12

Student:

1.

For government-wide financial statements, what account is credited when a piece of equipment is leased
on a capital lease?
A. Equipment-Capital Lease
B. Encumbrances-Long Term
C. Encumbrances-Lease Obligations
D. Capital Lease Obligation
E. The lease is not recorded.

2.

For fund financial statements, what account is credited when a piece of equipment is leased on a capital
lease?
A. Equipment-Capital Lease.
B. Encumbrances-Long Term.
C. Encumbrances-Lease Obligations.
D. Capital Lease Obligation.
E. Other Financing Sources-Capital Lease.

3.

Jones College, a public institution of higher education, must prepare financial statements
A. As if the college was an enterprise fund.
B. Following the same rules as state and local governments.
C. According to GAAP.
D. As if the college was a fiduciary fund.
E. In the same manner as private colleges and universities.

4.

For the purpose of government-wide financial statements, the cost of cleaning up a government-owned
landfill and closing the landfill
A. Is not recognized until the costs are actually incurred.
B. Is accrued and amortized over the expected useful life of the landfill.
C. Is accrued on a pro-rated basis each period based on how full the landfill is.
D. Is accrued in full at the time the costs become estimable.
E. Is treated as an encumbrance at the time it become estimable, and then as an expenditure when it is
actually paid.

5.

A method of depreciation for infrastructure assets that allows the expensing of all maintenance costs each
year instead of computing depreciation is called
A. Government-wide depreciation.
B. Proprietary depreciation.
C. GASB depreciation.
D. Modified approach.
E. Alternative depreciation.

6.

Drye Township has received a donation of a rare painting worth $1,000,000. For Drye's government-wide
financial statements, three criteria must be met before Drye can opt not to recognize the painting as an
asset. Which of the following is not one of the three criteria?
(1.) The painting is held for public exhibition, education, or research in furtherance of public service,
rather than financial gain.
(2.) The painting is scheduled to be sold immediately at auction.
(3.) The painting is protected, kept unencumbered, cared for, and preserved.
A. Item 1 is not one of the three criteria.
B. Item 2 is not one of the three criteria.
C. Item 3 is not one of the three criteria.
D. All three items are required criteria.
E. None of the three items are required criteria.

7.

GASB Codification Section 2200.106-107 makes which of the following statements regarding
Management's Discussion and Analysis?
A. MD&A is required only for Proprietary Fund Financial Statements.
B. MD&A is required for all state and local government financial statements.
C. MD&A is only required for comprehensive annual financial reports.
D. MD&A for state and local government financial statements must include an analysis of potential,
untapped revenue sources.
E. MD&A is an optional inclusion for state and local government financial statements.

8.

Which one of the following is a criterion for identifying a primary government?

A. it has an appointed board of directors.
B. it is fiscally dependent.
C. it is a local government.
D. it has a separately elected governing body.
E. it must prepare financial statements.

9.

A local government's basic financial statements would include a statement of cash flows for all
A. proprietary fund types.
B. governmental fund types.
C. fund types.
D. fiduciary fund types.
E. A statement of cash flows is not required for any fund types.

10. According to the GASB (Governmental Accounting Standards Board), which one of the following is not
a criterion for determining whether a government is legally separate?
A. The government can determine its own budget.
B. The government can issue debt.
C. The government has corporate powers including the right to sue and be sued.
D. The government has the power to levy taxes.
E. The government can issue preferred stock.
11. Which of the following is not a criterion of a capital lease?
A. The lease transfers ownership of the property to the lessee by the end of the lease term.
B The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the
. leased property, net of lessor's investment tax credit.
C. The lease contains an option to purchase the leased property at a bargain price.
D. The lease contains an option to renew.
E. The lease term is equal to or greater than 75 percent of the estimated economic life of the leased
property.

12. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will
be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual
payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of
the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from
appropriated funds of the General Fund.
What should be recorded in the General Fund on the date the lease is signed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
13. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will
be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual
payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of
the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from
appropriated funds of the General Fund.
What should be recorded in the General Fund one year from the date the lease is signed?

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

14. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will
be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual
payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of
the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from
appropriated funds of the General Fund.
What entry should be made for the government-wide financial statements on the date the lease is signed?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
15. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will
be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual
payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of
the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from
appropriated funds of the General Fund.
What entry should be made for the government-wide financial statements one year from the date the lease
is signed?

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

16. Which of the following is a section of the general purpose external financial statements of a state or local
government?
(1) Management's discussion and analysis (MD&A).
(2) Required supplementary information (other than MD&A).
(3) Basic financial statements and notes to financial statements.
A. 1 and 2.
B. 2 and 3.
C. 1 and 3.
D. 3 only.
E. 1, 2, and 3.
17. Which of the following must be presented in the MD&A of a government?
A. A brief discussion of the basic financial statements.
B. Total assets.
C. Total liabilities.
D. Net assets.
E. An organization chart of government officials.
18. What are the three broad sections of a state or local government's CAFR?
A. Introductory, financial, and statistical.
B. Financial statements, notes to the financial statements, and component units.
C. Introductory, statistical, and component units.
D. Component units, financial, and statistical.
E. Financial statements, notes to the financial statements, and statistical.
19. Which of the following is a financial statement of a proprietary fund?
A. Balance sheet.
B. Statement of Operations.
C. Statement of Changes in Cash Flows.
D. Statement of Net Assets.
E. Statement of Revenues, Expenditures, and Changes in Fund Balance.
20. Which criteria must be met to be considered a special purpose government?
(1.) Have a separately elected governing body
(2.) Be legally independent
(3.) Be fiscally independent
A. 1 only.
B. 1 and 2.
C. 2 and 3.
D. 1 and 3.
E. 1, 2, and 3.
21. Which statement is false regarding the government-wide Statement of Net Assets?
A. the purpose of the Statement of Net Assets is to report the economic resources of the government as a
whole.
B. assets are reported excluding capital assets.
C. capital assets are reported net of depreciation.
D. investments are reported at fair value rather than historical cost.
E. Business-type activities include Enterprise Funds.
22. Which item is not included on the government-wide Statement of Activities?
A. revenues.
B. expenses.
C. assets.
D. operating grants.
E. capital contributions.

23. Which statement is false regarding the Balance Sheet for Fund Financial Statements?
A. The Balance Sheet for Fund Financial Statements measures only current financial resources of the
governmental entity.
B. The Balance Sheet for Fund Financial Statements uses the modified accrual method for timing
purposes.
C. Capital Assets are not reported on the Balance Sheet for Fund Financial Statements.
D.The Balance Sheet for Fund Financial Statements measures only long-term financial resources of the
governmental entity.
E. Long-term debts are not reported on the Balance Sheet for Fund Financial Statements.
24. The city operates a public pool where each person is assessed a $2 entrance fee. Which fund is most
appropriate to record these revenues?
A. General Fund.
B. Enterprise Fund.
C. Special Revenue Fund.
D. Internal Service Fund.
E. Capital Projects Fund.
25. Which statement is false regarding the Statement of Revenues, Expenditures, and Changes in Fund
Balance when it is included with government-wide financial statements?
A.The Statement of Revenues, Expenditures, and Changes in Fund Balance uses the modified accrual
method for timing purposes.
B The Statement of Revenues, Expenditures, and Changes in Fund Balance presents revenues as either
. program revenues or general revenues.
C.A presentation reconciles the change in governmental fund balance to the change in net assets for
governmental activities.
D. Other financing sources are presented on the Statement of Revenues, Expenditures, and Changes in
Fund Balance.
E. All non-major funds are combined and reported together.
26. A city starts a solid waste landfill during 2012. When the landfill was opened the city estimated that it
would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which
will not be paid until the facility is closed. At the end of 2012, the facility was 20% full, and at the end of
2013 the facility was 45% full. On government-wide financial statements, which of the following are the
appropriate amounts to present in the financial statements for 2013?
A. Both expense and liability will be zero.
B. Expense will be $300,000 and liability will be $600,000.
C. Expense will be $600,000 and liability will be $600,000.
D. Expense will be $675,000 and liability will be $600,000.
E. Expense will be $375,000 and liability will be $675,000.
27. A city starts a solid waste landfill during 2012. When the landfill was opened the city estimated that it
would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which
will not be paid until the facility is closed. At the end of 2012, the facility was 20% full, and at the end
of 2013 the facility was 45% full. If the landfill is judged to be a governmental fund, what liability is
reported on the fund financial statements at the end of 2013?
A. $0.
B. $300,000.
C. $375,000.
D. $600,000.
E. $675,000.

28. The employees of the City of Raymond earn vacation compensation that totals $1,500 per week. During
2013, $30,000 in vacation time was taken and the remainder is expected to be used during the latter part
of next year. In the government-wide financial statements, assuming there was no beginning balance,
what liability should be reported at the end of 2013?
A. $0.
B. $1,500.
C. $30,000.
D. $48,000.
E. $78,000.
29. The employees of the City of Raymond earn vacation compensation that totals $1,500 per week. During
2013, $30,000 in vacation time was taken and $48,000 is expected to be used during the latter part of next
year. On fund financial statements, what liability should be reported at the end of 2013?
A. $0.
B. $1,500.
C. $30,000.
D. $48,000.
E. $78,000.
30. The Town of Conway opened a solid waste landfill in 2001 that is now filled to capacity. The city
initially anticipated closure costs of $2 million. These costs were not expected to be incurred until the
landfill is closed. What is the final journal entry to record these costs assuming the estimated $2 million
closure costs were properly recorded and the landfill is accounted for in an enterprise fund?

A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
31. What three criteria must be met to identify a governmental unit as a primary government?

32. What three criteria must be met before a governmental unit can elect to not capitalize and therefore report
a work of art or historical treasure as an asset?

33. What are the three broad sections of a state or local government's CAFR?

34. What information is required in the introductory section of a state or local government's CAFR?

35. What information is required in the financial section of a state or local government's CAFR?

36. What is meant by the term fiscally independent?

37. What is meant by the term legally independent?

38. How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash
Flows for a for-profit business?

39. Prepare the journal entries for the above transactions in the general fund, on the dates mentioned for each
lettered item, for the purposes of preparing the fund financial statements.
The City of Wetteville has a fiscal year ending June 30. Examine the following transactions for
Wetteville:
(A.) On 6/1/13, Wetteville enters into a 5-year lease on a copying machine. The lease meets the criteria
of a capital lease and carries an implied interest rate of 10%. The copier has a present value of $2,300.
Wetteville has to put a $300 down payment on the lease at the beginning of the lease with monthly
payments thereafter of $42.49.
(B.) On 6/5/13, Wetteville opens a new landfill. The engineers estimate that at the end of 10 years the
landfill will be full. Estimated costs to close the landfill are currently at $3,500,000.
(C.) On 6/18/13, Wetteville receives a donation of a vintage railroad steam engine. The engine will be put
on display at the local town park. A fee will be charged to actually climb up into the engine. The engine
has been valued at $500,000.
(D.) On 6/30/13, Wetteville makes its first payment on the leased copier. The $42.49 payment includes
$16.68 interest.
(E.) On 6/30/13, Wetteville estimates that the landfill is 2% filled.
Required:

40. Prepare the journal entries for the above transactions, on the dates mentioned for each lettered item, for
the purposes of preparing the government-wide financial statements.
The City of Wetteville has a fiscal year ending June 30. Examine the following transactions for
Wetteville:
(A.) On 6/1/13, Wetteville enters into a 5-year lease on a copying machine. The lease meets the criteria
of a capital lease and carries an implied interest rate of 10%. The copier has a present value of $2,300.
Wetteville has to put a $300 down payment on the lease at the beginning of the lease with monthly
payments thereafter of $42.49.
(B.) On 6/5/13, Wetteville opens a new landfill. The engineers estimate that at the end of 10 years the
landfill will be full. Estimated costs to close the landfill are currently at $3,500,000.
(C.) On 6/18/13, Wetteville receives a donation of a vintage railroad steam engine. The engine will be put
on display at the local town park. A fee will be charged to actually climb up into the engine. The engine
has been valued at $500,000.
(D.) On 6/30/13, Wetteville makes its first payment on the leased copier. The $42.49 payment includes
$16.68 interest.
(E.) On 6/30/13, Wetteville estimates that the landfill is 2% filled.
Required:

41. What amount of net revenue (or expense) should be reported by the fund that was used to account for
parking operations assuming the preparation of government-wide financial statements?
The parking garage and parking lots owned by the City of Danton reported the following balances for
2013:

Required:

42. Prepare the journal entries for these transactions that are necessary to prepare government-wide financial
statements.
The City of Nextville operates a motor pool serving all city-owned vehicles. The motor pool bought a
new garage by paying $29,000 in cash and signing a note with the local bank for $280,000. Subsequently,
the motor pool performed work for the police department at a cost of $17,000, which had not yet been
collected. Depreciation on the garage amounted to $20,000. The first $12,000 payment made on the note
included $4,800 in interest.
Required:

43. Prepare the journal entry/entries for the two transactions for the purposes of preparing the fund financial
statements.
The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building.
During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds
in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city.
Required:

44. Prepare the journal entry/entries for the two transactions for the purposes of preparing the governmentwide financial statements.
The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building.
During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds
in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city
and the city has appropriately decided to record this painting as an asset.
Required:

45. The Town of Wakefield opened a solid waste landfill in 2012 that was at 20% capacity on December
31, 2012 and at 50% capacity on December 31, 2013. The city initially anticipated closure costs of $2.3
million but in 2013 revised the estimate of the closure costs to be $2.7 million. None of these costs will
be incurred until the landfill is scheduled to be closed.
What is the journal entry that should be recorded on December 31, 2013 for Government-wide Financial
Statements?

46. The Town of Wakefield opened a solid waste landfill in 2012 that was at 20% capacity on December
31, 2012 and at 50% capacity on December 31, 2013. The city initially anticipated closure costs of $2.3
million but in 2013 revised the estimate of the closure costs to be $2.7 million. None of these costs will
be incurred until the landfill is scheduled to be closed.
Assuming the landfill is recorded within the General fund, what is the journal entry that should be
recorded in the Fund Financial Statements on December 31, 2013?

47. The Town of Portsmouth has at the beginning of the year a $213,000 Net Asset balance, and a $52,000
Fund Balance.
The following information relates to the activities within the Town of Portsmouth for the year of 2013.

Prepare a Statement of Revenues, Expenditures and Changes in Fund Balances

48. The Town of Portsmouth has at the beginning of the year a $213,000 Net Asset balance, and a $52,000
Fund Balance.
The following information relates to the activities within the Town of Portsmouth for the year of 2013.

Prepare a Statement of Net Assets

49. The Town of Portsmouth has at the beginning of the year a $213,000 Net Asset balance, and a $52,000
Fund Balance.
The following information relates to the activities within the Town of Portsmouth for the year of 2013.

Prepare a Statement of Activities

10.

11.

2. E

12.

3. B

13.

4. C

14.

5. D

15.

6. B

16.

7. B

17.

8. D

18.

9. A

19.

1. D

20.
E

12 Key

21.
B
22.
C
23.
D
24.
B
25.
B
26.
E
27.
A
28.
D
29.
A
30.
D
(3.) It must be fiscally independent of other state and local governments.
(2.) It must be legally independent which can be demonstrated by having corporate powers such as the right to sue and be sued in its own name as
well as the right to buy, sell, and lease property in its own name.
(1.) It must have a separately elected governing body.
31.
To be considered a primary government, the unit must meet the following 3 criteria:

(3.) It must be subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for
collections.
(2.) It must be protected, kept unencumbered, cared for, and preserved.
(1.) It must be held for public exhibition, education, or research in furtherance of public service, rather than financial gain.
32.
Before a governmental unit can elect to not record a work of art or a historical treasure as an asset, three criteria must be met:

33.

The introductory section, the financial section, and the statistical section.

34.

A letter of transmittal from appropriate government officials, an organization chart, and a list of principal officers.

35. The financial section of a CAFR must include the auditor's report, Management's Discussion and Analysis (MD&A), the basic financial
statements, and Required Supplementary Information other than MD&A (RSI).
36. Fiscally independent means that the leadership of a governing body is able to determine the activity's budget, levy taxes, set rates or issue debt
without having to seek the approval of an outside party.
37. Legal independence is demonstrated by having corporate powers such as the right to sue and be sued, the right to buy, sell and lease property in
its own name.
38. The statement of cash flows for a proprietary fund is very similar to the statement of cash flows for a for-profit business. Two sections are
similar including the cash flows from operating activities and cash flows from investing activities. The cash flows from financing activities are
reported differently than for profit businesses and are split into two sections when reporting for a Proprietary Fund. These two sections specify the
cash flows from noncapital financing and cash flows from capital and related financing activities. The statement of cash flows for a proprietary
fund is different from the cash flow statement for a for-profit business in that GASB requires the direct method of presenting cash flows from
operating activities, with a reconciliation to net operating income. At this time, GAAP for the cash flow statement for a for-profit business gives
the option of presenting cash flows from operating activities using either the direct or the indirect method.

39.

40.

Entries for Fund Financial Statements

41. Danton's net revenue coming from the proprietary fund for parking garages and parking lots is determined as follows:

42. Entries for government-wide financial statements

No entry in General Fund for second transaction - does not represent a change in current financial resources.
43.

44. Government-wide Financial Statements - Government Activities:

45.

46. There is nothing recognized at the end of 2013 because there is not a claim to any current financial resources.

47.
48.

49.

12 Summary
Category
AACSB: Analytic
AACSB: Reflective thinking
Accessibility: Keyboard Navigation
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Blooms: Analyze
Blooms: Apply
Blooms: Remember
Blooms: Understand
Difficulty: 1 Easy
Difficulty: 2 Medium
Difficulty: 3 Hard
Hoyle - Chapter 12
Learning Objective: 12-01 Account for lease contracts where the state or local government finds itself as either lessor or lessee.
Learning Objective: 1202 Recognize the liability caused by the eventual closure and postclosure costs of operating a solid waste landfill as well as for the
compensated absences earned by government employees.
Learning Objective: 12-04 Record the donation and acquisition of works of art and historical treasures.
Learning Objective: 12-05 Explain the reporting and possible depreciation of infrastructure assets.
Learning Objective: 1206 Understand the composition of a state or local governments comprehensive annual financial report (CAFR).

# of Questions
22
27
25
49
35
14
4
19
21
5
20
21
8
49
9
10

6
1
7

Learning Objective: 12-07 Explain the makeup of a primary government and its relationship to component units.
Learning Objective: 12-08 Describe the physical structure of a complete set of governmentwide financial statements and a complete set of fund financial statements.

6
13

Learning Objective: 12-09 Understand the presentation of financial statements for a public college or university.
Topic: Acquisitions; Mergers; and Transfers of Operations
Topic: Capital Leases
Topic: Comprehensive Annual Financial Report
Topic: Government-Wide and Fund Financial Statements Illustrated
Topic: Infrastructure Assets and Depreciation
Topic: Primary Government
Topic: Reporting Public Colleges and Universities
Topic: Solid Waste Landfill
Topic: Works of Art and Historical Treasures

1
6
9
7
13
1
6
1
10
6