Governmental Accounting

Question 1

HOW are investments held by endowments in a government’s permanent fund reported?

Answer 1

AT their fair values

Question 2

What is the Journal Entry for when a governing body adopts a general fund budget for the year and it is comprised of Estimated Revenues and Appropriations?

Answer 2

Debit the Estimated Revenues Control Account

Credit the Appropriations Control account and

Credit the Budgetary Fund balance account

Question 3

WHAT is considered an “expenditure” of a governmental unit’s general fund?

Answer 3

“Routine” employer contributions from the general fund to a pension trust fund

WHY? - Because it represents a quasi-external transaction and would therefore be reported as an expenditure

Question 4

True or False.

The acquisition of a fixed asset is capitalized on the governmental fund statement of revenues, expenditures, and changes in fund balance.

Answer 4

FALSE.

The acquisition of a fixed asset is NOT capitalized on the governmental fund statement of revenues, expenditures, and changes in fund balance.

E.g. the acquisition of a new police car is NOT considered a “fixed asset” but rather an expenditure of the period.

Question 5

WHAT would be considered “ACCRUED LIABILITIES” presented in the governmental activities column of the government-wide statement of net position?

Answer 5

(1) Compensated absences

(2) Salaries payable

Question 6

WHAT governmental fund uses the current financial resources measurement focus?

Answer 6

Special Revenue Fund

i.e. IT uses the modified “accrual approach” which is characterized by the current financial resources measurement focus

Question 7

Activities are required to be reported as enterprise fund activities if they meet one or more of the following criteria:

Answer 7

(1) The activity is financed with debt that is secured solely by a pledge of the net revenue from fees and charges
(2) Laws and regulations require that the cost of providing services be recovered through fees
(3) The pricing policies of the activity establish fees and charges designed to recover its costs

Question 8

WHAT statements are required to be presented for Special-Purpose government entities engaged only in “business-type” activities (such as utilities)?

Answer 8

THE financial statements required for enterprise funds, including MD&A and RSI

WHY? - Because a special-purpose government entity engaged only in business-type activities is by definition an enterprise fund

Question 9

True or False.

When a purchase order is issued, Encumbrances are CREDITED and Budgetary Fund Balance – Reserved for Encumbrances are DEBITED for the estimated amount

Answer 9

FALSE

When a purchase order is issued, Encumbrances are debited and Budgetary Fund Balance – Reserved for Encumbrances are credited for the estimated amount

NOTE: When the invoice is received, the entry is reversed and expenditures are recognized in the amount of the invoice

Question 10

HOW would a government entity handle any art, artifact, or antique they received as a donation? AND they do NOT intend to sell the item but would use any proceeds from its sale to acquire similar items?

Answer 10

THEY may capitalize the asset, but are NOT required to do so; and

Depreciation is NOT required

Question 11

HOW should “interest revenue” received in cash by a governmental proprietary fund be reported on the government’s’ Statement of Cash Flows?

Answer 11

AS an Investing Activity

Question 12

WHAT is the minimum budgetary information required to be reported for Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments?

Answer 12

A schedule showing the:

(1) Original Budget
(2) Final Appropriations Budget, and
(3) Actual inflows, outflows, and balances on a budgetary basis

Question 13

WHAT is “Derived Tax” Revenue?

Answer 13

Revenues “result(ing) from assessments imposed on exchange transactions”

(i.e. A city imposing a 2% tax on hotels which they plan to promote tourism)

Question 14

WHAT basis is used to prepare a government entity’s Financial Statements (F/S) if their general fund’s annual budget was prepared on the Cash Basis of Accounting, but they also used Accrual Basis Accounting?

Answer 14

Cash Basis of Accounting

WHY? - Because Budgetary comparison schedules are prepared under the same basis of accounting that was used to prepare the fund’s budget

WHICH was the Cash Basis of Accounting

Question 15

WHAT account is used for reporting major acquisition or construction activities of capital assets of a governmental entity?

Answer 15

THE Capital Project fund

IT is used for major acquisition or construction activities of capital assets, such as the construction of a homeless shelter

Question 16

WHAT characteristics should the financial reports of a state and local government possess?

Answer 16

Understandability, Reliability, Relevance, Timeliness, Consistency, and Comparability

NOTE: Fairness has nothing to do with these characteristics

Question 17

WHAT kind of classes of nonexchange transactions do Fines and Property Taxes represent?

Answer 17

Imposed Nonexchange Revenues

WHY? - Because these revenues by definition are those “result(ing) from assessments imposed on nongovernmental entities, including individuals, other than assessments on exchange transactions.”

Question 18

HOW would a governmental entity report land that must remain intact but can use income generated from the land for general government services?

Answer 18

In their “Permanent restricted funds account”

WHY? - Because the resources are restricted so that only earnings, NOT principal, may be expended for the support of government programs which benefit the government or its citizens

Question 19

WHAT is a “required” financial statement for an investment trust fund?

Answer 19

THE Statement of Changes in Fiduciary Net Position

Question 20

WHAT categories are included in the government-wide statement of net position?

Answer 20

(1) Governmental Activities
(2) Component Units
(3) Business-type activities

Question 21

What is the rule for any individual government or enterprise fund to be reported as a “Major” fund?

Answer 21

Total revenues, expenditures or expenses, assets, or liabilities (excluding extraordinary items) of the fund are
(1) at least 10% of the corresponding element total (assets, etc.) for all funds of the same category or type

E.g., All governmental or all enterprise funds, and

(2) The same element that met the 10% standard is at least 5% of the corresponding element total for all governmental and enterprise funds in the aggregate.