Multiple Choice Test Q's. Flashcards
- 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. Capital projects fund
- 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
c. Premium on bonds payable and noncurrent portion of general Long-term liabilities
- 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
e. Any one of the above criteria result in a lease being classified as a capital lease
- 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
b. Debt margin
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
. Capital leases
- 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.
No condition not met
- 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.
No condition not met
- 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.
No condition not met
- 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.
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.
- 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)
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
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. Construction and installation of new shelving in the mayor’s office.
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
D All are considered a capital asset
What account for the cost and depreciation of general capital assets? (chapter 5)
Government -Wide governmental activities section
What is the value of land if it is purchased and donated? (chapter 5)
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.
What two governmental funds account for capital outlay expenditures from budget appropriations? ( Chapter 5)
General fund and Special revenue fund