Question 1

When a governmental unit is primarily or secondarily liable for the debt, debt proceeds for special assessments levied for the construction phase of a capital improvement project should be reported in which of the following fund types?

Accepted Answer

Debt proceeds for special assessments levied for the construction phase of a capital improvement project should be reported in the capital projects fund. This is because the capital projects fund is used to account for the financial resources that are restricted, committed, or assigned for the acquisition or construction of major capital facilities. Since the debt is incurred for the purpose of funding the construction of a capital improvement project, it should be reported in the capital projects fund.

Question 2

Which of the following would be accounted for as a permanent fund?

Accepted Answer

A permanent fund is established when a donor gives a gift to a government entity with the condition that it be invested for the long-term and only the earnings on the investment are to be used to support a specific purpose. In this case, the gift is to maintain the city cemetery, which is a specific purpose that would qualify as a permanent fund.

Question 3

Which of the following projects would normally be accounted for in a capital projects fund?

Accepted Answer

Capital projects funds are used to account for financial resources used for the acquisition or construction of major capital facilities, such as a police station addition. The construction of a parking lot for a utility would typically be accounted for in an enterprise fund, not a capital projects fund.

Question 4

Siler City receives a trust donation for the purpose of maintaining flower beds in city parks, but the donor does not specify that the principal must be maintained. This type of trust would be most appropriately accounted for in a:

Accepted Answer

This type of trust, where the donor does not specify that the principal must be maintained, would typically be accounted for in a Special Revenue Fund. This is because the trust is intended for a specific purpose (maintaining flower beds in city parks), and the funds can only be used for that purpose. A Special Revenue Fund is used for the accounting of specific revenue sources that are restricted or earmarked for particular purposes.

Question 5

In addition to a capital asset in the government-wide Statement of Net Assets, how would the construction costs of $2,950,000 be reported at year-end?

Accepted Answer

The construction costs would be reported as an expenditure of the capital projects fund because it is a capital project, and also as a capital asset in the government-wide Statement of Net Assets because it meets the capitalization threshold. The construction costs would not be reported as an expense in the Statement of Activities because it is a capital project and not an operating expense.

Question 6

Which two governmental funds are commonly used to acquire capital assets?

Accepted Answer

The General Fund and Capital Projects Fund are commonly used to acquire capital assets. The General Fund is the primary operating fund of the government and can be used for a variety of purposes, including acquiring capital assets. The Capital Projects Fund is specifically designed for the acquisition of long-term assets such as roads, buildings, and equipment.

Question 7

Governmental funds, other than the General Fund, are considered major if: I. Total Assets, Liabilities, Revenues or Expenditures of that individual governmental fund are at least 10% of the corresponding total (assets, liabilities and so forth) for all governmental funds.
II) Total Assets, Liabilities, Revenues or Expenditures of the individual governmental fund are at least 5% of the corresponding total for all governmental and enterprise funds combined.

Accepted Answer

Both I and II must be true for a governmental fund, other than the General Fund, to be considered major. It must meet the 10% threshold of the corresponding total for all governmental funds and the 5% threshold for all governmental and enterprise funds combined.

Question 8

What would be the amount of debt service expenditures reported in the fiscal year ended June 30, 2010?

Accepted Answer

Based on the information given, the amount of debt service expenditures for the fiscal year ended June 30, 2010 can be calculated by adding the amount of interest paid ($120,000) to the amount of principal paid ($205,500), which equals $325,500. Therefore, the correct answer is B.

Question 9

If taxes and/or special assessments are levied by the General Fund and then are subsequently transferred to the debt service fund, they are:

Accepted Answer

If taxes and/or special assessments are levied by the General Fund and then transferred to the debt service fund, they are included in the revenues budget of the general fund and budgeted by that fund as transfers out to the debt service fund. This means that they will be recorded as both revenues and transfers in the debt service fund.

Question 10

Proceeds of tax supported bonds are recognized in a capital projects fund as a(an):

Accepted Answer

Proceeds of tax supported bonds are recognized as an Other Financing Source in a capital projects fund, as they provide financing for capital projects but do not constitute revenue.

Question 11

If taxes are levied specifically for payment of interest and principal on long-term debt, those taxes are:

Accepted Answer

Taxes levied specifically for the payment of interest and principal on long-term debt are recorded as revenues of the debt service fund. This fund is used to account for the debt service activities and is separate from the general operating fund. Therefore, choices A and B are incorrect as the liability of the general fund and operating transfers do not apply in this scenario.

Question 12

When a purchase order is issued under a Capital Projects fund, how should the transaction be recorded?

Accepted Answer

When a purchase order is issued under a Capital Projects fund, it is recorded as an encumbrance rather than as an expenditure because the expenditure has not yet been incurred. Therefore, the best choice is to debit Encumbrances Control (which represents the amount of outstanding purchase orders) and credit Reserve for encumbrances (which is a memorandum account that indicates the amount of budgetary resources that have been committed). Option A is incorrect because it should debit Encumbrances Control and credit Reserve for Encumbrances. Option C is incorrect because expenditures are recorded when goods or services are received or when payment is made. Option D is incorrect because Reserve for encumbrances is used to record the amount of budgetary resources that have been committed, not the actual cost of the purchase.

Question 13

In addition to a $3,000,000 liability in the government-wide Statement of Net Assets, how would the bond sale be reported?

Accepted Answer

The bond sale represents other financing sources for the capital projects fund ($3,000,000) and the debt service fund ($60,000). In the capital projects fund, $60,000 of the bond proceeds would be used to pay issuance costs (other financing used). In the debt service fund, the bond sale represents a liability of $3,000,000 to be repaid over time. Therefore, the correct answer is B.

Question 14

Which of the following lease criteria would not qualify a lease as a capital lease?

Accepted Answer

The option to purchase must be bargain purchase; not at fair market value. A noncancelable lease must meet any of the following four criteria to be classified as a capital lease; 1) The lease transfers ownership of the property to the lessee, 2) The lease contains a bargain purchase option, 3) The lease term is equal to or greater than 75% of the estimated economic life of the leased property, and 4) The present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased property.

Question 15

How would the government account for the unused bond proceeds?

Accepted Answer

The answer of How would the government account for the...

Question 16

If the amount of annual principal repayment is scheduled to increase each year by approximately the same amount that interest payments decrease, this type of bond would be what kind of serial bond?

Accepted Answer

This type of bond is called an annuity serial bond. In this type of bond, the annual principal repayment increases each year by approximately the same amount that interest payments decrease, which creates a steady stream of payments over the life of the bond.

Question 17

Where should a government report special assessment debt that the government is not liable for in any way?

Accepted Answer

GASB standards mandate that a government should account for special assessment activities in an agency fund if the government has no obligation to assume responsibility for debt payments, even if the property owners default. This is true even though the government may perform the functions of billing property owners for the assessments, collecting installments from the property owners, and making the principal and interest payments.

Question 18

In which fund type is interest on Long Term Debt typically not accrued, yet is recognized as an expenditure in the year in which interest is legally due?

Accepted Answer

Interest on Long Term Debt is typically not accrued in a Debt Service Fund, but is recognized as an expenditure in the year in which interest is legally due. This is because Debt Service Funds are used to account for the payment of principal and interest on general long-term debt, and the fund's resources are legally restricted to the payment of debt service. Therefore, interest is recognized as an expenditure when it is legally due and payable, rather than when it accrues.

Question 19

What amount would be reported as debt service expenditures in the year ended June 30, 2009?

Accepted Answer

The answer of What amount would be reported as debt...

Question 20

General fixed assets that are acquired with governmental fund resources are recorded in the:

Accepted Answer

The answer of General fixed assets that are acquired with...

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