Chapter 4

Accounting for the General and Special Revenue Funds

Multiple Choice

Exercise 1: For each of the following, select the letter corresponding with the best answer.

1. Which of the following would not be an example of a nonexchange transaction?

a. Property taxes.
b. Fines and forfeits.
c. Charges of services.
d. Sales taxes.

2. Which of the following would be an example of a derived tax revenue?

a. Sales taxes.
b. Income taxes.
c. Both of the above.
d. Neither of the above.

3. Which of the following revenues of the General Fund are usually recorded before they are
actually received?
a. Sales taxes.
b. Property taxes.
c. Fines and Penalties.
d. Parking meter receipts.

4. Which of the following will increase the fund balance of a governmental unit at the end of a
fiscal year?
a. Estimated revenues are less than expenditures and reserve for encumbrances.
b. Appropriations are less than expenditures and encumbrances.
c. Revenues are greater than expenditures and encumbrances.
d. Appropriations are greater than estimated revenues.

5. In which of the following circumstances should deferred revenues to be recorded in the

General Fund?
(1) Property tax bills are mailed and a receivable is recorded in advance of the year for
which they are levied.
(2) Business license fees are collected in advance of the year for which they apply.
a. (1) only.
b. (2) only.
c. Both (1) and (2) above.
d. Neither (1) and (2) above.
6. The budget of the General Fund of the City of Memphis shows an appropriation for capital
equipment of $200,000. So far a truck, costing $60,000, has been received and paid for.
Another truck, expected to cost $70,000, has been ordered and an encumbrance for this
amount is outstanding. How much can the city legally spend for a third truck this year?
a. $140,000.
b. $130,000.
c. $70,000.
d. $0.

7. Charles County received the following proceeds that are legally restricted:
Taxes assessments to install sidewalks $2,000,000
Motel taxes to promote tourism 400,000
What amount should be reported in the County’s special revenue funds?
a. $2,400,000
b. $2,000,000
c. $ 400,000
d. $0

8. Which of the following is true regarding modified accrual accounting?

a. Modified accrual accounting is required for all fund financial statements.
b. Modified accrual accounting requires that all expenditures be recognized on the accrual
basis.
c. Both of the above are true.
d. Neither of the above is true.

9. Which of the following is true regarding modified accrual accounting?

a. Expenditures should generally be recognized for activities normally paid out of
governmental fund resources even if those resources are not available at the present
time.
b. Expenditures for compensated absences should be computed on the accrual basis and the
entire amount shown as a governmental fund liability.
c. Both of the above are true.
d. Neither of the above is true.

10. Which of the following is true regarding modified accrual accounting?

a. Debt service expenditures for principal and interest are generally recorded when due and
are not accrued at year-end.
b. If a government has resources available in a debt service fund at year-end, an
expenditure may be accrued as long as the maturity date is no longer than one month
from the end of the year.
c. Both of the above are true.
d. Neither of the above is true.
Exercise 2: For each of the following, select the letter corresponding with the best answer.

1. Brownville adopted its budget for the fiscal year ending June 30 with $5,000,000 for
estimated revenues. Actual revenues for the year were $4,900,000. In closing the budgetary
accounts for the year,
a. Revenues Control will be debited for $100,000.
b. Estimated Revenues Control will be debited for $100,000.
c. Revenues Control will be debited for $4,900,000.
d. Estimated Revenues Control will be credited for $5,000,000.

2. For the coming budgetary year Johnson County’s General Fund expects the following inflow
of resources:
Property taxes, licenses and fines $7,000,000
Proceeds of debt issue 2,000,000
Interfund transfer from enterprise fund 600,000

In the budgetary entry, what amount should Johnson County record for Estimated Revenues:
a. $9,600,000
b. $7,000,000
c. $9,000,000
d. $7,600,000

3. Tom City received equipment that had been approved for purchase (i.e., purchase order) by
the General fund earlier that same fiscal year. Payment is due in 30 days. What effect will
receipt of the equipment have on the following accounts?
Encumbrances Expenditures
a. Decrease Increase
b. Decrease No effect
c. No effect Increase
d. No Effect No effect

4. The City of Elmwood reported the following for the fiscal year ended Dec. 31, 2017:
Purchase orders authorized by appropriations
and outstanding as of December 31, 2017 $300,000
Expenditures authorized by 2017 appropriations $2,900,000
Expenditures authorized by 2016 appropriations $200,000
Unencumbered and unexpended balance of
2017 appropriations $500,000

Assume that appropriations do not lapse. What amount would be reported for Expenditures
(and Encumbrances, if appropriate) in the Statement of Revenues, Expenditures and Changes
in Fund Balances?
a. $2,900,000
b. $3,100,000
c. $3,200,000
d. $3,400.000
5. A government recognizes property tax revenue early as GASB permits. Property taxes levied
in 2016 should be reported as General Fund revenues in fiscal year 2017:
a. For the amount collected in 2017 only.
b. For the amount collected in 2016 and 2017 only.
c. For the amount expected to be collected in 2017 after 60 days.
d. Regardless of the fiscal year in which they are collected.

6. York County estimated 2 percent of its property taxes would by uncollectible. During the
year, the County wrote off several accounts. Assuming the 2 percent estimate is still deemed
to be appropriate at year-end, what effect will the recording of an allowance for estimated
uncollectible taxes receivable and the subsequent write-offs have on the following?
Revenues Expenditures
a. Decrease Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect

7. West Bend County created a special revenue fund, the Summer Employment Grant Fund, to
account for the proceeds of a federal grant for summer youth employment. During the year
ended June 30, 2017, the County received an award for this reimbursement grant in the
amount of $1,000,000. Grant expenditures were in June 2017, $300,000; in July 2017,
$350,000; and in August 2017, $350,000. The cash was received from the federal
government on August 31, 2017. How much revenue should be recognized in the special
revenue fund for the year ended June 30, 2017?
a. $0
b. $1,000,000
c. $ 300,000
d. $ 650,000

8. Which of the following legally restricted revenues should be accounted for in a special
revenue fund?
a. Taxes restricted for payment of long-term debt.
b. Income earned on investments held for a government’s pension plan.
c. Federal government grant to upgrade security equipment at a city’s airport (an enterprise
fund).
d. None of the above.

9. A Budgetary Fund Balance—Reserved for Encumbrances (current year) in excess of a

balance of Encumbrances Control indicates:
a. An excess of Vouchers Payable over Encumbrances Control.
b. An excess of purchase orders over invoices received.
c. An excess of Appropriations Control over Encumbrances Control.
d. A recording error.
10. In the first month of the fiscal year, Kent City borrowed $2,000,000 on tax anticipation
notes. Two months later, property tax collections were used to play off the note. What effect
will the borrowing and subsequent payment of the tax anticipation notes have on the
following General Fund accounts:
Other Financing Sources Expenditures
a. Decrease Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect