Question 1

Debt service funds are used to account for the payment of principal and interest of both general and enterprise related long-term debt of a state or local governmental unit.

Accepted Answer

Debt service funds are used to account for the payment of principal and interest of general long-term debt of a state or local government. Debt service funds are not created for debt issues where the activities of proprietary funds are intended to generate sufficient cash to make interest and principal payments. Enterprise funds are proprietary funds.

Question 2

Under governmental accounting principles for capital and operating leases; expenditures are recorded each period for the amount of the annual lease payment for all leases,but the expenditures are classified differently for capital and operating leases.

Accepted Answer

Under governmental accounting principles, expenditures are recorded each period for the amount of the annual lease payment for both capital and operating leases. However, the expenditures are classified differently for capital and operating leases based on their nature and impact on the financial statements.

Question 3

Investments of permanent funds should be reported at fair value,if determinable,and unrealized gains reported along with realized gains as "Investment Income-Net Increase in Fair Value of Investments."

Accepted Answer

Permanent funds should indeed be reported at fair value, and unrealized gains should be included in the net increase in fair value of investments, along with realized gains, as investment income.

Question 4

When governments construct projects that are financed with special assessment debt,to be paid back by affected property owners,those projects could be accounted for in capital projects funds.

Accepted Answer

Capital projects funds are used for accounting for the construction of long-term assets, such as buildings, highways, and bridges, that are financed by special assessment debt, grants, and other earmarked revenues. Therefore, projects financed by special assessment debt could be accounted for in capital projects funds.

Question 5

An encumbrance in a capital project fund is created when the contract for the work is signed or issued.

Accepted Answer

An encumbrance represents a commitment to expend funds in the future, and it is recorded when a contract or purchase order is signed or issued. In a capital project fund, encumbrances will typically be created for contracts related to construction, equipment, or other capital expenditures.

Question 6

When bonds are sold to construct a capital asset through a capital projects fund,an entry would be made to debit Cash and credit Bonds Payable in the capital projects fund.

Accepted Answer

The journal entry would be a debit to Cash and a credit to Other Financing sources - Proceeds of Bonds in the capital projects fund.

Question 7

The current and long-term portions of General Long-term Debt are normally reported in a debt service fund.

Accepted Answer

Expenditures are recorded for the interest and principle amounts in the year that they are legally due. Long-term portions of debt are not recorded in the debt service fund.

Question 8

Bond refunding is repurchasing bonds from bondholders using residual money left over after a capital project has been completed.

Accepted Answer

Bond refunding is issuing new debt to replace old debt. New debt is issued and the proceeds are used to call the existing debt.

Question 9

Funds whose earnings benefit individuals,private organizations,or other governments are reported in permanent funds.

Accepted Answer

Permanent funds are used to report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that benefit the government or its citizenry, not individuals or private organizations.

Question 10

Capital projects funds use the financial resources measurement focus and accrual basis of accounting.

Accepted Answer

All the governmental funds general, special revenue, capital projects, debt service and permanent) use the modified accrual basis of accounting and the current financial resources measurement focus.

Question 11

When a government receives a gift that must be invested permanently and the investment proceeds are used to benefit the government or its citizens,it would be appropriate to account for that gift in a private purpose trust fund.

Accepted Answer

Trusts that generate income for the benefit of the government or its citizens and require the principal to be maintained are reported in permanent funds. Trusts that generate income for the benefit of individuals, private organizations or other governments are reported in private-purpose trust funds.

Question 12

Capital outlay expenditures of capital projects funds will typically result in additions to the general fixed assets reported in the government-wide Statement of Net Assets.

Accepted Answer

Capital projects funds are used for the acquisition or construction of major capital facilities, and as such, capital outlay expenditures will result in additions to the general fixed assets reported in the government-wide Statement of Net Assets.

Question 13

When accounting for interest expenditures through debt service funds,interest is normally recorded as an expenditure when due and payable; it is not required to be accrued at year-end.

Accepted Answer

Interest expenditures are recorded as an expenditure when due and payable in debt service funds. They are not required to be accrued at year-end.

Question 14

If a government issues new debt,and places the proceeds in an escrow account pending the maturity date of existing debt,the existing debt is said to be defeased.

Accepted Answer

Defeasance is a process in which a government or corporation sets aside funds in an escrow account to repay outstanding debt. By doing this, the existing debt is said to be "defeased" or technically satisfied. The new debt issued is secured by the funds in the escrow account and is used to repay the originally issued debt at maturity.

Question 15

A special assessment tax is assessed against all tax payers regardless of who benefits.

Accepted Answer

The answer of A special assessment tax is assessed against...

Question 16

In a Statement of Revenues,Expenditures,and Changes in Fund Balances,Transfers In are reported within Total Revenues.

Accepted Answer

Transfers In are reported under Other financing sources uses on the Statement of Revenues, Expenditures, and Changes in Fund Balances.

Question 17

The portion of a permanent fund which is spendable should be reported as Unassigned Fund Balance.

Accepted Answer

The principal of a permanent fund must be maintained so it is classified s nonspendable fund balance. The remaining unexpended resources would be classified as restricted or assigned fund balance.

Question 18

Capital projects funds are not normally included in the Budgetary Comparison Schedule.

Accepted Answer

Capital projects funds are not included in the Budgetary Comparison Schedule because they are used for long-term projects and are not part of the annual operating budget. The Budgetary Comparison Schedule only shows the actual revenues, expenditures, and other financing sources and uses compared to the budget for the annual operating budget funds, such as the general fund.

Question 19

The principal of permanent funds must be classified as Nonspendable Fund Balance.

Accepted Answer

The principal of permanent funds is nonspendable because it is legally required to be held in perpetuity and cannot be spent. It is classified as nonspendable fund balance on the financial statements.

Question 20

Interest revenues should be accrued at year-end on investments held by a permanent fund.

Accepted Answer

Interest revenues on investments held by a permanent fund should be accrued at year-end in order to accurately reflect the fund's earnings for the year. This is required by generally accepted accounting principles (GAAP).

Quiz 5: Accounting for Other Governmental Fund Types: Capital Projects, Debt Service, and Permanent