Question 1

The proprietary fund operating statement includes ALL changes in net assets including capital contributions.

Accepted Answer

The proprietary fund operating statement reports all changes in net assets, including operating revenues and expenses, non-operating revenues and expenses, and capital contributions or withdrawals.

Question 2

Which of the following is not a proprietary fund?
A)City Water Enterprise Fund.
B)City Motor Pool Internal Service Fund.
C)City Hall Capital Project Fund.
D)None of the above.They are all proprietary funds.

Accepted Answer

The City Hall Capital Project Fund is not a proprietary fund. It is a governmental fund used to account for the acquisition or construction of major capital facilities or infrastructure that will benefit the entire community. The other options, City Water Enterprise Fund and City Motor Pool Internal Service Fund, are both proprietary funds.

Question 3

GASB Statement No.34 mandates that governments report their cash flows from operations using the indirect method.

Accepted Answer

GASB Statement No. 34 allows governments to report their cash flows from operations using either the direct or indirect method, but it encourages the direct method.

Question 4

The FASB mandates entities report their cash flows from operations using the direct method.

Accepted Answer

The FASB allows entities to report cash flows from operations using either the direct or indirect method, but it does not mandate the use of the direct method.

Question 5

Use the following information to answer 
The City of Brockton voted to establish an internal service fund to account for its printing services.The City transferred $500,000 cash from the General Fund to the newly created internal service fund.
-The appropriate entry in the general fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to
A)Due from internal service fund.
B)Transfer out.
C)Expenditures.
D)Investment in internal service fund.

Accepted Answer

The appropriate entry in the general fund to account for transferring $500,000 to the internal service fund would be a credit to cash for $500,000 and a debit for $500,000 to "Transfer out". This is because the funds are being transferred from the General Fund to the newly created internal service fund. "Transfer out" would represent this transfer of funds from the General Fund to another fund.

Question 6

Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?
A)Appropriation budget.
B)Cash budget.
C)Capital budget.
D)Flexible budget.

Accepted Answer

Appropriation budgets are typically associated with governmental funds, such as general funds, rather than proprietary funds. Proprietary funds, like enterprise funds, operate in a manner similar to private businesses and therefore use budgets like cash, capital, and flexible budgets that reflect their revenue-generating activities.

Question 7

The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

Accepted Answer

Proprietary fund statements and government-wide statements use the same basis of accounting, so the amounts reported should be the same.

Question 8

Which of the following is a key reason for using business-type accounting to account for proprietary fund activities?
A)The modified accrual basis of accounting captures all the resources and obligations associated with an activity.
B)Depreciation is not recognized in business-type accounting in governments and surveys of statement users indicate that information on depreciation is not of high priority to governmental decision makers.
C)The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.
D)Business-type accounting facilitates comparisons with governmental activities.

Accepted Answer

The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. This is a key reason for using business-type accounting for proprietary fund activities.

Question 9

Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

Accepted Answer

Enterprise funds are self-sustaining, business-like activities that do not rely on tax revenue or appropriations from the government. Therefore, they do not typically require formal legislative approval or incorporation into the government's accounting system.

Question 10

The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

Accepted Answer

Internal service funds are established by a government to provide goods or services to other departments or agencies within the same government. The revenues of an internal service fund are generated from charges for these goods or services, and the expenditures and expenses of the fund are the costs associated with providing them. Therefore, the revenues of an internal service fund are the expenditures and expenses of other funds within the same government.

Question 11

A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet.Which of the following best describes where and how those assets will generally be displayed?
A)In a separate restricted asset category on the statement of net assets.
B)Intermingled with other assets on the statement of net assets.
C)Intermingled with other assets on the statement of net assets but footnoted.
D)In a separate restricted fund.

Accepted Answer

Donor-restricted assets will typically be displayed in a separate restricted asset category on the statement of net assets. This provides transparency and clarity for readers to understand the nature and purpose of the restricted funds.

Question 12

The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets.

Accepted Answer

The correct name for the operating statement for proprietary funds is the "Statement of Revenues, Expenses, and Changes in Fund Net Position."

Question 13

Which of the following is a valid reason for governmental entities to engage in business-type activities?
A)The entity does not want control over the activity.
B)The activity competes with general government activities.
C)The entity does not want to subsidize the activity.
D)The entity can provide the services more cheaply or efficiently than can a private firm.

Accepted Answer

The valid reason for governmental entities to engage in business-type activities would be if they can provide the services more cheaply or efficiently than a private firm.

Question 14

A governmental entity reports its utility services provided to the citizens in a proprietary fund.Which of the following best represents an acceptable election of accounting standards for the proprietary fund? Unless the FASB pronouncement conflicts with or contradicts a GASB pronouncement, a propriety fund must adhere to
A)All FASB pronouncements.
B)All FASB pronouncements issued prior to November 30, 1989, as well as any post-November 30, 1989 pronouncements specifically adopted by GASB.
C)It must apply only GASB standards.
D)It may elect either a or b.

Accepted Answer

According to GASB Statement No. 20, unless otherwise required by GASB, a proprietary fund may elect to follow either GASB standards or FASB pronouncements issued on or before November 30, 1989, and any subsequent pronouncements specifically adopted by GASB. Therefore, the best choice is (D), as it correctly reflects the options available to a government entity reporting utility services provided in a proprietary fund.

Question 15

The appropriate basis of accounting for the proprietary funds of a governmental entity is
A)Cash basis.
B)Modified accrual.
C)Full accrual.
D)None of the above.

Accepted Answer

The proprietary funds of a governmental entity are enterprise funds and internal service funds that are primarily charged with providing goods or services to other funds or departments within the government. Since these funds operate similarly to businesses, full accrual basis of accounting is appropriate for them. This means that transactions are recognized when they occur, regardless of when cash is received or paid. This method provides a more complete picture of the financial position and operating results of these funds. Therefore, Option C is the best choice.

Question 16

In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to "fund" the costs during the landfill's useful life; it merely has to report both an expense and a liability for them.

Accepted Answer

The government does not actually have to set aside funding for closure and postclosure landfill costs during the landfill's useful life, but it must recognize both the expense and liability in its financial statements.

Question 17

In both the fund statements and the government-wide statements, business-type activities and internal service funds are on a full accrual basis, and their measurement focus is on all economic resources.

Accepted Answer

Business-type activities and internal service funds are reported on a full accrual basis with an emphasis on economic resources in both the fund statements and the government-wide statements.

Question 18

Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds.

Accepted Answer

This statement is true. Proprietary funds, which include enterprise and internal service funds, are required to prepare a statement of cash flows according to generally accepted accounting principles (GAAP). However, governmental funds, such as the general fund and special revenue funds, are not required to prepare a statement of cash flows under GAAP.

Question 19

The appropriate measurement focus for the business-type activities of the City of Rockford is
A)Current financial resources.
B)Economic resources.
C)Both a and b.
D)None of the above.

Accepted Answer

The appropriate measurement focus for business-type activities is economic resources, as these activities are undertaken to generate revenues and incur costs in order to earn a profit or meet other financial objectives. The economic resources measurement focus recognizes assets, liabilities, revenues, and expenses when they are economically earned or incurred, regardless of when they are received or paid. This approach provides a more accurate representation of the overall financial position and results of business-type activities. Current financial resources measurement focus is appropriate for governmental-type activities, where the emphasis is on the availability or use of funds rather than earning a profit.

Question 20

Which of the following is a valid argument for separate accounting principles for proprietary activities?
A)Two separate measurement focuses and bases for accounting within the same set of financial statements are confusing.
B)There are no clear-cut distinctions between business and non-business activities.
C)The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.
D)Surveys of statement users indicate that information on depreciation is not of high priority to governmental decision makers.

Accepted Answer

The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

Quiz 9: Business-Type Activities

The proprietary fund operating statement includes ALL changes in net assets including capital contributions.

Which of the following is not a proprietary fund?

GASB Statement No.34 mandates that governments report their cash flows from operations using the indirect method.

The FASB mandates entities report their cash flows from operations using the direct method.

Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund?

The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting.

Which of the following is a key reason for using business-type accounting to account for proprietary fund activities?

Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems.

The revenues of an internal service fund are the expenditures and expenses of other funds of that government.

A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet.Which of the following best describes where and how those assets will generally be displayed?

The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets.

Which of the following is a valid reason for governmental entities to engage in business-type activities?

The appropriate basis of accounting for the proprietary funds of a governmental entity is

In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to "fund" the costs during the landfill's useful life; it merely has to report both an expense and a liability for them.

In both the fund statements and the government-wide statements, business-type activities and internal service funds are on a full accrual basis, and their measurement focus is on all economic resources.

Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds.

The appropriate measurement focus for the business-type activities of the City of Rockford is

Which of the following is a valid argument for separate accounting principles for proprietary activities?