Deck 7: Capital Assets and Investments in Marketable Securities

Question 1

Which of the following costs will NOT be included in the cost of fixed assets on the government-wide financial statements?

A)Purchase price invoice amount.
B)Cost of demolishing existing structures that cannot be used.
C)Interest on self-constructed items.
D)Engineering costs.

Answer 1

C

Question 2

Lakeview School District, a governmental entity, received 10 computers from Computer Hut, a local computer firm.The computers were a donation to the District by Computer Hut.The cost to Computer Hut for each computer is $2,500.The retail value of each computer is $3,000.Assuming that the District maintains its books and records in a manner that facilitates the preparation of the fund financial statements, what is the appropriate entry in the General Fund to record this donation?

A)Debit Computer equipment $25,000; Credit Donation revenue $25,000.
B)Debit Computer equipment $30,000; Credit Other financing sources-donation $30,000.
C)Debit Computer equipment $30,000; Credit Donation revenue $30,000.
D)No entry is required.The computers are not financial resources.

Answer 2

D

Question 3

Use the following information to answer questions
Rapid City traded in a used pickup for a new pickup with a sticker price of $44,000.The old truck had a historical cost of $40,000, accumulated depreciation of $16,000, and a fair value of $27,000.The dealer took the old truck and $13,000 cash for the new truck.
At what value should the new truck be reported in the government-wide financial statements?

A)$44,000.
B)$43,000.
C)$40,000.
D)$37,000.

Answer 3

D

Question 4

General capital assets are excluded from governmental funds, themselves, because of the funds' measurement focus current financial resources.

Question 5

Governments are prohibited from entering into reverse repurchase agreements.

Question 6

Donated assets are reported in the government-wide financial statements at

A)Historical cost to the donor.
B)Book value in the hands of the donor.
C)Fair value on date of donation.
D)Zero value because they were not purchased.
[NOTE: Guidance on the calculation of gain or loss in the next two series of questions is not covered in this chapter but is from APB Opinion 29.Students should be familiar with this pronouncement from their intermediate accounting classes.]

Question 7

Most infrastructure assets are the responsibility of the federal government, not state and local governments.

Question 8

Governments do not have to depreciate infrastructure assets if they can demonstrate they are preserving them at a specified condition level.

Question 9

General capital assets are distinguished from the capital assets of proprietary funds and fiduciary funds.

Question 10

Jefferson County bought a new backhoe using General Fund cash.When the asset was acquired, what was the appropriate entry that was made in the General Fund, assuming that the entity maintains its books and records in a manner to facilitate the preparation of fund financial statements?

A)Debit Equipment; Credit Cash.
B)Debit Equipment; Credit Investment in fixed assets.
C)Debit Expenditure; Credit Cash.
D)Debit Expenditure; Credit Investment in fixed assets.

Question 11

In governmental funds, the capital asset costs are reported as expenses when the assets are acquired.

Question 12

The objectives of financial reporting for fixed assets should be to provide information

A)About a governmental entity's physical resources.
B)That can be used to assess the service potential of a governmental entity's physical resources.
C)To help users assess a government's long- and short-term capital needs.
D)All of the above.

Question 13

Unlike businesses, governments should not capitalize interest on general capital assets that they construct themselves.

Question 14

Governments invest in marketable securities for much the same reason that businesses do-to earn a return on cash that would otherwise be unproductive.

Question 15

At the government-wide level, governments must depreciate inexhaustible assets, such as land, works of art, or historical treasures.

Question 16

A governmental entity may record long-term assets in which of the following funds or account groups?

A)General Fund
B)Internal service funds.
C)Capital Project Fund
D)Debt Service Fund.

Question 17

General fixed assets are excluded from governmental funds because

A)The measurement focus of governmental funds is on financial resources.
B)They are not used to used generate revenues.
C)The basis of accounting is accrual.
D)None of the above.

Question 18

The City of Shiloh sold a used police car.The police car had a historical cost of $25,000, a fair value of $18,000, and was sold for $10,000.Assuming that the City maintains its books and records in a manner to facilitate the preparation of the fund financial statements, what is the appropriate entry in the General Fund to record this sale?

A)Debit Cash $10,000; Credit Revenue $10,000.
B)Debit Cash $10,000 and Loss on sale $8,000; Credit Automotive equipment $18,000.
C)Debit Cash $10,000; Credit Other financing sources-sale of asset $10,000.
D)Debit Cash $10,000; Credit Automotive equipment $10,000.

Question 19

Use the following information to answer questions
Rapid City traded in a used pickup for a new pickup with a sticker price of $44,000.The old truck had a historical cost of $40,000, accumulated depreciation of $16,000, and a fair value of $27,000.The dealer took the old truck and $13,000 cash for the new truck.
What is the amount of gain/loss that should be reported in the General Fund financial statements?

A)$0.
B)$3,000 gain.
C)$3,000 loss.
D)$7,000 gain.

Question 20

Prior to the issuance of GASB Statement No.34, state and local governments provided virtually no information as to most of their infrastructure.

Question 21

The risk that there will a change in interest or market prices is

A)Market risk.
B)Credit risk.
C)Collaterized risk.
D)Legal risk.

Question 22

Governments must disclose information about investment risks in which of the following categories?

A)Credit risk.
B)Custodial credit risk.
C)Foreign currency risk.
D)All of the above.

Question 23

For a government that elects NOT to capitalize its works of art and similar assets, the appropriate entry when receiving a contribution of a work of art in the government-wide financial statements is

A)No entry is required for contributed assets.
B)Debit Asset; Credit Revenues.
C)Debit Asset; Credit Equity.
D)Debit Expense, Credit Revenue.

Question 24

GASB standards require that depreciation be reported on all capital assets except

A)Infrastructure accounted for using the standard approach.
B)Infrastructure assets accounted for using the modified approach.
C)Donated assets.
D)Capitalized works of art.

Question 25

Which of the following is NOT an infrastructure asset?

A)Roads.
B)Sidewalks.
C)Buildings.
D)Bridges.

Question 26

With regard to capitalization of infrastructure, which of the following is true?

A)All infrastructure assets must be capitalized on the financial statements before GASB Statement 34 can be implemented.
B)Only large governments must capitalize infrastructure assets on the date they implement GASB Statement 34.
C)Only small- and medium-size government may elect to delay capitalization of infrastructure assets.
D)Small governments may omit capitalizing infrastructure assets acquired or that received significant improvements before June 15, 2003.

Question 27

Which of the following is true with regard to deferred maintenance?

A)Deferred maintenance costs are delayed repair, or upkeep, measured by the outlay required to restore a plant or individual asset to full operating characteristics.
B)Deferred maintenance costs should be measured as the amount necessary to bring the assets up to their expected operating condition.
C)Deferred maintenance costs may be interpreted as a potential call upon government resources-an obligation that is being passed on to taxpayers of the future.
D)Deferred maintenance costs are not useful information to readers of financial statements because they are not objective and verifiable and thus violate one of the basic qualitative characteristics of accounting information.

Question 28

A broker-dealer or other financial institution transfers cash to a government in exchange for securities and the government agrees to repay the cash plus interest in exchange for return of the same securities.From the government's point of view, this transaction is a

A)Repurchase agreement.
B)Reverse repurchase agreement.
C)Derivative.
D)Option.

Question 29

For a government that elects to capitalize its works of art and similar assets, the appropriate entry when receiving a contribution of a work of art in the government-wide financial statements is

A)No entry is required for contributed assets.
B)Debit Asset; Credit Revenues.
C)Debit Asset; Credit Equity.
D)Debit Expenditures; Credit Revenues.

Question 30

Which of the following is NOT an example of a derivative?

A)Stock options.
B)Interest-only strips.
C)Debt instruments backed by pools of mortgages.
D)Repurchase agreements.

Question 31

If a government elects to capitalize certain works of art and similar assets, which of the following statement is true relative to depreciation on those assets?

A)Donated assets cannot be depreciated.
B)All of the capitalized assets must be depreciated.
C)All exhaustible works of art and similar assets must be depreciated.
D)The government may elect to omit all depreciation.

Question 32

If a government elects the modified approach with regard to capitalization of infrastructure

A)Costs to preserve infrastructure assets are expensed as incurred with no additional disclosure required.
B)Costs to preserve infrastructure assets are expensed as incurred and disclosure of assessed condition is required.
C)Costs to preserve infrastructure assets are capitalized as incurred and depreciated over the estimated useful with no additional disclosure required.
D)Costs to preserve infrastructure assets are capitalized as incurred and NOT depreciated over the estimated useful life with additional disclosure required.

Question 33

To elect not to capitalize works of art and similar assets, a government must see that the assets meet all of the following criteria EXCEPT

A)The assets must be held for public exhibition, education, or research in furtherance of public service, rather than for financial gain.
B)The assets must be protected, kept unencumbered, cared for and preserved.
C)The assets must be subject to an organizational policy that requires the proceeds form sales of the collection items be used to acquire very similar items for the collection.
D)The assets must be subject to an organizational policy that requires the proceeds from sales of the collection items be used to acquire other items for the collection.

Question 34

The city of Rapid Creek acquired a used front-end loader from a road contractor for use at the landfill which is accounted for in an Enterprise Fund.The loader had a fair value of $54,000 and a historical cost of $90,000.The city paid the contractor $50,000 for the loader.At what amount should be front-end loader be reported in the government-wide financial statements?

A)$50,000.
B)$54,000.
C)$90,000.
D)It should not be reported in the government-wide financial statements.

Question 35

Disclosures about investment risk apply

A)To investments only.
B)To deposits, investments, and derivatives.
C)To deposits and investments.
D)Only to investments held by governmental and proprietary funds.

Question 36

Use the following information to answer questions
Rapid City traded in a used pickup for a new pickup with a sticker price of $44,000.The old truck had a historical cost of $40,000, accumulated depreciation of $16,000, and a fair value of $27,000.The dealer took the old truck and $13,000 cash for the new truck.
What is the amount of gain/loss that should be reported in the government-wide financial statements?

A)$0.
B)$3,000 gain.
C)$3,000 loss.
D)$7,000 gain.

Question 37

If a government receives a donation of a work of art, the government must recognize revenue in its government-wide financial statements

A)Only if it elects to capitalize its collection.
B)Only if it elects NOT to capitalize its collection.
C)On all donations of works of art.
D)It is not permitted to recognize revenue from donations.

Question 38

The risk that the other party to an investment will not fulfill its obligation is

A)Market risk.
B)Credit risk.
C)Collaterized risk.
D)Legal risk.

Question 39

The risk that the transaction will be determined to be prohibited by law, regulation or contract is

A)Market risk.
B)Credit risk.
C)Collaterized risk.
D)Legal risk.

Question 40

For governmental entities, a capital asset is considered impaired

A)When its service capacity has declined significantly and unexpectedly.
B)When it is reported in a governmental fund.
C)When it no longer generates cash flows.
D)When it no longer generates the cash flows expected of it.

Question 41

The government-wide financial statements report capital assets:

A)At estimated fair value
B)At historical cost, including ancillary charges
C)In the general fixed assets account group
D)Only in the notes if they are donated

Question 42

The "restoration cost" approach to determining the extent of an impairment

A)First calculates the percentage decline in the number of service units caused by the impairment.
B)First determines the current cost of an asset that would provide the current impaired level of service.
C)Estimates the cost to restore the utility of an impaired asset.
D)Estimates the change in future cash flows generated by the impaired asset.