Governmental Accounting Funds and Transaction

Question 1

Year-end, City and State should recognize

Answer 1

Taxation of sales is a nonexchange transaction. It results in derived tax revenues, that is, assessments on exchange transactions (such as sales and income taxes). Assets are recognized at the earlier of (1) when the underlying exchange transaction occurs or (2) receipt of resources. Revenues (net of estimated refunds and uncollectibles) are recognized at the same time as the assets if the underlying exchange has occurred. In governmental funds (e.g., the general fund), resources also must be susceptible to accrual in accordance with the modified accrual basis of accounting. This criterion is met when the resources become measurable and available. to pay current liabilities.

Question 2

Nonexchange transactions of a state or local government may include

Answer 2

The government gives or receives value without directly receiving or giving something of equal value in exchange. All nonexchange transactions are classified as (1) derived tax revenues, (2) imposed nonexchange revenues, (3) voluntary nonexchange transactions, and (4) government-mandated nonexchange transactions. An example is receipt of income tax payments, derived tax revenues because they are assessments on exchange transactions.

Question 3

Capital Project in Government Funds

Answer 3

Face Amount of Long-term Debt, Issuance Premium or discount, and some payment to escrow agents for bond refunding, Interfund transfers, sales of capital assets and debt refunding

Question 4

The standards for reporting interfund activity classifies such activity as

Answer 4

nterfund activity may be reciprocal or nonreciprocal. Reciprocal interfund activity is similar to exchange and exchange-like transactions, for example, interfund loans and services provided and used. Nonreciprocal interfund activity is similar to nonexchange transactions, for example, interfund transfers and reimbursements.

Question 5

The portion of capital improvement special assessment debt maturing in 5 years, to be repaid from general resources of the government, should be reported in the

Answer 5

If the government is obligated for capital improvement it should be reported as a general long-term liability only in the governmental activities column of the government-wide statement of net position

Question 6

General long-term debt of a state or local government

Answer 6

General long-term debt of a state or local government is secured by the government’s general credit and revenue-raising power. It is not secured by the assets acquired or by specific current fund financial resources.

Question 7

operating debt service, what amount should be deferred and amortized over the life of the bonds?

Answer 7

The general long-term debt of a state or local government is reported only in the government-wide statement of net position using the accrual basis of accounting. However, the debt service transactions are reported in a governmental fund, often a debt service fund, on the modified accrual basis. The general long-term debt of a state or local government is reported only in the government-wide statement of net position using the accrual basis of accounting. However, the debt service transactions are reported in a governmental fund, often a debt service fund, on the modified accrual basis. 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.

Answer 8

Expenditures are therefore recognized when the liability is incurred, except for the unmatured principal and interest on general long-term debt, which is recognized when due.

Question 9

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

Answer 9

Reciprocal interfund activities are comparable to exchange and exchange-like transactions. They include interfund loans and interfund services. Thus, only the $5,000 for services rendered by the internal service fund results from reciprocal interfund activities.

Question 10

General Capital Asset in the government-wide financial statements

Answer 10

Expenditures

Question 11

Which of the following transactions is an expenditure of a governmental unit’s general fund

Answer 11

mployers that participate in defined contribution plans recognize pension expenditures or expenses for the required contributions to the plan and a liability (asset) for unpaid (overpaid) contributions. Recognition in the fund financial statements is on the modified accrual or accrual basis depending on the reporting fund. The general fund is a governmental fund. Thus, it uses the modified accrual basis of accounting. It recognizes expenditures when the related liabilities are incurred. Expenditures are uses of governmental fund financial resources. They do not arise from interfund transfers. Interfund activity involves internal events. Transactions are external events. Interfund transfers are one-way asset flows with no repayment required. Because they are nonreciprocal, they are analogous to the external events classified as nonexchange transactions. By contrast, an expenditure for a pension contribution is in essence an exchange. The contribution is in exchange for employee services.

Question 12

When a snowplow purchased by a governmental unit is received, it should be recorded in the general fund as a(n)

Answer 12

When previously ordered goods are received, the entry includes a debit to expenditures for the actual amount to be paid. An expenditure is recognized when a liability is incurred, that is, when an executory contract is complete or virtually complete.

Question 13

Imposed nonexchange revenues other than from property taxes most likely should be recognized in the accounting period in which

Answer 13

Imposed nonexchange revenues other than from property taxes (e.g., fines, penalties, and forfeitures) are recognized at the same time as the recognition of the assets unless time requirements apply. If they do apply, revenues are recognized when (1) the resources are required to be used, or (2) their use is first allowed by the time requirements. Resources received or recognized as receivable before the time requirements are met are deferred inflows of resources. Property tax revenues are recognized in the period for which they are levied.

Question 14

Current liability at January 1
$100,000
Claims paid during the year
800,000
Current liability at December 31
140,000
Noncurrent liability at December 31
200,000
What amount should Spruce report for claims and judgments expenditures for the year in its general fund?

Answer 14

An expenditure is a decrease in (use of) fund financial resources other than by an interfund transfer or expiration of a demand bond takeout agreement. The claims paid of $800,000 are expenditures. The increase in current liabilities is also an expenditure because it is expected to be liquidated with expendable available financial resources. Thus, claims and judgments expenditures equal $840,000 [$800,000 + ($140,000 – $100,000)].

Question 15

The portion of capital improvement special assessment debt maturing in more than one year should be repaid from general resources of the government, should be reported in the

Answer 15

If the government is obligated for capital improvement special assessment debt, it should be reported as a general long-term liability only in the governmental activities column of the government-wide statement of net position (except for any portion related to, and expected to be paid from, an enterprise fund).

Question 16

Debt Service Fund

Answer 16

The debt service fund of a governmental unit is a governmental fund used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Bond issuance premium is accounted for as an other financing source in the fund out of which the proceeds are spent. Thus, bond issuance premium is not amortized.

Question 17

If a capital asset is donated to a governmental unit, the asset is accounted for in an enterprise fund, and eligibility requirements are met, it should be recorded

Answer 17

f a capital asset is donated to a governmental unit, it should be recorded at its acquisition value (an entry price). It is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date. In any voluntary nonexchange transaction, assets and revenues are recognized when all eligibility requirements (including time requirements) are met. Because an enterprise fund uses the accrual basis, the resources need not be available.

Question 18

what amount should be deferred and amortized over the life of the bonds

Answer 18

The general long-term debt of a state or local government is reported only in the government-wide statement of net position using the accrual basis of accounting. However, the debt service transactions are reported in a governmental fund, often a debt service fund, on the modified accrual basis. Expenditures are therefore recognized when the liability is incurred, except for the unmatured principal and interest on general long-term debt, which is recognized when due. 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.

Answer 19

In governmental funds, revenues are increases of fund financial resources other than from, for example, interfund transfers and debt issue proceeds. Accordingly, proceeds from the issuance of general long-term debt should be recorded in the capital projects fund as other financing sources. The amount received from the general fund should be classified as an interfund transfer and credited to other financing sources. Thus, the amount that should be recorded as revenues in the capital projects fund in connection with the bond issue proceeds and the transfer is $0.

Question 20

General long-term liabilities of a state or local government

Answer 20

General long-term liabilities are not limited to unmatured principal amounts of general obligation debt (e.g., bonds, warrants, and notes). They also may include noncurrent liabilities such as (1) leases, (2) compensated absences, (3) claims and judgments, (4) pensions, and (5) other commitments that are not current liabilities in governmental funds.

Question 21

What amount of bond issuance premium should be amortized in Wood’s debt service fund for the year ended December 31?

Answer 21

The debt service fund of a governmental unit is a governmental fund used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Bond issuance premium is accounted for as an other financing source in the fund out of which the proceeds are spent. Thus, bond issuance premium is not amortized.

Answer 22

Total collections (all transferred to State) are $350,000 [$5,000,000 December sales × (6% state tax + 1% local tax)]. State therefore recognizes tax revenue of $300,000 ($5,000,000 × 6% state tax) and a payable of $50,000 ($350,000 – $300,000) to City. This amount is $50,000 ($5,000,000 December sales × 1% local tax). But $50,000 is unlikely to be collectible soon enough to pay current liabilities.

Question 23

Governmental unit records depreciation

Answer 23

on the Internal Service Fund which Depreciation expense is reported in (1) the government-wide statement of activities, (2) the proprietary funds (enterprise and internal service funds),

Answer 24

eneral long-term debt of a state or local government is reported only in the government-wide statement of net position using the accrual basis of accounting. However, the debt service transactions are reported in a governmental fund, often a debt service fund, on the modified accrual basis. Expenditures are therefore recognized when the liability is incurred, except for the unmatured principal and interest on general long-term debt, which is recognized when due. 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.

Question 25

Claims and judgments expenditures for the year in its general fund to be reported

Answer 25

Claims Paid - Current Liability- noncurrent liability.

Question 26

Imposed nonexchange revenue

Answer 26

Imposed nonexchange revenues are assessments on nongovernmental entities, for example, property taxes, forfeitures, or fines.

Question 27

Exchange transaction.

Answer 27

Enterprise funds account for governmental activities that benefit outside parties who are willing to pay for them, such as municipal pools, parking garages, and utilities. Thus, these activities involve exchanges of something of value (e.g., electricity) for revenue.