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Chapter 16

Student: ___________________________________________________________________________

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Which standard issued by the Governmental Accounting Standards Board in 1999 required two distinct sets of financial statements for state and local governments? A. GASB Statement No. 32. B. GASB Statement No. 33. C. GASB Statement No. 34. D. GASB Statement No. 35. E. GASB Statement No. 36. Which group of governmental financial statements reports all revenues and all costs of providing services each year? A. GAAP-Based Financial Statements B. Fund Financial Statements. C. Cost-Based Financial Statements. D. Government-Wide Financial Statements. E. General Fund Financial Statements. Proprietary funds are A. Funds used to account for the activities of a government that are carried out primarily to provide services to citizens. B Funds used to account for a government's ongoing organizations and activities that are similar to those . operated by for-profit organizations. C. Funds used to account for monies held by the government in a trustee capacity. D. Funds used to account for all financial resources except those required to be accounted for in another fund. E. Funds used to account for revenues that have been legally restricted as to expenditure. Fiduciary funds are A. Funds used to account for the activities of a government that are carried out primarily to provide services to citizens. B Funds used to account for a government's ongoing organizations and activities that are similar to those . operated by for-profit organizations. C. Funds used to account for monies held by the government in a trustee capacity. D. Funds used to account for all financial resources except those required to be accounted for in another fund. E. Funds used to account for revenues that have been legally restricted as to expenditure. Governmental funds are A. Funds used to account for the activities of a government that are carried out primarily to provide services to citizens. B Funds used to account for a government's ongoing organizations and activities that are similar to those . operated by for-profit organizations. C. Funds used to account for monies held by the government in a trustee capacity. D. Funds used to account for all financial resources except those required to be accounted for in another fund. E. Funds used to account for revenues that have been legally restricted as to expenditure.

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Special Revenue funds are A. Funds used to account for the activities of a government that are carried out primarily to provide services to citizens. B Funds used to account for a government's ongoing organizations and activities that are similar to those . operated by for-profit organizations. C. Funds used to account for monies held by the government in a trustee capacity. D. Funds used to account for all financial resources except those required to be accounted for in another fund. E. Funds used to account for revenues that have been legally restricted as to expenditure. The term "current financial resources" refers to A. Those assets that can quickly be converted into cash. B. Monetary assets available to meet the government's needs. C. The government's current assets and current liabilities. D. The current value of all net assets owned by the governmental unit. E. Financial resources used to provide electricity to local citizens. What are the broad types or classifications of funds for a governmental entity such as a city? A. general, governmental, and trust funds. B. governmental, proprietary, and fiduciary funds. C. revenue, trust, and governmental funds. D. enterprise, revenue, and fiduciary funds. E. governmental, agency, and enterprise funds. Which group of financial statements is prepared using the "modified accrual accounting" approach? A. GAAP-Based Financial Statements. B. Fund Financial Statements. C. Cost-Based Financial Statements. D. Government-Wide Financial Statements. E. General Purpose Financial Statements.

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10. Under modified accrual accounting, revenues should be recognized when they are A. collected. B. realizable. C. reasonably estimable. D. measurable and available. E. earned. 11. Under modified accrual accounting, when should an expenditure be recorded to recognize interest on long-term debt? A. at the end of each accounting period. B. when payment is due within one fiscal year. C. when payment is due. D. when cash is available to pay the interest. E. when the interest is incurred. 12. Which of the following funds is most likely created with an endowed gift? A. Enterprise Fund. B. Internal Service Fund. C. Debt Service Fund. D. Capital Projects Fund. E. Permanent Fund. 13. Revenue from property taxes should be recorded in the General Fund A. when received. B. when there is an enforceable legal claim. C. when they are available for recognition. D. in the period for which they are required or permitted to be used. E. in the period in which the tax bills are mailed.

14. Which type of fund is not included in the Government-Wide Financial Statements? A. Governmental Funds B. Proprietary Funds C. Fiduciary Funds D. Debt Service Funds E. Special Revenue Funds 15. A city received a grant of $5,000,000 from a private agency. The money was to be used to build a new city library. In which fund should the money be recorded for the Fund Financial Statements? A. the General Fund. B. an Expendable Trust Fund. C. a Capital Projects Fund. D. an Agency Fund. E. a Permanent Fund. 16. When a city received a federal grant for providing food and other assistance to the homeless, the money should have been recorded in A. the General Fund. B. an Expendable Trust Fund. C. a Capital Projects Fund. D. an Agency Fund. E. a Special Revenue Fund. 17. Bay City received a federal grant to provide health care services to low income mothers and children. When should the revenues be recognized? A. as health care services are provided. B. when the awarding of the grant is announced. C. when the grant money is received. D. at the end of Bay City's fiscal year. E. when the grant money is receivable. 18. Trapper City issued 30-year bonds for the purpose of building a new City Hall. The proceeds of the bonds are deposited in the General Fund. For the Fund Financial Statements, in what fund will Bonds Payable appear? A. General Fund. B. Capital Projects Fund. C. Permanent Fund. D. Debt Service Fund. E. Bonds Payable do not appear in Fund Financial Statements. 19. Which of the following is a governmental fund? A. Enterprise fund. B. Internal service fund. C. Permanent fund. D. Investment trust fund. E. Agency fund. 20. Which of the following is a fiduciary fund? A. Pension trust fund. B. Debt service fund. C. Permanent fund. D. Enterprise fund. E. Capital projects fund.

21. According to GASB Concepts Statement No. 1, what are the three groups of primary users of external state and local governmental financial reports? A. The Securities Exchange Commission, the citizenry, and legislative and oversight bodies. B. The Securities Exchange Commission, legislative and oversight bodies, and investors and creditors. C. The Securities Exchange Commission, the citizenry, and investors and creditors. D. The citizenry, legislative and oversight bodies, and investors and creditors. E. The citizenry, management, and the Governmental Accounting Office. 22. Which of the following statements is true regarding fund financial statements? A. Fund financial statements report a government's activities and financial position as a whole. B Fund financial statements should tell the amount spent this year on such services as public safety, . education, health and sanitation, and the construction of a new road. C. Fund financial statements utilize the accrual basis of accounting much like any for-profit entity. D. Fund financial statements help to determine whether the government's overall financial position improved or deteriorated. E. Fund financial statements report all assets and liabilities in a way comparable to business-type accounting. 23. Which of the following statements is false regarding government-wide financial statements? A. Government-wide financial statements report a government's activities and financial position as a whole. B The government-wide financial statement approach helps users make long-term evaluations of the . financial decisions and stability of the government. C. Government-wide financial statements focus on the short-term instead of the long-term. D.Government-wide financial statements assess the finances of the government in its entirety, including the year's operating results. E. The measurement focus of government-wide financial statements is on all economic resources and utilizes accrual accounting. 24. How do the balance sheet and statement of revenues, expenditures, and changes in fund balances of governmental funds differ from the financial statement presentation for the governmental activities in the government-wide statement of net assets and statement of activities? (1) Internal service funds are not included in the fund financial statements of governmental funds but could be reported in the governmental activities of government-wide financial statements. (2) The economic resources measurement basis is used for fund financial statements of governmental funds and the current financial resources measurement basis is used for governmental activities in the government-wide financial statements. (3) Modified accrual accounting is used for fund financial statements of governmental funds to time revenues and expenditures and accrual accounting is used for governmental activities of governmentwide financial statements. (4) The financial statements of governmental funds for fund financial statements are the same as governmental activities in government-wide financial statements but with different titles of the financial statements. A. 1 and 2. B. 2, 3, and 4. C. 1, 2 and 3. D. 1 and 3. E. 1, 2, 3, and 4. 25. Which of the following is not a classification of non-exchange transactions? A. Derived tax expenditures. B. Voluntary non-exchange transactions. C. Government-mandated non-exchange transactions. D. Derived tax revenues. E. Imposed non-exchange revenues.

26. GASB Codification Section N50.104 divides all eligibility requirements into four general classifications including all of the following except: A. Required characteristics of the recipients. B. Time requirements. C. Reimbursement. D. Contingencies. E. Refunding. 27. Which statement is not correct? A. Governmental funds account for expenditures of financial resources rather than matching revenues and expenses. B. The Fund Balance Reserved for Encumbrances account is not closed at the end of a fiscal year. C Revenues from licenses and permit fees are recognized when received in cash if using the modified . accrual basis of accounting for governmental funds. D A fund is an independent accounting entity composed of cash and other financial resources, segregated . for the purpose of carrying on specific activities and objectives. E. Commitments for purchase orders are recorded as expenses. 28. For governmental entities, the accrual basis of accounting is used for: A. Special revenue funds. B. Internal service funds. C. Debt service funds. D. General Fund. E. Capital Projects Fund. 29. What account is debited in the general fund when equipment is received by a governmental entity? A. Expenditures. B. Encumbrances. C. Plant assets. D. Accounts Payable. E. Fund Balance-Reserve for Encumbrances. 30. Generally, annual budgets are recorded within the following funds: A. General fund and special revenue funds. B. Capital projects funds and debt service fund. C. Enterprise funds and internal service funds. D. General Fund and Pension Trust Fund. E. Agency Funds and General Fund. 31. When a city received a federal grant for books to be purchased for a library, the money should have been recorded in A. the Permanent Fund. B. an Expendable Trust Fund. C. a Capital Projects Fund. D. an Agency Fund. E. a Special Revenue Fund. 32. When a city holds pension monies for city employees, the monies should be recorded in A. the General Fund. B. an Expendable Trust Fund. C. a Fiduciary Fund. D. an Agency Fund. E. a Special Revenue Fund.

33. When a city received a private donation of $1,000,000 stipulating that the principal donation would be preserved but allowing the interest income to be spent on building a city park with access for disabled children, which fund should the money be recorded in? A. the General Fund. B. an Expendable Trust Fund. C. a Permanent Fund. D. an Agency Fund. E. a Special Revenue Fund. 34. When a city collects fees from citizens who use the public swimming pool, the money should be recorded in A. the General Fund. B. an Enterprise Fund. C. a Capital Projects Fund. D. an Agency Fund. E. an Internal Service Fund. 35. A city operates a central data processing facility. The expenses of this facility would be accounted for using A. the General Fund B. an Enterprise Fund C. a Capital Projects Fund D. an Agency Fund E. an Internal Service Fund 36. What are the two proprietary fund types? (1) Internal service funds (2) Investment trust funds (3) Enterprise funds. (4) Agency funds A. 1 and 2. B. 2 and 3. C. 1 and 3. D. 2 and 4. E. 1 and 4. 37. Salaries and wages that have been earned by governmental employees that have not yet been paid are recorded in the general fund as: A. An expenditure. B. An encumbrance. C. An appropriation. D. An expense. E. An investment. 38. The reporting of the fund balance of governmental funds will result in a maximum of ___________ categories: A. One B. Two C. Three D. Four E. Five 39. Which classifications may be not used for the Fund Balance of governmental funds? A. Spendable B. Non-Spendable C. Assigned D. Unassigned E. Restricted

40. Which of the following statements is true about Fund Balance classifications for the governmental funds? A. A restricted fund balance is for monies the governing board has appropriated. B. An assigned fund balance has been designated for a specific purpose and is restricted to use for only that purpose. C. An unassigned fund balance has no restriction for use of the money and is only applicable to the General Fund. D. A committed fund balance has been designated by an outside party for a particular use. E. A non-spendable fund balance is designated only for Permanent Fund balances. 41. For each of the following transactions, select the area of accounting records in which an entry will be recorded. (A) General Fund only. (B) Governmental Activities only. (C) General Fund and Governmental Activities. (D) General Fund and Debt Service Fund. (E) Capital Projects Fund and Governmental Activities. (F) Debt Service Fund and Governmental Activities. (G) Special Revenue Fund and Governmental Activities. ___ (1.) The city council adopts an annual budget for the General Fund. ___ (2.) Property taxes are levied. ___ (3.) Computers are ordered for the fire department. ___ (4.) A transfer of funds is made from the General Fund to the Debt Service Fund. ___ (5.) The principal and interest of a bond are paid. ___ (6.) A building is acquired for the police department, and renovations begin immediately. ___ (7.) Depreciation on fire trucks is recorded. ___ (8.) Citizens are assessed for a street lighting project that has been legally restricted for those citizens. ___ (9.) A grant is received to landscape tree-lined areas beside city-owned streets. ___ (10.) The city spends grant money received in (9.) above and landscapes the tree-lined areas beside the streets for which the grant money was received.

42. What organization is responsible for establishing accounting principles for governmental entities? By whom was this organization established?

43. What is a special revenue fund used to account for?

44. What is the definition of the term fund?

45. For a government, what kinds of operations are accounted for using a proprietary fund? Give three examples.

46. What are the five types of governmental funds?

47. A city enacted a special tax levy and the money must be used to provide medical services at the municipal hospital. What kind of fund should be used to record the revenues generated by the tax?

48. In governmental accounting, what term is used for a decrease in financial resources?

49. Under modified accrual accounting, when are expenditures recorded?

50. What assets would be included in the accounting records of a city's general fund?

51. Under modified accrual accounting, when should revenues be reported by a governmental-type fund?

52. When should property taxes be recognized under modified accrual accounting?

53. What are the two groups of financial statements mandated by GASB Statement No. 34? For each group, what are the names of the individual statements that must be produced?

54. What is the primary difference between monies accounted for in the general fund and monies accounted for in the special revenue fund?

55. What are the two proprietary fund types?

56. What are the four fiduciary fund types?

57. What is the purpose of fund financial statements?

58. What is the purpose of government-wide financial statements?

59. If this budget was formally integrated into the accounting records used to produce the Fund Financial Statements, what was the required journal entry at the beginning of the year? The board of commissioners of the city of Jarmaine adopted a General Fund budget for the year ending June 30, 2011, which indicated revenues of $1,300,000, bond proceeds of $520,000, appropriations of $1,170,000, and operating transfers out of $390,000. Required:

60. (A.) What journal entry was required for the Fund Financial Statements? (B.) What journal entry was required for the Government-Wide Statements? On July 1, 2011, Fred City ordered $1,500 of office supplies. They were to be paid for out of the General Fund. Required:

61. (A.) Prepare all the required journal entries and identify the type of fund in which each entry was recorded for the Fund Financial Statements. (B.) Prepare all the required journal entries and identify the type of fund in which each entry was recorded for the Government-Wide Financial Statements. On July 12, 2011, Fred City ordered a new computer at an anticipated cost of $114,400. The computer was received on July 16 with an actual cost of $116,220. Payment was subsequently made on August 15, 2011. Required:

62. (A.) Prepare the required journal entry in the General Fund for the Fund Financial Statements. (B.) Prepare the required journal entry for the Government-Wide Financial Statements. A new truck was ordered for the sanitation department at a cost of $122,200 on September 3, 2011. Required:

63. (A.) Prepare the required journal entry in the General Fund for the Fund Financial Statements. (B.) Prepare the required journal entry for the Government-Wide Financial Statements. The school system had some booklets printed by a local print shop on September 22, 2011. The school system was charged $1,560 for the printing, but the bill is not due until October. Required:

64. (A.) Prepare the required journal entry in the Capital Projects Fund on October 1 for the Fund Financial Statements. (B.) Prepare the required journal entry for the Government-Wide Financial Statements. A $910,000 bond was issued on October 1, 2011 to build a new road. The bonds carried a 6% interest rate and are due in 10 years. Required:

65. (A.) Prepare all the required journal entries and identify the fund in which each entry was recorded for the Fund Financial Statements. (B.) Prepare all the required journal entries and identify the type of activity for the Government-Wide Financial Statements. On June 14, 2011, Fred City agreed to transfer cash of $52,000 from the General Fund to provide permanent financing for a municipal swimming pool that will be viewed as an Enterprise Fund. The cash was transferred on June 30. Required:

66. Prepare all the required journal entries and identify the fund in which each entry was recorded for the Fund Financial Statements. On August 21, 2011, Fred City transferred $100,000 to the School System to cover repairs to a school building. Required:

67. Record the journal entries for these transactions using the purchases method. (Disregard the encumbrance entries.) On January 1, 2011, Wakefield City purchased $40,000 office supplies. During the year $35,000 of these supplies were used. Required:

68. On January 1, 2011, Wakefield City purchased $40,000 office supplies. During the year $35,000 of these supplies were used. Required: Record the journal entries for these transactions using the consumption method. (Disregard the encumbrance entries.)

69. Record the journal entry to record the budget and identify the fund in which it is recorded. The town council adopted an annual budget estimating general revenues of $2,000,000, approved expenditures of $1,700,000 and other financing for other funds of $130,000. Required:

70. Property taxes of 1,500,000 are levied for Miner County. The county expects that 5% will be uncollectible. Required: Prepare the required journal entry and identify the fund in which it is recorded.

71. Prepare the required journal entries and identify the funds in which they are recorded. Shell City transfers $100,000 from the General Fund to the Debt Service fund. Required:

72. Prepare the journal entry and identify the fund to record the purchase order of two trucks owned by Simple City for $100,000. Identify the fund in which the entry is recorded.

73. Simple City has recorded the purchase order of two trucks for a total of $100,000. Prepare the journal entries to reflect that the two trucks have been received with a voucher price of $105,000. This amount has been approved but not yet paid. Identify the fund in which the entries are recorded.

74. Prepare the journal entry and identify the fund in which it is recorded to reflect the bond issue. A $5,000,000 bond is issued by Northern City to build a new hospital. Required:

75. Prepare the journal entry, and identify the fund in which it is recorded, to record the receipt of the grant. The Town of Anthrop receives a $10,000 grant to make the Town Hall handicapped-accessible. Required:

76. Prepare the journal entry (or entries), and identify the fund for recording, to record that the town spends $10,000 of a grant it received to make the Town Hall handicapped-accessible. The Town of Anthrop has recorded the receipt of a $10,000 grant to make its Town Hall handicappedaccessible. The town now spends $10,000 to make the Town Hall handicapped-accessible. Required:

77. For fund financial statements, prepare the journal entry for this transaction including the fund type in which the entry would have been recorded. The City of Kamen collected $17,000 from parking meters that must be transferred to the county government. Required:

78. For fund financial statements, prepare the journal entry for this transaction including the fund type in which the entry would have been recorded. The City of Kamen transferred $27,000 into a Pension Trust Fund. Of this amount, $19,000 was contributed by the city with the remainder coming from the employees. Required:

Chapter 16 Key
1. C 2. D 3. B 4. C 5. A 6. E 7. B 8. B 9. B 10. D 11. C 12. E 13. D 14. C 15. C 16. E 17. A 18. E 19. C 20. A 21. D 22. B 23. C 24. D 25. A 26. E 27. E 28. B 29. A 30. A 31. E 32. C 33. C 34. B 35. E 36. C

37. A 38. E 39. A 40. C 41. (1) A; (2) C; (3) A; (4) D; (5) F; (6) E; (7) B; (8) G; (9) G; (10) G 42. The organization that is responsible for establishing accounting principles for governmental entities is the GASB (Governmental Accounting Standards Board). The Financial Accounting Foundation has oversight responsibility for the GASB, as it does for the FASB. 43. A special revenue fund is used to account for revenues that are legally restricted as to how they can be spent. 44. The term fund is defined as a self-balancing set of accounts used to record data generated by an identifiable government function. 45. A proprietary fund is used to account for governmental operations similar to those found in the private sector. They usually involve user charges. Three examples are (1) a toll road, (2) a municipal swimming pool, and (3) a city maintenance garage. (E.) Permanent Funds. (D.) Debt Service Funds. (C.) Capital Projects Funds. (B.) Special Revenue Funds. (A.) The General Fund. 46. The five types of governmental funds are:

47. A special revenue fund should be used. 48. The appropriate term is expenditure. 49. Under modified accrual accounting, expenditures are usually recorded when the claim against financial resources is created. 50. The assets in the accounting records of a city's general fund would typically include financial resources such as (1) cash, (2) receivables, and (3) investments, but no capital assets. 51. Under modified accrual accounting, revenues should be reported by a governmental-type fund when they are both measurable and available. Revenues are measurable when they are subject to reasonable estimation. They are available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. 52. Property taxes should be recognized under modified accrual accounting when they become both measurable and available. 53. GASB No. 34 requires two groups of financial statements. They are the Government-Wide Financial Statements and the Fund Financial Statements. The Government-Wide Financial Statements include the Statement of Net Assets and the Statement of Activities. The Fund Financial Statements include the Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balance. 54. Monies in the special revenue fund are legally restricted as to expenditure and monies in the general fund are used for general public benefit. 55. Internal service funds and enterprise funds. 56. Investment trust funds, private-purpose trust funds, pension trust funds, and agency funds. 57. To show restrictions on the planned use of resources or to measure, in the short term, the revenues and expenditures arising from certain activities. 58. To show longer-term focus because they will report all revenues and all costs of providing services each year, not just those received or paid in the current year or soon after year-end.

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(B.) For the Government-Wide Statements no entry is required, because under accrual accounting, no entry is made until a transaction occurs.

60. (A.) For the Fund Statements, an encumbrance must be recorded in the General Fund.

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Chapter 16 Summary
Category # of Questions AACSB: Analytic 23 AACSB: Reflective thinking 55 AICPA BB: Industry 76 AICPA BB: Legal 1 AICPA BB: Research 1 AICPA FN: Measurement 56 AICPA FN: Reporting 23 Blooms: Analyze 12 Blooms: Apply 21 Blooms: Remember 32 Blooms: Understand 13 Difficulty: 1 Easy 30 Difficulty: 2 Medium 48 Hoyle - Chapter 16 78 Learning Objective: 162 01 Explain the history of and the reasons for the unique characteristics of the financial statements produced by state and local gove rnments. Learning Objective: 16-02 Differentiate between the two sets of financial statements produced by state and local governments. 13 Learning Objective: 162 03 Understand the reason that fund accounting has traditionally been such a prominent factor in the internal recording of state and l ocal governments. Learning Objective: 16-04 Identify the three fund types and the individual fund categories within each. 38 Learning Objective: 16-05 Understand the basic structure of government3 wide financial statements and fund financial statements (as produced for the governmental funds). Learning Objective: 16-06 Record the passage of a budget as well as subsequent encumbrances and expenditures. 18 Learning Objective: 164 07 Understand the reporting of capital assets; supplies; and prepaid expenses by a state or local government. Learning Objective: 16-08 Determine the proper timing for the recognition of revenues from nonexchange transactions. 9 Learning Objective: 16-09 Account for the issuance of long-term bonds and the reporting of special assessment projects. 3 Learning Objective: 165 10 Record the various types of monetary transfers that occur within the funds of a state or local government.