Deck 5: Recognizing Expenditures in Governmental Funds

Question 1

Compensated absences, such as vacation pay and sick leave, should be accounted for on the accrual basis in governmental funds.

Answer 1

False

Question 2

As used in government accounting, expenditures are decreases in

A) Net assets.
B) Net current financial resources.
C) Net cash.
D) Net economic resources.

Answer 2

B

Question 3

If recording a general long-term liability in a governmental fund upon issuing a bond, the credit should be to a bonds payable account.

Answer 3

False

Question 4

In budgeting for governmental funds, governments appropriate the resources for general capital assets in the periods when they are to be purchased, not in the periods in which the assets will be used.

Question 5

Capital assets acquired are recorded as an expenditure of their total value in the year that they are purchased.

Question 6

A transfer of cash from the general fund to a debt service fund to pay interest on debt should be recorded in the general fund as a nonreciprocal transfer-out.

Question 7

Government-wide statements present revenues and expenses from the perspective of the government, not of individual funds.

Question 8

Per GASB standards, governments must report general capital assets or depreciation in governmental funds.

Question 9

Governmental fund liabilities are considered current only when they must be liquidated with expendable available financial resources

Question 10

Which of the following funds would use the accrual basis of accounting in preparing its fund financial statements?

A) City General Fund.
B) City Hall Capital Projects Fund.
C) City Motor Pool Internal Service Fund.
D) None of the above.

Question 11

When accounting for inventory items in a governmental fund, a reclassification of the appropriate portion of fund balance as nonspendable is always required when the consumption method is used.

Question 12

Which of the following funds would use the modified accrual basis of accounting in preparing its fund financial statements?

A) City Electric Utility Enterprise Fund.
B) City Hall Capital Projects Fund.
C) City Motor Pool Internal Service Fund.
D) City Employee Pension Trust Fund.

Question 13

When accounting for inventory items in a governmental fund, GASB standards permit the use of the consumption method only.

Question 14

Proceeds of debt intended to finance general capital assets should be reported in the fund financial statements as a fund liability.

Question 15

Prepaid expenses such as for insurance are classified as deferred outflows, rather than as assets.

Question 16

Use of the consumption method of accounting for inventory is not acceptable for the fund financial statements.

Question 17

Most governments budget (appropriate) resources for principal and interest only for the period in which a payment is due-not for future payments.

Question 18

Expenditures are generally recognized when resources are acquired; expenses when resources are consumed.

Question 19

The purchases method is consistent with full accrual basis of accounting.

Question 20

In a governmental fund, expenditures for wages and salaries should be recognized in the period in which the employees receive their paychecks.

Question 21

Employees of the general fund of Scott City earn ten days of vacation for each 12 months of employment. The city permits employees to carry the vacation days forward as long as they wish. During the current year employees earned $800,000 of vacation benefits, of which the city estimates $500,000 will be taken in the next year and the balance will be carried forward. Assuming that the city maintains its books and records in a manner that facilitates the preparation of fund financial statements, which of the following entries should be made in the general fund to record the vacation pay earned during the current period?

A) Debit Expenditures $800,000; credit Vacation pay payable $800,000.
B) Debit Expenditures $500,000; credit Vacation pay payable $500,000.
C) Debit Vacation expense $800,000; credit Vacation pay payable $800,000.
D) No entry required.

Question 22

State University, a very large public university, has a policy of granting faculty members a one-year sabbatical leave after a period of seven years of continuous employment. The leave is to be used for further study, research, or service. During the fiscal year ended 6/30/18, the university paid $3 million to faculty members on sabbatical leave and estimated that faculty members currently not on sabbatical leave earned $3.5 million toward sabbatical leaves they are likely to take in the future. The amount of sabbatical expenditures for the year ended 6/30/18 should be

A) $0 million.
B) $3 million.
C) $3.5 million.
D) $6.5 million.

Question 23

Employees of the general fund of Scott City earn ten days of vacation for each 12 months of employment. The city permits employees to carry the vacation days forward as long as they wish. During the current year employees earned $800,000 of vacation benefits, of which the city estimates $500,000 will be taken in the next year and the balance will be carried forward. Assuming that the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?

A) Debit Expenditures $800,000; credit Vacation pay payable $800,000.
B) Debit Expenditures $500,000; credit Vacation pay payable $500,000.
C) Debit Vacation expense $800,000; credit Vacation pay payable $800,000.
D) No entry required.

Question 24

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment. The city has a policy that employees must take their vacation days during the year following the year in which they are earned. If they do not take vacation in the allotted period, they forfeit the vacation pay benefit. Traditionally, employees have taken 80 percent of the vacation days earned. During the current year, city employees earned $600,000 in vacation pay. Assuming the city maintains its books and records in a manner to facilitate the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?

A) Debit Expenditures $600,000; credit Vacation payable $600,000.
B) Debit Expenses $600,000; credit Vacation payable $600,000.
C) Debit Expenses $480,000; credit Vacation payable $480,000.
D) No entry required.

Question 25

State Community College, a public college, grants faculty members a one-year sabbatical leave after each seven years of service. There are no requirements for research, study, or service during the compensated sabbatical leave. A particular faculty member earns $40,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of fund financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical?

A) Debit Expenditures $40,000; Credit Cash $40,000.
B) Debit Sabbatical leave payable $40,000; Credit Cash $40,000.
C) Debit Expenditures $40,000; Credit Sabbatical leave payable $40,000.
D) No entry required.

Question 26

The amount of pension expenditures that a government should recognize in its general fund financial statements during the current year is

A) The amount paid.
B) The amount paid plus the amount that will be paid with available expendable financial resources.
C) The amount paid so long as it does not exceed the contractually agreed amount.
D) The contractually agreed amount.

Question 27

State Community College, a public college, grants faculty members a one-year sabbatical leave after each seven years of service. There are no requirements for research, study, or service during the compensated sabbatical leave. A particular faculty member earns $40,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of government-wide financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical?

A) Debit Expenses $40,000; Credit Cash $40,000.
B) Debit Sabbatical leave payable $40,000; Credit Cash $40,000.
C) Debit Expenditures $40,000; Credit Cash $40,000.
D) No entry required.

Question 28

This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the icy City Hall steps. The city attorney estimates the city will be held liable by the courts and a judgment of $300,000 will result. Because of the nature of the case it will likely be four years before the city makes any payment related to the accident. The present value of the likely future payment is $251,000. In the general fund, at the end of the current fiscal year, Port City should recognize a liability of

A) $300,000.
B) $251,000.
C) $0.
D) $75,000.

Question 29

The amount of pension expense that a government should recognize in its government-wide financial statements during the current year is

A) The amount paid.
B) The amount paid plus the amount that will be paid with available expendable financial resources.
C) The amount paid so long as it does not exceed the contractually agreed amount.
D) The contractually agreed amount.

Question 30

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
The amount of sick leave expense that should appear on the government-wide financial statements for the fiscal year ended 6/30/18 is

A) $2.8 million.
B) $2.6 million.
C) $1.2 million.
D) $1.4 million.

Question 31

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
The amount of sick leave liability that should appear on the general fund balance sheet at 6/30/18 is

A) $1.2 million.
B) $0.4 million.
C) $0.2 million.
D) No liability should appear.

Question 32

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its government-wide financial statements. The city pays its employees bi-weekly on Friday. The fiscal year ended on Wednesday, June 30. Employees had been paid on Friday, June 25. The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). They will earn $60,000 on Thursday and Friday (July 1 and 2). What entry, if any, should be made on the government-wide financial statements?

A) Debit Expenditures $90,000; credit Accrued wages and salary $90,000.
B) Debit Expenses $90,000; credit Accrued wages and salary $90,000.
C) Debit Expenditures $90,000; credit Encumbrances $90,000.
D) Debit Expenses $90,000; credit Encumbrances $90,000.

Question 33

State University, a public university, has a policy of granting faculty members a one-year paid sabbatical leave after a period of seven years continuous employment. The leave is for further study, research, or public service. A particular faculty member earns $90,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of fund financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical leave?

A) Debit Expenditures $90,000; Credit Cash $90,000.
B) Debit Expenses $90,000; Credit Cash $90,000.
C) Debit Sabbatical leave payable $90,000; Credit Cash $90,000.
D) No entry required.

Question 34

Culver City recognizes as revenues/expenditures those amounts collected/paid during the year or within 60 days of fiscal year-end. The city offers a pension benefit to its employees who meet certain age and years of employment criteria. The city participates in the State Pension Plan. Per its contractual arrangement, the city's required contribution to the State Pension Plan for the fiscal year ended 6/30/18 is $5 million. Due to cash inflow shortages the city, which budgeted $5 million for pension contributions, paid only $4 million in the fiscal year ended 6/30/18. The city paid the remaining amount on September 30, 2018. Assuming the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements, how should the city record the pension contribution and any associated liability for the year ended 6/30/18?

A) Debit Expenditures $5 million; Credit Cash $4 million and Pension payable $1 million.
B) Debit Expenses $5 million; Credit Cash $4 million and Pension payable $1 million.
C) Debit Expenditures $4 million; Credit Cash $4 million.
D) Debit Expenses $4 million; Credit Cash $4 million.

Question 35

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its fund financial statements. The city pays its employees bi-weekly on Friday. The fiscal year ended on Wednesday, June 30. Employees had been paid on Friday, June 25. The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). What entry, if any, should be made in the city's general fund on June 30?

A) Debit Expenditures $90,000; credit Accrued wages and salary $90,000.
B) Debit Expenses $90,000; credit Accrued wages and salary $90,000.
C) Debit Expenditures $90,000; credit Encumbrances $90,000.
D) Debit Expenses $90,000; credit Encumbrances $90,000.

Question 36

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
The amount of sick leave expenditures that should appear on the general fund financial statements for the fiscal year ended 6/30/18 is

A) $1.4 million.
B) $1.3 million.
C) $0.6 million.
D) $1.0million.

Question 37

Culver City recognizes as revenues/expenditures those amounts collected/paid during the year or within 60 days of fiscal year-end. The city offers a pension benefit to its employees who meet certain age and years of employment criteria. The city participates in the State Pension Plan. Per its contractual arrangement, the city's required contribution to the State Pension Plan for the fiscal year ended 6/30/18 is $5 million. Due to cash inflow shortages the city, which budgeted $5 million for pension contributions, paid only $4 million in the fiscal year ended 6/30/18. The city paid the remaining amount on September 30, 2018. Assuming the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, how should the city record the pension contribution and any associated liability for the year ended 6/10/18?

A) Debit Expenditures $5 million; Credit Cash $4 million and Pension contribution payable $1 million.
B) Debit Expenses $5 million; Credit Cash $4 million and Pension contribution payable $1 million.
C) Debit Expenditures $4 million; Credit Cash $4 million.
D) Debit Expenses $4 million; Credit Cash $4 million.

Question 38

State University, a public university, has a policy of granting faculty members a one-year paid sabbatical leave after a period of seven years continuous employment. The leave is for further study, research, or public service. A particular faculty member earns $90,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of government-wide financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee's salary paid while on sabbatical leave?

A) Debit Expenditures $90,000; Credit Cash $90,000.
B) Debit Expenses $90,000; Credit Cash $90,000.
C) Debit Sabbatical leave payable $90,000; Credit Cash $90,000.
D) No entry required.

Question 39

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken.
The amount of sick leave liability that should appear on the government-wide financial statements at 6/30/18 is

A) $1.2 million.
B) $0.4 million.
C) $0.2 million.
D) No liability should appear.

Question 40

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment. The city has a policy that employees must take their vacation days during the year following the year in which they are earned. If they do not take vacation in the allotted period, they forfeit the vacation pay benefit. Traditionally, employees have taken 80 percent of the vacation days earned. During the current year, city employees earned $600,000 in vacation pay. Assuming the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, which of the following entries should be made in the general fund to record the vacation pay earned during the current period?

A) Debit Expenditures $600,000; credit Vacation pay payable $600,000.
B) Debit Expenses $600,000; credit Vacation pay payable $600,000.
C) Debit Expenditures $480,000; credit Vacation pay payable $480,000.
D) No entry required.

Question 41

Bay City uses the purchases method to account for supplies. At the beginning of the year the city had no supplies on hand. During the year the city purchased $600,000 of supplies for use by activities accounted for in the general fund. The city used $400,000 of those supplies during the year. Assuming that the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements, at fiscal year-end the appropriate account balances related to supplies expenditures and supplies inventory would be

A) Expenditures $600,000; Supplies inventory $200,000.
B) Expenditures $600,000; Supplies inventory $0.
C) Expenditures $400,000; Supplies inventory $200,000.
D) Expenditures $400,000; Supplies inventory $0.

Question 42

Several years ago, Grant County was sued by a former county employee for wrongful discharge. Although it was to be contested by the county, at the time of the lawsuit the attorneys believed that the county was likely to lose and the estimated amount of the ultimate judgment would be $100,000. This year, the case was finally settled with a judgment against the county of $150,000, which was paid. Assuming that the county maintains its books and records in a manner to facilitate the preparation of its government-wide financial statements, the entry in the current year should be

A) Debit Expenditures $150,000; Credit Cash $150,000.
B) Debit Expenses $150,000; Credit Cash $150,000.
C) Debit Expenditures $50,000 and Claims payable $100,000; Credit Cash $150,000.
D) Debit Expenses $50,000 and Claims payable $100,000; Credit Cash $150,000.

Question 43

Star City leased a bulldozer for use in activities accounted for in the general fund. The city paid $40,000 and agreed to pay $40,000 per year for 3 years. The bulldozer has a useful life of six years. The lease qualified as a capital lease. Assuming that the city maintains is books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the general fund at the date of acquisition would be

A) Debit Expenditures $160,000; Credit Cash $40,000 and Other financing sources $120,000.
B) Debit Expenditures $40,000 and Prepaid lease $120,000; Credit Cash $40,000 and Other financing sources $120,000.
C) Debit Equipment $160,000; Credit Cash $40,000 and Other financing sources $120,000.
D) Debit Expenditures $160,000; Credit Cash $40,000 and Lease payable $120,000.

Question 44

Pocahontas School District, an independent public school district, financed the acquisition of a new school bus by signing a note for $105,000 plus interest on the unpaid balance at 6 percent. Annual principal payments of $35,000, plus interest, are due each July 1. Assuming that the district maintains its books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the general fund at the date of acquisition is

A) Debit Expenditures $105,000; Credit Notes payable $105,000.
B) Debit Capital assets $105,000; Credit Notes payable $105,000.
C) Debit Expenditures $105,000; Credit Other financing sources $105,000.
D) Debit Capital assets $105,000; Credit Other financing sources $105,000.

Question 45

Shoshone County uses the consumption method to account for supplies. At the beginning of the year the city had no supplies on hand. During the year the city purchased $450,000 of supplies for use by activities accounted for in the general fund. The city used $300,000 of those supplies during the year. At fiscal year-end, the appropriate account balances on the general fund financial statements would be

A) Expenditures $450,000; Supplies inventory $150,000.
B) Expenditures $450,000; Supplies inventory $0.
C) Expenditures $300,000; Supplies inventory $150,000.
D) Expenditures $300,000; Supplies inventory $0.

Question 46

Campbell County uses the consumption method to record all inventories and prepayments. The County has a 9/30 fiscal year-end. On April 1, 2018, the county purchased a two-year insurance policy at a total cost of $400,000, paying for the policy out of the general fund. In the fund financial statements, the amount of insurance expenditures for the fiscal year ended 9/30/18 would be

A) $400,000.
B) $300,000.
C) $200,000.
D) $100,000.

Question 47

Banker County has outstanding $4 million of term bonds that bear interest at 6 percent payable semiannually each January 30 and July 30. The county's fiscal year-end is 12/31. On December 28, 2018, the County transferred $240,000 to a debt service fund. At December 31, the maximum amount the debt service fund may recognize as interest expenditure is

A) $120,000
B) $240,000.
C) $100,000.
D) $0.

Question 48

The City of Holbrook transferred $100,000 from the general fund to a debt service fund for payment of interest. The appropriate entry in the general fund to record this transfer would be

A) Debit Expenditures $100,000; Credit Cash $100,000.
B) Debit Nonreciprocal transfer-out $100,000; Credit Cash $100,000.
C) Debit Fund balance$100,000; Credit Cash $100,000.
D) Debit Reciprocal transfer-out $100,000; Credit Cash $100,000.

Question 49

Star City leased a bulldozer for use in activities accounted for in the general fund. The city paid $40,000 and agreed to pay $40,000 per year for 3 years. The bulldozer has a useful life of six years. The lease qualified as a capital lease. Assuming that the city maintains is books and records in a manner that facilitates the preparation of the government-wide financial statements, the appropriate entry at the date of acquisition would be

A) Debit Expenditures $160,000; Credit Cash $40,000 and Other financing sources $120,000.
B) Debit Expenditures $53,333 and Prepaid lease $106,667; Credit Cash $40,000 and Other financing sources $120,000.
C) Debit Equipment $160,000; Credit Cash $40,000 and Lease payable $120,000.
D) Debit Expenditures $160,000; Credit Cash $40,000 and Lease payable $120,000.

Question 50

Sugar City uses the purchases method to record all prepayments. The city has a 6/30 fiscal year-end. On 12/31/17, the city purchased a three-year insurance policy covering all city owned vehicles acquired by the general fund to be used in general government activities. Cost of the policy was $360,000. After the 6/30/18 closing entries, the appropriate balance sheet accounts and balances in the city's general fund associated with this transaction are

A) Prepaid insurance $300,000; Expenditures $60,000.
B) Prepaid insurance $300,000; Expenditures $360,000
C) Prepaid insurance $0; Expenditures $360,000.
D) Prepaid insurance $0; Expenditures $60,000.

Question 51

Pocahontas School District, an independent public school district, financed the acquisition of a new school bus by signing a note for $105,000 plus interest on the unpaid balance at 6 percent. Annual principal payments of $35,000, plus interest, are due each July 1. Assuming that the district maintains its books and records in a manner that facilitates the preparation of the government-wide financial statements, the appropriate entry at the date of acquisition is

A) Debit Expenditures $105,000; Credit Notes payable $105,000.
B) Debit Capital assets $105,000; Credit Notes payable $105,000.
C) Debit Expenditures $105,000; Credit Other financing sources $105,000.
D) Debit Capital assets $105,000; Credit Other financing sources $105,000.

Question 52

Several years ago, Durham City issued $1 million in zero coupon bonds due and payable in 2026. The bonds were sold at an amount to yield investors 6 percent over the life of the bonds. During the current year, how much in interest expenditures should Durham City recognize related to these bonds?

A) Difference between the present value of the bonds at the beginning of the period and the present value of the bonds at the end of the period.
B) Face amounts of bonds times 6 percent.
C) Book value of bonds times 6 percent.
D) None.

Question 53

The City of Roswell has a 6/30 fiscal year-end. The city uses the consumption method for recognizing inventories and prepayments. On July 1, 2017, the city leased computer equipment for use in the city's general activities. The lease is a three-year lease that qualifies as an operating lease. The city prepaid the entire three-year rental fee of $45,000. At June 30, 2018, the appropriate account balances in the general fund associated with this transaction would be

A) Prepaid lease $0; Expenditures $45,000; Fund balance-nonspendable $0.
B) Prepaid lease $45,000; Expenditures $0; Fund balance-nonspendable $45,000.
C) Prepaid lease $30,000; Expenditures $45,000; Fund balance-nonspendable $30,000.
D) Prepaid lease $30,000; Expenditures $15,000; Fund balance-nonspendable $0.

Question 54

The City of Upper Falls accounts for its inventory using the purchases method. During the year the city bought $500,000 of supplies, for which it owed $100,000 at year-end. The city will pay for the supplies from available expendable financial resources. The entry that should be recorded in the city's general fund is

A) Debit Expenditures $500,000; Credit Cash $400,000 and Accounts payable $100,000.
B) Debit Expenditures $400,000; Credit Cash $400,000.
C) Debit Supplies inventory $500,000; Credit Cash $400,000 and Accounts payable $100,000.
D) Debit Supplies inventory $400,000; Credit Cash $400,000.

Question 55

This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the icy City Hall steps. The city attorney estimates the city will be held liable by the courts and a judgment of $300,000 will result. Because of the nature of the case it will likely be four years before the city makes any payment related to the accident. The present value of the likely future payment is $251,000. In the government-wide financial statements, at the end of the current fiscal year, Port City should recognize a liability of

A) $300,000.
B) $251,000.
C) $0.
D) $75,000.

Question 56

Shoshone County uses the consumption method to account for supplies. At the beginning of the year the city had no supplies on hand. During the year the city purchased $450,000 of supplies for use by activities accounted for in the general fund. The city used $300,000 of those supplies during the year. At fiscal year-end the appropriate account balances on the government-wide financial statements would be

A) Expenses $450,000; Supplies inventory $150,000.
B) Expenses $450,000; Supplies inventory $0.
C) Expenses $300,000; Supplies inventory $150,000.
D) Expenses $300,000; Supplies inventory $0.

Question 57

On July 1, Gilbert County bought computer equipment for use in the administrative offices of the county. The equipment has an estimated useful life of three years and salvage of $10,000. The county has a 6/30 fiscal year-end. Assuming that the county maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, the $85,000 cost of this equipment would require which of the following entries?

A) Debit Expenditures $85,000; Credit Cash $85,000.
B) Debit Equipment $85,000; Credit Cash $85,000.
C) Debit Expenses $85,000; Credit Cash $85,000.
D) No entry is required.

Question 58

Several years ago, Grant County was sued by a former county employee for wrongful discharge. Although it was to be contested by the county, at the time of the lawsuit the attorneys believed that the county was likely to lose the suit and the estimated amount of the ultimate judgment would be $100,000. This year, the case was finally settled with a judgment against the county of $150,000, which was paid. Assuming that the county maintains its books and records in a manner to facilitate the preparation of its fund financial statements, the entry in the current year should be

A) Debit Expenditures $150,000; Credit Cash $150,000.
B) Debit Expenses $150,000; Credit Cash $150,000.
C) Debit Expenditures $50,000 and Claims payable $100,000; Credit Cash $150,000.
D) Debit Expenses $50,000 and Claims payable $100,000; Credit Cash $150,000.

Question 59

The City of Hiawatha issued $10 million of term bonds as of April 1, 2017. The bonds bear interest at 6 percent, due and payable each October 1 and April 1. Assuming the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements the appropriate entity to record interest on the debt at June 30, 2018 (the city's fiscal year-end) is

A) Debit Expenditures $300,000; Credit Interest payable $300,000.
B) Debit Expenditures $300,000; Credit Other financing uses $300,000.
C) Debit Expenditures $300,000; Credit Due to bondholders $300,000.
D) No entry required.

Question 60

On July 1, Gilbert County bought computer equipment for use in the administrative offices of the county. The equipment has an estimated useful life of three years and salvage of $10,000. The county has a 6/30 fiscal year-end. Assuming that the county maintains its books and records in a manner that facilitates the preparation of fund financial statements, the $85,000 cost of this equipment would require which of the following entries?

A) Debit Expenditures $85,000; Credit Cash $85,000.
B) Debit Equipment $85,000; Credit Cash $85,000.
C) Debit Expenses $85,000; Credit Cash $85,000.
D) No entry in the city's governmental funds.

Question 61

State employees earn $10 million in vacation leave. $7 million is paid in the current year and the remaining amount is deferred to future years. Which of the following the accounts will be credited in the general fund entry and the government-wide entry?

Question 62

In the governmental fund types, expenditures are generally recognized when resources are acquired. Liabilities are generally recognized if they will be liquidated with available expendable financial resources. Define "available." Relate the definition of available to the recognition of liabilities and expenditures in governmental fund financial statements. Discuss the reporting deficiencies that are directly associated with the use of the available criterion in the governmental funds.

Question 63

The City of Holbrook transferred $100,000 from the general fund to a debt service fund for payment of interest. The appropriate entry in the debt service fund to record this transfer would be

A) Debit Cash $100,000; Credit Revenue $100,000.
B) Debit Cash $100,000; Credit Reciprocal transfer-in $100,000.
C) Debit Cash $100,000; Credit Fund balance $100,000.
D) Debit Cash $100,000; Credit Nonreciprocal transfer-in $100,000.

Question 64

During the year the City of Hamburg engaged in the following transactions. The city uses the consumption method of recording inventories and prepayments. The city has a 6/30 fiscal year end.
REQUIRED: Record the following transactions related to supplies, prepaid items and fixed asset acquisitions.
a. During the year the city purchased $600,000 of expendable supplies.
b. On September 1 the city paid $360,000 for a three-year insurance policy to cover some assets used in general government activities.
c. On December 1 the city purchased four pickup trucks for general government activities. The trucks cost $100,000 in total.
d. On January 1 the city leased some office equipment for use in the administrative offices. The lease qualified as a capital lease. The present value of the minimum lease payments is $96,000.
e. On April 1 the city leased a copying machine. The lease qualified as an operating lease. The terms of the lease require yearly payments of $2,000 each April 1 for 5 years. The city prepaid the entire five years of the lease.

Question 65

A state government has the following transactions during its fiscal year ending June 30, 2018. The state defines "available" as within 60 days after year-end.
REQUIRED: Prepare journal entries to record each of these transactions in the state's general fund. Comment on how each of these transactions would be different when reported in the state's government-wide financial statements.
a. The state issues $50 million of 30-year debt to finance renovations to its capitol building. Due to changes in interest rates, the state receives only $49.2 million in cash.
b. The state workers earn $40 million in wages during the year. However, in an effort to balance its budget, the state defers payment of $2 million in wages until July 5, 2018.
c. Required contributions for pension benefits for 2015 are $7 million, which the state transfers to its pension trust fund.
d. The state makes grants of $4.5 million based on a formula to school districts within its boundaries. The schools must use these grants to finance operating expenditures incurred during the current fiscal year.
e. The state agrees to share $6.0 million of its 2018 sales (derived tax) revenues with all towns within its boundaries based on a formula established by the legislature. The resources must be used by the towns during the state's next fiscal year (2019).
f. During the fiscal year, the state makes interest and principal payments of $18 million on its bonded debt.

Question 66

When a government finances the purchase of a capital asset from a governmental fund, the acquisition is treated as an expenditure and reduces net current financial resources during the year of acquisition. During the years that principal and interest payments are being made on the debt incurred to finance the capital asset acquisition, the principal and interest amounts are also treated as expenditures. This appears to reduce the net current financial resources by twice the cost of the capital asset. Discuss these transactions and their overall effect on the net current financial resources of the government.

Question 67

The construction of a bike path in Bay City was accounted for in a capital projects fund. Financing for the project came from the following sources: Transfer from Bay City's general fund $ 10,000
Proceeds from general obligation bond issue $100,000
Grant from state government $ 50,000
Which of the following amounts should appear in this year's governmental funds statement of revenues, expenditures, and changes in fund balances for other financing sources?

A) $160,000
B) $110,000
C) $100,000
D) $10,000
E) $60,000

Question 68

Which of the following is not an accepted modification of the accrual basis concerning the recognition of expenditures in governmental funds?

A) Vacations and sick leave should never be accrued.
B) Capital assets should be reported as expenditures when the assets are acquired.
C) Inventory and the costs of using supplies may be accounted for using the consumption method.
D) Claims and judgments should be reported as expenditures only insofar as they will be paid out of current financial resources.

Question 69

Janet Township decides to rent a vacant garage to provide extra parking space for police vehicles, beginning June 1, 2019. The rental is to be accounted for in the general fund. The township pays $24,000 in advance for two years rent. The city's fiscal year ends on December 31.
A. Assume that the township uses the purchases method to account for prepayments. Prepare
1. The journal entry to record the rental on June 1, 2019.
2. Any required journal entries on December 31, 2019.
3. Any required journal entries on December 31, 2020.
B. Assume that the township uses the consumption method to account for prepayments. Prepare
1. The journal entry to record the rental on June 1, 2019.
2. Any required journal entries on December 31, 2019.
3. Any required journal entries on December 31, 2020.
C. How would the unused portion of the rental payment be reported in the township's 2019 year-end governmental fund balance sheet, assuming the township
1. used the purchases method?
2. used the consumption method?

Question 70

Harris County transferred $300,000 from the general fund to the Motor Pool Internal Service Fund to pay for the use of automobiles during the first six months of FY 2018. The appropriate entry in the general fund to record this transfer of cash would be

A) Debit Expenditures $300,000; Credit Cash $300,000.
B) Debit Nonreciprocal transfer-out $300,000; Credit Cash $300,000.
C) Debit Fund balance-transfer out $300,000; Credit Cash $300,000.
D) Debit Nonreciprocal transfer-in $300,000; Credit Cash $300,000.

Question 71

Which of the following activities would be classified as a reciprocal interfund activity?

A) Cash transfer from the general fund to a debt service fund to pay for principal and interest on long-term debt
B) Transfer from a capital projects fund to the general fund to reimburse the general fund for its payment of the architect's fee related to new construction
C) Purchase of supplies by the general fund from an internal service fund
D) Transfer of funds from the general fund to establish a new internal service fund
ANSWERS TO MULTIPLE CHOICE (CHAPTER 5)

Question 72

Employees of the City of Hastings are paid from the general fund semi-monthly on the 15^th day and the last day of the month. The city provides numerous employee benefits. Employees earn ten vacation days for each 12 months of employment. The employee can take the vacation during any summer months (May-September) prior to retirement. The employees also earn one sick day for each month of employment. Sick pay vests at the completion of five years of continuous service. Vested unused sick pay will be paid upon retirement or termination. The city contributes to a retirement plan that is administered by the state. Each year the city gets a statement from the state explaining the actuarially determined contribution required.
The city recognizes revenues/expenditures when collected/paid or if collected/paid within 60 days of year-end. The city's fiscal year end is December 31. At the beginning of the current year employees had $0.4 million of earned vacation time and $7 million of vested earned sick leave. The city uses the FIFO method of accounting for vacation and sick days.
REQUIRED: Assuming that the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, record the following transactions related to employee salaries and benefits.
a. During the year employees of the city earned $60 million in salaries. At year-end all but $2 million had been paid to the employees.
b. During the year the employees of the city earned $2.5 million in vacation pay. By year-end the employees had taken $2 million of vacation. Of the balance of vacation pay due to the employees, the city estimates that $0.3 million will be taken during the next year and $0.2 million will be deferred until later.
c. During the year the employees of the city earned $3 million in sick pay, of which
$2.5 million is expected to vest. Of the $2.5 million, employees are expected to take $2.0 million and $0.5 million is expected to be paid to employees upon their termination or retirement. During the year employees took $1 million in sick days.
d. The city received a statement from the state requiring a contribution to the retirement plan of $8 million for the current year. Because of a cash shortage the city paid $6 million of the required contribution during the year, $1.5 million on February 15 of the following year and $0.5 million in June of the following year.

Question 73

The Sadie School District is considering six different options for purchasing new computer equipment.
REQUIRED: Show the journal entries that would be required in the district's general fund to recognize both the acquisition of the new computers and payment for them under each of these options. Which of these options would best achieve interperiod equity for the district? Why?
a. Buy the computers outright with cash; cost will be $60,000
b. Buy the computers and finance them with a $60,000, three-year, 10 percent note. The district will repay the note and pay the entire interest with a single payment of $79,860 when the note matures.
c. Buy the computers and finance them with a $60,000, three-year 10 percent installment note. The district will repay the note (plus interest) in three annual installments of $24,127 each.
d. Lease the computers under an operating lease, but prepay the entire rent ($60,000) in advance. (Assume it is the district's policy to use the purchases method for reporting prepayments.)
e. Lease the computers under a capital lease, requiring three end-of-year payments of $24,127.
f. Lease the computers under an operating lease, making three end-of-year payments of $24,127.

Question 74

The following schedule shows the amounts related to supplies that a city debited and credited to the indicated accounts during a year (not necessarily the year-end balances), excluding closing entries. The organization records its budget, encumbers all of its expenditures, and initially vouchers all payments. It accounts for supplies on a purchases basis.
A. Some information is missing. Determine the missing data by reconstructing the entries that the organization made during the year.. You need not show the entries; simply fill in the blanks. The city began the year with $5,000 of supplies in inventory and ended the year with $6,500. B. Assume instead that the city accounts for supplies on a consumption basis.
1. Which of the above amounts (assuming that appropriations remained unchanged) would be different? What would be the new value(s)?
2. When applying the consumption method, some governments either elect or are required to offset "supplies inventory" with "fund balance - nonspendable" rather than "fund balance -unassigned." What is the rationale for such practice?
C. The mayor of the city requests your advice as to whether it is actually necessary to (1) incorporate the budget into the accounting system and (2) use fund accounting. What is your response?

Question 75

Scarlett City's general fund activities for 2019 are summarized below. Accounts are maintained on a modified accrual basis consistent with GAAP. Prepare in good form a statement of revenues, expenditures, and changes in fund balance for 2019 for the city's general fund. Assume that the city reports revenues by source and expenditures by function. Assume also that 75 percent of the wages and salaries are attributable to public safety and 25 percent to general administration. Insurance is attributable in total to general administration.

Question 76

Other financing sources/uses would appear on which of the following statements?

A) Balance sheet.
B) Statement of revenues, expenditures, and changes in fund balances.
C) Cash flows statement.
D) None of the above.

Question 77

The following information relates to the Central School District.
In January 2018, the district acquires $500,000 of equipment by way of a capital lease. The lease, which incorporates an annual interest rate of 6 percent, requires the district to make four annual payments of $144,295 each. The equipment has a useful life of four years with no expected salvage value. In 2018, the district makes the first of the required payments.
1. Prepare all journal entries that the district should make in an appropriate governmental fund to record the acquisition of the equipment and the first lease payment.
2. How much expense relating to the equipment should the district recognize in its 2018 government-wide financial statements? Specify the account or accounts to be charged and the amount to be charged to each account.

Question 78

Which of the following items is NOT an example of an item that would be reported as Other Financing Sources/Uses in the general fund?

A) $10 million received from the issuance of bonds.
B) $7,000 received from the sale of a used bulldozer.
C) $200,000 capital lease obligation for a new bulldozer.
D) $100,000 paid to a Motor Pool Internal Service Fund for automobile usage during the period.

Question 79

The City of Jonesboro engaged in the following transactions during the fiscal year ended September 30, 2018.
REQUIRED: Record the following transactions related to interfund transfers. Be sure to indicate in which fund the entry is being made.
a. The city transferred $400,000 from the general fund to a debt service fund to make the interest payments due during the fiscal year. The payments due during the fiscal year were paid. The city also transferred $200,000 from the general fund to a debt service fund to advance-fund the $200,000 interest payment due October 15, 2019.
b. The city transferred $75,000 from the Air Operations Special Revenue Fund to the general fund to close out the operations of that fund.
c. The city transferred $150,000 from the general fund to the city's Electric Utility Enterprise Fund to pay for the utilities used by the general and administrative offices during the year.
d. The city transferred the required pension contribution of $2 million from the general fund to the city's pension trust fund.
e. The city deposited into the general fund the proceeds of a $5.5 million dollar bond issue. The bonds were sold for $5.7 million.

Question 80

During the year, the City of Pittsboro engaged in the following transactions. The city has a 12/31 fiscal year end.
REQUIRED: Assuming that the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, record the following transactions related to capital asset acquisition and payments on long-term debt.
a. On April 1, 2018, the city acquired a piece of equipment for $150,000. The equipment will be used by the Streets Department. The city financed the purchase by borrowing $150,000 from the local bank at 5 percent interest. Principal payments of $20,000 plus interest are due yearly each April 1.
b. The city paid $30,000 to employees who retired during the current year. These payments were made to compensate the employees for sick pay that had been earned but unused over the many years of the employees' service to the city
c. The city transferred $2,500,000 from the general fund to a debt service fund to make principal and interest payments during the current year.
d. The city made payments of $2 million principal and $500,000 interest on bonds that had been outstanding for several years.
e. On June 1, the City paid $4,000 on account for supplies purchased in May.
f. On September 1, 2018, the city acquired several computers through a leasing agreement that qualified as a capital lease. The terms of the lease require yearly annual payments. The present value of the minimum lease payments is $50,000.