Question 1

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 by which existing debt is set aside or discharged by a government or corporation by placing funds in an escrow account. The funds are then used to pay off the debt when it matures, effectively rendering the debt as defeased.

Question 2

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 3

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

Accepted Answer

Private-purpose trust funds are used to report funds whose earnings are specifically directed towards individuals, private organizations, or other governments.

Question 4

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

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), interest revenues should be accrued at year-end on investments held by a permanent fund. This is because permanent funds have a long-term investment horizon and are expected to earn interest income over time. Accruing the interest revenue at year-end ensures that the financial statements accurately reflect the fund's earnings for the year.

Question 5

The principal of permanent funds must be classified as Restricted 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 6

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 7

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 to account for the construction of major capital facilities, such as roads or buildings, which are typically financed through special assessment debt.

Question 8

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

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

Question 9

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 10

Capital projects funds are always included in the Budgetary Comparison Schedule.

Accepted Answer

Budgetary reporting is not required for capital projects funds.

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

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 13

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 14

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 for capital leases are treated similarly to assets and liabilities, with a portion of the expenditure being allocated as interest expense and the remainder being recorded as a reduction to the lease liability. Operating leases, on the other hand, are treated as rent expense and are recorded as line items in the operating budget.

Question 15

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

Accepted Answer

A special assessment tax is typically levied on property owners who will benefit from a public project, not on all taxpayers.

Question 16

When accounting for interest expenditures through debt service funds,interest is required to be accrued at year-end.

Accepted Answer

Interest on long term debt is not generally accrued. GASB permits one exception: If a government has resources available for payment in a debt service fund and the period of time until interest or principal payment is due no more than one month, then the interest or principal payment may be accrued.

Question 17

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

Accepted Answer

An encumbrance is a commitment of funds for a specific purpose. In a capital project fund, the encumbrance is created when the contract for the work is signed or issued, as this represents a commitment of funds for the capital project.

Question 18

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 19

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 20

Capital outlay expenditures of capital projects funds will typically result in additions to the general fixed assets reported in the governmental fund Balance Sheet.

Accepted Answer

Fixed assets are not reported in governmental funds. They are recorded in the government-wide statements

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