Question 1

Special assessments are imposed nonexchange transactions, similar to property tax levies.

Accepted Answer

Special assessments are imposed by government entities on properties for specific projects or improvements, such as road construction or sewer system upgrades. They are not payments for goods or services received and are considered nonexchange transactions. This is similar to property tax levies, which are also nonexchange transactions imposed on properties.

Question 2

With regard to the resources dedicated to the acquisition of fixed assets that will be used in general government activities, which of the following is true?
A)Governments must maintain capital projects funds for resources that are legally restricted to the acquisition of fixed assets.
B)Governments may maintain capital projects funds for resources that are legally restricted to the acquisition of fixed assets.
C)Governments may account for any resources dedicated whether legally or not to the acquisition of fixed assets in any of the governmental funds.
D)Government must account for all resources set aside for fixed asset acquisition in a capital projects fund.

Accepted Answer

A

Question 3

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be reported in the fund as general capital assets.

Accepted Answer

In a capital projects fund, costs incurred on a major construction project are recorded as expenditures, not as general capital assets. General capital assets are recorded in the government-wide financial statements, not in the fund financial statements.

Question 4

When governments establish capital projects funds, they may choose to maintain a separate fund for each major project, or they may choose to combine two or more projects in a single fund.

Accepted Answer

This statement is true. Governments have the option to establish separate funds for each major project or combine multiple projects into a single fund.

Question 5

The debt service fund of a governmental entity is accounted for using which of the following bases of accounting?
A)Budgetary basis.
B)Cash basis.
C)Modified accrual basis.
D)Accrual basis.

Accepted Answer

The debt service fund is accounted for using the modified accrual basis of accounting, which recognizes revenues when they become available and measurable and recognizes expenditures when they are due and payable. This basis of accounting is commonly used by governmental entities for funds that are primarily focused on the repayment of debt.

Question 6

The capital projects fund of a governmental entity is accounted for using which of the following bases of accounting?
A)Budgetary basis.
B)Cash basis.
C)Modified accrual basis.
D)Accrual basis.

Accepted Answer

The capital projects fund of a governmental entity is accounted for using the modified accrual basis of accounting. This basis recognizes revenues when they are both measurable and available, and recognizes expenditures when the related fund liability is incurred. This means that the fund does not recognize revenues or expenditures until they are tied to specific capital projects. The budgetary basis (A) is a method of accounting for the use of resources and the level of authority of the governing body. The cash basis (B) recognizes revenues when they are received and expenditures when they are paid. The accrual basis (D) recognizes revenues when they are earned and expenses when they are incurred, regardless of the timing of cash receipts or payments.

Question 7

The resources to service all general long-term debts of the governmental entity are typically accounted for in debt service funds.

Accepted Answer

Debt service funds are used to account for and track the resources available for servicing long-term debts of the governmental entity, including principal and interest payments.

Question 8

In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

Accepted Answer

Interest revenue on bonds held as investments should be accrued in the period the revenue is earned in accordance with generally accepted accounting principles (GAAP). This is because the revenue represents earnings on the investment, and should be recognized as such in the financial statements for the period in which it was earned.

Question 9

In which fund type would a governmental entity's debt service fund be found?
A)Governmental fund type.
B)Proprietary fund type.
C)Fiduciary fund type.
D)Governmental activities.

Accepted Answer

Govenermental entity's debt service fund is a part of the governmental fund type, which is used to account for the financing of general government services that are not provided for in a proprietary or fiduciary fund type.

Question 10

When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

Accepted Answer

When bonds are issued at a discount, the debt service fund is responsible for the repayment of the bond principal and interest, not for transferring funds to the capital projects fund to cover the discount. The discount reflects the difference between the face value of the bonds and the lower price at which they are sold, but it does not involve a transfer of funds to the capital projects fund.

Question 11

Salt City issued $5 billion of bonds at face value to fund the reconstruction of the major interstate highways in and around their city.The bond underwriters withheld $2 million for underwriting fees and remitted the balance to the City.Assuming the City maintains its books and records in a manner that facilitates the preparation of fund financial statements, how would the underwriting fee be accounted for in the capital projects fund?
A)Reduce Other Financing Sources by $2 million.
B)Reduce Bonds Payable by $2 million.
C)Increase Expenditures by $2 million.
D)It would not be accounted for in the capital projects fund.

Accepted Answer

The answer of Salt City issued $5 billion of bonds...

Question 12

When bonds are issued at a premium, the capital projects fund can transfer those excess resources to the debt service fund.

Accepted Answer

When bonds are issued at a premium, the excess resources can be transferred to the debt service fund to offset future debt service payments. This is because the premium received is considered additional resources available for debt service.

Question 13

The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

Accepted Answer

The interest paid on debt issued for public purposes by state and local governments is generally exempt from federal taxation.

Question 14

Capital projects funds do not report long-term obligations in the fund.

Accepted Answer

Capital projects funds only report assets and liabilities related to the specific capital projects being funded, and do not include long-term obligations outside of those projects.

Question 15

Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt-that is, long-term debt associated primarily with governmental activities.

Accepted Answer

Debt service funds are indeed maintained to account for resources accumulated to pay interest and principal on general long-term debt associated primarily with governmental activities.

Question 16

In which fund type would a governmental entity's capital projects fund be found?
A)Governmental fund type.
B)Proprietary fund type.
C)Fiduciary fund type.
D)Governmental activities.

Accepted Answer

A governmental entity's capital projects fund would be found in the governmental fund type. The governmental fund type is used to account for the financial resources that are used to provide services to the public and to meet the government's financial obligations. Capital projects funds are used to account for the financial resources that are used to acquire or construct major capital facilities, such as buildings, roads, or bridges.

Question 17

Nongovernmental not-for-profits must account for defeasances differently than governments.

Accepted Answer

Nongovernmental not-for-profits follow accounting standards set by the Financial Accounting Standards Board (FASB), while governments follow the Governmental Accounting Standards Board (GASB) standards. Therefore, the accounting treatment for defeasances may differ between the two types of entities.

Question 18

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5% and were sold at 101.Which of the following entries should be made in the Capital Projects Fund to record this event?
A)Debit Cash $2.02 million; Credit Bonds payable $2 million and Premium on bonds payable $.02 million.
B)Debit Cash $2.02 million; Credit Bonds payable $2 million and Other financing sources $.02 million.
C)Debit Cash $2.02 million; Credit Other financing sources $2.02 million.
D)Debit Cash $2.02 million; Credit Other financing sources $2 million and Revenue $.02 million.

Accepted Answer

In the Capital Projects Fund, the entire proceeds from the bond issuance, including the premium, are recorded as "Other financing sources" rather than separating the premium.

Question 19

Use the following information to answer questions 
Voters in Lincoln School District approved the construction of a new high school and approved an $8 million bond issue with a stated rate of interest of 6% to fund the construction.Bids were received and the low bid was $8 million.When the bonds were issued, they sold for face value less bond underwriting fees of $.5 million.The School Board voted to fund the balance of the construction by a transfer from the general fund.
-The entry in the capital projects fund to record the receipt of the bond proceeds would be
A)Debit Cash $7.5 million; Credit Bonds payable $7.5.
B)Debit Cash $7.5 million; Credit Other financing sources $7.5.
C)Debit Cash $7.5 million and Expenditures $.5 million; Credit Bonds payable $8 million.
D)Debit Cash $7.5 million and Expenditures $.5 million; Credit Other financing sources $8.

Accepted Answer

The entry records the cash received ($7.5 million) and the underwriting fees as expenditures ($.5 million), with the total bond proceeds credited to other financing sources ($8 million).

Question 20

Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

Accepted Answer

Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

Quiz 6: Accounting for Capital Projects and Debt Service

Special assessments are imposed nonexchange transactions, similar to property tax levies.

With regard to the resources dedicated to the acquisition of fixed assets that will be used in general government activities, which of the following is true?

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be reported in the fund as general capital assets.

When governments establish capital projects funds, they may choose to maintain a separate fund for each major project, or they may choose to combine two or more projects in a single fund.

The debt service fund of a governmental entity is accounted for using which of the following bases of accounting?

The capital projects fund of a governmental entity is accounted for using which of the following bases of accounting?

The resources to service all general long-term debts of the governmental entity are typically accounted for in debt service funds.

In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

In which fund type would a governmental entity's debt service fund be found?

When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

When bonds are issued at a premium, the capital projects fund can transfer those excess resources to the debt service fund.

The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

Capital projects funds do not report long-term obligations in the fund.

Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt-that is, long-term debt associated primarily with governmental activities.

In which fund type would a governmental entity's capital projects fund be found?

Nongovernmental not-for-profits must account for defeasances differently than governments.

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5% and were sold at 101.Which of the following entries should be made in the Capital Projects Fund to record this event?

Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.