MCQ's Government Flashcards
A major exception to the general rule of expenditure accrual for governmental units 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.
In the current year, New City issued purchase orders and contracts of $850,000 that were chargeable against current year budgeted appropriations of $1,000,000. The journal entry to record the issuance of the purchase orders and contracts should include a
Credit to Budgetary Control of $850,000.
To record purchase orders issued or contract commitments, the Encumbrances account is debited and Budgetary Control is credited.
Encumbrance $850,000
Budgetary Control $850,000
The following equity balances are among those maintained by Cole City:
Enterprise funds $1,000,000
Internal service funds 400,000
Cole’s proprietary equity balances amount to
$1,400,000
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).
For governmental external financial reporting, Management’s Discussion and Analysis (MD&A) should provide which of the following?
A - Management’s perspective on the government’s significant financial transactions
B - Management’s plans for the immediate subsequent year
C - Management’s long-term capital improvement plan
D - All of the above
Management’s perspective on the government’s significant financial transactions
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.
Which of the following are the constraints that create restricted net position in governmental accounting?
A - External impositions by creditors, grantors, contributors, or laws or regulations of other governments
B - Imposition by law through constitutional provisions or enabling legislation
C - Both A. and B.
D - Neither A. nor B.
Both A and B
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.
Which of the following describes the reporting for depreciation in the governmental statement of activities?
A - Depreciation is only reported for business-type activities.
B - Depreciation is reported separately in the business-type activities.
C - Governmental activities only report depreciation for infrastructure assets.
D - Depreciation is included with each department’s program expenses for all activities.
Depreciation is included with each department’s program expenses for all activities.
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.
Polk County’s solid waste landfill operation is accounted for in a governmental fund. Polk used available cash to purchase equipment that is included in the estimated current cost of closure and post-closure care of this operation. How would this purchase affect the long-term asset and the long-term liability amounts in Polk’s general fund?
No effect on LT Asset or LT Liability
A MSWLF (Municipal Solid Waste Landfill) accounted for in a government-type fund should recognize expenditure and fund liabilities on the modified accrual basis of accounting with the long-term portion of liabilities being reported in governmental-wide financial statements but not in the general fund.
The amount spent on the purchase of the long-term asset would be reported as an expenditure in the General Fund with the long-term liability being recorded in government wide-financial statements such that there would be no effect on either the long-term asset or long-term liability.
Note: Government-wide financial statements 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 or incur actual costs, it would have no effect on a long-term asset but the long-term liability would be reduced. Equipment, facilities, services, and final cover 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 in government-wide financial statements.
Pine City’s year end is June 30. Pine levies property taxes in January of each year for the calendar year. One-half of the levy is due in May and one-half is due in October. Property tax revenue is budgeted for the period in which payment is due. The following information pertains to Pine’s property taxes for the period from July 1, year 1, to June 30, year 2:
Calendar year
Year 1 Year 2
Levy $2,000,000 $2,400,000
Collected in:
May $950,000 $1,100,000
July 50,000 60,000
October 920,000
December 80,000
The $40,000 balance due for the May, year 2, installments was expected to be collected in August, year 2. What amount should Pine recognize for property tax revenue for the year ended June 30, year 2?
$2,200,000
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.
The following events relating to the City of Arrow’s debt service funds occurred during the year ended December 31: All principal and interest due in the year were paid on time.
Debt principal matured $ 3,000,000
Unmatured (accrued) interest on outstanding debt at Jan 1 45,000
Interest on matured debt 700,000
Unmatured (accrued) interest on outstanding debt at Dec 31 93,000
Interest revenue from investments 800,000
Cash transferred from general fund for retirement of debt principal 2,000,000
Cash transferred from general fund for payment of
matured interest 600,000
How much revenue should Arrow’s debt service funds record for 20X1?
$800,000
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.
Wood City, which is legally obligated to maintain a debt service fund, issued the following general obligation bonds on July 1:
Term of bonds 10 years
Face amount $1,000,000
Issue price 101
Standard interest rate 6%
Interest is payable January 1 and July 1. What amount of bond premium should be amortized in Wood’s debt service fund for the year ended December 31?
$0
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.
When a lease of a governmental unit represents the acquisition of a general fixed asset, the acquisition should be reflected as
A - An expenditure but not as an other financing source.
B - An other financing source but not as an expenditure.
C - Both an expenditure and an other financing source.
D - Neither an expenditure nor an other financing source.
Both an expenditure and an other financing source.
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.
GASB Concepts Statement No. 1 as a financial reporting objective for governmental financial statements?
Assisting users in assessing the operating results, level of services provided, and the government’s ability to meet cash requirements
