Multiple Choice Test Q's. Flashcards

1
Q
  1. The proceeds from long-term bond issue from the construction of the city hall of Jackson will mostly likely be recorded in
    a. Capital projects fund
    b. General fund
    c. Debt service fund
    d. Enterprise fund
A

a. Capital projects fund

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2
Q
  1. What are the entries for the bond premium issue to be reported in the government activities column of the government-wide financial statements
    a. Premium on bonds payable and Liabilities payable
    b. Bond expenditure and Noncurrent portion of general Long-term liabilities payable
    c. Premium on bonds payable and noncurrent portion of general Long-term liabilities
    d. The entry is not reported in the governmental wide financial statements
A

c. Premium on bonds payable and noncurrent portion of general Long-term liabilities

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3
Q
  1. What are the criteria for lease to be reported as capital lease for government entities
    a. The lease transfers ownership of the property to the lessee by the end of the lease term.
    b. The lease contains an option to purchase the leased property at a bargain price.
    c. The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
    d. The present value of rental or other minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any investment tax credit retained by the lessor.
    e. Any one of the above criteria result in a lease being classified as a capital lease
A

e. Any one of the above criteria result in a lease being classified as a capital lease

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4
Q
  1. What is the difference between the legal debt limit and the amount of net indebtedness subject to limitation called?
    a. Overlapping debt
    b. Debt margin
    c. Debt limit
    d. Bad debt
A

b. Debt margin

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5
Q
5.	What of the following is not a source of operational debt for a government entity?
A. Capital leases
B. Claims & judgements
C. Pensions
D. Environmental issues
A

. Capital leases

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6
Q
  1. Johnson County acquired a new equipment to be used under the activities of the special revenue fund under a capital lease agreement. Johnson county is required to make an initial payment of $900,000 and five annual lease payments of $900,000 at the end of each year beginning December 31, 2019. The total amount to be paid under the lease agreement is $5,400,000. Johnson county administrators pan to borrow the amount of $5,400,000 for five years at an annual rate of 5%. The present value of the lease at inception inclusive of the initial payment is $4,796,100. Assume the fair value of the equipment of the inception of the lease is $5,275,000.00.

The lease transfers ownership of the property to the lessee by the end of the lease term.

A

No condition not met

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7
Q
  1. Johnson County acquired a new equipment to be used under the activities of the special revenue fund under a capital lease agreement. Johnson county is required to make an initial payment of $900,000 and five annual lease payments of $900,000 at the end of each year beginning December 31, 2019. The total amount to be paid under the lease agreement is $5,400,000. Johnson county administrators pan to borrow the amount of $5,400,000 for five years at an annual rate of 5%. The present value of the lease at inception inclusive of the initial payment is $4,796,100. Assume the fair value of the equipment of the inception of the lease is $5,275,000.00.

The lease contains an option to purchase the leased property at a bargain price.

A

No condition not met

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8
Q
  1. Johnson County acquired a new equipment to be used under the activities of the special revenue fund under a capital lease agreement. Johnson county is required to make an initial payment of $900,000 and five annual lease payments of $900,000 at the end of each year beginning December 31, 2019. The total amount to be paid under the lease agreement is $5,400,000. Johnson county administrators pan to borrow the amount of $5,400,000 for five years at an annual rate of 5%. The present value of the lease at inception inclusive of the initial payment is $4,796,100. Assume the fair value of the equipment of the inception of the lease is $5,275,000.00.

The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.

A

No condition not met

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9
Q
  1. Johnson County acquired a new equipment to be used under the activities of the special revenue fund under a capital lease agreement. Johnson county is required to make an initial payment of $900,000 and five annual lease payments of $900,000 at the end of each year beginning December 31, 2019. The total amount to be paid under the lease agreement is $5,400,000. Johnson county administrators pan to borrow the amount of $5,400,000 for five years at an annual rate of 5%. The present value of the lease at inception inclusive of the initial payment is $4,796,100. Assume the fair value of the equipment of the inception of the lease is $5,275,000.00.

The present value of rental or other minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any investment tax credit retained by the lessor.

A

Yes condition is met ($5,275,000/$5,400,000 = 98%)

The lease is properly classified as a capital lease since the present value of rental or other minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any investment tax credit retained by the lessor.

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10
Q
  1. Johnson County acquired a new equipment to be used under the activities of the special revenue fund under a capital lease agreement. Johnson county is required to make an initial payment of $900,000 and five annual lease payments of $900,000 at the end of each year beginning December 31, 2019. The total amount to be paid under the lease agreement is $5,400,000. Johnson county administrators pan to borrow the amount of $5,400,000 for five years at an annual rate of 5%. The present value of the lease at inception inclusive of the initial payment is $4,796,100. Assume the fair value of the equipment of the inception of the lease is $5,275,000.00.
    b. What is GASB requirements for the recording of a lease at inception, and what entries are required at the inception of the lease in the fund journal and governmental activities journal. (6 marks)
A

GASB requires a governmental fund, including if appropriate a capital projects fund to record a lease obligation at the inception of the lease using the present value of the lease obligation to record the asset.

I. Special Revenue Fund
Expenditures Debit $4,796,100

Other financing sources - Capital Lease Agreements Credit $4,796,100

II. Governmental activities
Equipment Debit $4,796,100

Capital lease obligations payable credit $4,796,100

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11
Q

A capital projects fund would probably not be used for which of the following assets? (Chapter 5)

a. Construction and installation of new shelving in the mayor’s office.
b. Financing and construction of three new fire substations.
c. Purchase and installation of an entity-wide integrated computer system (such as SAP).
d. Replacing a bridge.

A

a. Construction and installation of new shelving in the mayor’s office.

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12
Q
8.  Which of the following would not be considered a capital asset according to GASB standards? (Chapter 5)
A.	Land
B.	Construction work in progress
C.	Machinery and equipment
D.	All are considered capital assets
A

D All are considered a capital asset

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13
Q

What account for the cost and depreciation of general capital assets? (chapter 5)

A

Government -Wide governmental activities section

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14
Q

What is the value of land if it is purchased and donated? (chapter 5)

A

If one purchase land use the contract price and all related costs and if land is donated use its appraised value on the date of acquisition.

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15
Q

What two governmental funds account for capital outlay expenditures from budget appropriations? ( Chapter 5)

A

General fund and Special revenue fund

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16
Q

Which of the following transactions is reported on the government-wide financial statements?

a. An interfund loan from the General Fund to a special revenue fund.
b. Equipment used by the General Fund is transferred to an internal service fund that predominantly serves departments that are engaged in governmental activities.
c. The City Airport Fund, an enterprise fund, transfers a portion of boarding fees charged to passengers to the General Fund.
d. An interfund transfer is made between the General Fund and the Debt Service Fund.

A

c. The City Airport Fund, an enterprise fund, transfers a portion of boarding fees charged to passengers to the General Fund.

17
Q

4–23Interfund and Interactivity Transactions. The following transactions affected various funds and activities of the Town of Big Springs.
1. Question 1: The Fire Department, a governmental activity accounted for within the General Fund, purchased $100,000 of water from the Water Utility Fund, an enterprise fund.
2. Question 2: The General Fund made a long-term loan in the amount of $50,000 to the Central Stores Fund, an internal service fund that services town departments.
3. Question 3: The General Fund paid its annual contribution of $100,000 to the debt service fund for interest and principal on general obligation bonds due during the year.
Required
a. Make the required journal entries in the general journal of the General Fund and any other fund(s) affected by the interfund transactions described. Also make entries in the governmental activities journal for any transaction(s) affecting a governmental fund. Do not make entries in the subsidiary ledgers.

A
CITY OF BIG SPRINGS
			Debits	Credits
1.	General Fund:
EXPENDITURES	 100,000
	CASH		 100,000	
Governmental Activities:
EXPENSES—PUBLIC SAFETY	 100,000
	CASH	 	100,000			
Enterprise Fund:
CASH	 100,000
	REVENUES 		 100,000
  1. General Fund:
    INTERFUND LOANS RECEIVABLE—
    NONCURRENT 50,000
    CASH 50,000

FUND BALANCE—UNASSIGNED 50,000
FUND BALANCE—NONSPENDABLE—
NONCURRENT INTERFUND LOANS
RECEIVABLE 50,000

Governmental Activities:
NO EFFECT

Internal Service Fund:
CASH 50,000
INTERFUND LOANS PAYABLE—
NONCURRENT 50,000

  1. General Fund:
    OTHER FINANCING USES—INTERFUND
    TRANSFERS OUT 100,000
    CASH 100,000

Governmental Activities:
NO EFFECT

	Debt Service Fund: CASH 	 100,000
OTHER FINANCING SOURCES—
   INTERFUND TRANSFERS IN		 100,000
18
Q
  1. List the Accounting Characteristics:
A
  • Accrual Basis w/ a focus on flow of economic resources
  • Accounts for ALL Assets and Liabilities related to operations (both LT and ST)
  • flexible rather than fixed budgets recommended ( generally budgetary accounts are not integrated into the General Ledger)
  • Depreciation expense and accumulated depreciation are recorded and reported
19
Q
  1. Financial Statements for Proprietary Funds
A
  • Statement of Net Position
  • Statement of Revenues, Expenses, and Changes in Fund Net Position
  • Statement of Cash Flows
20
Q

Identify the different types of trust funds and explain the purpose of each type

A

The GASB classifies these, for financial reporting purposes, as Pension Trust Funds, Investment Trust Funds, and Private-Purpose Trust Funds.

  • A pension trust fund- is a combined pool of money from both an employer and its employees designed to fund future payments to the employees.
  • Investment trusts- are companies that invest in the shares of other companies
  • Private-purpose trust funds - are used to report trust arrangements, other than pension and investment trusts, under which principal and income benefit individuals, private organizations, or other governments.
21
Q

Explain how the financial reporting of fiduciary funds differ from that of governmental funds.

A

Government fund revenues and expenditures should be recognized on the modified accrual basis using the current financial resources management focus. Revenues should be recognized in the accounting period in which they become available. Expenditures should be recognized in the accounting period in which the fund liability is incurred.

22
Q

How does the accounting for internal investment pool differ from the accounting for an external investment pool.

A

If the investment pool is an internal investment pool (participating funds are all within the same government) an agency fund may be used to account for the investments in the pool
If the investment pool has external participants (other governments or organizations outside the government administering the pool), an external investment pool is used.

23
Q

Compare a defined benefit pension plane with a defined contribution pension plan. If you were an employee, which plan would you prefer and why?

A

The defined benefit pension plan is a pension scheme in which an amount of money is given to the retiree by the government as his retirement income. The government promises to pay the pension amount and it’s responsible for delivering the promise. The defined contribution plan is one specified for a portion of the pension amount that will be transferred to the account that retired.

24
Q

How does total pension liability differ from net position liability?

A

Total pension liability does not refer to the total amount a company will have to pay in future pensions. Instead it refers to the difference between that amount and the amount of money the company has earmarked to make those payments.

25
Q

Garden City has calculated that General Fund property tax revenues of $4,608,000 are required for the current fiscal year. Over the past several years, the city has collected 96 percent of all property taxes levied. The city levied property taxes in the amount that will generate the required $4,608,000. Which of the following general journal entries would correctly record the property tax levy?

A

Taxes Receiveable - current 4,800,000

allowance for uncollectible current taxes credit 192,000
revenues - 4,608,000

26
Q

The Village of Frederick borrowed $1,000,000 from a local bank by issuing 4 percent tax anticipation notes. If the village repaid the tax anticipation notes six months later after collecting its next installment of property taxes, the General Fund journal entry to record the repayment will include:

. A debit to Tax Anticipation Notes Payable for $1,000,000.

b. A debit to Expenditures for $20,000.
c. A debit to Expenditures for $1,020,000.
d. Both a and b.

A

d. Both a and b.

. A debit to Tax Anticipation Notes Payable for $1,000,000.
b. A debit to Expenditures for $20,000.

27
Q
3 Recording Encumbrances and Expenditures. During fiscal year 2017, the City of Hickory Hills issued purchase orders to various vendors in the amounts shown for the following functions of the city:
General Government	$  164,200
Public Safety	302,000
Public Works	224,400
Culture and Recreation	181,700
Health and Welfare	168,100
Miscellaneous	24,600
 Total	$1.065,000
All goods ordered during the year were received at the following actual costs:
General Government	$  159,800
Public Safety	301,700
Public Works	226,800
Culture and Recreation	181,700
Health and Welfare	171,300
Miscellaneous	25,600
 Total	$1.066,900
Required
1.	Prepare a summary journal entry in the General Fund general journal to record the issuance of purchase orders during fiscal year 2017.
A

Debits Credits
Encumbrances - 2017 Debit - 1,065,000
Encumbrances Outstanding-2017 credit 1,065,000

To record issuance of purchase order.

28
Q
3 Recording Encumbrances and Expenditures. During fiscal year 2017, the City of Hickory Hills issued purchase orders to various vendors in the amounts shown for the following functions of the city:
General Government	$  164,200
Public Safety	302,000
Public Works	224,400
Culture and Recreation	181,700
Health and Welfare	168,100
Miscellaneous	24,600
 Total	$1.065,000
All goods ordered during the year were received at the following actual costs:
General Government	$  159,800
Public Safety	301,700
Public Works	226,800
Culture and Recreation	181,700
Health and Welfare	171,300
Miscellaneous	25,600
 Total	$1.066,900
  1. Prepare summary journal entries in the General Fund general journal to record the receipt of and payment for goods during fiscal year 2017.
A

Encumbrances Outstanding- 2017 Debit 1,066,900
Encumbrances -2017 credit 1,066,900

To record the receipt of goods ordered.