Deck 4: Recognizing Revenues in Governmental Funds

Question 1

The budgetary measurement focus of governments is determined by applicable state or local laws.

Answer 1

True

Question 2

The revenue-recognition issues facing governments are generally focused on the exchange transaction earning process, similar to those of businesses.

Answer 2

False

Question 3

Under the accrual basis of accounting used by governments, investment revenues for the current period should include

A)only interest and dividends received.
B)all interest and dividends received during the period plus all accruals of interest and dividends earned.
C)all interest and dividends received plus gains and losses on securities that were sold during the period.
D)all interest and dividends received, all gains and losses on securities sold and all changes in market values on securities held in the portfolio at year-end.

Answer 3

D

Question 4

As used in governmental accounting, interperiod equity refers to a concept of

A)providing the same level of services to citizens each year.
B)measuring whether current year revenues are sufficient to pay for current year services.
C)levying property taxes at the same rate each year.
D)requiring that general fund budgets be balanced each year.

Question 5

Governmental activities tend to derive the majority of their revenues from exchange transactions.

Question 6

The modified accrual basis of accounting is used in presenting the fund financial statements of the governmental funds because

A)it is the superior method of accounting for the economic resources of any entity.
B)it provides information as to the extent the entity achieved interperiod equity.
C)it is budget oriented while facilitating comparisons among entities.
D)it results in accounting measurements based on the substance of transactions.

Question 7

Under the accrual basis of accounting, property tax revenues are recognized

A)when they are received in cash.
B)in the year for which they were levied.
C)in the year for which they were levied and when collection in cash is reasonably assured.
D)they are available to finance expenditures of the fiscal period.

Question 8

Ad valorem taxes are taxes that are based on value.

Question 9

Revenues that cannot be classified as general revenues are by default considered program revenues.

Question 10

As used in defining the modified accrual basis of accounting, the term "available" means

A)received in cash.
B)will be received in cash within 60 days of year-end.
C)collection in cash is reasonably assured.
D)collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period.

Question 11

Under the modified accrual basis of accounting, the amount of property tax revenues that should be recognized by a governmental entity in the current year related to the current year levy will be

A)the total amount of the levy.
B)the expected collectible portion of the levy.
C)the portion of the levy collected.
D)the portion of the levy collected in the current year or within sixty days of the fiscal period.

Question 12

Under the modified accrual basis of accounting, derived nonexchange revenues are recognized when

A)they are earned.
B)they are measurable and available to finance the expenditures of the current period.
C)the underlying exchange transaction occurs.
D)the underlying exchange transaction occurs and they are measurable and available to finance the expenditures of the current period.

Question 13

Sales taxes are taxpayer assessed, that is, parties other than the beneficiary government determine the tax base.

Question 14

Taxes that are imposed on the reporting government's citizens are considered general revenues, even if they are restricted to specific programs.

Question 15

In accounting for property taxes, under the modified accrual basis, existing standards provide that, except in unusual circumstances, revenues should be recognized only if cash is expected to be collected within sixty days of year-end.

Question 16

For fund financial statements, the measurement focus and basis of accounting used by governmental fund types are

A)current financial resources and modified accrual accounting.
B)economic resources and modified accrual accounting.
C)financial resources and full accrual accounting.
D)economic resources and full accrual accounting.

Question 17

If an entity elects to focus on all economic resources, then it should adopt a modified accrual basis of accounting.

Question 18

Income taxes are classified as ad valorem taxes.

Question 19

Under the modified accrual basis of accounting, imposed nonexchange revenues such as fines should be recognized

A)when assessed.
B)when the government has an enforceable legal claim.
C)when collected.
D)when the government has an enforceable legal claim and when the collected within the current period or soon enough thereafter to be used to pay the liabilities of the current period.

Question 20

Under the modified accrual basis of accounting, investment revenues for the current period should include

A)only interest and dividends received.
B)all interest and dividends received during the period plus all accruals of interest and dividends earned.
C)all interest and dividends received plus gains and losses on securities that were sold during the period.
D)all interest and dividends received, all gains and losses on securities sold and all changes in market values on securities held in the portfolio at year-end.

Question 21

During 2011, a state has the following cash collections related to state income taxes Payroll withholdings and estimated payments related to 2011 income $\quad \$ 360$
$4 / 15 / 11$ Balance of 2010 net of $\$ 10$ refunds income taxes $\$ 40$
$1 / 15 / 12$ payroll withholdings and estimated payments related to 2011 income $\quad \$ 30$
$2 / 15 / 12$ payroll withholdings and estimated payments related to 2011 income $\$ 35$
$3 / 15 / 12$ payroll withholdings and estimated payments related to 2012 income $\$ 25$
$4 / 15 / 12$ Balance of 2011 net of $\$ 5$ refunds income taxes $\$ 45$ Assuming that the state defines available as the maximum period allowable for property taxes, what is the amount of revenue that will be recognized in the 2011 governmental fund financial statements related to state income taxes?

A) $400.
B) $405.
C) $430.
D) $465.

Question 22

A City levies a 2% sales tax that is collected for them by the State.Sales tax must be remitted by the merchants to the State by the 20^th day of the month following the month in which the sale occurred.The State has a policy of remitting sales taxes to the City within 30 days of collection by the State.Cash received by the State related to sales tax is as follows: Amount received $1 / 20 / 11$ , applicable to December 2010 sales $\quad\$ 100$
Amount received $2 / 20 / 11$ , applicable to January 2011 sales $\quad\$ 30$
Amount received $3 / 20 / 11$ , applicable to February 2011 sales $\quad\$ 20$
Amount received during 2011 related to March-November 2011 sales $\quad\$ 380$
Amount received 1 / 20 / 12 for December 2011 sales $\quad\$ 110$
Amount received $2 / 20 / 12$ for January 2012 $\quad\$ 40$
Amount received $3 / 20 / 12$ for February 2012 $\quad\$ 10$ Assuming the City uses the same period to define "available" as the maximum period allowable for property taxes, what amount should it recognize as sales tax revenue in its governmental fund financial statements for the fiscal year ended 12/31/11.

A) $430.
B) $530.
C) $540.
D) $550.

Question 23

A City levies a 2% sales tax that is collected for them by the State.Sales tax must be remitted by the merchants to the State by the 20^th day of the month following the month in which the sale occurred.The State has a policy of remitting sales taxes to the City within 30 days of collection by the State.Cash received by the State related to sales tax is as follows: Amount received $1 / 20 / 11$ , applicable to December 2010 sales $\quad\$ 100$
Amount received $2 / 20 / 11$ , applicable to January 2011 sales $\quad\$ 30$
Amount received $3 / 20 / 11$ , applicable to February 2011 sales $\quad\$ 20$
Amount received during 2011 related to March-November 2011 sales $\quad\$ 380$
Amount received 1 / 20 / 12 for December 2011 sales $\quad\$ 110$
Amount received $2 / 20 / 12$ for January 2012 $\quad\$ 40$
Amount received $3 / 20 / 12$ for February 2012 $\quad\$ 10$ Assuming the City uses the same period to define "available" as the maximum period allowable for property taxes, what amount should it recognize as sales tax revenue in its government-wide financial statements for the fiscal year ended 12/31/11.

A) $430.
B) $530.
C) $540.
D) $550.

Question 24

A city that has a 12/31 fiscal year end has adopted a policy of recognizing the maximum amount of property tax revenue allowable under GAAP.Property taxes of $720,0000 of which 10% are estimated to be uncollectible are levied in October 2010 to finance the activities of the fiscal year 2011.During 2011, cash collections related to property taxes levied in October 2010 were $600,000.In 2012 the following amounts related to the property taxes levied in October 2010 were collected: January $30,000; March, $6,000.For the fiscal year ended 12/31/11, what amount should be recognized as property tax revenues related to the 2010 levy on the government-wide financial statements?

A)$720,000.
B)$648,000.
C)$630,000.
D)$600,000.

Question 25

Under the modified accrual basis of accounting, license fees, permits, and other miscellaneous revenue are generally recognized for practical purposes

A)when cash is received.
B)when the exchange takes place.
C)over the period during which the government obtains an enforceable legal claim.
D)when related expenditures are incurred.

Question 26

A City levies a 2% sales tax.Sales tax must be remitted by the merchants to the City by the 20^th day of the month following the month in which the sale occurred.Cash received by the City related to sales tax is as follows: Amount received $1 / 20 / 10$ , applicable to December 2010 sales $\quad\$ 100$
Amount received $2 / 20 / 10$ , applicable to January 2011 sales $\quad\$ 30$
Amount received during 2010 related to February-November 2011 sales $\quad\$ 400$
Amount received 1 / 20 / 12 for December 2011 sales $\quad\$ 110$
Amount received $2 / 20 / 12$ for January 2012 $\quad\$ 40$ Assuming the City uses the same period to define "available" as the maximum period allowable for property taxes, what amount should it recognize in the governmental fund financial statement as sales tax revenue for the fiscal year ended 12/31/11.

A) $430.
B) $530.
C) $540.
D) $550.

Question 27

During 2011, a state has the following cash collections related to state income taxes Payroll withholdings and estimated payments related to 2011 income $\quad \$ 360$
$4 / 15 / 11$ Balance of 2010 net of $\$ 10$ refunds income taxes $\$ 40$
$1 / 15 / 12$ payroll withholdings and estimated payments related to 2011 income $\quad \$ 30$
$2 / 15 / 12$ payroll withholdings and estimated payments related to 2011 income $\$ 35$
$3 / 15 / 12$ payroll withholdings and estimated payments related to 2012 income $\$ 25$
$4 / 15 / 12$ Balance of 2011 net of $\$ 5$ refunds income taxes $\$ 45$ Assuming that the state defines available as the maximum period allowable for property taxes, what is the amount of revenue that will be recognized in the 2011 government-wide financial statements related to state income taxes?

A) $400.
B) $475.
C) $430.
D) $465.

Question 28

A city that has a 12/31 fiscal year end has adopted a policy of recognizing property tax revenue consistent with the 60-day rule allowable period under GAAP.Property taxes of $600,000 of which none are estimated to be uncollectible are levied in October 2010 to finance the activities of fiscal year 2011.Property taxes are due in two installments June 20 and December 20.Cash collections related to property taxes are as follows: $$\begin{array} { r l l } 1 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 25,000 \\2 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 15,000 \\3 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 10,000 \\6 / 20 / 11 & \text { First install ment of taxes levied in 2010, due } 6 / 20 / 11 & \$ 350,000 \\12 / 20 / 11 & \text { Second installment of taxes levied in } 2010 \text {, due } 12 / 20 / 11 & \$ 150,000 \\1 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$ 15,000 \\2 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$ 10,000 \\3 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$5 , 000\end{array}$$ The total amount of property tax revenue that should be recognized in the governmental fund financial statements in 2011 is:

A)$600,000.
B)$575,000.
C)$535,000.
D)$525,000.

Question 29

Under GAAP, income tax revenues should be recognized in the government-wide financial statements in the accounting period

A) when collected in cash by the taxing authority.
B) in which the underlying income was earned, regardless of when collected.
C) in which the underlying income was earned, if collected in the current period or soon enough thereafter to pay liabilities of the current period.
D) when earned.

Question 30

A city that has a 12/31 fiscal year end has adopted a policy of recognizing property tax revenue consistent with the 60-day rule allowable period under GAAP.Property taxes of $600,000 of which none are estimated to be uncollectible are levied in October 2010 to finance the activities of fiscal year 2011.Property taxes are due in two installments June 20 and December 20.Cash collections related to property taxes are as follows: $$\begin{array} { r l l } 1 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 25,000 \\2 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 15,000 \\3 / 15 / 11 & \text { for property taxes levied in 2009, due in } 2010 & \$ 10,000 \\6 / 20 / 11 & \text { First install ment of taxes levied in 2010, due } 6 / 20 / 11 & \$ 350,000 \\12 / 20 / 11 & \text { Second installment of taxes levied in } 2010 \text {, due } 12 / 20 / 11 & \$ 150,000 \\1 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$ 15,000 \\2 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$ 10,000 \\3 / 15 / 12 & \text { for property taxes levied in 2010, due in } 2011 & \$5 , 000\end{array}$$ The total amount of property tax revenue that will be recognized in the government-wide financial statements in 2011 is:

A) $600,000.
B) $575,000.
C) $535,000.
D) $525,000.

Question 31

Under the accrual basis of accounting, imposed nonexchange revenues such as fines should be recognized

A)when assessed.
B)when the government has an enforceable legal claim.
C)when collected.
D)when the government has an enforceable legal claim and when the collected within the current period or soon enough thereafter to be used to pay the liabilities of the current period

Question 32

A City levies a 2% sales tax.Sales tax must be remitted by the merchants to the City by the 20^th day of the month following the month in which the sale occurred.Cash received by the City related to sales tax is as follows: Amount received $1 / 20 / 11$ , applicable to December 2010 sales $\quad\$ 100$
Amount received $2 / 20 / 11$ , applicable to January 2011 sales $\quad\$ 30$
Amount received during 2011 related to February-November 2011 sales $\quad\$ 400$
Amount received 1 / 20 / 12 for December 2011 sales $\quad\$ 110$
Amount received $2 / 20 / 12$ for January 2012 $\quad\$ 40$ Assuming the City uses the same period to define "available" as the maximum period allowable for property taxes, what amount should it recognize in the government-wide financial statement as sales tax revenue for the fiscal year ended 12/31/11.

A) $430.
B) $530.
C) $540.
D) $550.

Question 33

A city that has a 12/31 fiscal year end has adopted a policy of recognizing the maximum amount of property tax revenue allowable under GAAP.Property taxes of $720,0000 of which 10% are estimated to be uncollectible are levied in October 2010 to finance the activities of the fiscal year 2011.During 2011, cash collections related to property taxes levied in October 2010 were $600,000.In 2012 the following amounts related to the property taxes levied in October 2010 were collected: January $30,000; March, $6,000.For the fiscal year ended 12/31/11, what amount should be recognized as property tax revenues related to the 2010 levy on the governmental fund financial statements?

A) $720,000.
B) $648,000.
C) $630,000.
E) $600,000.

Question 34

Under the modified accrual basis of accounting, gains and losses on disposal of fixed assets

A)are not recognized.
B)are recognized when the proceeds cash of the sale are received on the installment basis.
C)are recognized only if there is a gain.
D)are recognized when the sale occurs, regardless of when the cash is collected.

Question 35

Under GAAP, property taxes levied in one fiscal period to finance the activities of the following fiscal period are recognized as revenue in the government-wide financial statements

A) in the year levied.
B) in the year for which they are intended to finance the activities.
C) when collected, regardless of when levied.
D)in the year for which they are intended to finance the activities, if collected within that period or within a period no greater than 60 days after the close of the fiscal year.

Question 36

Under GAAP, property taxes levied in one fiscal period to finance the activities of the following fiscal period are recognized as revenue in the governmental fund financial statements

A) in the year levied.
B) in the year for which they are intended to finance the activities.
C) when collected, regardless of when levied.
D) in the year for which they are intended to finance the activities, if collected within that period or within a period no greater than 60 days after the close of the fiscal year.

Question 37

Under GAAP, income tax revenues should be recognized in the governmental fund financial statements in the accounting period

A) when collected in cash by the taxing authority.
B) in which the underlying income was earned, regardless of when collected.
C) in which the underlying income was earned, if collected in the current period or soon enough thereafter to pay liabilities of the current period.
D) when earned.

Question 38

A city with a 12/31 fiscal year-end requires that restaurants buy a license, renewable yearly.Proceeds of the license fees are intended to pay the salaries of inspectors in the health department.Licenses are issued for a fiscal year from October 1 to September 30.During 2011, cash collections related to licenses were as follows Licenses issued during 2010 for the $10 / 1 / 06 - 9 / 30 / 11$ fiscal year $\quad\$ 30$
Licenses issued during 2010 for the $10 / 1 / 07 - 9 / 30 / 12$ fiscal year $\quad\$ 180$ It is anticipated that during 2012 the amount collected on licenses for the 10/1/07-9/30/08 fiscal year will be $45.In September 2010 the amount collected related to 10/1/06-9/30/07 licenses was $144.What amount should be recognized as revenue in the fund financial statements for the fiscal year ended 12/31/11?

A) $180.
B) $183.
C) $210.
D) $225.

Question 39

Ideally, under the accrual basis of accounting, license fees, permits, and other miscellaneous revenue should be recognized

A)when cash is received.
B)when the exchange takes place.
C)over the period during which the government obtains an enforceable legal claim.
D)when related expenditures are incurred.

Question 40

Under the accrual basis of accounting, gains and losses on disposal of fixed assets

A)are not recognized.
B)are recognized when the proceeds cash of the sale are received on the installment basis.
C)are recognized only if there is a gain.
D)are recognized when the sale occurs, regardless of when the cash is collected.

Question 41

A governmental entity is the recipient of a bequest of a multi-story office building that the government intends to sell to support program activities.The building has a historical of $850,000; a book value in the hands of the benefactor of $700,000; and a fair value of $1,050,000.The city had not yet begun to try to sell the building when its annual financial statements were issued.The city should recognize on its governmental fund financial statements, donations revenue of

A) $-0-.
B) $700,000.
C) $850,000.
D) $1,050,000.

Question 42

Reimbursement-type grant revenues are recognized in the accounting period in which

A)the award is made.
B)the cash is received.
C)the grantee is notified of the award.
D)expenditures are recorded on grant-related activities.

Question 43

For purposes of recognizing property tax revenues in governmental funds, "available" is defined as

A)revenues received within 90 days of year-end.
B)revenues received within 60 days of year-end.
C)revenues received within 120 days of year-end.
D)being up to the judgment of the preparer.

Question 44

A city receives notice of a $150,000 grant from the state to purchase vans to transport physically challenged individuals.Although the city did not receive any of the grant funds during the current year, the city purchased one bus for $65,000 and issues a purchase order for another van for $60,000.The grant revenue that the city should recognize in the government-wide financial statements in the current year is

A) $-0-.
B) $ 65,000.
C) $125,000.
D) $150,000.

Question 45

A governmental entity is the recipient of a bequest of a multi-story office building that the government intends to use as a new city hall.The building has a historical cost of $850,000; a book value in the hands of the benefactor of $700,000; and a fair value of $1,050,000.The city should recognize on its governmental fund financial statements, donations revenue of

A) $-0-.
B) $700,000.
C) $850,000.
D) $1,050,000.

Question 46

A city receives a $150,000 grant from the state to purchase vans to transport physically challenged individuals.During the current year the city receives the entire $150,000 and purchases one bus for $65,000 and issues a purchase order for another van for $60,000.The grant revenue that the city should recognize on the government-wide financial statements in the current year is

A) $-0-.
B) $ 65,000.
C) $125,000.
D) $150,000.

Question 47

State governments should recognize food stamp revenue

A)when it receives the food stamps.
B)when food stamps are distributed by the state to eligible recipients.
C)when the recipient uses the food stamps
D)never.Food stamps are not financial resources.

Question 48

Which of the following is not characterized as non-exchange?

A)Sales taxes
B)Property taxes
C)Fines and forfeits
D)Charges for services

Question 49

Governmental entities should recognize revenue from donated fixed assets that will be sold to support programs of the entity at which amount in their government-wide financial statements?

A) historical cost to the donor.
B) book value in the hands of the donor.
C) fair value of the donated assets.
D) zero.

Question 50

During 2011, the city issued $300 in fines for failure to keep real property in 'acceptable' condition.During that period the city spent $200 to mow and clean up the unoccupied properties for which the fines were assessed.The city estimates that $30 of the fines issued in 2012 will be uncollectible.During 2011 the city collected $230 related to 2011 fines and $20 related to 2010 fines.The amount of revenue that the city should recognize in its 2011 governmental fund financial statements related to fines is

A) $230.
B) $250.
C) $270.
D) $300.

Question 51

Which of the following is a derived tax revenue?

A)Income taxes
B)Sales taxes
C)Both of the above
D)Neither of the above

Question 52

Endowments are provided to governments with the specification that only the revenues generated from-not the contributed assets-may be used to finance specific programs.A government should recognize revenue from the initial endowment when

A)it receives the assets cash.
B)when it receives the pledge.
C)ratably over 30 years.
D)never.The contributions themselves cannot be used to support the government's programs.

Question 53

A local governmental entity began the year with a portfolio of securities with an historical cost of $1,200 and a fair value of $1,240.During the year the government acquired an additional security at a cost of $260 and sold for $200 a security that had an historical cost of $172 and a fair value at the beginning of the year of $190.At the end of the year, the securities portfolio had a fair value of $1,330.The amount that should be recognized on the financial statements for the year as investment income is

A)$10.
B)$20.
C)$28.
D)$30.

Question 54

Under GAAP, investment income for governmental entities must include

A)only dividends and interest received during the period.
B)only dividends and interest earned during the period.
C)only realized gains and losses.
D)dividends and interest received during the period and both realized and unrealized gains and losses

Question 55

At the beginning of its fiscal year, a local government owned an investment with a historical cost of $85 and a fair value of $95.During the year, dividends of $2 were received.At the end of the year, the investment had a fair value of $100.The amount that should be recognized on the governmental fund financial statements for the year as investment income is

A)$-0-.
B)$7.
C)$15.
D)$17.

Question 56

Payments made to a state pension plan by the state government on behalf-of a local government should

A)not be displayed or disclosed in the local government financial statements.
B)be displayed as a revenue in the local government financial statements.
C)be displayed as both a revenue and an expenditure in the local government financial statements.
D)should be disclosed, but not displayed, in the local government financial statements.

Question 57

Unrestricted grant revenues with a time requirement should be recognized

A)when the award is announced.
B)when the cash is received.
C)in the period in which the grant is required to be used.
D)when expenditures are recognized on grant-related activities.

Question 58

A city is the recipient of a cash bequest of $500,000 that must be used to plant flowers and shrubs in the city parks.During the year only $200,000 is actually received from the bequest and $150,000 is spent on shrubs.The amount that should be recognized as revenue by the city in its government-wide financial statements in the current year is

A) $-0-.
B) $150,000.
C) $200,000.
D) $500,000.