Deck 2: Fund Accounting

Question 1

In addition to preparing fund financial statements, governments should also prepare consolidated financial statements to provide information on the financial position and operating results of the government as a single economic entity.

Answer 1

True

Question 2

When a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that excludes long-lived assets and liabilities in its governmental fund types: a. It is in violation of the law.
B) It is in violation of GAAP.
C) It has reported in accordance with GAAP for governmental fund financial statements.
D) It can better measure the results of operations.

Answer 2

C

Question 3

What type of fund is an investment trust fund? a. General fund.
B) Proprietary fund.
C) Fiduciary fund.
D) Service fund.

Answer 3

C

Question 4

The Financial Accounting Standards Board requires all nongovernmental not-for-profit entities to use fund accounting.

Question 5

The basis of accounting determines when transactions and events are recognized.

Question 6

General funds are established to account for resources legally restricted for specified purposes.

Question 7

Fiduciary activities should be reported in fund statements and should be included in the consolidated government-wide statements.

Question 8

A government may report some of its funds on a full accrual basis.

Question 9

Basis of accounting determines which of the following? a. When transactions and events are recognized.
B) What transactions and events will be reported.
C) Where transactions and events will be reported.
D) Why transactions and events will be reported.

Question 10

A city receives a donation from a citizen who specifies that the principal must be invested, and the earnings must be used to support operations of a city-owned recreational facility. The principal of this gift should be accounted for in which of the following funds? a. Trust fund.
B) Special revenue fund.
C) Permanent fund.
D) Internal service fund.

Question 11

Funds divide a government into functional departments.

Question 12

Which of the following is NOT a governmental fund? a. City hall debt service fund.
B) City utilities enterprise fund.
C) Gasoline tax special revenue fund.
D) City hall capital projects fund.

Question 13

A fund is
i. A separate legal entity.
ii. A separate fiscal and accounting entity.

A) I only
B) II only
C) I and II
D) Neither I nor II

Question 14

Which of the following accounts would you least expect to see in a debt service fund? a. Principal payments.
B) Interest charges.
C) Interest earned.
D) Outstanding balance of the debt being serviced.

Question 15

At first glance, the government-wide statement of activities bears little resemblance to the income statement of a business.

Question 16

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays are reported as expenditures, not capital assets.

Question 17

Fund accounting promotes control and accountability over restricted resources.

Question 18

If an entity adopts a full accrual basis of accounting, its measurement focus will automatically be on cash.

Question 19

Fiduciary activities are where governments act as trustee or custodians for individuals or entities other than itself.

Question 20

What is the primary reason that governmental entities use fund accounting? a. Fund accounting is required by law.
B) Fund accounting is required by GAAP.
C) Fund accounting promotes control and accountability over restricted resources.
D) Fund accounting promotes better control over operating activities.

Question 21

Deferred inflow of resources is a. Money that will be collected 5 years from now
B) Money that is in a fiduciary fund until donor restrictions lapse
C) Money collected in the current period that are applicable to the future periods
D) Present obligations that the government has little or no discretion to avoid.

Question 22

The state collects a gasoline tax that must be used to support highway construction and maintenance. The gasoline tax revenue should be accounted for in which of the following funds? a. General fund.
B) Special revenue fund.
C) Debt service fund.
D) Internal service fund.

Question 23

The City of San Jose built a new city hall and financed construction by issuing bonds due in installments over the next 30 years. The proceeds will be accounted for in which of the following funds? a. General fund.
B) Internal service fund.
C) Capital projects fund.
D) Debt service fund.

Question 24

Which of the following transactions should the City of Highland account for in a trust fund? a. General fund contributions received by the city pension plan.
B) Greens fees received from golfers at the city-owned golf course.
C) Grants received from the Federal government to purchase buses to be used for public transit.
D) Proceeds of bonds issued to construct a new city hall building.

Question 25

FASB requires that not-for-profit entities classify net assets into the following i. Not Restricted
Ii) Restricted
Iii) Temporarily Restricted

A) I and III
B) II and III
C) I and II
D) I, II and III

Question 26

Under the GASB Statement No. 34 reporting model, the focus of the government-wide statement of activities is on which of the following? a. Program revenues and general revenues.
B) Program revenues and expenses.
C) Net income.
D) The net cost of each of the government's main functions and programs.

Question 27

Which of the following funds is a proprietary fund? i. Internal service fund.
Ii) Enterprise fund.
Iii) Capital projects fund.

A) I and II
B) II and III
C) I and III
D) None of the above

Question 28

Which of the following sections is NOT required in the comprehensive annual financial report of a city? a. Financial section.
B) Introductory section.
C) Statistical section.
D) Historical section.

Question 29

A not-for-profit entity's statement of activities will report which of the following? a. Net assets as of the beginning of the year.
B) Capital assets.
C) Temporarily restricted net assets.
D) Permanently restricted net assets.

Question 30

Which of the following funds is accounted for on the modified accrual basis of accounting? a. General fund.
B) Internal service fund.
C) Proprietary fund.
D) Pension trust fund.

Question 31

Which of the following statements is NOT required in the financial reports of a not-for-profit entity? a. Statement of position.
B) Statement of restricted funds.
C) Statement of activities.
D) Statement of cash flows.

Question 32

The focus of the government-wide statement of activities of the City of West Hills is on which of the following? a. Determining the total expenses by natural classification.
B) Determining the total expenses by function.
C) Determining the total revenues by function.
D) Determining the net cost of functions.

Question 33

Which of the following funds is a governmental fund? a. Enterprise fund.
B) Debt service fund.
C) Internal service fund.
D) Custodial fund.

Question 34

To fulfill the printing needs of its various departments and agencies, the City has established a Central Print Shop, which bills the various departments and agencies of the city for printing services rendered. The Central Print Shop should be accounted for in which of the following funds. a. Internal service fund.
B) Enterprise fund.
C) General fund.
D) Special revenue fund.

Question 35

Under the GASB Statement No. 34 reporting model, which of the following is required? a. Only one set of financial statements, prepared on the full accrual basis of accounting.
B) Only one set of financial statements, prepared on the modified accrual basis of accounting.
C) Two sets of financial statements, the general and proprietary fund statements prepared on the full accrual method and the government-wide on cash basis.
D) Two sets of financial statements, the general fund statement on modified accrual, the proprietary fund and the government-wide statements on full accrual.

Question 36

For which of the following entities is fund accounting mandated for financial reporting? a. American Hospital Association.
B) City of New York.
C) Grace Lutheran Church.
D) United Way.

Question 37

Which of the following liabilities would NOT be found in the general fund balance sheet of the City of Marmaduke? a. Accounts payable.
B) Due to special revenue fund.
C) Deferred revenue.
D) Bonds payable, due in 5 years.

Question 38

The basic financial statements of a city do NOT include which of the following? a. Government-wide statement of net position.
B) Government-wide statement of activities.
C) Government-wide statement of cash flows.
D) Separate balance sheets for governmental and proprietary funds.

Question 39

Prepaid insurance is classified as a. Committed
B) Restricted
C) Assigned
D) Non-spendable

Question 40

Which of the following assets would NOT be found in the general fund balance sheet of the City of Harrison? a. Cash.
B) Capital assets.
C) Due from special revenue fund.
D) Due from state government.

Question 41

Assume that the City of Amber maintains its books and records in a manner that facilitates the preparation of fund financial statements. Amber City maintains a general fund, a capital projects fund, and a special revenue fund. During the current fiscal year, the city engaged in the following transactions. Record all transactions. Be sure to indicate clearly the fund in which the entry is made.
a. The city sold bonds, face value $26 million, at par to finance the construction of a new city hall.
b. The city purchased two new police cars at a total cost of $50,000.
c. The city collected $8,000 in taxes dedicated for the eradication of noxious weeds.
d. The city spent $6,000 on pesticides for noxious weeds.
e. The city acquired a new tractor for $80,000. The city paid $20,000 in cash and signed a note that is due in three years.

Question 42

The basic financial statements for Ammon City contain the following statements. For each statement identify the appropriate measurement focus and basis of accounting.
a.) Government-wide statement of position
b.) Government-wide statement of activities
c.) Balance sheet-governmental funds
d.) Statement of revenues, expenditures, and changes in fund balance-governmental funds
e.) Statement of net assets-proprietary funds
f.) Statement of revenues, expenses, and changes in fund net assets-proprietary funds

Question 43

Assume that the City of Fort Smith maintains its books and records in a manner that facilitates the preparation of fund financial statements. For each of the following events indicate in which fund(s) of the city the event would be recorded and justify your fund selection.
a. The city collected property taxes levied for the general operations of the city.
b. The city collected property taxes levied to pay principal and interest on bonds issued several years in the past to construct a new fire station.
c. The city collected property taxes levied on a specific area of the city for the purposes of providing more frequent snow removal than is enjoyed by the rest of the city.
d. The city sold bonds to finance the construction of a new city hall.
e. The city sold bonds to finance major renovations at the city-owned electric utility.
f. The city purchased a street sweeping machine.

Question 44

When a fax machine purchased by a governmental entity is received, it should be recorded in the general fund as a(n) a. Expense
B) Encumbrance
C) Expenditure
D) Extravagance

Question 45

For what purposes do governmental entities use agency funds? What are the distinguishing characteristics of agency funds?

Question 46

During the current fiscal year, Mountain View City's water utility, an enterprise fund, rendered billings for water supplied to the general fund. Which of the following accounts should be debited by the general fund? a. Transfer-out to enterprise fund
B) Due to water utility enterprise fund
C) Appropriations
D) Expenditures

Question 47

Katerah City maintains the following funds:
-General
-Special revenue
-Capital projects
-Debt service
-Enterprise
-Investment trust
-Permanent
-Agency
For each of the following transactions, indicate which fund would most likely be used to report the transaction:
a. The city collects $1 million of taxes for an independent fire district located within the city.
b. The city spends $1.2 million on street maintenance using the proceeds of a city gas tax dedicated for road and highway maintenance and improvements.
c. The city receives a bequest of $1.5 million. The donor's will, requires that the principal amount be invested in perpetuity and that the earnings on the investment be used to maintain a city park to be renamed for the donor.
d. The city collects water and sewer fees of $4.2 million.
e. The city pays $4 million to a contractor for work on a new bridge.
f. The city receives $1.3 million to invest on behalf of the county.
g. The city pays its police officers wages of $325,000.
h. The city pays $2.2 million in bond interest on its general obligation debt.

Question 48

The newly established Environmental Council (a nongovernmental not-for-profit organization) uses two funds for internal reporting purposes. The general fund is used to record day-to-day operating transactions. A building fund is used to accumulate resources for a new building to house the Council's operations. Both funds are reported using the accrual basis of accounting. In its first year, the Council engaged in the following transactions:
-It received cash contributions of $500,000. Donors stipulate that $100,000 of this amount must be used for the new building.
-It incurred operating payroll costs of $200,000, of which $180,000 is paid in cash.
-It earned $1,000 in interest (paid in cash) on investments restricted to the acquisition of the new building.
-It transferred $25,000 from its general fund to the building fund.
-It paid $15,000 in fees (accounted for as expenses) for architectural drawings for the proposed building.
a. Prepare journal entries to record the transactions. Be sure to indicate the fund in which the entry would be made.
b. Prepare a statement of revenues, expenses, and other changes in fund balances and a balance sheet. Use a two-column format, one column for each of the Council's two funds.

Question 49

Under the GASB Statement No. 34 reporting model, fund financial statements include separate sets of financial statements for: a. Each major function of the government.
B) Governmental funds, proprietary funds, and fiduciary funds.
C) Governmental funds, enterprise funds, and internal service funds.
D) Governmental funds, special revenue funds, and debt service funds.

Question 50

Assume that Blackfoot County maintains its books and records in a manner that facilitates the preparation of fund financial statements. The county engaged in the following transactions during the current month. Prepare journal entries in the general fund to record these events.
a. Paid salaries to county employees, $100,000.
b. Borrowed $35,000 on a three-year note from a local bank to buy a county car.
c. Purchased the county car for $35,000.
d. Made a $7,000 payment on outstanding accounts payable.
e. Collected $3,500,000 of the current property tax levy.
f. Received a $50,000 grant from the State to support general government activities.

Question 51

The Geneva Housing Authority, a governmental entity, accounts for its activities on a modified accrual basis of accounting. In the current period, it reports the following transactions:
-The Authority issued $2.5 million in long-term bonds.
-The Authority purchased 4 acres of land for $500,000 in cash.
-It sold one of the 4 acres of land for $125,000 in cash.
-It made a $325,000 payment on the debt, consisting of $75,000 of interest and $250,000 of principal.
-It lost a lawsuit filed by one of its renters and was ordered to pay $1 million in damages over 5 years. It made its first cash payment of $200,000.
a. Prepare journal entries to record each of these transactions in the general fund.
b. Based on your entries, prepare a balance sheet and statement of revenues, expenditures, and changes in fund balance for the general fund.
c. Comment on how these statements capture the Authority's economic resources and obligations.
d. Comment on the extent to which the statement of revenues, expenditures, and changes in fund balances captures the Authority's costs of services.
e. When the Authority prepares GAAP financial statements based on GASB Statement No. 34, what assets and liabilities would be added in the Authority's government-wide Statement of Net Assets? What gains and losses would be added in its government-wide Statement of Activities?

Question 52

Which of the following funds of Chessie City would be consolidated to form the governmental activities column in the city's government-wide financial statements? a. General fund, special revenue fund, and agency fund.
B) General fund, debt service fund, and capital projects fund.
C) General fund, enterprise fund, and fiduciary fund.
D) Enterprise fund and internal service fund.

Question 53

Governments use the modified accrual basis of accounting and a current financial resources measurement focus when presenting the governmental fund financial statements but they use the accrual basis of accounting and the flow of economic resources for the government-wide financial statements. What is a basis of accounting? What is measurement focus? How does the selection of one affect the selection of the other?

Question 54

Which fund type would all governments normally include in their fund financial statements? a. Capital projects funds
B) Special revenue funds
C) General fund
D) Fiduciary funds

Question 55

Lakeside Art Center, a nongovernmental not-for-profit entity, receives a contribution of $5 million. The donor stipulates that the contribution must be used to acquire paintings by local artists. Lakeside should classify the contribution as a. Not restricted
B) Restricted
C) Committed
D) Assigned

Question 56

The Chessie Foundation, a newly established governmental entity, engaged in the following transactions:
-A donor made a $1,000,000 pledge, giving the foundation a legally enforceable 90-day note for the full amount.
-The same donor paid $500,000 of the amount pledged.
-The foundation purchased a building for $900,000, paying $90,000 in cash and giving a ten-year mortgage for the balance. The building has a 25-year useful life. The foundation charges a half-year's depreciation for all assets in the year they are acquired.
-The foundation hired five employees. By year-end, these employees have earned $10,000 in salaries and wages for which they have not been paid.
The foundation accounts for its activities in a single fund.
a. Prepare journal entries to record the transactions, making the following alternative assumptions as to the fund's measurement focus:
-Cash only
-Cash plus other current financial resources (cash plus short-term receivables less short-term payables)
-All economic resources
b. Based on your entries, prepare appropriate operating statements and balance sheets for the organization.

Question 57

Wigmore City receives a donation of $10 million from a wealthy citizen who stipulates that the funds be used to acquire and install park benches in the city's Veterans Park. The city should report the donation as an increase in

A) Unassigned fund balance
B) Assigned fund balance
C) Committed fund balance
D) Restricted fund balance

Question 58

Which of the following is NOT included in the financial section of a comprehensive annual financial report? a. Required supplementary information
B) Letter of transmittal
C) Financial statements
D) Notes to the statements

Question 59

Kayla Township issued the following bonds during the year: a. The amount of debt reported in the Township's general fund is:
1. $0
2. $9,000,000
3. $11,000,000
4. $15,800,000
b. The township should report depreciation expense on related new capital assets in:
1. General fund
2. Enterprise fund
3. Enterprise and internal service funds
4. Capital projects fund
c. The bonds issued to construct the new police station should be reported as:
1. Debt proceeds in the general fund
2. Long-term debt in a debt service fund
3. Debt proceeds in a capital projects fund
4. None of the above
d. In accordance with bond covenants the township sets aside $1,000,000 to help ensure that it is able to meet its first payment of principal and interest on the police station debt due one year from the date the bonds were issued. The amount of liability that the township should report in its debt service fund is:
1. $0
2. $1,000,000
3. $9,000,000
4. $8,000,000

Question 60

Why do governments and not-for-profit entities use fund accounting?

Question 61

What are the elements of the financial statements of state and local governments? Which elements relate to statements of net position? How do these elements differ from those reported by businesses?

Question 62

The activities of an internal service fund are presented on the statement of revenues, expenses, and changes in fund net assets in the fund financial statements. Why?

Question 63

What are fiduciary funds? Why don't governments incorporate (consolidate) these funds into their government-wide financial statements?

Question 64

The City of Orlando maintains funds for debt service, capital projects, and special revenues. It does not, however, maintain funds for police, recreation, and general administration. Why do you suppose it does not maintain a separate fund for each of its functional areas?

Question 65

Compare a restricted fund balance with a committed fund balance. Give an example of when a government might use each classification.

Question 66

Why is long-term debt generally not reported in a government's debt service funds?

Question 67

What are the three categories of restrictions that must be used to report the resources of not-for-profit organizations? Who must impose the restrictions in order for them to be reported?

Question 68

GASB Statement No. 34 mandates that the government reconcile total governmental fund balances per the fund balance sheet with net assets of governmental activities per the government-wide statements. What are likely to be the two largest reconciling items for most major cities? Why?