Question 1

Capital projects funds generally do not use the Estimated Revenues and Appropriations control accounts; it is also recommended that the Encumbrances control account not be used.

Accepted Answer

Contracts and purchase orders for a capital project may be numerous and may be outstanding for several years. Thus, it is recommended that the capital projects fund use encumbrance accounting. However, the legal authorization for a capital project generally eliminates the need for Estimated Revenues and Appropriations accounts unless required by state statutes or local ordinances.

Question 2

Debt backed by both assessments and the full faith and credit of a government should be reported in the governmental activities column of the statement of net assets at the government-wide level.

Accepted Answer

Since the government has opted to provide secondary backing for this debt, it is appropriately recorded as debt of the government.

Question 3

Proceeds of tax-supported debt issued for the construction or acquisition of capital assets are recognized by the capital projects fund as "other financing sources" and as a liability in the governmental activities journal.

Accepted Answer

The long-term liability would not be recorded in the capital projects fund since it is a governmental fund type. Governmental funds account for only current assets and liabilities.

Question 4

Cash discounts available on purchase of capital assets but not taken should be capitalized as part of the cost of the capital assets.

Accepted Answer

Cash discounts, whether or not taken, are not a cost of the asset. Cash discounts taken should be treated as a reduction of cost; those not taken are noncapitalizable expenditures of the governmental fund acquiring the assets.

Question 5

Capital projects funds should use the modified accrual basis of accounting for revenues and expenses.

Accepted Answer

Modified accrual accounting records revenues and expenditures, not expenses.

Question 6

The net cost of demolishing a building on land purchased as a site for an addition to city hall should be debited to Buildings in the governmental activities accounts.

Accepted Answer

This item is a necessary part of preparing the land for use; therefore, it should be considered a part of the cost of the land not buildings.

Question 7

If a capital projects fund starts construction of a building in one year and finishes it in a subsequent year an entry must be made in the governmental activities accounts until the building is completed,inspected,and accepted.

Accepted Answer

In each year during construction, an entry must be made in the general journal of Governmental Activities to record Construction in Progress. During the year the building is completed, Construction in Progress is reclassified to the Building account.

Question 8

In addition to required disclosures about general capital assets,a government is required to allocate the depreciation expense on all of its general capital assets to functional categories.

Accepted Answer

Depreciation is to be included as an expense of a functional category if it can be specifically identified with a function or program, or is a shared capital asset. Depreciation can be reported as a separate line item for capital assets that essentially serve all functions of government (such as city hall). Depreciation on infrastructure can also be reported as a separate line item.

Question 9

The disposal of a general capital asset,resulting in no revenue or expenditure to the government,is recorded only in the governmental activities accounts.

Accepted Answer

The transaction would not be recorded in a governmental fund since there is no inflow or outflow of current financial resources.

Question 10

GASB standards require that all governmental expenditures for long-lived assets be accounted for by a capital projects fund.

Accepted Answer

If the acquisition of long-lived assets can be financed from use of General Fund or special revenue fund revenues a capital projects fund need not be utilized; for example, the purchase of a computer from General Fund revenues. A capital projects fund should be created to account for resources that are raised for the express purpose of financing the construction or acquisition of capital assets.

Question 11

Property,plant,and equipment constructed or acquired by use of special assessment financing is recorded in the governmental activities accounts because the assets belong to the government.

Accepted Answer

Even though the government technically did not pay for these capital assets, the assets do belong to the government, and generally will be maintained by the government.

Question 12

The General Fund expended $200,000 to buy land to be used by the city electric utility as a site for an office building.This land should be capitalized in the utility fund,not in the governmental activities accounts.

Accepted Answer

GASB standards require that capital assets acquired by or used by a proprietary fund be accounted for in that fund, thus distinguishing those capital assets from general capital assets.

Question 13

The cost of the periodic redecoration of the city mayor's office should be capitalized in the governmental activities accounts.

Accepted Answer

Periodic redecoration does not add to the utility or function of the building nor does it enhance the value of the building, or any other capital assets; therefore, redecorating is not a capitalizable cost.

Question 14

When a bond issue is legally authorized it is usual practice to make either no entry or a memorandum entry in the capital projects fund general journal.

Accepted Answer

There are no cash proceeds to be recognized until bonds are actually sold, so it would be inappropriate to make a formal journal entry prior to actual issuance.

Question 15

General capital assets acquired under capital leases should not be recorded in the governmental activities accounts.

Accepted Answer

General capital assets acquired by capital lease should be capitalized in the governmental activities accounts in the same manner as general capital assets acquired with other resources.

Question 16

If land purchased by a city's proprietary fund,at a cost of $70,000,is later transferred to the city's Park Department (accounted for by the General Fund)it should be recorded in the governmental activities accounts at fair value on the date of transfer.

Accepted Answer

The majority view is that the land should be recorded in the governmental activities accounts at its carrying value in the proprietary fund. The minority view also has a lot of merit; that is, record the land at fair value. Fair value would be used if the land had been contributed to the city's Park Department by an individual or organization external to the city.

Question 17

One of the required general capital asset disclosures is a report on the additions to,and deductions from,general capital assets during the course of a fiscal year.

Accepted Answer

These disclosures are part of the capital asset disclosures shown in Illustration 5-2 for the City and County of Denver.

Question 18

In a capital projects fund the offsetting credit to the debit for Assessments Receivable-Current should be to Other Financing Sources-Special Assessments.

Accepted Answer

The credit account in this example should be Revenues-Special Assessments rather than Other Financing Sources.

Question 19

A government must capitalize the cost of improvements such as roads,bridges,sidewalks,and so forth,because the GASB requires the cost of such assets to be displayed in the basic financial statements.

Accepted Answer

GASB standards require that improvements that enhance the utility or life of capital assets be capitalized.

Question 20

General capital assets must be depreciated and the amount of depreciation for the period should be reported in the operating statement for governmental activities at the government-wide level.

Accepted Answer

Under GASB standards depreciation expense that can be identified with particular functions or programs and be reported as part of the expenses of those functions or programs in the government-wide statement of activities. Depreciation that cannot be identified with functions or activities may be reported as a separate line item.

Quiz 5: Accounting for General Capital Assets and Capital Projects