NINJA Governmental

Question 1

The statement of activities of the government-wide financial statements is designed primarily to provide information to assess what?

Answer 1

Operational accountability

Question 2

The fiduciary funds of a government should include:

Answer 2

Pension trust funds and agency funds.

Question 3

Which account should Spring Township credit when it issues a purchase order for supplies?

Answer 3

Reserve for encumbrances

Question 4

Encumbrances outstanding at year-end represent:

Answer 4

Budgetary control for the general fund.

Question 5

To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about:

Answer 5

the financial position and condition of the governmental entity,

the governmental entity’s physical and other nonfinancial resources, and

legal or contractual restrictions of resources and risks of potential loss of resources.

Question 6

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of short-term financing received from a bank, secured by the city’s taxing power?

Answer 6

Credit tax anticipation notes payable

Question 7

Management’s discussion and analysis, MD&A, to be issued with the financial statements of a state or local government should provide the user with each of the following, except:

Answer 7

A careful pro forma presentation of the implications of current year’s decisions for future financial statements.

While managers may wish to discuss implications and contingent outcomes of current decisions, these matters should be presented elsewhere in the comprehensive annual financial report, such as the letter of transmittal or in other supplementary information. The other answer choices consist of MD&A requirements discussed in GASB 2200.106–.109.

Question 8

Which of funds of a governmental unit uses the same basis of accounting as the special revenue fund?

Answer 8

Permanent funds

Special revenue funds are classified as governmental funds. The other governmental funds are the general fund, capital projects funds, debt service funds and permanent funds. Governmental funds use the modified accrual basis of accounting. Enterprise funds are a type of proprietary fund and investment and pension trust funds are types of fiduciary funds. They use the accrual basis of accounting.

GASB 1300.103–.108

Question 9

Lys City records a compensated absences liability as a general government liability. The salary rate used to calculate the liability should normally be the rate in effect:

Answer 9

At the balance sheet date.

GASB C60.107 indicates that a government’s compensated absences liability normally “should be calculated based on the pay or salary rates in effect at the balance sheet date.” (There is an exception for cases in which a justifiable lower amount should be used; for example, if the amount is based on a contractual agreement.)

Question 10

Reporting of general infrastructure assets by all public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities is:

Answer 10

Required using the full governmental model.

Public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report infrastructure using the provisions of GASB Statement 34 codified as GASB Sp20.104. These provisions include the reporting of capital assets that are defined in GASB 1400.103 to include infrastructure.

Question 11

range Township has two general obligation bond issues outstanding. One is for $2,000,000 and the other is for $3,000,000. Cash of $62,500 has been set aside in debt service funds, per the annual budget, to pay the interest due on these issues January 1, 20X2. What is the net liability that must be shown in the fund-based statements prepared as of December 31, 20X1?

Answer 11

$0

The debt is a long-term liability and would not appear on the balance sheets of the governmental funds, although it would be reported in the governmental activities section of the government-wide statement of net position. The interest that is due very early in the following year has been deposited in the debt service funds. The expenditure for debt service would usually be recognized in the year of payment. The expenditure and related liability could be recognized in the debt service fund but is not required in the December 31, 20X1, statements. Therefore, the correct answer is $0.

Question 12

A state imposes a 5% tax on sales of goods by retail merchants. Legislation requires the state (provider) to remit one-sixth of the sales tax to cities and counties (recipients) on a quarterly basis. No annual appropriation is required. The cities and counties may use the resources for any governmental program.

When would the provider recognize a revenue?

Answer 12

When the underlying transaction takes place

Question 13

Which of the following types of fiduciary funds should not be reported in the statement of changes in fiduciary net position?

Answer 13

Agency funds

Agency funds should not be reported in the statement of changes in fiduciary net position because they involve reporting for resources held by the government in a purely custodial activity. Current assets equal current liabilities in the statement of net position. There are no operating accounts and therefore no changes in net position.

Question 14

An unrestricted grant received from another government to support enterprise fund operations should be reported as:

Answer 14

Nonoperating revenues.

Question 15

The three internal service funds of a town were presented in a single column in the basic financial statements. The town’s internal service funds supplied goods and services to the various governmental functions of the town. Combining the internal service funds in this way simplified:

Answer 15

The conversion of the fund-based information to the government-wide financial statement format.

Question 16

The following information is relevant to one of the City of Mullins’ General Fund’s derived tax revenues:

Fiscal year-end June 30
Beginning receivables $450,000
Beginning deferred revenues 100,000
Beginning allowance for doubtful accounts 50,000
Receipts 1,250,000
Ending receivables 600,000
Receivables collected 6/30 - 8/30 125,000
Ending allowance for doubtful accounts 60,000
The City of Mullins considers derived tax receivables collected within 60 days after the close of the fiscal year to be “available.” Furthermore, the City wrote off $30,000 of receivables as uncollectible during the year.

What would be the amount of deferred revenues reported at the fund level for year-end?

Answer 16

At the fund level, derived tax revenues are reported using the modified accrual method. Using modified accrual, that portion of the ending receivable which is measurable but not available, or accounted for as an allowance, is accounted for as deferred revenue.

                Deferred Revenues

Ending receivable $600,000
Less collections June 30 through August 30 (125,000)
Less ending allowance for doubtful accounts (60,000)
———
$415,000
=========

Question 17

Is a statement of cash flows necessary for all funds when reporting for a governmental entity?

Answer 17

No, only for the proprietary (business like) funds.

Question 18

Blue City has a major garage facility used by the Public Works department to maintain the streets and roads equipment. The garage was built 10 years ago and was expected to meet the city’s needs for 30 years. The City has been updating its equipment fleet and unexpectedly discovered that the service bays are no longer adequate for many of the new vehicles, which are much larger. The sudden obsolescence of the building has been evaluated as an impairment cost. This impairment should be reported in the financial statements as:

Answer 18

A program expense (Public Works) in the statement of activities, but not as an expenditure in the general fund.

The general fund, as a governmental fund, is accounted for from the current financial resources perspective. Therefore, capital assets and revaluations of capital assets are not reported. In the government-wide statements, impairment is a revaluation of a capital asset that is reported as an expense in the statement of activities. Depending on circumstances, an expense could be reported in the statement of activities as a program expense, special item, or extraordinary item. In this case, as the asset is used in a specific program for the Public Works department, and the determination appears to have already been made that it does not meet the criteria for treatment as a special or extraordinary item, the best choice is to report the expense as a program expense.

Question 19

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of approved purchase orders issued for supplies?

Answer 19

Debit encumbrances control

Encumbrance entries are recorded in budgetary accounts to prevent overspending of appropriations and to assure compliance with budget authorizations. Encumbrances are recorded when purchase orders are approved for goods or services based on their estimated costs as follows:

Encumbrances–Control DR
Fund Balance–Reserve for Encumbrances CR

When the purchase order is filled, the encumbrance entry is reversed and an expenditure for the actual liability incurred is recorded. An alternative to the “Fund Balance—Reserve for Encumbrances” account is to simply use “Reserve for Encumbrances.”

Question 20

IS the statistical section of the Comprehensive Annual Financial Report (CAFR) of a governmental unit part of the basic financial statements?

Answer 20

No, it is considered supplementary information and may cover several years.

Question 21

The letter of transmittal and the statistical section are classified as:

Answer 21

Other.

The letter of transmittal and the statistical section required for a CAFR and GFOA’s certificate are neither basic statements nor required supplemental information.

Question 22

What effect would the write-off of the receivables during the year ultimately have on equity?

Answer 22

No effect

Receivables usually are reported at the same time that revenue is recognized. For reporting purposes, revenues should be reduced by an appropriate allowance for amounts estimated to be uncollectible when revenue is recognized, thus affecting equity at time of recognition. To the extent of the allowance made, the actual write-off of the receivable against the allowance would have no effect on equity.

Question 23

An enterprise fund must be used when which criteria are met?

Answer 23

1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees of the activity.
2. Laws require that the cost of providing services be recovered with fees and charges, rather than with taxes.

Question 24

In the government-wide financial statements, what is the correct revenue classification of fines and forfeitures?

Answer 24

Charges for services

Question 25

Lily City uses a pay-as-you-go approach for funding postemployment benefits other than pensions. The city reports no other postemployment benefits (OPEB) liability at the beginning of the year. At the end of the year, Lily City reported the following information related to OPEB for the water enterprise fund:

Benefits paid $100,000
Annual required contribution 500,000
Unfunded actuarial accrued liability 800,000

What amount of expense for OPEB should Lily City’s water enterprise fund report in its fund level statements?

Answer 25

$500,000

Although payment of post-employment retirement benefits has often been considered “pay as you go,” each year an actuarily determined expense is recorded and added to the enterprise funds’ long-term obligations. OPEB (other postemployment retirement benefits), benefits other than pensions, do not have to be advanced funded. However, the annual required contribution (ARC) consisting of the present value of the benefits earned due to current service plus amortization of a portion of previously earned benefits is recognized as an expense. The expense therefore is not measured by the payments to retirees. The unfunded actuarial accrued liability is considered in calculating the ARC, but is not the amount of annual expense.

Question 26

Which events are supportive of interperiod equity as a financial reporting objective of a governmental unit?

Answer 26

1. A balanced budget is adopted.

2. Transfers out equal transfers in.

Question 27

In which situation(s) should property taxes due to a governmental unit be recorded as deferred revenue?

Answer 27

1. Property taxes receivable are recognized in advance of the year for which they are levied.
2. Property taxes receivable are collected in advance of the year in which they are levied.

GASB N50.115 states that governments should recognize property tax revenues in the period for which the taxes are levied even if a legal claim or actual payment occurs in a previous period. Property taxes are often levied in the fiscal year prior to the year in which they legally can be expended. To gain accounting control over the receivable, it should be recorded at the time of levy. However, the offsetting credit should be to a deferred revenue account since the revenue, although measurable, is not “available” until the following fiscal year. If previously levied, taxes collected in advance should be recorded with a debit to cash and a credit to taxes receivable. If not previously levied, the taxes collected should be recorded with a debit to cash and a credit to deferred revenues.

Question 28

The last member of Cross Corners’ founding family, Ezra Cross, left his collection of early American art to the City for permanent display in city office buildings. The fair value of the collection at donation was $2,000,000. The Cross Corners city council formally accepted the collection and set a policy that the art would (a) be held for public exhibition, (b) be protected, cared for, and kept unencumbered, and (c) not be sold except for the purposes of acquiring different items for the collection. The city council agreed that the collection should not be capitalized for financial reporting purposes.

How would the collection affect the governmental funds in the first year?

Answer 28

There would be no impact on the governmental fund financial statements.

Capitalizing the art collection means recognizing it as a capital asset in the records. Governmental funds do not include capital assets and therefore do not include depreciation of those assets. Usually, general capital assets are generated by governments making expenditures to build or acquire the assets. In this case, the government made no expenditure of resources to acquire the capital asset. Therefore, neither the capital asset nor any expenditure will be recognized in the governmental funds. The choice between two governmental funds for this transaction, the general and the permanent fund, is moot.

Question 29

The following information is relevant to one of the City of Mullins’ General Fund’s derived tax revenues:

Fiscal year-end June 30
Beginning receivables $450,000
Beginning deferred revenues 100,000
Beginning allowance for doubtful accounts 50,000
Receipts 1,250,000
Ending receivables 600,000
Receivables collected 6/30 - 8/30 125,000
Ending allowance for doubtful accounts 60,000
The City of Mullins considers derived tax receivables collected within 60 days after the close of the fiscal year to be “available.” Furthermore, the City wrote off $30,000 of receivables as uncollectible during the year.

What would be the amount of revenues reported at the fund level?

Answer 29

$1,075,000

Derived tax revenues are reported when the underlying transaction has occurred, and for the modified accrual method of accounting, when the resource is considered to be available. At the fund level, the General Fund computes revenues using the modified accrual method. Furthermore, governmental entities report revenues net of any allowance for doubtful accounts.

A total of $100,000 of the beginning receivable had been deferred and $50,000 was classified as doubtful. Therefore, the balance ($300,000) would have been previously recognized as revenue of a prior period. When you subtract the $300,000 of prior-year revenues from current-year receipts ($1,250,000) and add to it that portion of the ending receivable considered to be available at year-end ($125,000) you have revenues for the current year equal to $1,075,000.

Beginning receivables $450,000
Beginning deferred revenues (100,000)
———
$350,000
Beginning doubtful accounts (50,000)
———
Prior-year revenues $300,000
=========

Current-year receipts $1,250,000
Prior-year revenue 300,000
———–
$950,000
Available at end of year 125,000
———–
Current-year revenue $1,075,000
===========

Question 30

The last member of Cross Corners’ founding family, Ezra Cross, left his collection of early American art to the City for permanent display in city office buildings. The fair value of the collection at donation was $2,000,000. The Cross Corners city council formally accepted the collection and set a policy that the art would (a) be held for public exhibition, (b) be protected, cared for, and kept unencumbered, and (c) not be sold except for the purposes of acquiring different items for the collection. The city council agreed that the collection should not be capitalized for financial reporting purposes. The city’s maximum depreciation horizon for capital assets is 40 years.

How would the collection affect the government-wide financial records in the first year?

Answer 30

Because the art will be displayed in general government buildings, the governmental activities would show revenue from donations of $2,000,000 and an expense of $2,000,000.

The city council’s formal policy for the donated collection of American art meets the three criteria that permit the city to avoid capitalization of the art collection. If the collection is not capitalized, it would not be listed among the capital assets used for governmental activities, and depreciation would not be reported. In the year of the donation, a recipient government should recognize a revenue as well as an expense in the same amount.

Question 31

New Town’s review of payroll records indicates that employees providing governmental services have accrued $250,000 of vacation pay and employees of the proprietary funds have accrued $100,000 of vacation pay. It is anticipated that 5% of the accrued vacation pay will be claimed by employees within the first 60 days of 20X1. How would the vacation pay liability be recognized on the financial statements issued at December 31, 20X0?

Answer 31

Governmental fund liability: $12,500; Proprietary fund liability: $100,000; Governmental activities liability: $250,000; Business-like activities liability: $100,000

As employees earn the right to claim vacation pay, a compensated absence, the liability is accrued and reported in full in the proprietary fund and government-wide financial statements (governmental activities and business-like activities). The portion reported in the government-wide financial statements as governmental activities is a general long-term liability. The governmental funds, using the modified accrual method, report only the portion of the liability expected to be claimed by employees in the first 60 days of the new fiscal year.

Question 32

A summary reconciliation between fund financial statements and government-wide financial statements is required at the bottom of the fund statements or in an accompanying schedule. Assume that internal service funds provide goods and services for governmental functions. For the business-type activities portion of the government-wide statement of net position, the reconciliation should tie with the fund balance(s) of:

Answer 32

All enterprise funds.

The business-like activities portion of the government-wide financial statements report the functions also reported in the enterprise funds and internal service funds providing goods and services to the enterprise funds. In this problem, the internal service funds provide goods and services only for governmental functions. Fiduciary fund information is not shown within the government-wide financial statements. Discretely presented component unit information is shown separate from the governmental and business-like activities portions on the government-wide financial statements.

Question 33

When a capital lease entered into by a governmental unit represents the acquisition of a general capital asset, the acquisition should be reflected as:

Answer 33

Both an expenditure and an other financing source.

Under the current financial resources measurement focus used in governmental funds, neither capital assets nor long-term liabilities are recorded in those funds. However, the inception of a capital lease should be reported in the governmental fund from which the lease payments will be made. GASB 1800.128 states in this regard: “When a capital lease represents the acquisition or construction of a general fixed asset, the acquisition or construction of the general fixed asset should be reflected as an expenditure and (an) other financing source…” This is a “wash” entry that has no effect on fund balance.