Deck 9: Business-Type Activities

Question 1

The proprietary fund operating statement includes ALL changes in net position including capital contributions.

Answer 1

True

Question 2

GASB Statement No.34 mandates that governments report their cash flows from operations using the indirect method.

Answer 2

False

Question 3

Governments must account for an activity in an enterprise fund only if local laws specifically require use of an enterprise fund.

Answer 3

False

Question 4

Governments may choose whether to account for internal service fund activities on an accrual basis or a modified accrual basis.

Question 5

Governments are required to prepare a statement of cash flows for proprietary funds,but not for governmental funds.

Question 6

Governments are not required to incorporate proprietary fund budgets into the accounting system.

Question 7

Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

Question 8

The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

Question 9

The appropriate basis of accounting for the proprietary funds of a government is

A)Cash basis.
B)Modified accrual.
C)Full accrual.
D)None of the above.

Question 10

Which of the following is a valid argument for separate accounting principles for proprietary activities?

A)Two separate measurement focuses and bases for accounting within the same set of financial statements are confusing.
B)There are no clear-cut distinctions between business and non-business activities.
C)The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to help determine whether current-year revenues were sufficient to pay for current-year services.
D)Surveys of statement users indicate that information on depreciation is not of high priority to government decision makers.

Question 11

The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

Question 12

Which of the following is not a proprietary fund?

A)City Water Enterprise Fund.
B)City Motor Pool Internal Service Fund.
C)City Hall Capital Projects Fund.
D)None of the above.They are all proprietary funds.

Question 13

Which of the following is a valid reason for governments to engage in business-type activities?

A)The government does not want control over the activity.
B)The activity competes with general government activities.
C)The government does not want to subsidize the activity.
D)The government can provide the services more cheaply or efficiently than can a private firm.

Question 14

The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues,expenditures,and changes in net position.

Question 15

In both the fund statements and the government-wide statements,business-type activities and internal service funds are on a full accrual basis,and their measurement focus is on all economic resources.

Question 16

The costs of cleaning up toxic substances seeping out from an abandoned county dump into the town water supply may be accounted for in either a governmental fund or an enterprise fund.

Question 17

The FASB mandates that entities report their cash flows from operations using the direct method.

Question 18

In accounting for closure and postclosure landfill costs in an enterprise fund,a government does not necessarily have to "fund" the costs during the landfill's useful life;it merely has to report both an expense and a liability for them.

Question 19

GASB standards require that governments advance fund landfill closure and postclosure costs on an actuarial basis similar to the advance funding of pension plans.

Question 20

Internal service funds should be consolidated with other governmental funds in the government-wide statements.

Question 21

The appropriate entry in the internal service fund is a debit to cash for $500,000 and a credit for $500,000 to

A)Due to general fund.
B)Nonreciprocal transfer-in.
C)Capital contribution Revenues).
D)Investment provided by the general fund.

Question 22

Over the long run,internal service funds are intended to generate sufficient revenues to cover the

A)Full costs of providing services.
B)Full costs of providing services and earn a profit.
C)Current operating costs of providing services.
D)Current operating costs of providing services and earn an operating profit.

Question 23

In which of the following circumstances must an enterprise fund be used to account for the activity?

A)A newly created electric utility fund will finance its operations by a charge to users based on kilowatt hours used.
B)To finance the acquisition of plant facilities,a newly created electric utility issues general obligation debt.
C)To finance the acquisition of plant facilities,a newly created electric utility issues revenue bonds that will be repaid solely from operations of the electric utility.
D)To acquire needed plant facilities,a newly created electric utility enters into long-term lease agreements.

Question 24

During the current year,the Adams County Solid Waste Landfill,which is accounted for in an enterprise fund,installed wells designed to assist in the ground water monitoring process after closure of the landfill.The landfill has reached 40 percent of its capacity and is expected to continue to accept waste until 2016.The wells cost $80,000 to acquire and install.The appropriate entry to record the addition is a credit to Cash for $80,000 and an $80,000 debit to

A)Landfill assets.
B)Landfill expenses.
C)Liability for landfill costs.
D)Deferred outflow of resourcs.

Question 25

A proprietary fund of a government has some donor-restricted assets.Which of the following best describes where and how those assets will generally be displayed in the fund's financial statements?

A)In a separate restricted asset category on the statement of net position.
B)Intermingled with other assets on the statement of net position.
C)Intermingled with other assets on the statement of net position,but footnoted.
D)In a separate restricted fund.

Question 26

A statement of revenues,expenses,and changes in net position of a proprietary fund should include which of the following in addition to operating revenues,operating expenses,and ending net position?

A)Nonoperating revenues and expenses.
B)Nonoperating revenues and expenses;other changes in net position.
C)Nonoperating revenues and expenses;capital contributions and other changes in net position;beginning net assets.
D)None of the above.

Question 27

Which of the following are required basic statements of a proprietary fund?

A)Balance sheet and income statement.
B)Balance sheet;statement of revenues,expenses,and changes in retained earnings;and statement of cash flows.
C)Statement of net assets and statement of revenues,expenses,and changes in fund net assets.
D)Statement of net position;statement of revenues,expenses,and changes in net position;and statement of cash flows.

Question 28

Jona City has designated an internal service fund as the single fund to account for its self-insurance activities.Most of the insured activities,such as the police department,fire department,and general government functions,are accounted for in the general fund.What is the maximum amount that can be charged to expenditure in the general fund related to the self-insurance activities?

A)The amount of "premium" charged to the general fund by the internal service fund.
B)The amount of actual losses incurred by the insurance activity.
C)The actuarially determined amount necessary to cover claims,expenditures,and catastrophic losses.
D)The amount transferred from the general fund to the internal service fund for self-insurance purposes.

Question 29

Fennell County operates a solid waste landfill that is accounted for in a governmental fund.The county calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $600,000.The entry to record this cost should be

A)Debit landfill expenditure $600,000;Credit liability for landfill costs $600,000
B)Debit landfill expenditure $600,000;Credit liability for landfill costs $600,000 AND include $600,000 as an addition on the schedule of changes in long-term obligations.
C)No entry in the fund;include $600,000 on the schedule of changes in long-term obligations.
D)No entry in the fund;no addition on the schedule of changes in long-term obligations.

Question 30

A government reports the utility services it provides to citizens in a proprietary fund.Which accounting standards must the proprietary fund apply?

A)All FASB pronouncements,unless a FASB pronouncement conflicts with or contradicts a GASB pronouncement.
B)All FASB pronouncements issued prior to November 30,1989,as well as any post-November 30,1989 pronouncements specifically adopted by GASB.
C)All GASB pronouncements.
D)All FASB and AICPA standards incorporated into GASB Statement No.62,as well as any FASB pronouncements issued after November 30,1989 that have been specifically adopted by the GASB.

Question 31

Flora County issues $6 million of revenue bonds to finance construction of additional physical plant facilities for the county sewer system that is accounted for in an enterprise fund.The bond agreement requires that $0.5 million of the proceeds be invested in U.S.Treasury securities to be used to service the debt if revenues in a particular year are insufficient to do so.When it sells the bonds,the county debits restricted cash and credits revenue bonds payable.What additional entry,if any,is needed?

A)No additional entry is needed at this time.
B)Debit restricted net position $0.5 million;Credit unrestricted net position $0.5 million.
C)Debit unrestricted net position $0.5 million;Credit restricted net position $0.5 million.
D)Debit unrestricted retained earnings $0.5 million;Credit restricted retained earnings $0.5 million.

Question 32

Which of the following is a key reason for using business-type accounting to account for proprietary fund activities?

A)The modified accrual basis of accounting captures all the resources and obligations associated with an activity.
B)Depreciation is not recognized in business-type accounting in governments and surveys of statement users indicate that information on depreciation is not of high priority to government decision makers.
C)The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to help determine whether current-year revenues were sufficient to pay for current-year services.
D)Business-type accounting facilitates comparisons with governmental activities.

Question 33

Jay County has designated the General Fund as the single fund to account for its self-insurance activities.What is the maximum amount that can be charged to expenditure in the general fund related to the self-insurance activities?

A)The amount of "premium" charged to the other funds.
B)The amount of actual claims expenditures.
C)The actuarially determined amount necessary to cover claims,expenditures,and catastrophic losses.
D)The amount transferred from other funds and activities to the general fund for self-insurance purposes.

Question 34

Which of the following is NOT true about internal service funds as reported in the fund financial statements?

A)Costs reported by internal service funds are reported twice within the same set of financial statements.
B)Billing rates must be set to cover the full cost of providing the goods or services.
C)Depreciation can be charged to governmental funds through the billing rates established by the internal service fund.
D)Deficits or surpluses in the general fund can be transferred to the internal service fund by adjusting the billing rates.

Question 35

In a statement of net position,the net position of a proprietary fund should be displayed in which of the following categories?

A)Unrestricted fund balance;restricted fund balance;invested in capital assets,net of related debt.
B)Unrestricted net position;restricted net position;invested in capital assets,net of related debt.
C)Unrestricted net assets;restricted net assetsRestricted net assets;retained earnings;unrestricted net assets.

Question 36

The appropriate entry in the general fund to account for this transfer is a credit to cash for $500,000 and a debit for $500,000 to

A)Due from internal service fund.
B)Nonreciprocal transfer-out.
C)Expenditures.
D)Investment in internal service fund.

Question 37

Which of the following is the best rationale/justification for reporting the business-type activities of a government in a separate fund?

A)Laws or regulations require that the activity's costs of providing services be recovered by fees and charges rather than by general purpose taxes or similar charges.
B)Separate funds facilitate budgeting,planning,and control.
C)Separate funds facilitate an assessment of the activity's performance.
D)Separate funds facilitate an assessment of the activity's fiscal status.

Question 38

Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?

A)Appropriation budget.
B)Cash budget.
C)Capital budget.
D)Flexible budget.

Question 39

Cougar City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund.At the date of issue,the appropriate entry in the internal service fund is a $ 2 million debit to cash and a $2 million credit to

A)Bonds payable.
B)Capital contribution revenues).
C)Capital contributed revenues)AND show $2 million as an addition to the schedule of changes in long-term obligations.
D)No entry in the internal service fund.Show $2 million as an addition to the schedule of changes in long-term obligations.

Question 40

Linden County operates a solid waste landfill that is accounted for in an enterprise fund.The county calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $300,000.The entryies)to record this cost should be

A)Debit landfill expense $300,000;Credit liability for landfill costs $300,000
B)Debit landfill expense $300,000;Credit liability for landfill costs $300,000 AND include an addition of $300,000 on the schedule of changes in long-term obligations.
C)Show only an addition of $300,000 on the schedule of changes in long-term obligations.
D)No entry in the fund;No addition on the schedule of changes in long-term obligations.

Question 41

Which of the following entities is required to use the direct method to report its cash flows?

A)City of Gaston Utility Fund.
B)United Way.
C)General Motors.
D)Oak Grove Water Users Association.

Question 42

"Cash flows from investing activities" include which of the following as outflows

A)Repayments of short-term borrowing to finance operations.
B)Interest received on investments.
C)Cash transfers to other funds.
D)Purchase of short-term investments.

Question 43

Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements

A)In the business-type activities column.
B)In the internal service fund column.
C)In the governmental activities column.
D)These balances should not be presented on the government-wide financial statements.

Question 44

The amount the city's self-insurance fund can recognize as revenue is

A)$620,000
B)$600,000.
C)$540,000.
D)$500,000.

Question 45

"Cash flows from noncapital financing activities" include which of the following as outflows

A)Repayment of bonds issued to finance construction of city hall.
B)Deposits into investment pools.
C)Loans to another fund of the same government .
D)Grants made to other governments to support operating activities.

Question 46

The amount the city's general fund can recognize as an expenditure is

A)$620,000.
B)$600,000.
C)$540,000.
D)$500,000.

Question 47

"Cash flows from investing activities" do NOT include which of the following as inflows

A)Receipts from the sale of marketable securities.
B)Interest received on bonds held as short-term investments.
C)Interest received on bonds held as long-term investments.
D)Transfers to other funds.

Question 48

When a government enterprise fund has restricted assets on its statement of net position,which of the following is a true statement?

A)The total of the restricted assets in the asset section will be equal to the "restricted net position" amount in the equity section.
B)The total of the restricted assets will be offset by a liability of an equal amount.
C)The total of the restricted assets less related liabilities will be equal to the "restricted net assets" amount in the equity section.
D)None of the above statements is true.

Question 49

"Cash flows from capital and related financing activities" include which of the following as cash outflows

A)Grants to other governments for operating activities.
B)Grants to other governments for capital asset acquisitions.
C)Payments for services performed by other funds.
D)Purchases of capital assets.

Question 50

On the fund financial statements,internal service activities should be presented

A)In the propriety fund statements,net of interfund eliminations.
B)In the governmental fund statements,net of interfund eliminations.
C)In the proprietary fund statements,without any interfund eliminations.
D)In the governmental fund statements,without any interfund eliminations.

Question 51

"Cash flows from operating activities" include which of the following as inflows

A)Proceeds from short-term borrowing to finance operations.
B)Receipts from property taxes levied to support operations of the activity.
C)Grants from other governments to finance an operating deficit.
D)Any cash receipt that does not meet the definition of investing,capital and related financing,or noncapital financing activities.

Question 52

"Cash flows from capital and related financing activities" include which of the following as inflows

A)Repayment of bonds issued to construct a new city hall building.
B)Interest received on investments.
C)Grant from the state to subsidize the mass transit system.
D)Receipts from the sale of an old backhoe that had been used in general government activities.

Question 53

A government operates a landfill.In the Landfill Enterprise Fund financial statements,which of the following would be reported as a restricted asset?

A)Cash received from the sale of bonds that must,based on the debt covenant,be spent only on building a new landfill runoff treatment plant.
B)Cash that management has voted to use only for landfill expansion.
C)Cash received from the general fund that will be used only to expand the landfill.
D)None of the above.

Question 54

"Cash flows from investing activities" include which of the following as cash inflows

A)Cash collection of receivables for sales of services.
B)Grants for operating activities.
C)Interest and dividends received.
D)Purchases of investments.