Chapter 19 Governmental Funds

Exam Item 19-1 (True or False)

Chapter 19 Test Bank

ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS -

GOVERNMENTAL FUNDS

Multiple Choice Questions

LO11.When a capital lease is used to acquire general fixed assets, the governmental fund acquiring the fixed assets records a(n) __________________at the _____________________.

a.expenditure, lease payment cost.

b.fixed asset, lease payment cost.

c.expenditure, present value of the minimum lease payments.

d.fixed asset, present value of the minimum lease payments.

LO12.The estimated revenues control account of Star City general fund is eliminated when

a.the citys tax receipts are measurable and available.

b.the budget is recorded.

c.appropriations are made.

d.budgetary accounts are closed.

LO13.When recording an approved budget into the general fund, which of the following accounts would be credited?

a.Appropriations.

b.Transfers in.

c.Estimated revenues.

d.Deferred revenues.

LO14.A fund balance increase resulting from an operating transfer to a governmental fund would have a

a.credit to other financing sources.

b.debit to other financing sources.

c.credit to revenues.

d.debit to revenues.

LO25.The proceeds from a bond issuance for the building of a new public school should be recorded in the ______________ fund at the time the bonds are sold. The fund balance increase is classified as ______________.

a.capital projects, revenues

b.general, revenues

c.general, other financing sources

d.capital projects, other financing sources

LO26.A fire station that the city of Plenty constructed many years ago is sold and is accounted for as an other financing source. Where should entries be made?

a.In the general fund only.

b.In the general fund and capital projects fund.

c.In the general fund, capital projects fund and general fixed asset group.

d.In the special revenue fund.

LO27.Capital improvement costs incurred for general government special assessments projects require recognition in the

a.general fund.

b.capital projects fund.

c.trust fund.

d.special revenue fund.

LO38.The purpose of encumbrance accounting is to prevent

a.spending more than an appropriation.

b.making unreasonable appropriations.

c.spending more than deferred revenue.

d.wasteful spending.

LO39.The proper sequence of events is

a.order, appropriation, encumbrance, expenditure.

b.order, encumbrance, expenditure, appropriation.

c.appropriation, encumbrance, order, expenditure.

d.appropriation, order, encumbrance, expenditure.

LO310.According to the GASB Codification, the "collected soon enough after year-end to pay liabilities for current expenditures" criterion for revenue recognition means collected within a period not exceeding

a.30 days after the fiscal year end.

b.60 days after the fiscal year end.

c.90 days after the fiscal year end.

d.120 days after the fiscal year end.

LO311.Which of the following approaches is used to recognize governmental fund revenues?

a.The gross amounts earned approach.

b.The gross amounts levied approach.

c.The net of estimated uncollectible accounts approach.

d.The net of related expenditures approach.

LO312.At any point in time, a government will be able to spend an amount equal to

a.appropriations minus expenditures.

b.appropriations minus expenditures minus encumbrances.

c.appropriations minus encumbrances.

d.expenditures minus encumbrances.

LO413.Which of the following items would be presented in a Statement of Revenues, Expenditures, and Changes in Fund Balance?

a.Appropriations.

b.Encumbrances.

c.Other financing sources.

d.Unreserved fund balance.

LO414.Which of the following funds has similar accounting and reporting to the special revenue fund?

a.The proprietary fund.

b.The trust fund.

c.The general fund.

d.The agency fund.

LO415.Which financial statement(s) is (are) required for governmental funds with legally adopted annual budgets?

I. The statement of cash flows

II. The statement of revenues, expenditures and changes in fund

balance-budget and actual

a.I only.

b.II only.

c.I and II.

d.Neither I nor II.

LO416.Which statement below is correct with respect to the general fund financial statements?

a.A budgetary comparison must be presented.

b.Encumbrances must be included on the statements.

c.Capital leases must be included on the statements.

d.All governmental fixed assets and long-term debt must be included on the statements.

LO417.General fund operating lease payments are typically reported as

a.overhead expenditures.

b.rental expenditures.

c.general government expenses.

d.capital outlay expenditures.

LO518.Infrastructure costs in government-wide financial statements

a.must be recorded and depreciated by government.

b.may be recorded and depreciated at the option of government as long as footnote disclosures are made.

c.must be recorded and depreciated by a government unless a modified approach is used, in which case, depreciation is optional.

d.must be expended in the year that they are incurred.

LO519.All of the following government fund items must be reconciled in government-wide financial statements except

a.deferred revenue.

b.long-term liabilities.

c.construction expenditures.

d.encumbrances.

LO520.Which statement below is incorrect with respect to the government wide financial statements?

a.All fund categories must convert to the modified accrual

basis of accounting.

b.Internal service fund transactions with other governmental funds must be excluded from the statements.

c.Capital leases must be included on the statements.

d.All governmental fixed assets and long-term debt must be included on the statements.

LO1

Exercise 1

The City of Sharpesburg entered the following transactions during 2006:

1. The city authorized a bond issue of $2,500,000 par to finance construction of a fountain in the city square. The bonds were issued for $2,560,000. The premium was transferred to the fund for which the debt will be serviced.

2. The city entered into a contract for construction of the fountain at an estimated cost of $2,425,000.

3. The city received and paid a bill for $2,445,000 from the contractor upon completion of and approval of the fountain.

4. The unused bond proceeds were set aside for debt service on the bonds. Accordingly, those resources were paid to the appropriate fund.

Required:

Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by Sharpesburg.

LO1Exercise 2

1. The city issued $6 million of refunding bonds at par.

2. The city transferred $3,700,000 from its General Fund to its Debt Service Fund to provide the additional resources needed to defease the bonds in substance.

3. The city paid $9,700,000 into an irrevocable trust established at the First Seaside Bank to defease the bonds in substance.

Required:

Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by the city of Plaza Royal.

LO1

Exercise 3Prepare journal entries to record the following grant-related transactions for a municipality special revenue fund.

1. Awarded an operating grant from the state, $2,500,000 (cash will be received after qualified expenditures are made).

2. Incurred and paid qualifying expenditures on the grant program, $1,600,000.

3. Received a federal grant to finance construction of a new school, $4,500,000 (cash received in advance).

4. Incurred and paid construction cost on the school building, $3,000,000.

LO1

Exercise 4The general fund trial balance for Overland City held the following balances at September 30, 2006, just before closing entries were made:

Due from other funds$750

Unreserved fund balance5,000

Estimated revenues20,000

Revenues18,950

Appropriations19,000

Expenditures - current year16,800

Expenditures - prior year2,500

Encumbrances1,200

Operating transfers in4,000

Reserve for encumbrances1,200

Reserve for encumbrances - prior year2,500

Required

Prepare the necessary closing entries.

LO1

Exercise 5The general fund trial balance for Owens Creek City held the following balances at June 30, 2006, just before closing entries were made:

Due from other funds$2,700



Revenues198,900


Expenditures - current year193,800

Expenditures - prior year4,500

Encumbrances3,200

Operating transfers in6,000


Reserve for encumbrances - prior year4,500

Required

Prepare the necessary closing entries.

LO1&2

Exercise 6El Dorado County incurred the following transactions during 2006:

1. Marketable securities were donated to support the county's bike and nature trails. The donor acquired the securities for $35,000 ten years earlier; however, their current market value was $200,000. The donor specified that all income from the securities be used for the trails. The principal is to be held intact for an indefinite period of time.

2. Computer equipment was ordered for general fund departments. The estimated cost was $48,000.

3. The county received the computer equipment. The actual cost was $47,750, of which $42,000 was paid to the vendor before year-end.

4. The county sold a (general government) dump truck that originally cost $55,000. The county sold the truck at auction for $3,300.

5. The government leased equipment under a capital lease agreement. The capitalized cost was $120,000. The county made an initial down payment of $10,000.

Required:

Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by El Dorado County.

LO1&2Exercise 7Johnson County incurred the following transactions during 2006:

1. The county authorized a new general obligation bond issue of $5 million par to purchase an office building with a contract price of $4,975,000. The bonds were issued for $4,960,000.

2. The county levied real property taxes of $10,000,000. Sixty per cent of the taxes levied were for local municipal governments. By fiscal year-end, 85% of the taxes were collected and remitted to the municipalities. Two per cent of the total levy was estimated to be uncollectible.

3. The escrow for the office building closed and the county paid the contract price.

4. The county paid $200,000 for interest on the bonds.

Required:

Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by Johnson County.

LO3Exercise 8Address the following situations separately.

1.For the budgetary year beginning July 1, 2006, Center Township expected the following cash flow resources:

Property taxes, licenses, and fees$3,000,000

Proceeds of debt issue1,000,000

Interfund transfers from debt service750,000

In the budgetary entry, what amount did Center Township record for estimated revenues?

2. During the fiscal year ended June 30, 2006, Pacific City issued purchase orders totaling $7,000,000. Pacific City received $6,500,000 of invoiced goods at the encumbered amounts and paid $6,100,000 toward them before year-end.

How much were Pacific City's encumbrances on July 1, 2006?

3.The following information pertains to property taxes levied ($1,035,000 total) by Palm Lake City for the calendar year 2006:

Expected collections during 2006 $750,000

Expected collections in first 60 days of 2007 200,000

Expected collections during the remainder of 2007 50,000

Expected collections during January 2008 30,000

Estimated to be uncollectible 5,000

What amount did Palm Lake City report for property tax revenues in 2006?

4.The following information pertains to Dodge City's general fund for 2006:

Appropriations$7,000,000

Expenditures5,500,000

Other financing sources1,000,000

Other financing uses3,000,000

Revenues

9,000,000

At what amount will Dodge City's total fund balance increase (decrease) in 2006?

LO4Exercise 9The following information regarding the fiscal year ended September 30, 2006, was drawn from the accounts and records of the Jasper County general fund:

Revenues and other asset inflows:

Taxes$12,000,000

Licenses and permits2,500,000

Intergovernmental grants1,000,000

Proceeds of short-term note issuances1,200,000

Collection of interfund advance to other fund800,000

Receipt of net assets of terminated fund1,800,000

Expenditures and other asset outflows:

General government expenditures7,500,000

Public safety expenditures2,000,000

Judicial system expenditures1,200,000

Health and welfare expenditures1,750,000

Equipment purchases750,000

Payment to debt service fund to cover future debt

service on general government bonds500,000

Total fund balance, October 1, 2005$3,000,000

Required

Prepare a statement of revenues, expenditures, and changes in fund balance for the Jaspar County general fund for the year ended September 30, 2006.

LO4

Exercise 10The unadjusted trial balance for the general fund of the City of Pegasus at June 30, 2006 is as follows:

Debits

Accounts receivable$40,000

Cash75,000

Due from agency fund25,000

Encumbrances60,000


Expenditures750,000

Taxes receivable250,000

Credits

Allowance for doubtful accounts5,000

Allowance for uncollectible taxes50,000


Due to utility fund40,000



Revenues990,000

Taxes received in advance15,000

Vouchers payable200,000

Supplies on hand at June 30, 2006 totaled $8,000. The $60,000 encumbrance relates to equipment ordered but not received by fiscal year-end.

Required

Prepare a balance sheet for the general fund of the City of Pegasus at June 30, 2006.

Multiple Choice Questions

1.c

2.d

3.a

4.b

5.d

6.a

7.b

8.a

9.d

10.b

11.c

12.b

13.c

14.c

15.b

16.a

17.b

18.a

19.d

20.a

Exercise 11.

CPF

Cash

2,560,000

Other financing sources-bond proceeds

2,560,000

Other financing uses-operating

transfers out

60,000

Cash

60,000

DSF

Cash

60,000

Other financing sources-operating

transfers in

60,000

2.

CPF

Encumbrances

2,425,000

Reserve for encumbrances

2,425,000

3.

CPF


2,425,000

Encumbrances

2,425,000

Expenditures-capital outlay

2,445,000

Cash

2,445,000

4.

CPF

Residual equity transfers out

55,000

Cash

55,000

DSF

Cash

55,000

Residual equity transfers in

55,000

Exercise 2

1.

DSF

Cash

6,000,000

Other financing sources-refunding

bond proceeds

6,000,000

2.

GF

Other financing uses-operating

transfers out

3,700,000

Cash

3,700,000

DSF

Cash

3,700,000

Other financing sources-operating

transfers in

3,700,000

3.

DSF

Expenditures-payment to refunded bond

escrow agent

3,700,000

Other financing uses-payment to

refunded bond escrow agent

6,000,000

Cash

9,700,000

Exercise 31.No entry

2.Expenditures

1,600,000

Cash

1,600,000

Cash

1,600,000

Other financing sources-

reciprocal transfer from GF

1,600,000

Accounts receivable-grant

1,600,000

Grant revenue

1,600,000

3.Cash

4,500,000

Deferred grant revenue

4,500,000

4.Expenditures

3,000,000

Cash

3,000,000

Deferred grant revenue

3,000,000

Grant revenue

3,000,000

Exercise 4

Appropriations

19,000

Unreserved fund balance

1,000

Estimated revenues

20,000

Revenues

18,950

Operating transfers in

4,000

Expenditures

16,800

Encumbrances

1,200


4,950

Reserve for encumbrances-prior year

2,500

Expenditures-prior year

2,500

Exercise 5

Appropriations

196,500


11,500

Estimated revenues

208,000

Revenues

198,900

Operating transfers in

6,000

Expenditures

193,800

Encumbrances

3,200


7,900

Reserve for encumbrances-prior year

4,500

Expenditures-prior year

4,500

Exercise 6

1.

PF

Investments-marketable securities

200,000

Revenues-additions to permanent endowments 200,000

2.

GF

Encumbrances

48,000


48,000

3.

GF


48,000

Encumbrances

48,000


47,750

Cash

42,000

Vouchers payable

5,750

4.

GF

Cash

3,300

Other financing sources-proceeds from

sale of general fixed assets

3,300

5.

GF


120,000

Cash

10,000

Other financing sources-increase in

capital lease liabilities

110,000

Exercise 71.

GF

Cash

4,960,000

Other financing sources-bond proceeds

4,960,000

Encumbrances

4,975,000


4,975,000

2.

AF

Taxes receivable

10,000,000

Liability to municipalities

6,000,000

Liability to county

4,000,000

Cash

8,500,000

Taxes receivable

8,500,000

Liability to county

3,400,000

Liability to municipalities

5,100,000

Cash

8,500,000

GFTaxes receivable

4,000,000

Allowance for uncollectible taxes

80,000

Property tax revenue

3,920,000

Cash

3,400,000

Taxes receivable

3,400,000

3.

GF


4,975,000

Encumbrances

4,975,000


4,975,000

Cash

4,975,000

4.

DSF

Expenditures

200,000

Cash

200,000

Exercise 8

1.Center Township$3,000,000

2.Pacific City$500,000

3.Palm Lake City

Collections during 2006$750,000

Expected collections in first 60 days of 2007200,000

2006 property tax revenue$950,000

4.Dodge City

Revenues$9,000,000

Long-term debt proceeds1,000,000

Expenditures(5,500,000)

Operating transfer out(3,000,000)

Fund balance increase$1,500,000

Exercise 9Jasper County

General Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For the Year Ended September 30, 2006Revenues:

Taxes

$12,000,000

Licenses and permits

2,500,000

Intergovernmental grants

1,000,000

Total revenues

15,500,000Expenditures:

Current operating expenditures:

General government

7,500,000

Public safety

2,000,000

Judicial

1,200,000

Health and welfare

1,750,000

Total current operating

12,450,000

Capital Outlay

750,000

Total expenditures

13,200,000

Excess of revenues over expenditures

2,300,000

Other financing sources (uses):

Operating transfer to debt service fund

(500,000)Excess of revenues and other financing sources

over (under) expenditures and other

financing uses

1,800,000

Fund Balance, October 1, 2005

3,000,000

Residual equity transfer in

1,800,000Fund Balance, September 30, 2006

$6,600,000

Exercise 10City of PegasusGeneral Fund

Balance Sheet

June 30, 2006Assets:

Cash

$75,000

Taxes receivable (net of estimated

uncollectible of $50,000)

200,000

Accounts receivable (net of estimated

uncollectible of $5,000)

35,000

Due from other funds

25,000

Supplies

8,000

Total assets

$343,000

Liabilities and Fund Balance:

Liabilities:

Vouchers payable

200,000

Due to enterprise fund

40,000

Taxes received in advance

15,000

Total liabilities

255,000

Fund Balance:

Reserved for encumbrances

60,000

Reserved for inventory

8,000

Unreserved

20,000

Total fund balance

88,000

Total liabilities and fund balance

$343,000Computation of Unreserved Fund Balance:

Pre-closing balance

$ 30,000

Add:

Revenues

$990,000

Appropriations

785,0001,775,000

Deduct:

Expenditures

$750,000

Encumbrances

60,000

Estimated revenues

975,000 1,785,000

Post-closing balance

$ 20,000

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Chapter 19 Governmental Funds