Unit 18 questions Flashcards
Special assessments for construction activity may be accounted for in a:
capital projects fund or other appropriate fund.
In governmental accounting, a fund is
- The basic accounting unit
- Used to assist in ensuring fiscal compliance
Both I and II.
Government financial reporting should provide information to assist users in which situation(s)?
Making social and political decisions
Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens
A.I only.
B.II only.
C.Both I and II.
D.Neither I nor II.
Answer (C) is correct.
Interperiod equity is an important component of accountability that is fundamental to public administration. Financial resources received during a period should suffice to pay for the services during that period. Moreover, debt should be repaid during the probable period of usefulness of the assets required. Thus, financial reporting should help taxpayers assess whether future taxpayers will have to assume burdens for services already provided. Furthermore, governmental financial reporting also should assist users (e.g., the citizenry and legislative and oversight bodies) in making economic, political, and social decisions. For example, revenue forecasts may help advocates for increased expenditures for education or transportation.
The city accountant for a newly established municipality is setting up the new fund structure for the city’s accounting system. How many funds should the accountant establish for the city?
A.Two, a general fund and a special revenue fund as required by GAAP.
B.Two, a special revenue fund and a general fund as required by the city manager.
C.The minimum number of funds consistent with the needs of the city accountant.
D.The minimum number of funds consistent with legal requirements and sound financial administration.
Answer (D) is correct.
The diversity of governmental activities and the need for legal compliance require multiple accounting entities (funds). A fund is an independent, distinct fiscal and accounting entity with a self-balancing set of accounts. Items in a fund are segregated because they relate to activities or objectives that are subject to special regulations or limitations. A fund records (1) financial resources (including cash), (2) deferred outflows of resources, (3) liabilities, (4) deferred inflows of resources, (5) residual equities or balances, and (6) changes in them. No more than the number of funds required by law and efficient financial administration should be created. Creating unnecessary funds results in inefficiency, inflexibility, and excessive complexity.
The government-wide financial statements report purchased capital assets
A.In the general fixed assets account group.
B.At historical cost, including ancillary charges.
C.Only in the notes if they are donated.
D.At acquisition value.
Answer (B) is correct.
General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds. Purchased capital assets are reported at historical cost, including ancillary charges (e.g., for freight and site preparation) only in the governmental activities column of the government-wide statement of net position.
The following information pertains to Pine City’s general fund for Year 1:
Appropriations
$6,500,000
Expenditures
5,000,000
Other financing sources
1,500,000
Other financing uses
2,000,000
Revenues
8,000,000
After Pine City’s general fund accounts were closed at the end of Year 1, the fund balance increased by
A.$3,000,000
B.$2,500,000
C.$1,500,000
D.$1,000,000
Answer (B) is correct.
The change in the fund balance during the period is determined by the changes in the operating account balances. Appropriations is a budgetary control account, the balance of which usually does not change except when it is established and closed. Revenues of $8,000,000, plus other financing sources of $1,500,000, equal $9,500,000 of total credits. Thus, the increase in fund balance was $2,500,000 ($9,500,000 – $5,000,000 expenditures – $2,000,000 other financing uses).
Encumbrances outstanding at year end in a state’s general fund should be reported in a
A.Liability in the general fund.
B.Fund balance account in the general fund.
C.Liability in the general long-term debt account group.
D.Restricted fund balance classification.
Answer (B) is correct.
An encumbrance is recorded by debiting encumbrances and crediting encumbrances outstanding when a purchase order has been approved. Thus, funds are committed to be paid when the goods arrive and the invoice is received. When the liability is incurred, the encumbrance entry is reversed, expenditures is debited, and vouchers payable is credited. But if an encumbrance is outstanding at year end, it is not reported in the financial statements (but should be disclosed in the notes if significant). Instead, if encumbered amounts have not been restricted, committed, or assigned, fund balance is reclassified [debit unassigned fund balance, and credit fund balance – committed (or assigned)].
In a nonexchange transaction:
a government either gives or receives value without directly receiving or giving equal value in return.
Bond anticipation notes of governmental funds are reported only in the governmental activities column of the government-wide statement of net position if (1) all legal steps have been taken to refinance the notes and (2) the intent is supported by an ability to consummate the refinancing on a long-term basis. If these criteria are not met, the bond anticipation notes must be reported as a short-term liability in the fund in which the proceeds are recorded (as well as in the governmental activities column of the government-wide statement of net position).
Bond anticipation notes of governmental funds are reported only in the governmental activities column of the government-wide statement of net position if (1) all legal steps have been taken to refinance the notes and (2) the intent is supported by an ability to consummate the refinancing on a long-term basis. If these criteria are not met, the bond anticipation notes must be reported as a short-term liability in the fund in which the proceeds are recorded (as well as in the governmental activities column of the government-wide statement of net position).
The standards for reporting interfund activity classifies such activity as
Reciprocal and nonreciprocal.
Answer (D) is correct.
Interfund activity may be reciprocal or nonreciprocal. Reciprocal interfund activity is similar to exchange and exchange-like transactions, for example, interfund loans and services provided and used. Nonreciprocal interfund activity is similar to nonexchange transactions, for example, interfund transfers and reimbursements.
An internal service provided and used by a state or local government
Results in expenditures or expenses to buyer funds and revenues to seller funds.
Interfund services provided and used are reciprocal interfund activities. They are sales and purchases of goods and services at prices equivalent to external exchange values. Thus, they result in revenues to seller funds and expenditures or expenses to buyer funds. Unpaid amounts are interfund receivables or payables.
The enterprise fund is a proprietary fund. It reports transfers to other funds separately after nonoperating revenues and expenses in the fund statements. But only governmental funds report:
after financing uses (sources).
Under current GAAP, prepaid insurance may be reported under either: (
(1) the purchases method, in which an expenditure is reported when the policy is purchased, or (2) the consumption method, in which an expenditure is reported when the asset is consumed.
Lys City reports a general long-term compensated absences liability in its financial statements. The salary rate used to calculate the liability should normally be the rate in effect
At the balance sheet date.
The compensated absences liability should be calculated based on the pay or salary rates in effect at the balance sheet date. However, the employer might pay employees for their compensated absences at other than their pay or salary rates. For example, payment might be at a lower amount established by contract, regulation, or policy. That other rate determined at the balance sheet date should be used to calculate the liability.
Which capital assets must be depreciated in the government-wide financial statements?
All capitalized collections that are exhaustible.
Individual items or collections of works of art, historical treasures, and similar assets ordinarily must be capitalized. However, if a collection is (1) held in furtherance of public service and not for gain; (2) protected, preserved, cared for, and kept unencumbered; and (3) subject to a policy that sale proceeds are to be used to obtain other collection items, capitalization is not required. If capitalized collections or individual items are exhaustible, for example, because their useful lives are reduced by display, educational, or research uses, they must be depreciated.
