Question 1

The Village of Catlett provides electricity to its residents through an Enterprise Fund (EF).The EF's fiscal year ends June 30.Its last payroll period starts June 26 and ends July 7.For financial reporting purposes,how should the EF handle the salaries earned by its employees June 26-30?

Accepted Answer

The EF should report salary expense and a liability for salaries earned by employees during June 26-30. Even though the last payroll period ends on July 7, the salaries earned by employees for the period of June 26-30 are considered an expense for the current fiscal year since the fiscal year ends on June 30. Therefore, the EF should report the salary expense and a liability for the salaries earned but not yet paid.

Question 2

Enterprise funds report capital contributions separate from operating and nonoperating revenues and expenses.When does an inflow of resources constitute a capital contribution?

Accepted Answer

An inflow of resources constitutes a capital contribution when the inflows must be used to purchase capital assets or consist of capital assets, as these are directly related to capital financing and investment activities.

Question 3

(Conceptual problem regarding the use of Proprietary Funds)
State whether the following are true or false.For the false items,explain why they are false.
a.Enterprise Funds are used only when all services are provided to non-governmental entities,and Internal Service Funds are used only when all services are provided to governmental agencies that are a part of the reporting government.
b.Enterprise Funds use the economic resources measurement focus and full accrual basis of accounting only when they want to compute the costs of services;otherwise,they use the current financial resources measurement focus and modified accrual basis of accounting.
c.The primary activities of the State Office of General Services and the State Parks Department are financed from General Fund appropriations.The former department also operates a governmental motor pool and the latter operates a public swimming pool.Because their primary activities are financed from the General Fund,they may not under any circumstances account for other activities in proprietary funds.
d.An Enterprise Fund must be used whenever a government charges fees to external users for goods or services.

Accepted Answer

The answer of (Conceptual problem regarding the use of Proprietary...

Question 4

Proprietary funds sometimes report special assessment revenues.What are special assessments?

Accepted Answer

Special assessments are a means of financing services that benefit one group of citizens more than the general public. These assessments are levied on a specific group of individuals or properties that will benefit from a particular service, such as the installation of a new road or sewer system.

Question 5

A city accounts for its hospital in an Enterprise Fund.An individual brings a malpractice suit against the hospital in 2013.City lawyers are concerned about losing the case if it goes to court,but estimate that it is probable they can settle it out of court for $50,000.In any event,the city does not expect any cash outflows on the claim for several years.How should the Enterprise Fund report this item in its statements for the year ended December 31,2013?

Accepted Answer

The correct answer is D because according to accounting standards, when a loss is probable and the amount can be reasonably estimated, it should be recorded as a liability. Since the city does not expect any cash outflows for several years, the liability is classified as noncurrent.

Question 6

A Water Enterprise Fund (EF)issues $4 million of 5% revenue bonds on October 1,2013.The EF will make its first payment of interest on March 31,2014,together with a principal payment of $200,000.What amount,if any,should the EF report in its fund statement of revenues,expenses,and changes in net position for the year ended December 31,2013?

Accepted Answer

The interest expense for the year ended December 31, 2013, would be calculated from October 1, 2013, to December 31, 2013, which is 3 months. The annual interest on $4 million at 5% is $200,000, so for 3 months, it would be $50,000. Principal payments do not affect the statement of revenues, expenses, and changes in net position; they are reported in the statement of net position. Therefore, only the interest expense of $50,000 is reported for 2013.

Question 7

The GASB statement of cash flows is different from that required in the private sector in which of these ways?

Accepted Answer

The GASB statement of cash flows requires reporting operating cash flows using the direct method, which is not commonly required in the private sector. The other options are not accurate as the GASB statement of cash flows does include investing cash flows and permanently restricted cash flows, and it is required regardless of whether or not the reporting entity issues debt.

Question 8

At December 31,2013,a Water Enterprise Fund has outstanding revenue bonds payable of $1 million,of which $40,000 is due to be paid on February 15,2014,and $50,000 is due to be paid on August 15,2014.How should it report this liability in its fund statement of net position as of December 31,2013?

Accepted Answer

The correct answer is C because the Water Enterprise Fund should classify as current liabilities those portions of the debt that are due within one year of the balance sheet date (both the $40,000 due in February and the $50,000 due in August, totaling $90,000), and the remaining $910,000 as a noncurrent liability.

Question 9

(Computation of net investment in capital assets)
The following information is taken from the financial statements of Corwin Water District 2,an Enterprise Fund.The revenue bonds were issued to construct water mains.Based on these data,compute the amount that the Fund should report on its statement of net position,as net investment in capital assets. $\begin{array}{lr}
\text { Buildings } & \$ 1,100,000 \
\text { Water mains and equipment } & 5,200,000\
\text { Accumulated depreciation, capital assets } & 2,300,000 \
\text { Current portion of revenue bonds payable } & 450,000 \
\text { Long-term portion of revenue bonds payable } & 1,800,000
\end{array}$

Accepted Answer

The answer of (Computation of net investment in capital assets)
The...

Question 10

For fund-level financial reporting,a statement of cash flows is required for

Accepted Answer

The answer of For fund-level financial reporting,a statement of cash...

Question 11

City Parks Department activities are accounted for in the General Fund.The Parks Department receives two invoices,one from the Lighting Enterprise Fund (EF)and one from the Printing Internal Service Fund (ISF).On receiving the invoices,which accounts should the department debit?

Accepted Answer

The Parks Department would debit their Expenditures account for each invoice received. Therefore, Choice B is the correct answer as it correctly identifies the accounts to be debited for both invoices. Choice A is incorrect as "Due to" accounts are typically used when recording payments owed to another entity, not when recording expenses. Choice C is incorrect as a transfer would imply that money is being moved between different funds or departments, which is not the case here. Similarly, Choice D is incorrect, as a transfer account would not be appropriate for recording the expenditures associated with the Lighting Enterprise Fund invoice.

Question 12

Proprietary fund net position must be reported in which three elements?

Accepted Answer

Proprietary fund net position must be reported in the elements of net investment in capital assets, restricted, and unrestricted. This is according to the Governmental Accounting Standards Board (GASB) Statement No. 34: Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments. Option A refers to fund types used in governmental accounting, not elements of net position. Option C and E are not applicable to proprietary funds. Option D includes an element that is only applicable to corporate accounting.

Question 13

Governments control their Enterprise Fund revenues and expenses in what way?

Accepted Answer

Governments control their Enterprise Fund revenues and expenses by controlling and approving the rates they can charge for services. This allows them to cover costs and generate a profit or surplus, while also ensuring affordability and competitiveness in the market. Encumbrance accounting and flexible budgeting may be used to manage specific expenses, but do not address overall revenue control. The existence of a competitive market is also important, but is not a direct way for governments to control their Enterprise Fund revenues and expenses.

Question 14

Enterprise Fund accounting and reporting is required when an activity is financed with debt secured solely by a pledge of the net revenue from fees and charges.This type of debt typically takes the form of what?

Accepted Answer

Revenue bonds are specifically issued to finance enterprise activities, which are funded solely by user fees or charges. They are supported solely by pledged revenues, and the issuer does not pledge the full faith and credit of the issuer. Therefore, enterprise funds are required to use revenue bonds to finance their activities. Choice B is incorrect because general obligation bonds are not solely based on the net revenue from fees and charges. Choice C is incorrect because revenue anticipation notes are short-term, cash flow borrowing, and they are not issued to finance enterprise activities. Choice D is incorrect because private placements are not a form of debt issued in the public market.

Question 15

An Enterprise Fund issued bonds in the amount of $100,000 and immediately acquired capital assets from the bond proceeds at a cost of $100,000.As of December 31,2013,accumulated depreciation on the assets was $10,000.Also,as of December 31,2013,the Enterprise Fund had paid back $15,000 of the debt principal.In its December 31,2013,statement of net position,how much should the Fund report as its net investment in capital assets?

Accepted Answer

The answer of An Enterprise Fund issued bonds in the...

Question 16

Many Utility Enterprise Fund activities charge tap fees to their customers.Which of the following is most descriptive of those fees?

Accepted Answer

Tap fees are charged when a utility enterprise fund needs to expand its operating plant to accommodate new customers. These fees provide financing for the expansion and construction of capital assets to meet the needs of increasing demand. Tap fees are not typically assessed based on the amount of water a customer uses and are not meant to replace capital grants.

Question 17

Where should Internal Service Funds be presented on the face of proprietary fund financial statements?

Accepted Answer

Internal Service Funds are a type of proprietary fund and should be presented in the proprietary fund financial statements. They are typically presented in a separate column to the right of Enterprise Funds, distinguishing them from other types of funds while still recognizing their proprietary nature.

Quiz 7: The Governmental Accounting Cycle

The Village of Catlett provides electricity to its residents through an Enterprise Fund (EF) .The EF's fiscal year ends June 30.Its last payroll period starts June 26 and ends July 7.For financial reporting purposes,how should the EF handle the salaries earned by its employees June 26-30?