Test bank advanced financial accounting 8th chap018

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

Chapter 18
Governmental Entities: Special Funds and Government-wide Financial
Statements

Multiple Choice Questions

Riviera Township reported the following data for its governmental activities for the year
ended June 30, 2009:

Additional information available is as follows:
All of the long-term debt was used to acquire capital assets. Cash of $475,000 is restricted for
debt service.

1. Based on the preceding information, on the statement of net assets prepared at June 30,
2009, what amount should be reported for total net assets?
A. $2,425,000
B. $4,200,000
C. $2,900,000
D. $3,625,000

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

2. Based on the preceding information, on the statement of net assets prepared at June 30,
2009, what amount should be reported for net assets invested in capital assets, net of related
debt?
A. $4,200,000
B. $2,900,000
C. $2,825,000
D. $3,300,000

3. Based on the preceding information, on the statement of net assets prepared at June 30,
2009, what amount should be reported for net assets, unrestricted?
A. $425,000
B. $900,000
C. $525,000
D. $825,000

4. Which of the following funds use the accrual basis of accounting?

A. I only
B. II only
C. I and III only
D. I, II, and III

5. A special revenue fund should be used in which of the following situations for a state
government?
A. For sales taxes which are to be distributed to towns, cities, villages, etc. of the state.
B. For the proceeds of general obligation bonds which are to be used to construct major longlived fixed assets.
C. For gasoline taxes which are to be used exclusively to repair state roads and bridges.
D. For investments donated by a prominent citizen which are to be invested permanently, with
income being used to support homeless people.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

6. For which of the following funds are the principles and accounting most like those of the
general fund?
A. Debt service fund
B. Internal service fund
C. Special revenue fund
D. Investment trust fund

7. Which of the following items would not be reported on the financial statements of a special
revenue fund?
A. Long-term productive assets.
B. Expenditures and revenues.
C. Vouchers payable and unreserved fund balance.
D. Fund balance reserved for encumbrances and expenditures.

8. A city's museum is supported by a special tax levy and by user charges. The user charges
constitute only 10 percent of the resources needed to support the operations of the museum. In
which fund should the city account for its museum?
A. An enterprise fund
B. An agency fund
C. An expendable trust fund
D. A special revenue fund

9. A tax collection fund that collects property taxes and then distributes them to local

governmental units is an example of a(n):
A. trust fund.
B. agency fund.
C. internal service fund.
D. permanent fund.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

10. Ponca City issued general obligation bonds to finance construction of a new city hall. In
the city hall capital projects fund, the proceeds of the general obligation bonds should be
credited to:
A. Revenue-General Obligation Bonds.
B. General Obligation Bonds Payable.
C. Deferred Revenue-General Obligation Bonds.
D. Other Financing Sources-Bond Issue Proceeds.

11. The City of Fargo issued general obligation bonds to finance construction of a new fire
station. The bonds were issued at a premium. In the fire station capital projects fund, the
premium should be transferred to:
A. an agency fund.
B. a special revenue fund.
C. a debt service fund.
D. an expendable trust fund.

12. The City of Fargo issued general obligation bonds to finance construction of a new fire

station. The bonds were issued at a discount. Which of the following is true?
I. The amount expended for the improvement must be decreased.
II. The general fund must make up the difference to the face value of the bonds.
III. A debt service fund must make up the difference to the face value of the bonds.
A. I only
B. Either I or III
C. Either II or III
D. Either I or II

13. The costs of a building being constructed by a capital projects fund should be debited, or
charged, to which of the following accounts in the capital projects fund?
A. Expenditures.
B. Building.
C. Construction in Progress.
D. Other Financing Uses.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

14. When a capital projects fund transfers a premium from the issuance of general obligation
bonds to another fund, the transfer should be accounted for as which type of interfund
transaction or transfer?
A. As a loan.
B. As an interfund transfer.
C. As revenue.
D. As a reimbursement.

15. A debt service fund for the City of Madison received $50,000 from a capital projects fund.
The amount received represented the premium received from the issuance of general
obligation bonds. What account should the debt service fund credit to record this receipt?
A. Revenue-General Obligation Bond Premium.
B. Matured Bonds Payable.
C. Other Financing Sources—Transfer In from Capital Projects Fund.
D. Due to Capital Projects Fund.

16. Upon completion of construction, and full payment of all construction costs in a capital
projects fund, the entry to record the transfer of any remaining cash should include a debit to:
I. Contract Payable-Retained Percentage.
II. Transfer Out to Debt Service Fund.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

17. On July 1, 2008, Cleveland established a capital projects fund to construct a new town
hall. Financing for construction came from the following sources:

Construction of the town hall was completed on June 15, 2009. For the fiscal year ended June
30, 2009, what amount should Cleveland's capital projects fund report for revenues on its

statement of revenues, expenditures, and changes in fund balance?
A. $1,000,000
B. $1,500,000
C. $3,500,000
D. $14,500,000

18. On the statement of revenues, expenditures, and changes in fund balance for a capital
projects fund, proceeds of general obligation bonds should be reported:
A. in the revenue section of the statement.
B. as a direct addition to the beginning balance of unreserved fund balance.
C. in the other financing sources (uses) section of the statement.
D. as a subtraction from construction expenditures.

19. The capital projects fund of Hood River completed construction of an addition to its city
hall at a cost of $4,000,000. The city council approved payment of the amount due the general
contractor, less a 10 percent retainage. How should the capital projects fund account for the
10 percent retainage?
I. As a credit of $400,000 to Deferred Revenue-Retained Percentage
II. As a credit for $400,000 to Contracts Payable-Retained Percentage.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

20. The capital projects fund of Hysham completed construction of a new building. The
building should be reported in the:
I. government-wide statement of net assets.
II. capital projects fund.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

21. During the fiscal year ended June 30, 2009, the city of Moorhead constructed a new
courthouse which was budgeted to cost $5,000,000. Moorhead used a capital projects fund to
account for the construction activities. In July of 2008, a bid was accepted from Diamond
Construction to build the courthouse for $4,800,000. On June 15, 2009, Diamond completed
construction and submitted a bill to the city for $4,900,000. The city accepted the bill and paid
Diamond all of the amount owed, except for a 10 percentage retainage. On the statement of
revenues, expenditures, and changes in fund balance prepared for the capital projects fund for
the year ended June 30, 2009, expenditures should be reported at
A. $4,900,000.
B. $4,800,000.
C. $4,410,000.
D. $4,320,000.

22. For which of the following long-term debt obligations would payments not be accounted
for in a debt service fund?
A. Notes and warrants secured by specific tax revenues.
B. Special assessment bonds sold to acquire enterprise fund assets.
C. Notes and warrants.
D. Special assessment bonds may be used to finance capital projects.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

23. A debt service fund of Clifton received $100,000 from its general fund during the fiscal
year ended June 30, 2009. The cash was used to pay matured interest on Clifton's general
obligation bonds, which were issued to finance construction of a new municipal building. On
the statement of revenues, expenditures, and changes in fund balance prepared for the debt
service fund for the year ended June 30, 2009, the amount received from the general fund
should be reported as:
A. revenue.
B. a reduction of expenditures.
C. an other financing source.
D. matured interest payments.

24. What account is debited in a debt service fund when it records matured interest payable?
I. Interest Expense
II. Expenditures
A. I only
B. II only
C. Either I or II
D. Neither I nor II

25. On the statement of revenues, expenditures, and changes in fund balance prepared for a
debt service fund, the cash paid to retire matured serial bonds is reported as:
I. expenditures.
II. a direct deduction from unreserved fund balance.

A. I only
B. II only
C. Either I or II
D. Neither I nor II

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

26. Arlington has a debt service fund which it uses to pay the principal and interest on its
$2,000,000 of general long-term debt. Interest at 5 percent is due on October 1 and April 1.
On October 1, 2008, and April 1, 2009, Arlington's debt service fund paid $50,000 of interest
due on its bonds. On the balance sheet prepared on June 30, 2009, for Arlington's debt service
fund, interest payable should be reported at:
A. $0.
B. $16,667.
C. $25,000
D. $50,000.

27. Fixed assets and investments are reported in which of the following funds?

A. I, II, III
B. II, IV, V
C. I, II, V
D. II, III, IV

28. On October 15, 2008, an enterprise fund of Blacksburg purchased office supplies at a cost

of $10,000. The inventory of office supplies on hand at the June 30, 2009, fiscal year end was
$4,000. There was no beginning inventory. Blacksburg should make entries that include:
A. debiting Supplies $10,000 at October 15, and debiting Expenses $4,000 on June 30.
B. debiting Expenditures $10,000 at October 15, and debiting Supplies $4,000 at June 30.
C. debiting Supplies $10,000 at October 15, and crediting Supplies $6,000 on June 30.
D. debiting Expenditures $10,000 at October 15, and crediting Expenses $4,000 at June 30.

29. A citizen of York purchased a truck in 2003 for $50,000. On June 10, 2009, she donated
the truck to York. The fair value of the truck on the date of donation was $30,000. How
should York report the truck in its government-wide Statement of Net Assets?
A. Machinery and equipment should be increased $50,000.
B. Machinery and equipment should be increased $30,000.
C. Machinery and equipment should be decreased $20,000.
D. No asset should be reported because no expenditures were made to acquire the truck.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

30. The general fund of Reston acquired computer equipment costing $70,000 during the
fiscal year ended June 30, 2009. Machinery and Equipment should be reported in Reston's
General Fund Balance Sheet and government-wide Statement of Net Assets at June 30, 2009,
as follows:

A. Option A
B. Option B
C. Option C

D. Option D

31. Which of the following funds report fixed assets on their balance sheets?

A. I, II
B. II, III
C. I, IV
D. III, IV

32. The town of Decorah issued general obligation serial bonds at par to finance construction
of several new streets in the town. Construction activity was accounted for in a capital
projects fund. On the date the general obligation serial bonds were issued, what account was
credited in Decorah's capital projects fund?
A. Serial Bonds Payable
B. Due to Debt Service Fund
C. Revenues
D. Other Financing Sources-Bond Issue Proceeds

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

33. What account should be debited in the debt service fund to recognize an installment
payment currently due on general obligation serial bonds?
I. Matured Bonds Payable.
II. Expenditures-Principal.
A. I

B. II
C. Either I or II
D. Neither I nor II

34. As of May 30, 2009, the debt service fund of Cody had accumulated $52,000 of assets in a
debt service fund to pay the principal of its currently maturing serial bonds. On June 1, 2009,
$50,000 of serial bonds matured and were paid with the resources accumulated in the debt
service fund. In Cody's debt service fund, Matured Bonds Payable was debited for $50,000
and:
A. Cash was credited for $50,000.
B. Due to General Fund was credited for $50,000.
C. Investments was credited for $50,000.
D. Reserve for Encumbrances was credited for $50,000.

35. Which of the following financial statements would not be prepared for an enterprise
fund?
A. A statement of cash flows.
B. A statement of revenues, expenses, and changes in fund net assets.
C. A balance sheet.
D. A statement of revenues, expenditures, and changes in fund balance.

36. The costs of enterprise fund activities are recovered
A. from special tax levies.
B. from federal or state governmental grants.
C. by user charges.
D. by private donations.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

37. Enterprise and internal service funds should recognize revenues when they are
A. received in cash.
B. available and earned.
C. measurable and earned.
D. measurable and available.

38. An enterprise fund of Grist was billed $10,000 for using the services of an internal service
fund's data processing center. What account should Grist's enterprise fund debit to record this
billing?
A. Due to Internal Service Fund
B. Expenditures
C. Transfer Out to Internal Service Fund
D. General Operating Expenses

39. During the fiscal year ended June 30, 2009, an enterprise fund of St. Cloud acquired
computer equipment costing $110,000 on account and issued $400,000 of long-term bonds.
Revenues of the enterprise fund will be used to repay bond interest and principal. What effect
did these transactions have on St. Cloud's enterprise fund assets and long-term debt?

A. Option A
B. Option B
C. Option C
D. Option D

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

40. The following information pertains to Auburn's water and sewer fund, an enterprise fund,
for the year ended June 30, 2009:

Based upon the information presented, what was the increase in the enterprise funds
unrestricted net assets for the fiscal year ended June 30, 2009?
A. $200,000
B. $240,000
C. $300,000
D. $320,000

41. Which of the following characteristics best describes an enterprise fund?
A. Capital maintenance, revenues from general public user charges, and net income.
B. Operating budgets, expenditures, and tax revenues from general public.
C. Capital maintenance, revenues from user charges to other funds, and net income.
D. Capital maintenance, tax revenues from general public, and net income.

42. On the statement of cash flows prepared for an internal service fund, cash received from
customers and cash paid for operating expenses should be reported as
A. investing activities.
B. operating activities.
C. noncapital financing activities.
D. capital and related financing activities.

43. Carlisle established a motor vehicle service and maintenance fund to service and maintain
all cars and trucks owned by the town. Revenues of the fund will only come from billings to

the funds which use the motor vehicle service and maintenance fund. What type of fund is the
motor vehicle service and maintenance fund?
A. An enterprise fund.
B. A special revenue fund.
C. An expendable trust fund.
D. An internal service fund.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

44. Which of the following fiduciary funds does not require a statement of changes in net
assets?
I. Private-purpose trust fund
II. Agency fund.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

The City of Warwick received $4,000,000 from one of its most prominent citizens during the
year ended June 30, 2009. The donor stipulated that the $4,000,000 be invested permanently,
and that interest and dividends earned on the investments be used to support the homeless
people of Warwick. During the year ended June 30, 2009, dividends received from stock
investments amounted to $20,000, while interest received from bond investments amounted to
$40,000. At June 30, 2009, $10,000 of interest was earned, but it will not be received until
July of 2009. The fair value of the securities in which the $4,000,000 was invested had

increased $8,000 by June 30, 2009.

45. Refer to the above information. For the year ended June 30, 2009, what amount should the
trust fund report as investment earnings on the statement of revenues, expenses, and changes
in fund balance?
A. $60,000
B. $68,000
C. $70,000
D. $78,000

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

46. Refer to the above information. On the statement of fiduciary net assets at June 30, 2009,
the nonexpendable trust fund should report investments and interest receivable of:

A. Option A
B. Option B
C. Option C
D. Option D

47. A trust fund of Bruge City received $100,000 from a donor during the year ended June 30,
2009. During the year ended June 30, 2009, $94,000 of the cash received was used to provide
food and clothing to the city's poor. How should the trust fund report these resource flows on
its statement of changes in fiduciary net assets for the year ended June 30, 2009?
A. As revenues of $100,000 and as expenditures of $94,000.

B. As contributions for $100,000 and as deductions for benefits for $94,000.
C. As revenues of $100,000 and as an operating transfer out for $94,000.
D. As a transfer in from trust fund for $100,000 and as a transfer out for $94,000.

48. Agency funds report:
A. only assets and liabilities.
B. assets, liabilities, fund balance, revenues, and expenditures.
C. assets, liabilities, and fund balance.
D. only revenues and expenditures.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

49. Government-wide financial statements prepared for a municipality include the following:

A. Option A
B. Option B
C. Option C
D. Option D

50. Revenue and expense on a government-wide statement of activities for a municipality
should be measured on a(n)
A. cash basis.
B. modified accrual basis.
C. accrual basis.
D. reconciliation basis.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

51. Required financial statements of funds may include the following, among others:

The financial statements that should be issued by governmental funds and by proprietary
funds include the following:

A. Option A
B. Option B
C. Option C
D. Option D

52. The government-wide financial statements prepared for a municipality should include
assets acquired by the following funds:

A. Option A
B. Option B
C. Option C
D. Option D

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

53. A budgetary comparison schedule presented as required supplementary information for
the general fund should report variances for the difference between:
I. Original budget amounts and final budget amounts
II. Final budget amounts and actual amounts.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

54. At June 30, 2009, total assets for the various funds of a local municipality were as
follows:

Applying GASB 34 criteria, which of the above are major funds for reporting purposes?
A. GF, CPF, EF
B. CPF, EF
C. CPF, ISF, EF
D. GF, CPF, ISF, EF

55. In accordance with the Single Audit Act of 1984, external auditors issue the standard audit
report on the governmental unit's financial statements and must also issue:
I. a special report on the effectiveness with which the governmental unit is achieving its social
objectives.
II. a special report on the governmental unit's internal control system.
III. a special report on the governmental unit's compliance with laws and regulations.
A. I only
B. I and II
C. II and III

D. I, II, and III

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

56. GASB 34 specifies two criteria for determining major governmental funds to be reported
separately in the Governmental Fund Balance Sheet and Statement of Revenues,
Expenditures, and Changes in Fund Balances. To be considered a major governmental fund, a
fund must:
A. meet at least one criterion.
B. be the general fund or meet at least one criterion.
C. be the general fund or meet two criteria.
D. either A or C.

An internal service fund had the following transactions during the year ended June 30, 2009,
its first year of existence:
(1) Received $1,000,000 contribution from the general fund.
(2) Acquired fleet of cars for $950,000, paying cash.
(3) Billed departments in other funds $500,000 for using cars.
(4) Incurred operating costs, exclusive of depreciation, of $240,000.
(5) Depreciation expense amounted to $250,000.

57. Refer to the above information. On the internal service fund's balance sheet on June 30,
2009, total net assets should be reported at:
A. $1,000,000.
B. $1,010,000.

C. $1,250,000.
D. $910,000.

58. Refer to the above information. On the internal service fund's balance sheet at June 30,
2009, net assets-unrestricted should be reported at:
A. $260,000.
B. $310,000.
C. $550,000.
D. $1,250,000.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

59. The statement of changes in fiduciary net assets includes all of the following except:
A. employee benefit trust funds.
B. investment trust funds.
C. private-purpose trust funds.
D. agency funds.

60. Which presentation method combines the component unit's results into the primary
government's financial results?
A. Blended presentation
B. Discrete presentation
C. Combined presentation
D. Consolidated presentation

Essay Questions

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

61. Newport Village was recently incorporated and began financial operations on January 1,
2008, the beginning of its fiscal year. The following transactions occurred during this first
fiscal year, January 1, 2008, to December 31, 2008:
1. The village council adopted a budget for general operations for the fiscal year ending
December 31, 2008. Revenue was estimated at $650,000. Legal authorizations for budgeted
expenditures totaled $620,000.
2. Property taxes were levied in the amount of $630,000; 3 percent of this amount was
estimated to prove uncollectible. These taxes are available as of the date of levy to finance
current expenditures.
3. During the year, a village resident donated marketable securities valued at $75,000 to the
village under the terms of a trust agreement which stipulates that the principal amount be kept
intact. The revenue generated by the securities is restricted to providing support to the village
library. Revenue earned and received on these amounted to $3,000 through December 31,
2008.
4. A general fund transfer of $8,000 was made to establish an internal service fund to provide
for a permanent investment in inventory.
5. The village decided to construct a small recreation facility through a special assessment
project authorized to do so at a cost of $100,000. The city is obligated if the property owners
default on their special assessments. Special assessment bonds were issued in the amount of
$90,000, and the first year's special assessment of $22,500 was levied against the village's
property owners. The remaining $10,000 for the project will be contributed from the village's

general fund.
6. The special assessments for the lighting project are due over a four-year period, and the
first year's assessments of $22,500 were collected. The $10,000 transfer from the village's
general fund was received by the lighting capital projects fund.
7. A contract for $100,000 was let for the installation of the lighting. The capital projects fund
was encumbered for the contract. On December, 2008, the contract was completed and the
contractor was paid.
8. During the year, the internal service fund purchased various supplies at a cost of $3,000.
9. Current property taxes collected during the year was $615,000. Licenses and permit fees
collected amounted to $15,000. The allowance for estimated uncollectible taxes is adjusted to
$15,000.
Required:
Prepare journal entries to record each of these transactions in the appropriate fund or funds of
Newport Village for the fiscal year ended December 31, 2008. Use the following funds:
general fund, capital projects fund, internal service fund, and private-purpose trust fund.
Closing entries are not required. Organize your answer using the following format:
Fund Journal Entry

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

62. The City of Edmond established a capital projects fund for the construction of a reading
room for the City Library. The estimated cost of the construction is $300,000. On January 1,
2008, an 8 percent, $200,000 bond issue was sold at 102. At that date, the county board
provided a $100,000 grant. On March 3, 2008, the premium from issuance of the bonds was
transferred to the debt service fund established to repay the bond principal and interest. On

March 1, 2008, a general contractor's bid was accepted to construct the facility at a cost of
$270,000. The construction was completed on October 5, 2008; its actual cost was $285,000.
The city council approved payment of the total actual cost of $285,000. In addition to the
$285,000, $9,000 was spent to make the facility ready for use. On November 3, 2008, the city
council gave the final approval for both these payments. After all bills were paid, the
remaining fund balance was transferred to the debt service fund.
Required
a. Prepare entries for the capital projects fund for 2008.
b. Prepare a statement of revenues, expenditures, and changes in fund balance for 2008 for the
capital projects fund.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

63. Akron established an internal service fund for its data processing activities on July 1,
2008. During the fiscal year ended June 30, 2009, the following transactions and events
occurred:
1) On July 1, 2008, the city council authorized the general fund to contribute $1,000,000 to
help establish the internal service fund on July 20, 2008.
2) The internal service fund spent $900,000 of the contribution to acquire a mainframe
computer on July 25, 2008.
3) During the year ended June 30, 2009, the internal service billed other funds of the city
$300,000 for use of the computer. By year end, all of the billings were collected except for
$30,000.
4) The internal service fund incurred general operating expenses of $100,000, exclusive of
depreciation, during the year ended June 30, 2009. All of the expenses were paid by June 30,

2009, except for $24,000.
5) Depreciation expense related to the computer was $180,000.
Required:
A) Prepare all journal entries that would be recorded by Akron's internal service fund for the
year ended June 30, 2009. Explanations for journal entries are not necessary.
B) Prepare a statement of revenues, expenses, and changes in fund net assets for the internal
service fund for the year ended June 30, 2009.
C) Calculate the amount of unrestricted net assets at June 30, 2009.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

64. Required: For each transaction described below for the current fiscal year of the Town of
Golden, use an "x" to indicate the fund(s) in which a journal entry should appear, and whether
separate information should be kept for General Long Term Debt or General Fixed Assets.

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Chapter 18 - Governmental Entities: Special Funds and Government-wide Financial Statements

65. Prior to closing the accounts at the end of the most recent fiscal year, the Town of Sonora
reports the following amounts (in thousands):

Required:
Applying the criteria specified in GASB 34, determine which of the above funds should be
classified as major funds for reporting purposes.

66. GASB 34 requires a Reconciliation schedule for the Statement of Net Assets. What does
this schedule document?

18-25