Chapter 17 - Governmental Entities: Introduction and General Fund Accounting Chapter 17 Governmental Entities: Introduction and General Fund Accounting Multiple Choice Questions Under the modified accrual basis of accounting, revenue should be recognized when it is: A measurable and earned B received in cash C available and earned D measurable and available Which of the following statements is(are) correct about the funds used by governmental entities? A I only B II only C I and II D Neither I nor II Which of the following funds should use the accrual basis of accounting? A Enterprise and private-purpose trust funds B Permanent funds and internal service funds C Debt service and agency funds D Special revenue and capital projects funds Which of the following funds should use the modified accrual basis of accounting? A Private-purpose trust and agency funds B Capital projects and special revenue funds C Internal service and enterprise funds D Debt service and private-purpose trust funds 17-1 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting Which of the following funds are classified as fiduciary funds? A Agency and Special revenue funds B Internal service and Enterprise funds C Private-purpose trust and Agency funds D Capital projects and Debt service funds Which of the following funds are classified as proprietary funds? A Agency and special revenue funds B Enterprise and internal service funds C Debt service and capital projects funds D Agency and pension trust funds Which of the following funds are classified as governmental funds? A Internal service and capital projects funds B Internal service and debt service funds C Enterprise and agency funds D The general and special revenue funds Which organization has the authority to establish generally accepted accounting principles for state and local government entities? A The National Council on Governmental Accounting B The Governmental Accounting Standards Board C The Financial Accounting Standards Board D The Municipal Officers Finance Organization What is the correct sequence in the expenditure process in governmental accounting? A Appropriation, Encumbrance, Expenditure, and Disbursement B Encumbrance, Expenditure, Disbursement, and Appropriation C Expenditure, Encumbrance, Disbursement, and Appropriation D Appropriation, Expenditure, Encumbrance, and Disbursement 17-2 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 10 Which of the following observations concerning encumbrances is NOT true? A Their purpose is to ensure that the expenditures within a period not exceed the budgeted appropriations B They provide a control system and safeguard for governmental unit administrators C They are a unique element of governmental accounting D They are recognized only at the time disbursements are made 11 The City of Ames uses the consumption method to report its inventory of supplies on its general fund balance sheet What account is debited in the general fund when Ames acquires supplies? A Expenditures B Inventory of Supplies C Supplies Expense D Fund Balance-Reserved for Inventories 12 On July 25, 2008, the city of Pullman, which reports on a calendar-year basis, ordered five police cars at an estimated cost of $200,000 On August 26, 2008, the police cars were received, and the actual cost amounted to $197,000 Pullman encumbered the appropriation for police cars in its general fund when the cars were ordered When the police cars were received, the general fund of Pullman should: A Credit Budgetary Fund Balance Reserved for Encumbrances for $197,000 B Debit Encumbrances for $200,000 C Debit Expenditures for $197,000 D Credit Budgetary Fund Balance Reserved for Expenditures for $200,000 17-3 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 13 What amount should be reported as expenditures for the current fiscal year when accounting for inventories of supplies under the purchase method and under the consumption method? A Option A B Option B C Option C D Option D 14 The Town of Pasco has no supplies inventory in its general fund on January 1, 2008 During 2008, Pasco incurred expenditures of $200,000 for the acquisition of supplies On December 31, 2008, Pasco's inventory of supplies amounted to $30,000 Assume Pasco uses the purchase method of accounting for supplies in its general fund and that the village reports on the calendar year On December 31, 2008, the general fund of Pasco should credit: A Expenditures for $170,000 B Fund Balance-Unreserved for $170,000 C Fund Balance-Reserved for Inventories for $30,000 D Expenditures for $30,000 15 Which of the following funds provides goods and services only to other departments or agencies of the government on a cost-reimbursement basis? A Internal service funds B Enterprise funds C Special revenue funds D The general fund 17-4 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 16 The following information was obtained from the general fund balance sheet of Lima Village on June 30, 2009, the close of its fiscal year: On June 30, 2009, what was Lima's unreserved fund balance in its general fund? A $84,000 B $44,000 C $34,000 D $24,000 17 The general fund of Park City acquired computer equipment at a cost of $50,000 on May 18, 2009 To record acquisition of this equipment, the general fund of Park City should debit: A expenditures B encumbrances C equipment D vouchers payable 18 Which of the following characteristics are emphasized in the accounting for state and local government entities? I Revenues should be matched with expenditures to measure success or failure of the government entity II There is an emphasis on expendability of resources to accomplish objectives of the governmental entity A I only B II only C I and II D Neither I nor II 17-5 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 19 Works of art and historical treasures purchased by the general fund should be reported as: A I only B II only C Both I and II D Neither I nor II 20 Identify the legal term that allows the general fund to make expenditures A Exceptions B Appropriations C Encumbrances D Consumption 21 Under the modified accrual basis of accounting for the general fund, expenditures should be recognized in the period in which the related liability is: A I only B II only C Both I and II D Neither I nor II 22 In accounting for governmental funds, which of the following items could appear only on government-wide financial statements? A I only B I and II C I and III D I, II, III 17-6 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 23 The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30, 2009 The purchase order for the fire truck was recorded on February 15, 2009 Hatteras' acquisition of the fire truck required which of the following sequences of accounting activities? I Appropriation II Encumbrance III Expenditure A II, I, III B I, III, II C III, II, I D I, II, III 24 Blue Ridge Township uses the consumption method of accounting for its inventory of supplies On the December 31, 2007 balance sheet for the general fund, the township reported $10,000 of supplies inventory During 2008, expenditures for supplies amounted to $40,000, and, at December 31, 2008, unused supplies totalled $7,000 In the adjusting entry for supplies at December 31, 2008, A Expenditures should be credited for $3,000 B Expenditures should be debited for $3,000 C Fund Balance-Reserved for Inventories should be debited for $7,000 D Fund Balance-Reserved for Inventories should be credited for $7,000 Gotham City acquires $25,000 of inventory on November 1, 2007, having held no inventory previously On December 31, 2007, the end of Gotham City's fiscal year, a physical count shows $8,000 still in stock During 2008, $6,500 of this inventory is used, resulting in a $1,500 remaining balance of supplies on December 31, 2008 17-7 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 25 Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the purchase method of accounting for inventories? A Option A B Option B C Option C D Option D 26 Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the purchase method of accounting for inventories? A Option A B Option B C Option C D Option D 27 Based on the preceding information, which of the following would be the correct account balances for 2007 if Gotham City used the consumption method of accounting for inventories? A Option A B Option B C Option C D Option D 17-8 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 28 Based on the preceding information, which of the following would be the correct account balances for 2008 if Gotham City used the consumption method of accounting for inventories? A Option A B Option B C Option C D Option D 29 Which of the following accounts are debited when closing entries are made for the general fund (assume outstanding encumbrances lapse at year-end)? A I, II, III, VI B I, II, IV C I, IV, V, VI D III, IV, V 30 The general fund of the City of Columbia transferred money to establish an internal service fund for the city's data processing needs The general fund of Columbia should account for this transaction as a(n): A expenditure B interfund transfer C interfund reimbursement D loan 17-9 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 31 In a town's general fund operating budget for the year, the amount of its estimated revenues exceeded the amount of its appropriations This excess should be: A credited to Budgetary Fund Balance-Unreserved B debited to Budgetary Fund Balance-Unreserved C credited to Fund Balance-Unreserved D debited to Fund Balance-Unreserved 32 The general fund of the Town of Dean levied property taxes of $3,000,000 for the fiscal year beginning on January 1, 2008 It was estimated that 1% of the levy would be uncollectible During the period January 1, 2008, through December 31, 2008, $2,960,000 of the property tax levy was collected At December 31, 2008, Dean estimated that $10,000 of property taxes levied in 2008 would be collected during the first 60 days of 2009 What amount of property tax revenue should be reported by the general fund for the year ended December 31, 2008? A $2,960,000 B $3,000,000 C $2,970,000 D $2,990,000 33 The general fund of the City of Atlanta received a check for $10,000 from an Atlanta resident on July 1, 2008 Of the amount received, $4,800 represented full payment of property taxes for 2008, and the remaining $5,200 represented an advance payment for property taxes of 2009 On July 1, 2008, the general fund should record the receipt by debiting Cash for $10,000 and by crediting A Revenue-Property Tax for $10,000 B Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200 C Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200 D Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200 17-10 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 43 The Town of Baker reported the following items on the June 30, 2009, balance sheet of its general fund: At June 30, 2009, what amount should be reported for Fund Balance-Unreserved? A $46,000 B $40,000 C $30,000 D $16,000 AACSB: Analytic AICPA: Measurement 44 Which of the financial statements described below is prepared by the general fund of a state or local government? A A statement of cash flows B An income statement C A statement of revenues, expenses, and changes in retained earnings D A statement of revenues, expenditures, and changes in fund balance AACSB: Reflective Thinking AICPA: Decision Making 17-37 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 45 Which accounts described below would have non-zero balances after the accounts are closed in the general fund of a state or local government? A I, II, III B I, II, IV C IV, V, VI D III, IV, V AACSB: Reflective Thinking AICPA: Decision Making 46 Due to an error, the general fund of Pueblo did not record an encumbrance for police equipment which had been ordered but not received on June 30, 2009, the end of its fiscal year Pueblo's outstanding encumbrances at year-end are nonlapsing What was the effect of this error on the balance sheet of Pueblo's general fund? A Assets are overstated B Liabilities are understated C Total fund balance is overstated D Unreserved fund balance is overstated AACSB: Reflective Thinking AICPA: Decision Making 47 In a statement of revenues, expenditures, and changes in fund balance, the unreserved fund balance will be increased by: I a decrease in the fund balance reserved for inventories II an excess of other financing sources over other financing uses A I only B II only C Both I and II D Neither I nor II AACSB: Reflective Thinking AICPA: Decision Making 17-38 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 48 Assuming there is a budget surplus, which of the following accounts are credited when the general fund records its operating budget at the beginning of the year? A Appropriations Control and Budgetary Fund Balance—Unreserved B Estimated Revenues Control and Estimated Residual Equity Transfer Out C Budgetary Fund Balance—Reserved For Encumbrances and Expenditures D Estimated Residual Equity Transfer Out and Estimated Transfer In AACSB: Reflective Thinking AICPA: Decision Making 49 Revenues from parking meters and parking fines should be reported in the general fund when: A received B measurable and available C measurable and earned D available AACSB: Reflective Thinking AICPA: Decision Making 50 The general fund of Gillette levied property taxes of $400,000 on November 1, 2008 However, the property taxes are not collectible until May and August of 2009 Assume Gillette reports on the calendar year On Gillette's general fund balance sheet at December 31, 2008, the property taxes levied on November should: A be reported as an asset and as a decrease in unreserved fund balance B be reported as an asset and as an increase in unreserved fund balance C be reported as an asset and as a reservation of fund balance D be reported as an asset and as a deferred revenue AACSB: Reflective Thinking AICPA: Decision Making 17-39 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 51 Which of the following items should not be included as revenue for a state government? A Property taxes levied in the current fiscal year B Private property for which a state takes custody when the legal owner cannot be found C Amounts received from other financing sources D Fines and licensing fees for which amounts cannot be budgeted AACSB: Reflective Thinking AICPA: Decision Making 52 GASB 31 "Accounting for Financial Reporting for Certain Investments and for External Reporting Investment Pools," establishes a general rule that government entities value investments in option contracts, open-ended mutual funds, and debt securities for balance sheet presentation at: A lower of cost or market B fair value C cost D amortized cost AACSB: Reflective Thinking AICPA: Decision Making 53 All of the following funds have a financial resources measurement focus with the exception of which fund? A debt service fund B special revenue fund C capital projects fund D private-purpose trust fund AACSB: Reflective Thinking AICPA: Decision Making 17-40 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 54 When an internal service fund (ISF) enters into a capital lease the transaction is recorded in the: I fixed assets of the ISF II long-term debt of the ISF A I only B II only C Both I and II D Neither I nor II AACSB: Reflective Thinking AICPA: Decision Making 55 Which of the following items is not recognized as revenue by a governmental unit? A sales tax proceeds B property tax levies C bond proceeds D grants received from other governmental units AACSB: Reflective Thinking AICPA: Decision Making 56 GASB 34 established four types of interfund activities Interfund activities are recognized as revenue in a governmental fund for an: A Option A B Option B C Option C D Option D AACSB: Reflective Thinking AICPA: Decision Making 17-41 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 57 The general ledger of Broadway contains the following selected account balances: Broadway wants to order additional goods and services before the fiscal year end What is the unencumbered balance of the budget that may be expended by Broadway? A $850,000 B $760,000 C $180,000 D $130,000 AACSB: Analytic AICPA: Measurement 58 At any time, the remaining appropriating authority available to the fund managers is equal to: A Appropriations minus Expenditures B Appropriations minus (Encumbrances + Expenditures) C Appropriations minus (Encumbrances - Expenditures) D Appropriations minus Encumbrances AACSB: Reflective Thinking AICPA: Decision Making 59 Which of the following observations concerning interfund transfers is true? A They are expected to be repaid B They are classified as fund revenues or expenditures C The receiving fund recognizes these transfers as revenue D These transfers are classified under "Other Financing Sources or Uses." AACSB: Reflective Thinking AICPA: Decision Making 17-42 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 60 According to the latest GASB exposure draft, which of the following is the only governmental fund type that may report an unassigned fund balance? A General fund B Special revenue fund C Capital projects fund D Permanent fund AACSB: Reflective Thinking AICPA: Decision Making 61 Which governmental fund includes resources that are legally restricted so that the governmental entity must maintain the principal and can use only the earnings from the fund's resources to benefit the government's programs for all of its citizens? A General fund B Special revenue fund C Capital projects fund D Permanent fund AACSB: Reflective Thinking AICPA: Decision Making Essay Questions 62 Briefly discuss the various types of governmental funds and proprietary funds Five types of governmental funds are used to provide basic governmental services to the public These are: (1) general fund, (2) special revenue funds, (3) capital projects funds, (4) debt service funds, and (5) permanent funds The number of governmental funds maintained by the governmental entity is based on its legal and operating requirements The five governmental funds use the current financial resources measurement focus The two types of proprietary funds typically used by governmental entities are (6) enterprise funds and (7) internal service funds Some activities of a governmental unit are similar to those of commercial enterprises The objective of the governmental unit is to recover its costs in such operations through a system of user charges Accounting and reporting for a proprietary fund are similar to accounting for a commercial operation AACSB: Communication AICPA: Decision Making 17-43 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 63 Discuss major differences between a governmental entity's uses of the modified accrual method and a for-profit corporation's use of the accrual method The modified accrual method of accounting is used to measure revenues that are available to finance current expenditures and to measure the expenditures made during the period The accrual method is used to measure the revenues and expenses during a period with the purpose of measuring profitability AACSB: Communication AICPA: Critical Thinking 17-44 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 64 The town of Stow was incorporated and began governmental operations on July 1, 2008 Stow's transactions and events for the fiscal year ended June 30, 2009, are listed below Stow uses the consumption method of accounting for purchases of supplies Encumbrances not lapse at year end Required: Prepare the journal entry (ies) required in the general fund for each of the following transactions or events a The town budget was approved, providing for revenues of $800,000, a $40,000 transfer to establish an internal service fund (ISF), and expenditures of $750,000 b Property taxes were levied in the amount of $700,000, with percent of the total estimated to be uncollectible c Purchase orders were issued in the amount of $90,000 for equipment, and $635,000 for other goods and services d Collections for fines and licenses totaled $99,000 for the year e Property taxes collected amounted to $680,000; the balance was reclassified as delinquent, and the allowance for uncollectible taxes was reduced to $15,000 f The equipment ordered was received, and a voucher was issued for the final invoice cost of $91,000 g All but $12,000 of the other goods and services ordered was received Vouchers were issued for the invoice cost of $622,000 h All but $10,000 of the vouchers issued during the year was paid i A transfer in the amount of $40,000 was made to establish an internal service fund for the town The general fund received services of $7,000 from the internal service fund during the year, with $2,000 remaining unpaid at year end j Expenditures recorded for the year included the purchase of supplies The estimated balance of supplies on hand at year end was $2,000 k A reserve was established at year end for the outstanding encumbrances, all of which will be honored in the next fiscal year l Closing entries were made 17-45 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 17-46 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting AACSB: Analytic AICPA: Measurement 17-47 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 65 Accounting processes differ between a for-profit entity and a governmental entity Discuss three differences between a governmental entity and a for-profit entity The major differences between a governmental entity and a for-profit entity include:  Governmental accounting must recognize that governmental units collect resources and make expenditures to fulfil societal needs  Except for some proprietary activities such as utilities, governmental entities not have a general profit motive  Governmental operations have legal authorization for their existence, conduct revenue raising through the power of taxation, and have mandated expenditures they must make to provide their services  Governmental entities use comprehensive budgetary accounting, which services as a significant control mechanism and provides the basis for comparing actual operations against budgeted amounts  The primary emphasis in governmental fund accounting is to measure and report on management's stewardship of the financial resources committed to the objectives of the governmental unit  Governmental entities typically are required to establish separate funds to carry out their various missions  Many fund entities not record fixed assets or long-term debt in their funds AACSB: Communication AICPA: Decision Making 17-48 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 66 The adjusted trial balance for White River for the fiscal year ended June 30, 2009, is presented below Required: a Prepare a statement of revenues, expenditures, and changed in fund balance for White River for the year ended June 30, 2009 Assume there were no supplies or outstanding encumbrances at the beginning of the year b Prepare a balance sheet for White River at June 30, 2009 17-49 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting a) b) 17-50 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting AACSB: Analytic AICPA: Measurement 17-51 [...]... According to the latest GASB exposure draft, which of the following is the only governmental fund type that may report an unassigned fund balance? A General fund B Special revenue fund C Capital projects fund D Permanent fund 17- 17 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 61 Which governmental fund includes resources that are legally restricted so that the governmental. .. service and capital projects funds B Internal service and debt service funds C Enterprise and agency funds D The general and special revenue funds AACSB: Reflective Thinking AICPA: Decision Making 17- 23 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 8 Which organization has the authority to establish generally accepted accounting principles for state and local government entities? ... Enterprise and private-purpose trust funds B Permanent funds and internal service funds C Debt service and agency funds D Special revenue and capital projects funds AACSB: Reflective Thinking AICPA: Decision Making 17- 22 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 4 Which of the following funds should use the modified accrual basis of accounting? A Private-purpose trust and. .. Capital Projects Fund 37 The general fund of Sun City was billed $7,000 for using the services of one of its internal service funds The general fund should account for this transaction as a(n) A interfund transfer B interfund loan C interfund service D interfund reimbursement for services rendered 17- 11 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 38 The general fund of Athens... there were no supplies or outstanding encumbrances at the beginning of the year b Prepare a balance sheet for White River at June 30, 2009 Chapter 17 Governmental Entities: Introduction and General Fund Accounting Answer Key 17- 21 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting Multiple Choice Questions 1 Under the modified accrual basis of accounting, revenue should be... Capital Projects Fund AACSB: Reflective Thinking AICPA: Decision Making 17- 34 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 37 The general fund of Sun City was billed $7,000 for using the services of one of its internal service funds The general fund should account for this transaction as a(n) A interfund transfer B interfund loan C interfund service D interfund reimbursement... the modified accrual basis of accounting for the general fund, expenditures should be recognized in the period in which the related liability is: A I only B II only C Both I and II D Neither I nor II AACSB: Reflective Thinking AICPA: Decision Making 17- 28 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 22 In accounting for governmental funds, which of the following items could... provides goods and services only to other departments or agencies of the government on a cost-reimbursement basis? A Internal service funds B Enterprise funds C Special revenue funds D The general fund AACSB: Reflective Thinking AICPA: Decision Making 17- 26 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 16 The following information was obtained from the general fund balance... income statement C A statement of revenues, expenses, and changes in retained earnings D A statement of revenues, expenditures, and changes in fund balance 17- 13 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 45 Which accounts described below would have non-zero balances after the accounts are closed in the general fund of a state or local government? A I, II, III B I,... mutual funds, and debt securities for balance sheet presentation at: A lower of cost or market B fair value C cost D amortized cost 17- 15 Chapter 17 - Governmental Entities: Introduction and General Fund Accounting 53 All of the following funds have a financial resources measurement focus with the exception of which fund? A debt service fund B special revenue fund C capital projects fund D private-purpose