Question 1

A government may elect not to report depreciation expense on which type of exhaustible capital assets?

Accepted Answer

Qualifying infrastructure capital assets, such as roads, bridges, and public utilities, may be exempt from depreciation reporting if a government adopts a modified approach. This approach requires maintaining the assets at or above a certain condition level, rather than recording depreciation.

Question 2

A local industry donated one of its properties to the Anywhere School District. The school district plans to convert it to needed classroom space. In the year of the donation, the transaction will affect

Accepted Answer

The answer of A local industry donated one of its...

Question 3

A fire destroyed one of Government A's fire stations, which had a net book value of $635,000. The government received an insurance settlement of $400,000 in the same fiscal year the fire had occurred. Which of the following best describes the external financial reporting in the year of the fire?

Accepted Answer

The fire resulted in a loss of $635,000 (net book value of the fire station), but with the insurance settlement of $400,000, the net loss is $235,000. This loss should be reported in the government-wide financial statements since it is a significant event affecting the long-term financial position of the government. The loss should not be reported in the General Fund since the insurance settlement is considered a non-operating revenue and should be recognized as such. There is no need to report a special item in the government-wide financial statements since the loss is already accounted for. Additionally, there is no need to report the insurance settlement in the General Fund since it is not an operating revenue.

Question 4

Which of the following statements is true concerning intragovernmental transfers of capital assets?

Accepted Answer

When a proprietary fund donates a capital asset to a general government department, it will be reported as a nonoperating expense in the proprietary fund but as a transfer between activities at the government-wide level. This is because the transfer is considered an internal transaction between different components of the same government entity. However, the net book value of the donated asset would also be recognized as revenue in the general government department's accounts.

Question 5

A government entered into a general government capital lease at mid-year. The capitalizable cost of the leased asset was $200,000, including a $30,000 down payment at the inception of the lease. The implicit rate of interest in the lease agreement is 6% and annual payments of $50,000 are due each year during the lease term beginning one year from the inception of the lease. What accounting entities are most likely affected by this transaction?

Accepted Answer

The answer of A government entered into a general government...

Question 6

Jamestown has decided to enter into a capital lease for the purchase of its new recycling truck. The capitalizable cost of the capital asset is $175,000 and Jamestown made a $30,000 down payment at the inception of the lease agreement. The estimated useful life of the truck is ten years with $0 salvage value. Which of the following statements is false?

Accepted Answer

General Fund fund balance will be reduced by the amount of the down payment ($30,000) at the inception of the lease, not by the full capitalizable cost of the asset ($175,000). The rest of the lease amount would typically be recognized in the government-wide financial statements, not directly reducing the General Fund fund balance.

Question 7

A government has a general government capital project underway. In the first year of the project, the government paid $75,000 for land to be used as a building site; signed a contract with a contractor for $8,000,000; was billed $4,500,000 by the contractor for work completed during the year; and paid the contractor $4,050,000. At the end of the first year, what amount of assets should be included in General Capital Assets accounts as a result of this activity?

Accepted Answer

The $75,000 paid for land should be included in the General Capital Assets accounts as an asset.

The total cost of the project is $8,000,000, but only $4,050,000 was paid during the first year. The remaining $3,950,000 is considered a liability and should not be included in the General Capital Assets accounts.

The amount of work completed during the year, $4,500,000, should be included in the General Capital Assets accounts as an asset, even though it was not fully paid for.

Therefore, the total assets that should be included in the General Capital Assets accounts as a result of this activity are $75,000 + $4,500,000 = $4,575,000.

Question 8

Assume that inspection services were performed by the General Fund department on a capital project that is being accounting for in a Capital Project Fund. The inspection is being charged to the project. The entry to record this transaction in the Capital Project Fund would be

Accepted Answer

Since the inspection services were performed by the General Fund department, it is considered an expenditure of the Capital Project Fund. Therefore, the entry would be to debit the expenditures account in the Capital Project Fund and credit the due to General Fund account to show that the General Fund department is owed payment for their services. Option B is incorrect because the inspection did not result in the acquisition of a capital asset. Option C is incorrect because the transaction is not considered an other financing use. Option D is incorrect because the inspection services are not considered revenue for the Capital Project Fund.

Question 9

A bridge construction project, accounted for in a Capital Projects Fund, is in Year 2 of an anticipated three year construction period. In Year 1, costs of $300,000 were incurred. In Year 2, $1,530,000 of costs were incurred. What entry would be necessary in the General Capital Assets accounts for Year 2? $\begin{array}{llr}
&&\text { Debit }&\text {Credit }\ 
 \text { A. } & \text {  Capital Outlay} &\$1,530,000\
 &\text { Cash } &&\$1,530,000\
\text { B. } & \text {  Construction in progress } &\$1,530,000\
 &\text { Cash } &&\$1,530,000\
\text { C.  } & \text { Construction in progress  } &\$1,530,000\
 &\text { Net position. } &&\$1,530,000\
\text { D. } & \text { Construction in progress } &\$1,830,000\
 &\text { Net position. } &&\$1,830,000\
\end{array}$

Accepted Answer

The answer of A bridge construction project, accounted for in...

Question 10

Accumulated depreciation is not reported on which of the following financial statements?

Accepted Answer

Accumulated depreciation is not reported on the General Fund balance sheet because the General Fund accounts for the operations of a government's primary activities, which are typically financed through taxes and intergovernmental revenues. Depreciation is not a significant factor in the General Fund's financial statements. It is, however, reported on the government-wide statement of net position, enterprise fund statement of net position, and private-purpose trust fund statement of fiduciary fund net position.

Question 11

Land was donated to a government for use in a general government activity. The land should be reported in

Accepted Answer

The land should be reported in the General Capital Assets accounts at the acquisition value of the land on the date it was donated to the government. This is because the land is considered a capital asset, and its acquisition value should be recorded in the government's accounting system as a part of its long-term assets. The cost incurred by the donor to acquire the land originally is not relevant to the government's accounting, as the government did not incur those costs themselves. Additionally, the General Fund is used to account for current operations and is not appropriate for long-term assets like land. Finally, the Capital Projects Fund is used to account for projects that are generally funded by bond proceeds or other long-term financing, and is not applicable in this scenario.

Question 12

A local government purchased land to be used for a new city hall to be built within the next five years. The purchase price was for the land's fair value, $1,500,000. The government financed the required $150,000 down payment by securing a short-term note with a local lending institution. The remaining $1,350,000 was financed by issuing certificates of participation. Costs incurred in issuing the certificates of participation totaled $60,000. The land should be capitalized in the General Capital Assets account in the amount of

Accepted Answer

The land should be capitalized at its fair value, which is the purchase price of $1,500,000. Costs incurred in issuing the certificates of participation are not included in the capitalized cost of the land.

Question 13

Heimbaugh County recently lost a lawsuit that it had been defending in court for two years relating to an incident involving one of the county's police officers. The county had always deemed a loss to be improbable. However, a judgment was ultimately rendered against the county and, immediately prior to the current fiscal year end, the county was ordered to pay a total of $300,000. $75,000 is due at year end but payment had not been completed. The remainder is to be paid in installments of $75,000 for an additional three years. How will the external financial statements of the county be affected in the year the court case was settled?

Accepted Answer

The General Fund statements should report expenditures and a current liability of $75,000 (due at year end) and the General Long-Term Liabilities accounts should report a liability of $225,000 (the remaining installments to be paid over the next three years). This is because the county will need to make the $75,000 payment in the current year, and the remaining $225,000 will be paid in future years, making it a long-term liability. The county does not need to report a claims and judgments liability of $300,000 on the General Fund statements because only the portion due within the year is considered a current liability. Additionally, there is no prior period adjustment needed since the liability was incurred and settled in the current fiscal year.

Question 14

The city's new tax collector foreclosed on a piece of land. The fair market value of the land at the time of foreclosure was $9,000. The taxpayer had acquired the property at a cost of $11,000. The past due taxes on the property totaled $4,000. The city plans to retain the land for its use. The land should be recorded in the General Capital Assets accounts in the amount of

Accepted Answer

The land should be recorded at its fair market value at the time of foreclosure, which is $9,000. However, since the city plans to retain the land for its use, it should also record the past due taxes as a revenue (credit) in the amount of $4,000. Therefore, the net amount to be recorded in the General Capital Assets accounts is $9,000 - $4,000 = $5,000.

Question 15

If a government issues bonds with a face value of $5,000,000 at a 2% discount and incurs $55,000 of issuance costs, the General Long-Term Liabilities accounts will report a liability of

Accepted Answer

The bonds are issued at a discount of 2%, so the cash received by the government will be the face value of $5,000,000 minus 2% of $5,000,000, which is $100,000. Therefore, the cash received by the government will be $4,900,000.

In addition, the government incurs $55,000 of issuance costs, which will reduce the amount of cash received by the government. Therefore, the liability reported in the General Long-Term Liabilities accounts will be the face value of $5,000,000 plus the amount of issuance costs, minus the cash received by the government.

So, the liability reported in the General Long-Term Liabilities accounts will be:

$5,000,000 (face value) + $55,000 (issuance costs) - $4,900,000 (cash received) = $155,000.

Therefore, the correct answer is B) $4,900,000.

Question 16

The Town of Nowhere purchased a new telecommunications system for the police department. The town entered into a capital lease to finance the system. In the year of acquisition, entries will be necessary in

Accepted Answer

The answer of The Town of Nowhere purchased a new...

Question 17

Cash payments for compensated absences were $685,000 for the year. The current portion of the compensated absences liability decreased by $62,000 during the year, but the noncurrent portion of the liability increased by $32,000. How will the General Long-Term Liabilities accounts be affected?

Accepted Answer

The General Long-Term Liabilities accounts will be affected by the increase in the noncurrent portion of the liability, which is $32,000. Cash payments and changes in the current portion do not affect these accounts.

Question 18

A local town received a donation of $300,000. The donor stipulated that the money be invested. The investment earnings are to be used to provide funding for the town's recreation programs but the principal is to remain intact. The town should record the $300,000 as

Accepted Answer

The $300,000 should be recorded as a revenue in a Permanent Fund because the principal is to remain intact, and only the earnings from the investment are to be used for funding. Permanent Funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs.

Question 19

A city receives a donation of land from one of its citizens to be used as a park. How should the donation be recognized by the government?

Accepted Answer

The answer of A city receives a donation of land...

Question 20

If a government forecloses on property because of unpaid taxes in the General Fund and retains it for general government use, which of the following funds and/or accounts would most likely be affected by the transaction?

Accepted Answer

The foreclosure and retention of property for general government use would impact both the General Fund and General Capital Assets accounts. The General Fund would be affected by the unpaid taxes, while the retained property would become part of the General Capital Assets, which includes land and buildings used for governmental purposes.

Quiz 9: General Capital Assets; General Long-Term Liabilities; Permanent Fundsintroduction to Interfund-Gca-Gltl Accounting