Governmental Accounting MCQs

Question 1

Todd City formally integrates budgetary accounts into its general fund. Todd uses an internal service fund to account for the operations of its data processing center, which provides services to Todd’s other governmental units.

During the year ending December 31, 2005, Todd’s special revenue fund received a state grant to buy a bus and an additional grant for bus operation in 2005. In 2005, only 90% of the capital grant was used for the bus purchase, but 100% of the operating grant was disbursed.

Todd has incurred the following long-term obligations:

General obligation bonds issued for the water and sewer fund, which will service the debt.
Revenue bonds to be repaid from admission fees collected from users of the municipal recreation center.
These bonds are expected to be paid from enterprise funds and secured by Todd’s full faith, credit, and taxing power as further assurance that the obligations will be paid.

Todd’s 2005 expenditures from the general fund include payments for structural alterations to a firehouse and furniture for the mayor’s office.

In reporting the state grants for the bus purchase and operation, what should Todd include as grant revenues for the year ending December 31, 2005?

Answer 1

90% of the Capital Grant

100% of the Operating Grant

Question 2

Oro County’s Expenditures control account at December 31, 2005 had a balance of $9,000,000.

When Oro’s books were closed, this $9,000,000 Expenditures control balance should have…

Been debited
Been credited
Remained open
Appeared as a contra account

Answer 2

Been Credited (decreases fund balance opposite of appropriations)

Expenditures control account is debited during the year when resources are being expended. However, it is credited at the end of the year so it’s balance is zero - as the expenditures control account is a temporary account that must be closed at the end of the fiscal year.

Question 3

Which of the following accounts should Moon City close at the end of its fiscal year?

Vouchers Payable
Expenditures
Fund Balance
Fund Balance Assigned

Answer 3

Expenditures

Note the Fund Balance account is the difference between assets and liabilities (like equity) and is carried forward into the next year.

Question 4

Assuming no outstanding encumbrances at year’s end, closing entries for which of the following situations would increase the unassigned fund balance at year’s end?

• Actual Revenues were less than estimated revenues
• Estimated Revenues exceed actual appropriations
• Actual Expenditures exceed appropriations
• Appropriations exceed actual expenditures

Answer 4

Appropriations exceed actual expenditures

Closing Appropriations - would increase the Fund Balance
Closing Expenditures - would decrease the Fund Balance

(net effect is an increase to fund balance)

Question 5

On Jan. 1, Fonk City approved the following general fund resources for the new fiscal period:

Property Taxes $5M
Licenses & Permits $400k
Intergov’tal Revenues $150k
Transfers in from other funds $350k

What amount should Fonk record as estimated revenues for the new fiscal year?

Answer 5

$5,550,000

Property Taxes, Licenses & Permits, Intergovernmental Revenues included in estimated revenues

Question 6

What are the names of the Budgetary Accounts? And if Dr/Cr Balance Account?

*opposite of actual accounts

Answer 6

1) Appropriations (Cr Balance) - Closed at YE
2) Estimated Revenues (Dr Balance)
-Closed at YE
3) Estimated Other Financing Uses (Cr. Balance)
-Closed at YE
4) Estimated Other Financing Sources (Dr. Balance)
-Closed at YE
5) Budgetary Fund Balance
(offset account - Dr or Cr)

Question 7

When are budgetary entries made?

Answer 7

1) @ set-up
2) @ to close budget - YE
3) Midyear entries when additional appropriations authorized or when actual revenues are significantly different from predictions

Question 8

What are the actual accounts?

Answer 8

1) Expenditures (Dr.)
2) Revenue (Cr.)
3) Other Financing Uses (Dr.) Transfers out
4) Other Financing Sources (Cr.) Transfers in

Question 9

Main purposes of financial reporting by governments

Answer 9

1) Accountability

2) Inter-period Equity (part of accountability) - CY Revenues should be sufficient to pay CY Services

Question 10

2 criteria of Revenue Recognition under Modified Accrual Basis

Answer 10

1) Measurable = amount is known or can be estimated.
2) Available = amounts is legally due or has been received in cash by YE or in time to pay for obligations of the current fiscal period (w/in 60 days of YE).

Question 11

The Encumbrances control account of a county is decreased when

Goods are ordered
or when Goods are received?

Answer 11

Goods are Received

Question 12

The Expenditures control account of a government is credited when

• Supplies previously encumbered are received
• Temporary accounts are closed at YE
• The budget is recorded
• Supplies are ordered

Answer 12

Temporary accounts are closed at YE

Question 13

A liability (expenditure) is recorded in governmental funds when

Invoices are paid
The budget is amended
G/S are ordered
G/S are received & the invoice is vouchered

Answer 13

G/S are received & the invoice is vouchered

Question 14

Formula to calculate the available balance of appropriation

And Definitions of each

Answer 14

Appropriation
-Encumbrances
-Expenditures
= Unencumbered, Unexpended Appropriation

Appropriation - is the legal spending limit prescribed by the governing body
Encumbrances - debited when a PO is issued (fund balance assigned/committed for encumbrances is simply an offset account for encumbrances)

Question 15

Encumbrances outstanding at YE may be reported as

Answer 15

Fund balance assigned/committed in the general fund

Question 16

Which of the following neither increases nor decreases fund balance of the General Fund during the current period?

Deferred Inflows of resources
Expenditures
Other financing uses
Revenues

Answer 16

Deferred Inflows of Resources

Question 17

In January year 10, Red County acquired the right to draw water from a lake on the property of a privately owned ranch in exchange for a cash payment of $20 million. The annual volume of water that can be drawn is unlimited. The county’s rights under the contract expire in 10 years (year 20); however, the contract provides the opportunity to renew the water rights for an additional 10 years (to year 30) for no additional payment, subject to the mutual agreement of the two parties. The county believes that it will request the renewal. The county expects the other party to agree to the renewal since the ranch is a significant user of the county’s water supply and is a major employer of Red County residents. The county operates on a calendar fiscal year. The county should recognize in its year 10 Government-Wide Financial Statements:

$20M Expense
$10M Expense
$2M Amortization Expense
$1M Amortization Expense

Answer 17

$1 million amortization expense in Gov’t wide Statement of Activities

$20M would be recorded in the county’s Capital Projects Fund Statement of Rev, Expenditures, and Changes in Net Position

It is amortized over 20 years vs. 10 years because there is evidence that the county will seek and will be able to acquire renewal of contract without additional expense.

Question 18

Purpose of Deferred Inflows and Outflows of Resources

Answer 18

Segregating them from revenues and expenditures provides users with information to assess a gov’t intraperiod equity

*note use of the term “deferred” is limited to items reported as deferred outflows of resources and deferred inflows of resources

Question 19

In preparing Chase City’s reconciliation of the Statement of Revenues, Expenditures, and Changes in fund balances to the Government-Wide Statement of Activities, which of the following items should be subtracted from the changes in fund balances?

• Capital Asset Purchases
• Payment of LT debt principle
• Internal Service fund increase in Net Position
• Book Value of capital assets sold during the year

Answer 19

Book Value of capital assets sold during the year

Fund F/S record the entire proceeds of the sale of the capital asset as a resource for the fund/spendable.

However, accrual basis on Gov’t wide F/S include Gain/Loss on the sale of the asset, therefore book value should be subtracted

Question 20

At December 31, Year 1, Alto Township’s committed appropriations that had not been expended in 2005 totaled $10,000. The commitment was made by the finance committee. These appropriations do not lapse at year-end. Alto reports on a calendar-year basis.

On its December 31, Year 1 Balance Sheet, the $10,000 should be reported as:

• Vouchers Payable PY
• Deferred Expenditures
• Fund Balance Assigned
• Budgetary Fund balance reserved for encumbrances

Answer 20

Fund Balance Assigned

Since the G&S have not been received no liabilities have been incurred

Question 21

A Capital Projects Fund has outstanding encumbrances of $250,000 as of the end of the fiscal year. Assume that all resources in the Capital Projects Fund are considered to be committed due to the constraints established by the enabling legislation of the governing body of the government. How should the encumbrances be reported in the year-end external financial statements?

• As a specific identifiable component of the restricted fund balance.
• As a specific identifiable component of the committed fund balance.
• As a specific identifiable component of the Assigned fund balance.
• Note Disclosures

Answer 21

The encumbrances would only be reported in the note disclosures - they shouldn’t be shown on Financials - should be committed or assigned fund balance

Question 22

Which of the following fund balance classifications is used for budgetary accounting but not for GAAP financial statement reporting?

• Nonspendable Fund Bal
• Budgetary Fund Bal
• Committed Fund Bal
• Unassigned Fund Bal

Answer 22

Budgetary Fund Balance

Question 23

Who are the “restrictors” who determine what should be in “Restricted Net Position” and in “Restricted” Fund Balance?

Answer 23

Creditors
Constitutional Provisions
Enabling Legislation

Question 24

On December 31, Year 1, Elm Village paid a contractor $4,500,000 for the total cost of a new Village Hall built in Year 1 on Village-owned land.

Financing for the capital project was provided by a $3,000,000 general obligation bond issue sold at face value on December 31, Year 1, with the remaining $1,500,000 transferred from the General Fund.

What account and amount should be reported in Elm’s Year 1 financial statements for the General Fund?

A. Other Financing Sources control $4,500,000.
B. Expenditures control $4,500,000.
C. Other Financing Sources control $3,000,000.
D. Other financing uses control $1,500,000.

Answer 24

Other financing uses control $1,500,000.

$0 should be recorded as an expenditure in General Fund

$4.5M of expenditures should be reported in Capital Projects Fund

$3M in bond proceeds should be reported as “Other financing sources” in capital Fund

Question 25

If the equipment is used in Enterprise Fund operations and the lease payments are to be financed with Enterprise Fund revenues, what account should be debited for $150,000 in the Enterprise Fund at inception of the lease?

Answer 25

Equipment at inception of lease, not Expenses

Question 26

Maple Township issued the following bonds during the year ended June 30, Year 1:

Bond issued for the Garbage Collection Enterprise Fund that will service the debt $500,000
Revenue bonds to be repaid from admission fees collected by the Township Zoo Enterprise Fund 350,000

What amount of these bonds should be accounted for in Maple’s Proprietary Funds?

Answer 26

$850,000 - both funds are Enterprise Funds which are Proprietary Funds

Question 27

At the beginning of the current year, Paxx County’s enterprise fund had a $125,000 balance for accrued compensated absences. At the end of the year, the balance was $150,000. During the year, Paxx paid $400,000 for compensated absences. What amount of compensated absences expense should Paxx County’s enterprise fund report for the year?

Answer 27

Ending ($150)
+ Plus paid ($400)
- Beg ($125)
= $425 - accrual accounting

Question 28

Which of the following statements is the most significant characteristic in determining the classification of an enterprise fund?

1) The predominant customer is the government
2) The pricing policies are designed to recover cost
3) Activity financed by debt that is secured partially by a pledge of the net revenues from fees and charges of Activity
4) Laws & Regulations require that the activity costs of providing services including capital costs be recovered with taxes or similar revenues

Answer 28

2 is correct

3 describes a revenue bond that can be used with a general fund as well

4 shouldn’t be recovered with taxes, but with fees/charges

Question 29

Shared revenues received by an Enterprise Fund of a local government for operating purposes should be recorded as:

Answer 29

Non-operating Revenues

Question 30

The following transactions were among those reported by Corfe City’s Electric Utility Enterprise Fund for 20X5:

Capital contributed by subdividers $ 900,000
Cash received from customer households 2,700,000
Proceeds from the sale of revenue bonds 4,500,000

In the Electric Utility Enterprise Fund’s Statement of Cash Flows for the year ended December 31, 20X5, what amount should be reported as cash flows from capital and related financing activities?

Answer 30

$5,400,000

$2,700,000 is CF from Operating Activities

Question 31

Single employer plans versus multiple employer plans

Answer 31

Single-employer plans are are individual plans set up by an individual governmental employer to cover a specified class or classes of employees (e.g., one plan for public safety personnel and another plan for administrative personnel). A single-employer plan, however, does not necessarily mean single-plan.

Sometimes, in an effort to provide better-quality, lower-cost plans to their employees, smaller employers band together to create a multiple-employer plan a retirement plan that covers all of their employees. States frequently provide a plan that is available to all the employees of any governmental entity within its jurisdiction. These plans are known as Public Employee Retirement Systems (PERS). There are two types of multiple-employer plans.

1) Agent multiple-employer plans pool the administrative and investment functions for multiple employers to reduce overhead but each individual employer plan assets maintained in separate accounts to pay benefits to only its plan members.
2) Cost-sharing multiple-employer plans pool the assets and obligations of all participating employers and use plan assets to pay benefits to any participating plan members

Question 32

The City of Macon maintains a defined contribution pension plan for its employees. During the year, the city contributed $5,000,000 to the plan, which represented 100% of its required contribution for the year. City employees contributed $1,800,000 to the plan. In addition, plan assets earned $4,500,000.

What amount should the City report as Additions in its Pension Trust Fund?

$11.3M
$9.5M
$6.8M
$4.5M

Answer 32

$11.3M = Additions in the Pension Trust Fund

Includes assets earned & contributions.

Question 33

A government makes a contribution to its pension plan in the amount of $10,000 for year 1. The actuarially-determined annual required contribution for year 1 was $13,500. The pension plan paid benefits of $8,200 and refunded employee contributions of $800 for year 1. What is the pension expenditure for the general fund for year 1?

$8.2k
$9k
$10k
$13.5k

Answer 33

$10k

Pension plan paid benefits of $8.2k and refunded employee contributions of $800 are “Deductions” not expenditures

Question asking about the GENERAL FUND

Question 34

A city government levies a tax on its citizens for improvements to roads. How should the city report the tax in its statement of activities?

1) By type of tax in general revenues
2) By type of tax in program revenues
3) As program-specific contributions in program revenues
4) In special items reported separately from general revenue

Answer 34

1) By type of tax in general revenues

All taxes are presented in the general revenues section, by type, even if they are dedicated to a specific purpose

Question 35

Nack City received a donation of a valuable painting. Nack planned to add the painting to its collection and display it in the protected exhibition area of city hall. Nack had a policy that if such donated art works were sold, the proceeds would be used to acquire other items for its collections. Which of the following would be correct regarding the donated painting?

1) It must be capitalized and depreciated
2) It must be capitalized but not depreciated
3) It may be capitalized, must be depreciated
4) It may be capitalized, but its not required, and depreciation not required

Answer 35

4) It may be capitalized, but its not required, and depreciation not required

Only add donated art, treasures, to collections if:

1) they are held for public exhibition - in furtherance of public service not gain
2) are protected/preserved
3) subject to a policy that requires the proceeds of items that are sold to be used to acquire other collectables

If capitalized collectable is exhaustible (useful life diminished by display/education/research) should be depreciated over estimated life

Question 36

Jonn City entered into a capital lease for equipment during the year. How should the asset obtained through the lease be reported in Jonn City’s government-wide Statement of Net Position?

1) General Capital Asset
2) Other Financing Use
3) Expenditure
4) Not reported

Answer 36

1) General Capital Asset

Note: “Expenditure” would be used in the Governmental Fund Statement but not in the Government-Wide Financial Statements.

Question 37

Small County’s tax assessment department identified the need for new property tax assessment and billing software. A project task force composed of county staff was assembled to address this need. The following outlays were incurred related to the project in 2015:

1) Task force interviews with operators of the software and users of the information to determine the needs of the users, evaluation of system hardware requirements, assessment of current in-house information technology resources and evaluation of commercially available software packages, and issuing requests for proposals from vendors. Outlays: $1.5 million.
2) The county awards a contract in the amount of $14.5 million to a vendor to acquire a perpetual license to use its property tax software as modified to meet the County’s needs. The vendor is responsible for the installation and modification of the software, while four county employees are dedicated to the project full time until its completion at an additional cost of $0.5 million.
3) Outlays for data entry and for training software users and operators is $0.6 million.

How much should Small County capitalize related to the outlays associated to the project?

Answer 37

Both the $14.5 million outlay for commercial software and the $0.50 million for installation and testing of the software relate to the second stage-application and development-and should be capitalized ($15.0 million).

$1.5M and $0.6M expensed as incurred

Question 38

Three Sections of CAFR and what is in each Section

Answer 38

-Introductory 1) Letter of Transmittal 2) Org. Chart 3) Principal Officers 4) Other

• Financial 1) Auditor’s Report 2) MD&A 3) Basic F/S
  4) RSI 5) Combining Statements & Individual Fund Statements

-Statistical 1) Financial Trends 2) Revenue Capacity 3) Debt Capacity 4) Demographic & economic 5) Operating Info 6) Other

Question 39

Minimum Financial Reporting Requirements

Answer 39

1) MD&A
2) Basic F/S
- Gov’t Wide F/S
- Fund F/S
- Notes
3) RSI (includes budgetary schedules, cash basis)

Question 40

Government Revenues susceptible to accrual

Answer 40

Revenues that are measurable & legally due prior to the receipt of cash:

1) Property Taxes (includes an estimated uncollectible tax amount) - if revenues not received within the allowable period recognized as “Deferred Inflow or Resources” vs. Revenue
2) Interest & Penalties on delinquent taxes
3) Investment Revenue
4) Regularly billed charges for services
5) Taxes collected by other other gov’t units but not yet remitted

Question 41

Rintner County received an $8,000 property tax payment that was not due until the subsequent fiscal year - how should it be recognized?

Answer 41

Revenues that are not Susceptible to Accrual - recorded as cash, as long as legally due if not legally due yet are received then Deferred Inflows of Resources are recognized.

Recognized as “Deferred Inflow of Resources” which is neither a revenue or liability account, until taxes are due.

In CY:
Dr. Cash
Cr. Deferred Inflow of Resources

In subsequent year:
Dr. Deferred Inflow of Resources
Cr. Property tax Revenue

Question 42

The City of Scarmont manages $200,000 in securities given to it in trust by the Citizens for City Beautification (CCB), a not-for-profit organization. Each year, the CCB receives proposals for beautification projects from various individuals and groups and selects two to three projects for funding. The City is responsible for managing the investment and disbursing the funds in accordance with the CCB request. The City accounts for the securities in a separate fund.

During the year, the City received $10,000 in investment earnings on the securities, $1,000 of which was related to earnings from the previous year, which were not received 60 days after the fiscal year end. At the end of the year, the market value of the securities was $208,000. How much revenue should be recognized in the fund in conjunction with these activities?

Answer 42

17,000

The endowment securities should be maintained in a Private-Purpose Trust Fund and would therefore be measured on the full accrual basis.

Under the full accrual basis, only the $9,000 in investment earnings earned this year would be recognized in the current period (the $1,000 from the previous year would have been accrued and recognized in the prior year).

GASB also requires that the $8,000 appreciation in the endowment investment be recognized as income during the period of the appreciation

Question 43

McCallum County pools any excess cash from its governmental and Proprietary Funds and invests the monies in marketable securities. The County also permits other governmental entities within the county limits to invest their resources in the pool.

The market value of its investments at the beginning of the year was $2,000,000; with $1,500,000 of the investment attributable to County funds and the $500,000 balance attributable to other governmental entities. The market value at the end of the year was $2,200,000.

During the year, the county had received $100,000 in earnings on these investments. None of the earnings had been distributed, and no additions or withdrawals occurred during the year.

What amount should McCallum report as total assets in its Investment Trust Fund?

Answer 43

$575,000

The County reports the $500,000 in resources contributed by external entities plus both the $50,000 in unrealized appreciation on the investments ($200,000 total increase × 25% of the total assets invested in the pool, which are attributable to external entities) and the $25,000 in investment earnings ($100,000 total increase × 25% of total assets invested in the pool, which are attributable to external entities) in its Investment Trust Fund.

Question 44

To record the 2005 pension contribution of $11,000, what debit is required in the governmental-type fund used in connection with employer pension contributions?

Answer 44

Expenditures Control

Governmental-Type Funds view contributions to Retirement Funds as regular, on-going expenditures of the fund.

Question 45

Hill City’s Water Utility Fund held the following investments in U.S. Treasury securities at June 30, 20X5:

• 3-month T-bill/Matures on 7/31/X5 $30,000
• 3-year T-note/Matures on 8/31/X5 $50,000
• 5-year T-note Matures on 9/30/X6 $100,000

In the fund’s balance sheet, what amount of these investments should be reported as cash and cash equivalents at June 30, 20X5?

Answer 45

$80,000

A government entity considers an investment a cash equivalent if it matures within three months of the date it was purchased.

Both the 3-month T-bill and the 3-year T-note meet this criterion

Question 46

Rock County has acquired equipment through a noncancelable lease-purchase agreement dated December 31, Year 1. If the equipment is used in internal service fund operations and the lease payments are financed with internal service fund revenues, what account or accounts should be debited in the internal service fund for the December 31, Year 2 lease payment of $65,000?

Answer 46

$50,000 of the payment reduces the Capital lease payable account.

Dr. Capital lease payable 50,000
Dr. Expenses control 15,000
Cr. Cash 65,000

Question 47

The governing board of the Excel City is also the governing board of Mosquito Abatement District, a business-type activity that serves only Excel City. The city is legally obligated to fund deficits of the district. Which of the following statements regarding the financial reporting options is false?

1) The district is a blended component unit and is reported in both the fund financial statements and the government-wide financial statements.
2) The district may be reported in a separate column on the Proprietary Fund financial statements but would most likely be reported within the business-type activities column in the government-wide financial statements.
3) The district is not to be reported as a discretely presented component unit.
4) The district is not subject to major fund reporting criteria.

Answer 47

The district is not subject to major fund reporting criteria.

This is the correct answer because the district should be evaluated to determine whether it meets the criteria of a major fund.

1 & 3) Are true because the District meets the criteria for blended presentation.

2) Is true since it is a enterprise fund

Question 48

Excel City and Excel County are partners in the Excel Transportation Authority, which is a separate legal entity. Both the city and the county are obligated to fund any debt defaults or operating deficits of the authority, which is deemed to be highly unlikely. The authority has seven board members: three appointed by the city, three appointed by the county, and one appointed by Wileytown, which is in the Excel Metropolitan Area. Both Excel City and Excel County should report the Excel Transportation as

1) A related org
2) A jointly governed org
3) A joint venture
4) A discretely presented component unit

Answer 48

A joint venture

City and county jointly govern the authority, and each has an ongoing financial responsibility. Both of them will report their equity interest in the joint venture as business type activities in the gov’t wide financial statements.

Not 4 because neither the city nor county appoints a voting majority of the authority’s governing body.

Question 49

For general purpose external financial reporting, discrete component unit info:

1) Is not presented
2) Is included in the gov’t wide statements only
3) Is included in the fund F/S only
4) Is included in both the gov’t wide and fund F/S

Answer 49

2) Is included in gov’t wide statements only

Question 50

The Excel City School District has a separate elected governing body that administers the public school system. The district’s budget must be approved by the city council of Excel City. The school district’s financial activity should be reported in the City’s financial statements by:

1) Discrete presentation
2) Blending
3) Footnote
4) Not at all

Answer 50

4) Not at all

Doesn’t meet the criteria for inclusion of component unit because the governing body is independently elected. And the primary gov’t doesn’t financial benefit/or is burdened, they are not financially accountable to the primary govn’t, and the district isn’t fiscally dependent on the gov’t

Question 51

Excel City has three discretely presented component units, one of which is governmental in nature and two of which are business type in nature. What is the minimum number of discretely presented component unit columns that can be reported in the government-wide financial statements?

0
1
2
3

Answer 51

1

GASB rules allow the primary government to aggregate all discretely presented component units into a single column.

Question 52

Describe the criteria forfiscal independenceandfinancially accountable.

Answer 52

Fiscally independent means the organization must be authorized to take all 3 of these specific actions without approval of another gov’t:

1. Determine its budget
2. Levy taxes or set user fees, and
3. Issue bonded debt

The primary gov’t is financially accountable if it appoints a voting majority of the organization’s governing body (or can abolish the organization) and either 1) is able to impose its will on that org 2) or there is potential for the org to provide specific financial benefits to or impose specific financial burdens on the primary government. *Plans that don’t have a governing body will be considered financially accountable to the primary government regardless of how the organization’s governing body is determined.

Question 53

Nox City reported a $25,000 net increase in the fund balances for total Governmental Funds. Nox also reported an increase in Net Position for the following funds:

Motor pool Internal Service Fund 9k
Water Enterprise Fund 12k
Employee pension fund 7k

The motor pool Internal Service Fund provides service to the General Fund departments. What amount should Nox report as the Change in Net Position for governmental activities?

Answer 53

$34,000

25k+9k

Enterprise fund is own column, and fiduciary isn’t included on Gov’t Wide Statements

Question 54

Major Fund has:

Answer 54

• 10% of the total assets plus deferred outflows, or liabilities plus deferred inflows/ revenues, or expenses for all funds of that category (i.e. governmental or enterprise)
• and one that comprises at least 5% of the corresponding total for all governmental and enterprise funds combined (i.e. total of assets is 5% of governmental and enterprise funds combined)

Question 55

Which of the following items would result in an increase in the reconciliation of governmental funds changes in fund balance to governmental activities changes in net position in the government-wide statement?

1. Depreciation
2. Capital Outlay Expenditures
3. Bond Proceeds
4. Book Value of Capital Assets Sold

Answer 55

2. Capital Outlay Expenditures

- in the gov’tal fund level F/S are eliminated in converting to governmental wide F/S

Question 56

Which of the following items is recognized for governmental activities in the government-wide statement of activities and not in the statement of revenues, expenditures, and changes in fund balance for governmental funds?

1. Transfers between governmental funds
2. Property Tax Revenue for an amount deferred because it was not available
3. A state grant awarded and received for road repairs that were completed this fiscal year
4. Salaries payable at the end of the CY that will be paid at the beginning of the subsequent year

Answer 56

2. Property Tax Revenue for an amount deferred because it was not available

This isn’t reported on gov’t fund level statements but are on gov’t wide statements

Salaries payable at the beginning of the next year (i.e., within 60 days in the next year) are considered to be paid from “currently available resources” and therefore will be recognized as liabilities in the current year by both government-wide and fund-level financial statements.

Question 57

What are the funds included on Gov’t Wide F/S?

Answer 57

Gov’tal Activities:
General 
Debt Service 
Capital Projects 
Special Rev
Permanent 
+ Internal Service Funds (dissolved)

Business-type activities:
Enterprise Funds 


Question 58

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

Billing by the internal service fund to a department financed by the general fund, for services rendered in the amount of $5,000.
Transfer of $200,000 from the general fund to establish a new enterprise fund.
Routine transfer of $50,000 from the general fund to the debt service fund.
What was the total reciprocal interfund activity for Curtain during May?

Answer 58

$5,000

There are 5 types of interfund transactions:

1) Loans (fund transfers of cash that is expected to be repaid)
2) Reciprocal quasi-external transactions
3) Expense Reimbursements (When one fund pays an expenditure on behalf of another fund and subsequently receives repayment, the expenditure is reduced in the fund that receives the repayment and increased in the fund making the repayment.)
4) Residual Transfers ($200k) - (nonrecurring/infrequent transfers to est. or expand activities of proprietary fund)
5) Operating Transfers (the $50k) - (regular, routine, reoccurring transfers to subsidize current activities)

A reciprocal transaction occurs from doing business with one another, such as billing of services by an ISF to other funds.

Question 59

On March 2, Year 1, Finch City issued 10-year general obligation bonds at face amount, with interest payable March 1 and September 1.

The proceeds were to be used to finance the construction of a civic center over the period April 1, Year 1, to March 31, Year 2.

During the fiscal year ended June 30,Year 1, no resources had been provided to the Debt Service Fund for the payment of principal and interest.

The liability for the general obligation bonds should be recorded in the:

Answer 59

Gov’t wide F/S

The Liability of the bonds should not be reported in Capital Projects Fund , but in the general LT debt account group

Question 60

Excel City’s Water Utility Enterprise Fund issues $10,000,000 in 20-year serial revenue bonds to finance a major expansion of one of its water treatment plants. $500,000 in bonds mature each year. As a result of this transaction, the year-end long-term liability in the governmental activities section of the government-wide financial statements accounts will reflect:
*read carefully

Answer 60

$0

The Enterprise fund uses full accrual accounting and will account for and report on the bonds in the Enterprise Fund. Therefore, this liability appears in the business type activity section of gov’t wide F/S and not in the governmental activity section.

Question 61

A government has the following debt:

Capital lease liabilities that mature in more than one year (General Fund department leases)-$2,000,000.
Net pension liability associated with general government employees-$4,000,000.
General government bonds that mature in the next fiscal year-$14,000,000.

What amount of debt should be reported in the long-term liabilities in the government-wide financial position?

Answer 61

$20,000,000

All these items are considered unmatured LT Liabilities of the general gov’t and will not be recorded in any of the Gov’tal Funds but will be liabilities on Gov’t Wide Statement of Net Position (Note that all unmatured LT debt, except for proprietary or trust funds are reported as General LT liab)

Question 62

The following benefits are examples of other post-employment benefits (OPEB) except for:

• Pension benefits
• Life insurance
• Dental benefits
• Vision plan
• Medical insurance

Answer 62

Pension benefits

Question 63

A court judgment was rendered against a city in which it was ordered to pay $600,000 in equal installments over a six-year period to the plaintiff. The city’s General Fund will:

Answer 63

Report expenditures of $100,000 in Year 1.

Remember the General Fund doesn’t report LT liabilities.

Question 64

In the year a city enters into a capital lease to finance a new fire engine, the General Fund will report in its funds-level financial statements

Answer 64

The general fund will record an expenditure and an other financing SOURCE at inception of the lease.

*Proceeds of LT debt are recorded as other financing sources.

Question 65

Excel City’s Municipal Solid Waste Landfill Enterprise Fund was established when a new landfill was opened in year 2000. The landfill is expected to close in year 2030. The enterprise fund 2000 expenses include a portion of which of year 2030’s expected disbursements?

I. Cost of a final cover to be applied to the landfill
II. Cost of equipment to be installed to monitor methane gas buildup

Answer 65

Both I and II

Remember: Enterprise Fund on Accrual Basis

GASB requires measuring and reported estimated total closure and post-closure costs. A portion of the total cost is recognized yearly using the units-of-production method.

Question 66

Which of the following would not be considered a long-term liability within the governmental activities of the government-wide financial statements?

1. The estimated liability to clean up the hazardous waste storage sites of the city’s public works division
2. Compensated absences for the city’s fire department
3. Capitalized equipment leases of the sewerage and wastewater utility fund
4. Capital lease obligation used to acquire computer equipment for the city’s administrative offices
   * Read Carefully

Answer 66

3. Capitalized equipment leases of the sewerage and wastewater utility fund

This is recognized as a business type activity on the gov’t wide F/S

Question 67

Which of the following is not properly reported in the government activities of the government-wide financial reports?

1. The LT portion of claims and judgements
2. Tax-supported general obligation bonds
3. Revenue bonds issued by an enterprise fund
4. Obligations under capital leases use to finance general capital assets

Answer 67

3. Revenue bonds issued by an enterprise fund

This should be recognized as a business type activity on the gov’t wide F/S

Question 68

Pollution remediation obligations should be recognized when:

Answer 68

1. A violation of a pollution prevention permit has occurred.
2. The government is named or will be named as the responsible or potentially responsible party to a remediation.
3. The government is compelled to take remediation action due to imminent endangerment to the public health.

Question 69

List six expenditure classification schemes. (focus on 1,2,5,6)

Answer 69

Expenditures (authorized through appropriations) must be coded to identify these characteristics:

1) Fund - the fund supplying the financial resources
2) Program/Function (ex. health)
3) Activity/Goal/Objective (ex. AID awareness)
4) Org. Unit - the department within gov’t that is responsible for managing expenditure (ex. health depart)
5) Character - period of time benefited by the expenditures
i. Current
ii. Capital Outlay - Current and Future
iii. Debt Service - Past periods
iiii. Intergov’tal transfers -
6. Object/Category (ex. salaries, supplies)

Question 70

Remember the difference between Expense and Expenditures

Answer 70

If the question uses the terms “expenditures” or “fund balance,” then the fund or report in question must be one of the governmental funds, as these are the only funds that use modified accrual basis accounting.

If the question uses the terms “expenses” or “net position,” then the fund or report in question must be one of the proprietary funds or fiduciary funds, as these are the only funds that use full accrual basis accounting.

Question 71

Nonexchange Revenue Classifications that are used to define and apply revenue recognition rules.

Answer 71

1) Imposed non-exchange revenues (ex. taxes, fines) - recognize revenue in the period for which taxes are levied, recognize an asset (receivable) when there is an enforceable claim/or received in cash.
2) Derived Tax Revenues (ex. sales tax/income taxes) - government doesn’t know what the amount will be until it receives the tax - revenue and asset recognized at the time the underlying exchange takes place
3) Gov’t Mandated Non-exchange transactions (ex. shared revenues, entitlements) - most of these resources have restrictions on how they may be used and are only available if eligibility requirements met - revenue and asset when all requirement met
4) Voluntary Non-exchange Transaction Contracts (ex. grants, endowments) - revenue and assets recognized when all eligibility requirements met (usually purpose or time restrictions)

Question 72

Revenue Classifications— by source:

Answer 72

1. Taxes—Property, sales, income, and other taxes; penalties and interest on delinquent taxes
2. Licenses and permits—Motor vehicle permits, fishing permits, building permits, alcoholic beverage licenses
3. Intergovernmental—Grants, shared revenues, and payments to other governments in lieu of taxes
4. Charges for services—Building inspection fees, copying fees, recording fees
5. Fines and forfeits—Parking fines, traffic fines
6. Investment earnings—Usually on short-term investments
7. Miscellaneous—Rents and royalties, escheats. (The net assets of deceased persons who die without a will and with no known relatives revert back to the state.)

Question 73

Fixed Assets donated to a governmental unit should be recorded at…

Answer 73

At estimated FV when received

Question 74

What is the major difference between an Exchange Transaction and a non-Exchange Transaction for governmental units?

Answer 74

The relationship between the amount of value given and received.

Exchange Transactions involve a direct relationship between the charge and the service. Non-exchange Transactions, which are frequent in governments, do not have this relationship (e.g., taxes and fines).

Question 75

Which of the following revenues can be recorded when bills are mailed rather than when they are actually received?

1) Property Taxes
2) Licenses and Permits
3) Fines and Forfeits
4) Service Charges

Answer 75

Property taxes are both objectively measurable and available to finance current period expenditures and, therefore, are “susceptible for accrual,” and revenues are recorded prior to when cash is collected.

Question 76

Under GASB, which of the following situations requires the lessee to report a lease liability?

Answer 76

The lease conveys control of the right to use another entity’s nonfinancial asset for a period of time.

Question 77

An independent school district enters into a three year lease on a warehouse owned by a city. Total lease payments are $125,000 and have a present value of $116,000. At the inception of the lease, the city (the lessor) will record a:

Answer 77

Credit to “Deferred inflow of resources” of $116,000.

Lease terms longer than 12 months (i.e., not short-term leases) report deferred inflow of resources at the present value of lease payments.

Question 78

The lease term is defined as the non-cancelable period plus/less:

Answer 78

Plus periods covered by a lessee’s option to extend the lease when it is reasonably certain the lessee will exercise that option.

Moreover, the lease term excludes any periods to terminate the lease if it is reasonable to assume that option will not be exercised.

Question 79

A government acquires a 100% equity interest in a legally separate organization that is NOT being held for investment purposes. The equity interest will be recorded initially as:

Answer 79

A component unit measured at acquisition value.

Question 80

In January, year 10, Blue County acquired the right to draw water from a lake on the property of a privately owned ranch in exchange for a cash payment of $20 million. The annual volume of water that can be drawn is unlimited. The county’s rights under the contract expire in 10 years; however, the contract provides the opportunity to renew the water rights for an additional 10 years for an additional payment of $10 million, if the county chooses . The county believes that it will request the renewal. The county expects the other party to agree to the renewal since the ranch is a significant user of the county’s water supply and is a major employer of Blue County residents. The county operates on a calendar fiscal year. The county should recognize in its year 10 Government-Wide Financial Statements an annual amortization rate of:

Answer 80

$2 million in its Statement of Activities.

Because the county would be required to make an additional payment to execute the 10-year renewal period, this period is not considered as part of the useful life acquired in exchange for the $20 million payment. The useful life of the water rights is 10 years. Using straight-line amortization, annual amortization expense of $2 million ($20 million over 10 years) would be recorded in the county’s Government-Wide Statement of Activities starting in year 10.

Question 81

The Statement of Activities of the Government-Wide Financial Statements is designed primarily to provide information to assess which of the following?

Answer 81

Operational accountability.

The extent to which the operational expenses of each function are covered by related fees and grants and the extent to which general revenues must be used to cover the expenses.

Question 82

The minimum reporting requirement for a government

Answer 82

is a General Purpose Financial Statement, which has three main components: (1) management’s discussion and analysis, (2) basic financial statements, and (3) required supplementary information.

CAFR not required

Question 83

Gem City’s Internal Service Fund received a residual equity transfer of $50,000 cash from the General Fund.

This $50,000 should be reported in Gem’s Internal Service Fund as a credit to:

Answer 83

Transfers

Property funds use full accrual so no “Other financing sources”

Question 84

What is the effect on Assets, Liabilities, Net assets with donor restrictions, and Net Assets without Donor restrictions in the following scenarios?

1. A donor advances Metro $40,000 that is not restricted to any particular purpose or time but is conditioned on Metro matching the amount 2 to 1. Metro’s management is doubtful that it will be able to make the match.
2. Due to a downturn in the market, Metro’s permanent endowment has declined $20,000 below the original endowment amount.

Answer 84

1. Increase in Assets and Liabilities (refundable advance)

Amount received with condition that must be met prior to recognizing revenue. If the $40,000 been in the form of a pledge (i.e., not received by Metro), then no entry would be made until the condition was met.

2. Decrease in Assets and Decrease in Net Assets with donor restrictions

ASU 2016-14 changed the way in which “underwater” endowments are reported. Prior to ASU 2016-14, the underwater amount was reported in the unrestricted category.

Question 85

What kind of fund are the following examples:

• Sales taxes dedicated to mosquito abatement were collected
• City collects taxes for the city, Blake ISD, Blake County
• Claims are paid from the Blake City Self-Insurance Fund
• Contributions are made to the employee pension plan for firefighters

Answer 85

-Special Revenue Fund
(money received for anything other than debt and capital assets are usually special revenue)
-Custodial Fund (collecting for other units)
-Internal Service Fund
-Pension Trust Fund

Question 86

Provide the JE’s for the following events:

The Blake County commissioners pass a property tax levy totaling $5,100,000. Based on prior year collection rates, it is estimated that $100,000 in property taxes will be uncollectible.

1) Blake County commissioners pass the property tax levy and taxpayers are billed for property taxes.

During Year 5, the general fund of Blake County collected $405,000 in licenses and permits. The budgeted amount is $400,000.

2) The general fund collects license and permits.

Answer 86

1)

Dr. Property Tax Receivable $5.1M
Cr. Revenus (Control) $5M
Cr. Allowance for uncollectible taxes $100,000

For modified accrual basis of accounting property tax levy will record revenues when measurable and available; (when the tax levy is set).

2)

Dr. Cash $405k
Cr. Revenues $405k

For modified accrual basis, licenses and permits are not considered “susceptible to accrual” because they are not measurable and available prior to collection. Therefore, they are recorded when paid. Also, even though the collected amount, $405,000, exceeds the budgeted amount, $400,000, it is unlikely that the budget would be amended for such a small amount.