Deck 5: Accounting for General Capital Assets and Capital Projects

Question 1

Capital projects funds generally do not use the Estimated Revenues and Appropriations control accounts; it is also recommended that the Encumbrances control account not be used.

Answer 1

False
Explanation: Contracts and purchase orders for a capital project may be numerous and may be outstanding for several years. Thus, it is recommended that the capital projects fund use encumbrance accounting. However, the legal authorization for a capital project generally eliminates the need for Estimated Revenues and Appropriations accounts unless required by state statutes or local ordinances.

Question 2

Debt backed by both assessments and the full faith and credit of a government should be reported in the governmental activities column of the statement of net assets at the government-wide level.

Answer 2

True
Explanation: Since the government has opted to provide secondary backing for this debt, it is appropriately recorded as debt of the government.

Question 3

Proceeds of tax-supported debt issued for the construction or acquisition of capital assets are recognized by the capital projects fund as "other financing sources" and as a liability in the governmental activities journal.

Answer 3

True
Explanation: The long-term liability would not be recorded in the capital projects fund since it is a governmental fund type. Governmental funds account for only current assets and liabilities.

Question 4

Cash discounts available on purchase of capital assets but not taken should be capitalized as part of the cost of the capital assets.

Question 5

Capital projects funds should use the modified accrual basis of accounting for revenues and expenses.

Question 6

The net cost of demolishing a building on land purchased as a site for an addition to city hall should be debited to Buildings in the governmental activities accounts.

Question 7

If a capital projects fund starts construction of a building in one year and finishes it in a subsequent year an entry must be made in the governmental activities accounts until the building is completed,inspected,and accepted.

Question 8

In addition to required disclosures about general capital assets,a government is required to allocate the depreciation expense on all of its general capital assets to functional categories.

Question 9

The disposal of a general capital asset,resulting in no revenue or expenditure to the government,is recorded only in the governmental activities accounts.

Question 10

GASB standards require that all governmental expenditures for long-lived assets be accounted for by a capital projects fund.

Question 11

Property,plant,and equipment constructed or acquired by use of special assessment financing is recorded in the governmental activities accounts because the assets belong to the government.

Question 12

The General Fund expended $200,000 to buy land to be used by the city electric utility as a site for an office building.This land should be capitalized in the utility fund,not in the governmental activities accounts.

Question 13

The cost of the periodic redecoration of the city mayor's office should be capitalized in the governmental activities accounts.

Question 14

When a bond issue is legally authorized it is usual practice to make either no entry or a memorandum entry in the capital projects fund general journal.

Question 15

General capital assets acquired under capital leases should not be recorded in the governmental activities accounts.

Question 16

If land purchased by a city's proprietary fund,at a cost of $70,000,is later transferred to the city's Park Department (accounted for by the General Fund)it should be recorded in the governmental activities accounts at fair value on the date of transfer.

Question 17

One of the required general capital asset disclosures is a report on the additions to,and deductions from,general capital assets during the course of a fiscal year.

Question 18

In a capital projects fund the offsetting credit to the debit for Assessments Receivable-Current should be to Other Financing Sources-Special Assessments.

Question 19

A government must capitalize the cost of improvements such as roads,bridges,sidewalks,and so forth,because the GASB requires the cost of such assets to be displayed in the basic financial statements.

Question 20

General capital assets must be depreciated and the amount of depreciation for the period should be reported in the operating statement for governmental activities at the government-wide level.

Question 21

Equipment in general governmental service that had been acquired several years ago by a capital projects fund at a cost of $40,000 was sold for $15,000 cash.Accumulated depreciation of $30,000 existed at the time of the sale.The journal entry to be made in the governmental activities journal will include all of the following except

A)A debit to Cash for $15,000.
B)A debit to Accumulated Depreciation for $30,000.
C)A credit to Equipment for $40,000.
D)A credit to Other Financing Sources for $5,000.

Question 22

Even though the life of a capital projects fund is the life of the project,not year-to-year,operating statement accounts and encumbrances should be closed at year-end to facilitate preparation of year-end financial statements.

Question 23

The recorded premium on tax-supported bonds issued should be amortized by a government in the same manner as a bond premium would be amortized by a business that issued bonds.

Question 24

Construction contracts for governmental projects often provide that a certain percentage of each billing by the contractor will be retained by the government until the project is inspected and accepted upon completion.

Question 25

During the year,a wealthy local merchant donated a building to the city of Rosewood.The original cost of the building was $300,000.Accumulated depreciation at the date of the gift amounted to $250,000.The appraised fair market value of the donation at the date of the gift was $600,000,of which $40,000 was the value of the land on which the building was situated.At what amount should Rosewood record this donated property in the governmental activities accounts at the government-wide level?

A)$50,000.
B)$300,000.
C)$600,000.
D)$0.

Question 26

When a project has been completed,inspected,and accepted,retained percentages of contract billings may be paid.

Question 27

The capital assets used by the government departments accounted for in the governmental funds should be reported in

A)The appropriate governmental funds.
B)The property,plant,and equipment fund.
C)Departmental memorandum records.
D)The governmental activities accounts at the government-wide level.

Question 28

The acquisition of long-lived assets under an operating lease does not require any recognition in the accounts of any governmental fund.

Question 29

Which of the following would be considered a general capital asset?

A)A vehicle purchased from General Fund revenues.
B)A vehicle purchased and maintained by an enterprise fund.
C)A computer purchased from revenues of an internal service fund and used by the supplies department.
D)Real estate purchased with the assets of a pension trust fund.

Question 30

The city of Oak Park constructed a new storage facility using the city's own public works employees.Construction costs were incurred in the amount of $900,000,plus $25,000 in interest on short-term notes used to finance construction.What amount should be capitalized as a capital asset?

A)$900,000.
B)$925,000.
C)$875,000.
D)$0.

Question 31

If all asset,liability,and fund equity accounts of a capital projects fund were closed during a certain fiscal year,it is unnecessary to prepare any financial statements for that fund for that year.

Question 32

Because year-end closings are artificial in a capital projects fund it is desirable to debit encumbrances on the first day of the new fiscal year in the amount that was closed at the end of the prior fiscal year.

Question 33

The following items were included in Prairie City's General Fund expenditures for the year ended June How much should be classified as capital assets in Prairie City's General Fund balance sheet at June 30?

A)$0.
B)$4,000.
C)$10,000.
D)$14,000.

Question 34

The following general capital assets were owned by the town of Otterville: What amount should be recorded as capital assets in the town's governmental activities accounts if Otterville follows GASB standards?

A)$0.
B)$3,250,000.
C)$5,250,000.
D)$6,250,000.

Question 35

After all liabilities are paid and the operating statement accounts closed,it is common to transfer any remaining assets of a capital projects fund to the General Fund.

Question 36

Which of the following funds of a government uses the modified accrual basis of accounting?

A)Private-purpose trust fund.
B)Capital projects.
C)Internal service.
D)Enterprise.

Question 37

A patent purchased by a city would be considered a capital asset.

Question 38

Streets,curbs,and sidewalks constructed or acquired through use of capital projects fund resources should never be reported in the financial statements of a government because they are for the use of the public,not for use by the government.

Question 39

Interest incurred on interim or long-term financing during construction of general capital assets cannot be capitalized as part of the cost of those assets.

Question 40

If a bond sale occurs between interest dates,accrued interest sold should be credited to Proceeds of Bonds.

Question 41

A capital projects fund might be used to account for which of the following activities?

A)Maintaining roads and bridges.
B)Building a parking garage.
C)Providing water and sewer services.
D)Servicing long-term debt.

Question 42

Five trucks were leased by Pleasantville under terms qualifying as a capital lease.These trucks are to be used by the fire department.Where would the capital lease transaction be recorded?

A)Internal service fund.
B)Special revenue fund.
C)Plant and equipment fund.
D)Governmental activities.

Question 43

Premiums received on tax-supported bonds are generally transferred to what fund?

A)Internal service fund.
B)Debt service.
C)General.
D)Special revenue.

Question 44

Which of the following is not true for capital projects funds?

A)Capital projects funds use a Construction Work in Progress account to record costs until the project is completed.
B)Encumbrance accounting is generally used.
C)Cash or receivables from special assessments to finance construction projects should be recorded as assets of capital projects funds.
D)Capital projects funds may account for financial resources provided by federal grants as well as for bond proceeds.

Question 45

Which of the following activities or transactions would normally not be accounted for in a capital projects fund?

A)Construction of a new city jail.
B)Construction of airport runways financed by revenue bonds and to be repaid from the revenues of the city airport,an enterprise fund.
C)Lease of a building to be used as a city office building.
D)Construction of a new city park to be maintained primarily from General Fund revenues.

Question 46

Interfund transfers from the General Fund to the capital projects fund to provide partial financing of a capital project would be reported by the capital projects fund as a(an)

A)Fund balance addition.
B)Revenue.
C)Other financing source.
D)Current liability.

Question 47

A city recorded an asset impairment to a Public Works facility.Which of the following is correct concerning the recording of the amount of the asset impairment?

A)The General Fund would record a debit to Expenditures.
B)The General Fund would record a debit to Other Financing Uses-Loss due to Impairment.
C)The governmental activities accounts would record a debit to Loss due to Impairment.
D)The governmental activities accounts would record a debit to Expenses-Public Works.

Question 48

In 2011,Weaver City signed a contract in the amount of $6,000,000 for the construction of a new city hall.Expenditures were $4,000,000 in 2011 and $2,050,000 in 2012,which included a change to the original construction design in the amount of $50,000.What amount should be added to net capital assets in the governmental activities accounts in 2012?

A)$6,000,000
B)$6,050,000
C)$2,050,000
D)$2,000,000.

Question 49

The sale of tax-supported bonds at par for the eventual construction of a new city jail would require recognition in which of the following funds and/or activities?

A)Capital projects and debt service funds.
B)Debt service fund,capital projects,and governmental activities.
C)Debt service fund and the governmental activities.
D)Capital projects fund and the governmental activities.

Question 50

The city of Milan was notified that it had been approved for a state government grant in the amount of $1,000,000 to help finance its new city jail.The money from the grant will be received later in the current fiscal year.The journal entry to record this transaction will include

A)A credit to Other Financing Sources upon notification.
B)A credit to Revenues when all eligibility requirements are met.
C)A credit to Revenues upon receipt of the money from the state.
D)A credit to Other Financing Sources upon receipt of the money from the state.

Question 51

Which of the following is true regarding capital projects funds?

A)Encumbrances accounting is employed.
B)Encumbrances accounting is not normally employed,but Estimated Revenues and Appropriations accounts are used.
C)No budgetary accounts are ever used.
D)All budgetary accounts are employed in the same manner as for the General Fund and special revenue funds.

Question 52

The capital projects fund of Petit City paid salaries to city employees who worked on construction of a capital project.The debit for the entry in the capital projects fund to record this event should be to

A)Departmental expense accounts.
B)Salaries and Wages Expense.
C)Due to General Fund.
D)Construction Expenditures.

Question 53

With regard to depreciation of general capital assets,which of the following statements is correct?

A)Depreciation expense should be recorded in the appropriate governmental funds,and recorded in the governmental activities accounts.
B)Depreciation expense must be recorded in the governmental fund,but no depreciation expense is recorded in the governmental activities accounts.
C)No depreciation can be recorded in any governmental fund,but depreciation expense must be recorded in the governmental activities accounts.
D)No depreciation can be recorded in any governmental fund,nor is it permissible to record depreciation expense in the governmental activities accounts.

Question 54

The city of Columbus issued bonds at par for the construction of a new city office building.Receipt of the bond proceeds would result in journal entries in which funds?

A)Capital Projects Fund: Yes; Debt Service Fund: No
B)Capital Projects Fund: No; Debt Service Fund: Yes
C)Capital Projects Fund: Yes; Debt Service Fund: Yes
D)Capital Projects Fund: No; Debt Service Fund: No

Question 55

A capital lease was used to acquire equipment used by the Police Department,part of the general government.How should the lease be recorded in the governmental activities accounts at the inception of the lease?

A)Fair value.
B)Present value of minimum lease payments.
C)Lower of fair value or present value of minimum lease payments.
D)Leased assets are not recorded in the governmental activities accounts.

Question 56

When materials that were ordered for a capital projects fund for use on a construction project are received but the invoice has not yet paid,what account is debited?

A)Encumbrances.
B)Appropriations.
C)Vouchers payable.
D)Construction Expenditures.

Question 57

Which of the following is a true statement about governments that issue tax-supported debt to finance capital projects?

A)Most states do not permit bonds to be issued at a premium.
B)Accrued interest is recorded as an other financing source of the capital projects fund.
C)Premiums on bonds issued must be amortized in the debt service fund.
D)Premiums on bonds issued is recorded as an other financing source of the debt service fund.

Question 58

What journal entry should be made at the beginning of the fiscal year to reestablish the Encumbrances account of a capital projects fund for a multi-year capital project?

A)Debit Fund Balance and credit Encumbrances.
B)Debit Reserve for Encumbrances and credit Encumbrances.
C)Debit Encumbrances and credit Fund Balance.
D)Debit Encumbrances and credit Reserve for Encumbrances.

Question 59

Which of the following statements is correct concerning interest expenditures incurred during the period of construction of capital projects?

A)Interest expenditures may not be capitalized as part of the cost of general capital assets reported in governmental activities.
B)Interest expenditures may be capitalized as part of the cost of general capital assets reported in the governmental activities accounts at the government-wide level.
C)Interest expenditures must be capitalized as part of the cost of general capital assets reported in the capital projects fund.
D)Interest expenditures may optionally be capitalized as part of the cost of general capital assets reported in the capital projects fund.

Question 60

The budgetary account recommended for use by a capital projects funds is

A)Estimated revenues.
B)Encumbrances.
C)Appropriations.
D)Estimated Other Financing Uses.

Question 61

"Capital projects funds are established by a government to account for all plant or equipment acquired by construction." Do you agree? Why or why not?

Question 62

Maryville is considering the issuance of bonds to fund a capital project.For the following legally feasible bond issue alternatives,discuss the desirability of each alternative from the viewpoint of (1)the official in charge of administering capital projects funds,and (2)taxpayers responsible for repaying the bond issue.
a)$5,000,000 face value,10-year special assessment bonds can be sold at 98 with semiannual interest at the nominal annual rate of 6 percent.The discount would be borne by a debt service fund.
b)Same as item a above,except the discount would be borne by the capital projects fund.
c)The same bond issue can be sold at 103 with semiannual interest at the nominal rate of 9 percent; the premium would be transferred to the debt service fund.
d)Same as item c above,except the premium would be retained by the capital projects fund.

Question 63

At the government-wide level,net assets related to capital assets should be reported as

A)Invested in capital assets,net of related debt.
B)Restricted or unrestricted financial assets,as appropriate.
C)General capital assets,preceding general long-term liabilities.
D)Net equity in capital assets.

Question 64

In late June,the Everready Construction Co.submitted a $600,000 progress billing on a construction contract.On July 2,the bill was approved for payment,subject to a five percent retention,as provided by the contract.Construction expenditures should be debited when

A)The bill is approved for payment.
B)The bill is received.
C)The bill is paid (except for the five percent retention).
D)The final five percent of the bill is paid.

Question 65

The budgetary account recommended for use by a capital projects fund is

A)Estimated other financing sources.
B)Encumbrances.
C)Appropriations.
D)Estimated revenues.

Question 66

"Infrastructure assets (e.g.,roads,bridges,curbs and gutters,streets,etc.)need not be capitalized since they are immovable and not likely to be stolen." Do you agree or disagree? Explain your answer.

Question 67

The following key terms from Chapter 5 relate to general capital assets and capital projects:

A)Bond anticipation notes
B)Infrastructure assets
C)Special assessments
D)General capital assets
E)Capital projects funds
F)Capital improvements funds
G)Capital leases
H)Operating leases
For each of the following definitions,indicate the key term from the list above that best matches the definition by placing the appropriate letter in the blank space next to the definition.

Question 68

Which of the following is one of the requirements that must be met to elect the "modified approach" to reporting certain eligible infrastructure assets?

A)The government omits the cost of the assets from the government-wide statement of net assets.
B)The government maintains the assets at a condition level equal to or greater than 75 percent of the condition of a new asset.
C)The government manages the assets using an asset management system that meets specific criteria.
D)The government gets the permission of the Government Accounting Standards Board.

Question 69

The city of Romeo purchased a squad car for the police department.If the operations of the police department are financed by general revenues,which of the following is correct concerning where the purchase of the car would be recorded?

A)General Fund: No; Governmental Activities: Yes
B)General Fund: No; Governmental Activities: No
C)General Fund: Yes; Governmental Activities: No
D)General Fund: Yes; Governmental Activities: Yes

Question 70

In which of the following funds or activities general journals would it not be appropriate to record depreciation of capital assets?

A)Capital projects fund.
B)Internal service fund.
C)Business-type activities.
D)Governmental activities.

Question 71

How should the capital assets of a capital lease be recorded in the capital projects fund?

Question 72

In late June,the Everready Construction Co.submitted a $600,000 progress billing on a construction contract.On July 2,the bill was approved for payment,subject to a five percent retention,as provided by the contract.The amount that should be debited to Construction Expenditures is

A)$0.
B)$30,000.
C)$570,000.
D)$600,000.

Question 73

A capital projects fund might be used to record which of the following activities?

A)Building an addition to the city council building.
B)Maintaining roads and bridges.
C)Operating a municipal golf course.
D)Paying the principal and interest on debt incurred to build a municipal swimming pool.

Question 74

At the start of a capital lease the journal entry required in the capital projects fund will include which of the following?

A)A debit to Capital Lease Equipment.
B)A debit to Expenditures.
C)A credit to Obligations under Capital Leases.
D)A debit to Other Financing Uses-Capital Leases.

Question 75

One of the common objections to computing depreciation of general capital assets has been that the assets are used for activities that are not expected to generate revenues sufficient to replace the assets; therefore,depreciation expense is not relevant to decisions about the acquisition or use of general capital assets.Evaluate this argument.

Question 76

Equipment acquired several years ago by a capital projects fund and recorded in the governmental activities general journal was sold.The cash received was considered to be unrestricted revenue.Entries are necessary in the

A)General Fund,capital projects fund,and governmental activities.
B)General Fund,capital projects fund,and enterprise fund.
C)General Fund and governmental activities.
D)Governmental activities only.

Question 77

For which of the following assets can the "modified approach" be elected in lieu of depreciation?

A)Buildings and equipment.
B)All general capital assets.
C)All capital assets.
D)Eligible infrastructure assets.

Question 78

When a police vehicle purchased by a government is received,it should be recorded in the governmental activities general journal as a(an)

A)Expenditure.
B)Capital asset.
C)Appropriation.
D)Expense.

Question 79

Which of the following accounts of a capital projects fund should be closed at the end of the fiscal year?

A)Encumbrances.
B)Bond Anticipation Notes Payable.
C)Contracts Payable-Retained Percentage.
D)Temporary Investments.

Question 80

The following are the city of Beaver Creek's capital assets: What aggregate amount should Beaver Creek record in the governmental activities journal?

A)$7,000,000.
B)$8,000,000.
C)$8,700,000.
D)$9,700,000.