bad debt expense instead of crediting allowance for uncollectible account for property taxes. Option (d) is incorrect because J/E debits bad debt expense and credits revenue at gross amount instead of recording revenue net of uncollectible on property taxes.

Answer 239

C Explanation: An excess of appropriations over estimated revenues calls causes a debit to the fund balance account at the beginning of the period. An excess of appropriations over expenditures and encumbrances causes a credit to the fund balance at the end of the period. The unassigned fund balance account of the governmental unit in question is debited at the beginning of the year because appropriations exceed estimated revenues, shown in Entry (1). During the year, revenues equaled estimated revenues; therefore, the unassigned fund balance account is not affected by the revenue closing entry, as in Enrty (2). During the year, expenditures and encumbrances were less than appropriations; therefore, the unassigned fund balance account is credited for the closing entry for the appropriations, expenditures, and encumbrances, as in Entry (3). ``` Entry (1) Estimated Revenues Control XX Unassigned Fund Balance (to balance) XX Appropriations Control XX Entry (2) Revenues Control XX Estimated Revenues Control XX Entry (3) Appropriations Control XX Expenditures Control XX Encumbrances Control XX Unassigned Fund Balance (to balance) XX ```

Answer 240

Explanation: Appropriations is a budgetary account which will also be closed. However, since closing the budgetary accounts (which are not all given) simply reverses the entry to record the budget, their closing has no effect on fund balance. The closing entry for the activity accounts given would increase the fund balance, as follows: ``` Revenues 8,000,000 Other financing sources 1,500,000 Expenditures 5,000,000 Other financing uses 2,000,000 Unassigned fund balance (difference) 2,500,000 ```

Answer 241

D Explanation: Billings for services provided to other governmental units are recorded by the internal service fund as operating revenues.

Answer 242

C Explanation: Budgetary Comparison Schedule (BCS) is presented for the general fund and for each major special revenue fund that has a legally adopted annual budget, on the budgetary basis of accounting. The BCS presents both the original and final budget as well as actual inflows, outflows, and balances. It uses the same format, terminology, and classifications as either the budget document or a statement of revenues, expenditures, and changes in fund balances.

Answer 243

C Explanation: For purposes of preparing a statement of cash flows, cash equivalents are short-term, highly liquid investments that are both (1) readily convertible into known amounts of cash and (2) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities to the reporting entity of three months or less qualify as cash equivalents. Thus, for example, both a 3-month U.S. Treasury bill and a 3-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Therefore, the amount of the investments that Hill should report as cash and cash equivalents at 06/30, year 5 is $80,000, the sum of the 3-month bill and the 3-year note purchased less than three months from maturity. The note with an original maturity to Hill of five years will never be reported as a cash equivalent by Hill. CLOSE

Answer 244

C Explanation: SEA reporting emphasizes performance results and is designed to help public policy-makers evaluate which programs are critical for a community.

Answer 245

Explanation: The correct answer is (B). Custodial Funds are used to account for resources held by a government as an agent for individuals or other governmental units. Taxes, for example, are occasionally collected by one governmental unit on behalf of another. Until the money is physically transferred to the proper authority, it is recorded in a Custodial Fund. Option (A) is incorrect because the general fund is used to account for resources that are not required to be accounted for in another fund. By accounting for the collected city income taxes in the General Fund, the state would imply that the taxes were available for general purposes. Option (C) is incorrect because Internal service funds are used to account for services provided to other governmental units as if the service provider were a separate business. Option (D) is incorrect because Special assessment funds are no longer used.

Answer 246

Explanation: The correct answer is (B). For general fund financial statements, we need to use modified accrual accounting as per current financial resources approach. In modified accrual accounting, a department will usually not account for long-term debt as this represents future periods and the focus is on a single period here (usually a year). Interest and principal on long-term debt are not recorded until the periods in which they must be paid. Thus, an amount to be paid from current financial resources should be reported as a liability in the general fund financial statements. (A) is incorrect because this is applicable for current liabilities under accrual accounting. (C) is incorrect because if it’s an unfilled contract then it should not be recorded as a liability in the current year as there is no certainty of outflow in the current year. (D) is incorrect because liability is recorded only if they are paid in the current period and not in future periods.

Answer 247

C Explanation: The primary distinction for a single plan is the ability to legally redirect resources among any of the beneficiaries, within the confines of the plan agreement. While it is not recommended, multiple employer plans may use a single portfolio to maximize earnings on investments. A single plan could have separate reserves, but this is not one of its distinguishing characteristics. Consolidated reporting is not available to sponsoring governments.

Answer 248

A Explanation: The proprietary funds consist of the enterprise funds and the internal service funds. Therefore, Cole's proprietary equity balances amount to $1,400,000 (i.e., $1,000,000 + $400,000).

Answer 249

D Explanation: The introductory section of a local government’s comprehensive annual financial report would include a title page, a table of contents, and a letter of transmittal. It may also include other material deemed appropriate by management. Issues that may be included in the transmittal letter include, but are not limited to, a profile of the government, information useful in assessing the government’s financial condition, and awards and acknowledgments. The financial section would include the auditor’s report, management’s discussion and analysis (MD&A), basic financial statements, notes, and any required supplementary information.

Answer 250

B Explanation: The statement of revenues, expenditures, and changes in fund balance would report the amount of cash paid in interest during the year as the amount of interest expenditures. The change in accrual would not affect the interest expenditure at the fund level. $250,000 in interest was paid during the year.

Answer 251

Explanation: The basic financial statements include both the government-wide statements and the fund statements, as well as the notes, but not the statistical section.

Answer 252

C Explanation: As per GASB, the statement of cash flows needs to be presented for all proprietary funds. Proprietary funds could either be Internal service fund and Enterprise fund. These follow accrual accounting and economic resources approach. Both Tollway Public Benefit Corporations and Governmental utilities are Enterprise funds where the services are availed through voluntary payments. Thus, the statement of cash flows needs to be presented for both the funds. Options (A), (B) and (D) are incorrect based on the above explanation.

Answer 253

Explanation: The correct answer is (A). The modified accrual basis is the appropriate basis of accounting for governmental-type funds (i.e., general, special revenue, capital projects, debt service, and permanent funds). The modified accrual basis of accounting for a governmental unit recognizes revenues in the accounting period in which they become available and measurable. Proprietary funds and fiduciary funds use the accrual basis of accounting in all financial statements in the GASB 34 reporting model. The accrual basis of accounting recognizes revenues in the period in which they become earned and measurable.

Answer 254

D Explanation: The estimated revenues control account of a governmental fund type is a budgetary account (i.e., it is not used to record actual revenues). Its balance is eliminated when the budgetary accounts are closed. The entry to close the estimated revenues control and revenues control accounts to unassigned fund balance is as follows: Revenues control 17,000,000 Unassigned Fund balance (difference) 3,000,000 Estimated revenues control 20,000,000

Answer 255

C Explanation: The definition of “major” for other than the general fund is based on an objective assessment of the relative size compared to the government’s totals. The cumulative materiality of the fund over five reporting periods does not influence the determination of a major fund. The current year’s balance compared to the previous year does not influence the determination of a major fund.

Answer 256

D Explanation: The general fund is used to account for most routine operations of the governmental entity. This fund accounts for all resources that are not required to be accounted for in other funds; in essence, it accounts for all unrestricted resources. The general fund uses modified accrual accounting. A fund balance is the difference between governmental fund assets and liabilities reported on the balance sheet. When the state paid the interest due ,it would have reduced the amount of assets (cash) and as such decreased fund balance.Option (a) is incorrect because interest expenditure would be increased not decreased. Option (b) is incorrect because interest payable is recorded when the interest is accrued under accrual basis of accounting not for general funds, which uses modified accrual accounting. Option (c) is incorrect because general fund would report interest expenditure, not interest expense.

Answer 257

D Explanation: In the absence of a profit motive, a net income bottom line, or other performance indicators, governments are subjected to a variety of restrictions and controls. The most important are overall legal restrictions on the use of resources and exercise of financial expenditure control through the annual budget. These lead to the use of fund accounting and budgetary accounting.

Answer 258

C Explanation: Governments derive their revenues in large part from involuntary payers. Tax assessments, license fees, permits, even many user fees are imposed in accordance with statutory authority rather than the payer’s willingness to participate in the transaction. This authority is vested in the governmental entity to protect the public welfare and promote social and economic development. The federal government does provide oversight for state and local government management of federal grant programs; however, the federal government does not establish reporting standards for state and local governments. State and local government tax-exempt status does not include reporting standards. Governmental reporting requirements are established by the Governmental Accounting Standards Board.

Answer 259

b or C idk Explanation: GASB 34 requires all governments to report all new capital assets at historical cost. Capital assets include assets formerly listed in the general fixed asset account group (land, buildings, equipment) and infrastructure assets. Capital assets should be depreciated over their estimated useful lives unless they are either inexhaustible or are eligible infrastructure assets reported using the modified approach. The retroactive infrastructure reporting requirements are optional for small governments.

Answer 260

A Explanation: Debt service fund budgetary accounts may be used to record estimated revenues from taxes or other financing sources, or estimated investment earnings. Actual amounts are then recorded as revenues. The operating transfer from the general fund is recorded as an other financing source; not revenue.

Answer 261

D Explanation: The elimination of the book value of a previously acquired asset has no impact on fund financial statements but serves to reduce the changes in net position of the government-wide financial statements as the asset is written off (net of proceeds and accumulated depreciation). The book value of capital assets is, therefore, essentially subtracted from change in fund balance to reconcile to the change in government-wide net position. Actual reconciling items might focus more on the computation of a gain or loss and proceeds from the disposal rather than individual components such as the asset book value

Answer 262

Explanation: The correct answer is (C). The budget discussion section should provide an analysis of significant variations between original and final budget amounts as well as the variances between budget and actual. It should explain why the budget was changed, not just how much it changed.

Answer 263

Explanation: The correct answer is (A) In accordance with GASB 33, governmental fund accounting is based on modified accrual basis and current financial resources approach. Repairs to damaged buildings are treated as current-year expenditures. Repair is reported as expenditures and not as other uses of funds. Payment of interest and principal of long term debt is an example of other uses of funds reported on the statement of revenues, expenditures, and changes in fund balances

Answer 264

Governmental funds do not provide a statement of cash flows, while proprietary funds are required to include a statement of cash flows among their financial statements. This means that C is the only correct answer among the choices listed.

Answer 265

Explanation: Equipment and facilities included in the estimated total current cost of closure and postclosure care are not reported as current expenses, but as a reduction of the liability. A liability that would be excluded from the “capital-related debt” portion of the statement of net position is the liability for closure and postclosure care associated with a municipal solid waste landfill.

Answer 266

A Explanation: Note disclosures related to cash and cash equivalents explain how cash equivalents are classified in the beginning and ending balances on the cash flows statement. How governments classify cash flows in the cash flows statement is outlined in GASB Statement No. 9. Governments are not required to disclose the details of maturities of cash equivalents included in the cash flows statement. Cash equivalents are not distributed among the four categories of the cash flows statement.

Answer 267

B Explanation: The following entries would be made by a governmental unit when ordering and receiving goods: To record purchase order issued when goods were approved for purchase: Encumbrances (expected cost) XX Reserve for encumbrances XX To record expenditure upon receipt of the goods: Reserve for encumbrances XX Encumbrances XX Expenditures (actual) XX Vouchers payable XXThus, upon receipt of the goods, the Encumbrance account decreases and the Expenditures account increases.

Answer 268

D Explanation: Net investments in capital, restricted, and unrestricted are reported for net position in the proprietary fund statements and in the government-wide statements. Committed and assigned are components of governmental fund balances.

Answer 269

B Explanation: General fixed assets acquired by foreclosure are recorded at the lower of (1) the amount due for taxes, special assessments, penalties and interest, plus foreclosure costs or (2) appraised fair market value. Therefore, since the $20,000 Palm incurred for taxes, liens, and other costs incidental to acquiring ownership and perfecting title is less than the land's $60,000 fair market value at the forfeiture date, the land should be reported in the governmental activities column of government-wide financial statements at $20,000.

Answer 270

D Explanation: Governmental-type funds use the modified accrual basis of accounting, with revenues recognized when they become measurable and available for use. "Available for use" means that the revenues will be collected within the current period or collected early enough in the next period to be used to pay for expenditures incurred in the current period. (The rule of thumb for available for use is that the revenue is collected within 60 days.) GASB No. 22 amends the method continued by GASB No. 1 to include self-assessed income and sales taxes among accruable revenues. Five classes of revenue that may be accrued if available for use and measurable are: (1) personal property taxes, (2) real estate property taxes, (3) income taxes, (4) sales taxes, and (5) taxes collected by another governmental unit. ($14,000,000 + $1,000,000 + $2,000,000 = $17,000,000).

Answer 271

C Explanation: The debt service fund of a governmental unit is used to account for accumulation of resources for, and the payment of, general long-term debt principal and interest. The debt service fund reports cash receipts from the general fund as operating transfers. Cash payments for long-term debt principal and related interest are reported as expenditures in the fund.

Answer 272

Explanation: The $1,000,000 unrestricted grant received from the state should be accounted for as revenue in Cal City's general fund. The $200,000 of interest received on bank accounts held for employees' pension plans should be accounted for in Cal City's pension trust fund.

Answer 273

C maybe Explanation: Government-wide statements aggregate information for all governmental and business-type activities on the accrual basis of accounting. Fund financial statements use modified accrual and a reconciliation to the government-wide statement must appear on the face of the governmental-type fund financial statements or in a separate schedule.

Answer 274

Explanation: The correct answer is (C). Governmental Funds – General Fund, Special Revenue Fund, Capital Projects Fund, Debt Service Fund, and Permanent Fund use modified accrual accounting and current financial resources measurement focus. (A), (B) and (D) are incorrect because Enterprise Fund and Internal Service Fund are Proprietary Funds and a Private-Purpose Trust Fund is a Fiduciary Fund which all use the economic resource approach

Answer 275

Explanation: Enterprise funds must be used to account for a government's business-type operations that are financed and operated like private businesses--where the government's intent is that all costs of providing goods or services to the general public on a continuing basis are to be recovered primarily through user charges (operating revenue). Enterprise funds use normal accrual accounting. Compensated absence expense is $425,000 ($400,000 + $150,000-$125,000).

Answer 276

Explanation: The correct answer is (B). Governmental funds use the modified accrual basis of accounting, under which, revenues are recognized when they become measurable and available for use. "Available for use" means that the revenues will be collected within the current period or collected early enough in the next period to be used to pay for expenditures incurred in the current period. Therefore, the property taxes collected before the end of fiscal year 2 or shortly thereafter should be reported as revenues in fiscal year 2.

Answer 277

D Explanation: Key objectives for the government-wide financial statements are to view the primary government’s financial position and to provide operational accountability for providing public programs and services. The government-wide financial statements do not include fiduciary funds because the governmentwide financial statements are intended to give the reader a view of the financial health of the government. Since fiduciary funds are not resources that the government can use or tap into, the balances of these funds would not positively or negatively impact the government’s financial health. The governmental fund statements provide fiscal accountability based on the modified accrual basis of accounting and current financial resources measurements.

Answer 278

Explanation: The correct answer is (D). Debt service funds account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Therefore, the portion of the special tax that is restricted to repay the long-term debt of the government's capital projects fund should be accounted for in a debt service fund. Internal service funds are used to account for the activities of a department that provides services to other departments of the same government in a manner similar to a business. Internal service funds (a type of proprietary fund) account for only their own assets, liabilities, revenues, and expenses. Enterprise funds are used to account for the activities of a department that provides services to others in a manner similar to a business. Enterprise funds (a type of proprietary fund) account for only their own assets, liabilities, revenues, and expenses. Capital project funds are used to account for the construction of capital projects.

Answer 279

Explanation: Enterprise funds must be used to account for a government’s business-type operations that are financed and operated like private businesses—where the government’s intent is that all costs of providing goods or services to the general public on a continuing basis are to be financed or recovered primarily through users charges. Governments are permitted to account for virtually any type of self-contained business-type activity in enterprise funds if it prefers to do business-type accounting rather than general government accounting. An enterprise fund is a proprietary fund.

Answer 280

Explanation: The correct answer is (D) The GASB requirement calls for an explanation of the measurement focus and basis of accounting for the government-wide statements and fund financial statements.

Answer 281

A Explanation: Transfer to a debt service fund is an operating transfer (or inter-fund transfers). Since government funds use modified accrual basis of accounting $100,000 is reported as other financing uses. Payment to pension trust and purchase of equipment are both expenditures. Option (b) is incorrect because it includes purchase of equipment which is expenditure, not to be classified as other financing uses. Option (c) is incorrect because payment to pension trust and purchase of equipment are both expenditures, not other financing uses. Option (d) is incorrect because it includes payment to pension trust and purchase of equipment are both expenditures, not other financing uses.

Answer 282

Explanation: The correct answer is (A). The GASB sets accounting and financial reporting standards for state and local governments. The FASB sets standards for financial reports published by business and nonprofit enterprises. Option (B), (C) and (D) are incorrect as per above explanation.

Answer 283

D Explanation: Proprietary funds may account for landfills. Liabilities are recognized in a proprietary fund when a proprietary fund accounts for the landfill. Expense recognition should be finished when the post-closure period begins. Capital assets should be fully depreciated by the date the MSWLF stops accepting solid waste.

Answer 284

C Explanation: Enterprise fund is a proprietary fund which uses accrual basis of accounting and applies economic resources approach. Preferred approach also called depreciation approach is to account for the assets and recognize depreciation. Option (a) is incorrect because purchase of equipment is an expenditure in modified accrual accounting. Option (b) and (d) are incorrect as per the above explanation

Answer 285

Explanation: Capital projects funds are used to account for the acquisition and use of financial resources to construct or otherwise acquire long-lived "general government" real property and equipment. Project resources, which include proceeds of general obligation bonds, are recorded as received or accrued.

Answer 286

B Explanation: Imposed nonexchange revenues represent assessments imposed on non-governmental entities and include property taxes and fines or forfeitures. Governments should recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied, even if the enforceable legal claim arises or the due date for payment occurs in a different period. All other imposed nonexchange revenues should be recognized in the same period that the assets are recognized unless the enabling legislation includes time requirements. If so, revenues should be recognized in the period when the resources are required to be used or when use is first permitted. (Resources received or recognized as receivable before that period should be reported as deferred revenues.) The $1,980,000 is derived from the total $2,000,000 levied less $20,000 (the 1% of $2,000,000) expected to be uncollectible. The $15,000 written off as uncollectible does not factor anywhere in the equation.

Answer 287

Explanation: The correct answer is (B). Total net position in the government-wide financial statements consists of: Net investment in capital assets (Capital assets net of accumulated depreciation and obligations) = $20,000,000 - $5,000,000 = $15,000,000 Restricted net position (Restricted assets net of liabilities and deferred inflows of resources related to restricted assets) Unrestricted net position (Any residual amount after considering net capital assets and net restricted assets). Net position in its government-wide financial statements = Assets – Liabilities = $15,000,000 + $3,000,000 - $7,000,000 = $11,000,000.

Answer 288

D maybe Explanation: GASB 34 requires all governments to report all current fixed assets and new capital assets. Capital assets include assets formerly listed in the general fixed asset account group (land, buildings, and equipment) and infrastructure assets. The retroactive infrastructure asset reporting requirements are required for the largest two categories of governments and optional for small governments (annual revenues under $10 million). If determining the actual historical cost of general infrastructure assets is not practical because of inadequate records, governments should report the estimated historical cost for major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after June 30, 1980. Capital assets should be depreciated over their estimated useful lives unless they are either inexhaustible or are eligible infrastructure assets reported using the modified approach; however, the modified approach condition assessment is not one of the answer options.

Answer 289

Explanation: In general, interest costs on long-term liabilities will be reported separately as an indirect cost (not in a particular note). Note disclosures will include information about how interest costs are reported and what amounts are included as direct expenses.

Answer 290

D Explanation: Unless held as a collection, works of art, historical treasures, and similar assets should be capitalized at historical cost or fair value at date of donation. GASB 34 merely encourages capitalization of these assets when held as collections. Collections are held for public exhibition, education, or research in furtherance of public service rather than financial gain; protected, kept unencumbered, cared for, and preserved; and are subject to policies that require sales proceeds be used to acquire collection items. An exhaustible capitalized collection must be depreciated over its estimated useful life. Eligible infrastructure assets are not required to be depreciated, if the government meets certain conditons, including documenting that the assets are preserved approximately at (or above) a condition level established and disclosed by the government. Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems. Buildings, except those that are an ancillary part of a network of infrastructure assets, should not be considered infrastructure assets for purposes of GASB 34. Land and land improvements are not depreciable assets.

Answer 291

C Explanation: General capital assets are not specifically related to activities reported in proprietary or fiduciary funds. They are associated with, and generally arise from, governmental activities. They should not be reported as assets in governmental funds, but should be reported in the governmental activities column in the government-wide statement of net position.

Answer 292

Explanation: Governmental reporting model requires financial accounting and disclosures to show (a) operational accountability when the entity is taken as a whole, the extent to which operating objectives have been met (effectively and efficiently) and (b) fiscal accountability for fund financial statements to demonstrate that the entity has been in compliance with public decisions concerning the raising and spending of public funds during a budgetary cycle. Options (a), (b) and (c) are not the basic criterion used to determine the reporting entity of a governmental unit.

Answer 293

C Explanation: Operating transfers should be recorded in distinctive Operating Transfers From (To) [Name of Fund] or Operating Transfers In (Out) accounts and reported after revenues and expenditures or expenses, but before determining the results of operations in the fund's operating statement.

Answer 294

Explanation: The modified accrual basis of accounting is used in the governmental-type fund statements such as the general fund. Under the modified accrual basis of accounting, fixed assets are expenditures and not capitalized.

Answer 295

Explanation: The correct answer is (D). According to GASB 9, interest received by a governmental proprietary fund will be reported in the investing activities section of the cash flow statement. Thus, Dogwood, a water enterprise fund would report $10,000 interest received on long term investments in the investing activities section. Option (A) is incorrect because only commercial enterprises that follow GAAP report interest and dividend received in the operating section of the cash flow statement. Governmental proprietary funds that need to present their cash flow statement follow GASB and accordingly present any interest received in the investing section of the cash flow statement. Option (B) is incorrect because non-capital financing section of the cash flow statement includes borrowing money for purposes other than to acquire, construct or improve capital assets and repaying those amounts borrowed, including interest. It also includes certain inter-fund and intergovernmental receipts and payments such as grants and subsidies for purposes other than those related to capital assets. Thus, interest received on long term investments, would not form part of non-capital financing section. Option (C) is incorrect because capital and related financing section include acquiring and disposing of capital assets used in providing services or producing goods, borrowing money for acquiring, constructing, or improving capital assets and repaying the amounts borrowed, including interest, and paying for capital assets obtained from vendors on credit. Thus, interest received on long term investments, would not form part of non-capital financing section

Answer 296

Explanation: (d) Activities that are normally financed through user charges and reports the consolidated results of all enterprise funds. It does not include internal service funds, which are accounted for in the governmental activities. The required financial statements are: Statement of net assets Statement of revenues and expenses Statement of cash flows Notes to the F/S Required supplementary information other than MD&A Option (a) is incorrect because along with basic F/S, MD&A and RSI are also required. Option (b) is incorrect because basic F/S should also be included. Option (c) is incorrect because it is not governmental funds, but enterprise funds.

Answer 297

Explanation: The correct answer is (A). Because governmental fund-level financial statements use the current financial resources approach, only the $20,000 due from current financial resources will be included. When the flow of current financial resources measurement focus is used, the focus is on cash and/or assets that are expected to be converted to cash within the accounting period.

Answer 298

Explanation: The government-wide statements, both the statement of net position and the statement of activities, are prepared using the economic resource measurement focus and accrual accounting to present the long-term perspective of financial position. Modified accrual is only used in the governmental fund statements. Fiduciary activities are not reported in the government-wide statements. Current financial resources measurement focus is only used in the governmental fund statements

Answer 299

Explanation: Governmental funds do not defer and amortize a bond premium or discount over the life of the bonds. Bond issue proceeds are recorded in the appropriate governmental fund at the amount received, net of any bond premium or discount.

Answer 300

Explanation: Because an investment trust fund accounts for resources (and related liabilities) held by governments in a trustee capacity, it is considered a fiduciary fund type. Required statements for fiduciary funds are (1) statement of fiduciary net position and (2) statement of changes in fiduciary net position.

Answer 301

Explanation: A government unit must have one general fund, but can establish multiple special revenue, capital projects, and permanent funds as needed to account for the various activities that fit these categories. A debt service fund is only needed if the entity issues general obligation debts. The accountant must establish the minimum number of funds consistent with legal requirements and sound financial administration. Option (a) is incorrect because one general fund should be set up and multiple special revenue funds can be set up as needed. Option (b) is incorrect because more than 2 special revenue funds can be set up if required. Option (c) is incorrect because minimum number of funds consistent with GASB 34 should be setup not as per the needs of the accountant.

Answer 302

Explanation: General fund uses modified accrual accounting, in which purchase of fixed asset is an expenditure, which would affect the excess of revenue over expenditure. Option (b) is incorrect because transfers out are reported as other financing uses which is presented below the excess of revenues (deficiency) over expenditure. Option (c) is incorrect because special items are presented below the excess of revenues (deficiency) over expenditure. Option (d) is incorrect because proceeds from sale are reported in special items, which is presented below the excess of revenues (deficiency) over expenditure

Answer 303

B Explanation: Revenues are recognized when measurable and available. In the case of property taxes, receivables are recognized in the period in which the taxes are levied. When property taxes are either recognized as receivable in advance or collected in advance of the year in which they are levied, deferred inflows of resources are recorded.I. Debit (Dr) Credit (Cr) Property taxes receivable $ XXX Deferred inflows of resources $ XXX II. Debit (Dr) Credit (Cr) Cash $ XXX Deferred inflows of resources $ XXX Note: Some individuals may elect to pay their property taxes in installments. In order to accomplish this, taxes must be estimated and billed and collected in advance of the levy.Choices "b", "c", and

Answer 304

Explanation: The correct answer is (D). A government-wide statement of net position must include a distinction between governmental and business-type activities. The statement contains four columns:- Governmental activities: This column contains details of activities that are financed primarily through taxes and other non-exchange transactions. This column reports on the consolidated results of all the governmental funds and internal service funds. Business-type activities: This column contains activities normally financed through user charges. This column reports the consolidated results of all enterprise funds. Total: This column simply adds together the amounts from the two primary government columns for governmental activities and business-type activities. Component units: This column reports the combined results of all the component units for which separate reporting was selected. Therefore, the governmental activities and business-type activities of the primary government are separately presented.

Answer 305

Explanation: To assure that budgets are not overspent, most governmental units use an encumbrance system to keep track of outstanding purchase commitments that have not yet resulted in liabilities. When a purchase order or commitment is placed, the governmental unit reduces the amount of budgetary authority remaining in the budget category and records an outstanding encumbrance. It is only when the goods or services have been received that the encumbrance balance is reduced and the expenditure and a liability are recorded. Thus, encumbrances represent neither expenditures nor liabilities. Encumbrances outstanding at the end of a period should be carried forward as a reservation of fund balance, with a corresponding reduction in unreserved fund balance.

Answer 306

Explanation: Of the funds listed, one is a proprietary fund (water billing fund) and the remainder are governmental funds. At the fund level, governmental funds record purchases of capital assets as expenditures and the assets are not capitalized. For this reason, governmental funds do not record depreciation at the fund level. The correct answer is the water billing fund as proprietary funds DO record depreciation.

Answer 307

Explanation: The correct answer is (C). The modified accrual basis is the appropriate basis of accounting for governmental funds (i.e., general, special revenue, capital projects, permanent, and debt service).

Answer 308

Explanation: Assisting users with an assessment of the government’s operating results, level of services provided, and the ability to meet cash requirements is a broad principle and is the second objective outlined in Concepts Statement No. 1. While assisting users in understanding funding objectives for public retirement systems and the potential tax burden on future taxpayers may be one of the significant elements for any governmental financial report, it is not specifically discussed as a reporting objective. Assisting users in identifying management’s policies for selection of critical programs and services to provide and the annual tax burden to finance those programs is an example of a specific reporting issue, not a broad principle. Assisting users in determining the annual tax burden per capita for each of the major programs provided by the governmental entity is an example of specific information that is critical to users, but not discussed as a primary broad objective.

Answer 309

Explanation: Enterprise funds are a type of proprietary fund. Their statement of financial position can use either the balance sheet format or the net position format from the government-wide statements. Net position is presented in three components: net investment in capital assets, restricted, and unrestricted. The invested total provides a clear picture of whether the government owns the capital assets or creditors have a stronger claim. The restricted component carves out those resources that are not generally available for any programs, but will be used for specific purposes. The unrestricted component gives readers a measure of the government’s financial strength. The city designating funds in the enterprise fund for future equipment replacement displays the city’s forward looking view and provides the readers with a measure of the government’s financial strength. Although they are designated for that purpose, they are not restricted from being used for any other programs.

Answer 310

Explanation: A government’s primary mission is the delivery of programs and services. Fund accounting allows governments to track specific functions and ensure that operations comply with any legal restrictions that apply. Governments may have component units that are similar to subsidiaries in the private sector, but there are no profit objectives in governmental financial reporting. The GASB discourages the use of too many funds; the general fund is the only required fund. GASB Statement No. 34 reorganized funds to create a primary focus for each fund category, but statutory identification is not a primary objective for fund organization.

Answer 311

Explanation: Imposed nonexchange revenues represent assessments imposed on non-governmental entities and include property taxes and fines or forfeitures. Taxes on earnings or consumption are classified as derived tax revenues. Certain grants, entitlements, and donations are classified as voluntary nonexchange transactions. Voluntary nonexchange transactions result from legislative or contractual agreements involving parties that may or may not be governmental entities, but do not involve an exchange of equal value.

Answer 312

Explanation: Interest income, interest expense, gain or loss on sales of capital assets, grants to or from other governments, operating transfers to or from other funds, and residual equity transfers are examples of transactions that are reported as nonoperating revenue.

Answer 313

D maybe Explanation: Depreciation expense is reported with the appropriate program when associated capital assets are clearly associated with specific programs. Governmental activities will report depreciation for all activities unless the modified approach is used for infrastructure; however, depreciation is still reported for all other assets.

Answer 314

Explanation: Financial reports of governments should allow users to evaluate operating results and evaluate the level of service provided. Governments are not funded with “owner equity,” so the return on capital is not a valid measure for most governmental services. Governments do not generally try to generate a profit like commercial entities.Capital assets are held by the governmental entity, but per capita“shares”are not a normal financial ratio.

Answer 315

Explanation: The correct answer is (a). Governmental funds measurement focus is current financial resources approach and basis of accounting is modified accrual accounting Option (b) is incorrect because economic resources as a measurement focus is applicable to government-wide F/S. Option (c) and (d) are incorrect as per the above explanation.

Answer 316

C Explanation: The essential mission of government is delivering services, financed with taxes. The SEC does have limited oversight for tax-exempt financial instruments, but the GASB is focused on the operating and organizational characteristics to define governmental accounting and reporting standards. The GASB was created by the Financial Accounting Foundation and is not subject to any individual state regulation. While the GASB has sometimes considered “small GAAP” versus “big GAAP,” the size of individual state and local governments is not a key factor for the Conceptual Framework.

Answer 317

Explanation: The MD&A allows management to highlight significant issues and discuss key issues from the financial statements. GASB requirements for the MD&A do not require management to make projections for future years. The section on capital assets only discusses current year projects and changes in capital assets.

Answer 318

Explanation: The focus of fiduciary funds is resources that are restricted to third parties and cannot be used for any general programs of the primary government. This emphasis carries through the financial statements where the fiduciary funds are included in fund financial statements but not in the government-wide statements. Governmental activities, business-type activities, and component units would all appear in the government-wide statement of net position.

Answer 319

Explanation: The only answer choice listed that relates to governmental funds is the statement of revenues, expenditures, and changes in fund balance. The first two options do not apply to governmental funds. Remember that at the fund level, governmental funds report expenditures rather than expenses and fund balance rather than net position. Governmental funds do not provide a statement of cash flows.

Answer 320

A Explanation: Only general obligation long-term debt should be serviced through debt service funds. Fiduciary and proprietary fund debt are rarely general government obligations.

Answer 321

Explanation: The correct answer is (A). Available appropriations can be calculated as follows: Appropriations $10,0000 Encumbrances $(2,000) Expenditures $(5,000) Balance $3,000

Answer 322

Explanation: Capital project funds are designed only for construction in progress and have a limited life encompassing the construction period. Depreciation expense is not recorded during construction.

Answer 323

Explanation: Management's discussion and analysis (MD&A) is classified as required supplementary information, not basic financial statements. The MD&A is a component of the minimum reporting requirements for state and local governments. The basic financial statements consist of both government-wide and fund financial statements along with the accompanying notes. A comprehensive annual financial report (CAFR) includes the basic fiancial statements.

Answer 324

Explanation: Because the statement of activities in a government-wide financial statement, it uses the full accrual method of accounting. This means that the change in interest accrual will affect the expense reported at the government-wide level. The reduction of $3,000 in accrued interest would reduce the amount of interest expense from the amount paid of $250,000 to $247,000.

Answer 325

Explanation: The government-wide statements are separated into at least two primary columns/sections: governmental activities are reported in one column, and businesstype activities are reported in another column on the statement of net position and in two different sections of the statement of net position. Additional columns/sections are necessary if the primary government has discretely presented component units. Trust fund activities are not one of the two primary sections.

Answer 326

Explanation: Interfund receivables and payables are reported as amounts due to and due from other funds. They are not reported as reservations of fund balance or additions to or reductions from the unassigned fund balance. The option of eliminating the interfund assets and liabilities is allowed, but requires that such eliminations be apparent from the headings, or be disclosed in the notes to the financial statements.