Question 1

Governments can account for enterprise-related special assessments in enterprise funds or funds where they account for other special assessments.

Accepted Answer

False

Question 2

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be reported in the fund as general capital assets.

Accepted Answer

In a capital projects fund, costs incurred on a major construction project are recorded as expenditures, not as general capital assets. General capital assets are recorded in the government-wide financial statements, not in the fund financial statements.

Question 3

Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

Accepted Answer

Budgetary account information is required to be integrated into debt service and capital projects funds only when control cannot readily be established by other means.

Question 4

In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

Accepted Answer

In governmental accounting, interest revenue on bonds held as investments is recognized when it is earned, regardless of when it is received, following the accrual basis of accounting. This contrasts with the accounting for debt service fund expenditures, where expenditures are recognized when they are due.

Question 5

When bonds are issued at a premium, the capital projects fund should transfer those excess resources to the debt service fund.

Accepted Answer

When bonds are issued at a premium, the excess amount (premium) over the face value is considered an additional resource that needs to be used for debt service, hence it is transferred to the debt service fund to be used for future interest or principal payments.

Question 6

When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

Accepted Answer

When bonds are issued at a discount, the debt service fund is responsible for the repayment of the bond principal and interest, not for transferring funds to the capital projects fund to cover the discount. The discount reflects the difference between the face value of the bonds and the lower price at which they are sold, but it does not involve a transfer of funds to the capital projects fund.

Question 7

Arbitrage is the process of negotiating resolution of conflicts between the federal government and municipalities over the applicability of federal regulations.

Accepted Answer

Arbitrage refers to the simultaneous purchase and sale of the same asset in different markets to profit from unequal prices. It is not related to conflict resolution between government entities.

Question 8

The resources to service all general long-term debt of governments are typically accounted for in debt service funds.

Accepted Answer

Debt service funds are used by governments to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest.

Question 9

Special assessment debt to be paid from a water utility fund should be accounted for in that fund along with the related capital improvements.

Accepted Answer

Special assessment debt that is to be paid from a specific revenue source, such as a water utility fund, should indeed be accounted for in that fund along with the related capital improvements. This ensures that the financial activities related to the project are accurately reflected and managed within the appropriate fund.

Question 10

Proceeds of debt issued to finance a capital project should be reported in a capital projects fund as a liability until the project is completed.

Accepted Answer

Proceeds of debt issued to finance a capital project are reported as other financing sources in a capital projects fund, not as a liability.

Question 11

In which fund type would a government's capital projects fund be found?

Accepted Answer

Governmental fund types are used for the accounting of most governmental functions, including capital projects funds, which are used to account for financial resources to be used for the acquisition or construction of major capital facilities.

Question 12

When governments establish capital projects funds, they must maintain a separate fund for each major project

Accepted Answer

Governments do not have to maintain a separate fund for each major project; they can account for multiple projects within a single capital projects fund, as long as they are able to track the resources and expenditures associated with each project separately within that fund.

Question 13

Special assessments are imposed nonexchange transactions, similar to property tax levies.

Accepted Answer

Special assessments are indeed imposed nonexchange transactions, similar to property taxes, where the government assesses a charge on property owners for specific projects or services that benefit the property, such as street improvements or sewer lines.

Question 14

Capital projects funds do not report long-term obligations in the fund.

Accepted Answer

Capital projects funds are governmental accounting funds used to account for financial resources that are designated for the acquisition or construction of major capital assets, except those financed by proprietary funds or for assets that will be held in trust. They do not report long-term obligations within the fund itself because such obligations are typically accounted for within the government-wide financial statements, specifically within the governmental activities column. Long-term debt related to capital projects is recorded in the government-wide statements and in the debt service fund, not in the capital projects fund.

Question 15

A government can lock in savings due to a decline in interest rates by using a process called defenestration.

Accepted Answer

The answer of A government can lock in savings due...

Question 16

The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

Accepted Answer

The interest paid on debt issued for public purposes by state and local governments is generally exempt from federal taxation.

Question 17

Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt-that is, long-term debt associated primarily with governmental activities.

Accepted Answer

Debt service funds are a type of governmental fund used specifically to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. These funds ensure that governments have the necessary funds set aside to meet their long-term debt obligations.

Question 18

The capital projects fund of a government is accounted for using which of the following bases of accounting?

Accepted Answer

Capital projects funds in governmental accounting are accounted for using the modified accrual basis of accounting. This basis recognizes revenues when they become available and measurable and expenditures when the related fund liability is incurred, which is suitable for the nature of capital projects funding and spending.

Question 19

In the statement of revenues, expenditures, and changes in fund balance of a debt service fund, the fund balance amount should be reported as restricted for debt service.

Accepted Answer

In governmental accounting, the fund balance in a debt service fund is reported as restricted because the resources are limited to servicing debt, reflecting legal or contractual constraints on how the funds can be used.

Question 20

Sound fiscal policy dictates that the maturity of debt should be no longer than the life of the assets it is used to finance.

Accepted Answer

This principle ensures that the debt used to finance an asset is paid off by the time the asset is no longer useful, preventing future generations from bearing the cost of assets they do not benefit from.

Quiz 6: Accounting for Capital Projects and Debt Service