Question 1

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 2

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 3

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

Accepted Answer

A capital projects fund records an encumbrance when a contract is signed or issued.

Question 4

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 5

Premiums generated from the issuance of bonds for a capital projects fund are generally transferred to the Debt Service Fund.

Accepted Answer

Premiums generated from the issuance of bonds for a capital projects fund must be used for debt service are generally transferred to the Debt Service Fund.

Question 6

When using debt service accounting, interest on long term debt is not to be accrued unless the payment is due in no more than one month and the government has resources available for payment.

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 7

A non-expendable trust which benefits a government or its citizenry and which stipulates that earnings only not principal) may be used for its prescribed purpose would be reported in a Special Revenue Fund.

Accepted Answer

A non-expendable trust which benefits a government or its citizenry and which stipulates that earnings only not principal may be used for its prescribed purpose would be reported in a Permanent Fund.

Question 8

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 9

Capital project funds exist for the duration of the project for which it is created and are then closed.

Accepted Answer

Capital project funds exist for the duration of the project for which it is created. Remaining funds are transferred to a debt service fund.

Question 10

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 11

Capital assets are not reported in governmental funds.

Accepted Answer

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

Question 12

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

GASB requires that investments with determinable fair values be recorded at fair value at year end and unrealized gains reported along with realized gains as "Investment Income-Net Increase in Fair Value of Investments."

Question 13

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

Accepted Answer

Modified accrual accounting requires interest revenues to be accrued at year end.

Question 14

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

Question 15

Private-purpose Trust Funds benefit individuals, private organizations, or other governments.

Accepted Answer

Trusts that generate income for the benefit of individuals, private organizations or other governments are reported in private-purpose trust funds.

Question 16

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 17

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

An advanced refunding exists when the proceeds are placed in an escrow account pending the call date or maturity date of the existing debt. The debt is said to be defeased which means that the old debt is not reported in the financial statements and is replaced by the new debt.

Question 18

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

Accepted Answer

Funds whose earnings benefit individuals, private organizations, or other governments rather than benefit the government or its citizenry are reported in private-purpose trust funds.

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 projects funds are always included in the Budgetary Comparison Schedule.

Accepted Answer

Budgetary reporting is not required for capital projects funds.

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