Question 1

The accounting equation for the Proprietary fund is

Accepted Answer

The accounting equation for the Proprietary fund is: 
Current assets + Noncurrent assets - Current liabilities - Noncurrent liabilities = Net position. This equation reflects the fact that the Proprietary fund is a self-sustaining activity that operates like a business. The assets of the fund are used to generate revenue and the liabilities are the costs of running the activity. The net position represents the residual interest of the owner (government) after deducting all liabilities from all assets. Therefore, option D is the correct answer. Options A, B, and C do not reflect the double-entry accounting system used in the Proprietary fund accounting.

Question 2

Enterprise funds are accounted for in a manner similar to

Accepted Answer

Enterprise funds are used to provide services to the public, just like internal service funds, which are used to provide services to governmental departments. Both are accounted for in a similar manner, with revenues and expenses offsetting each other to determine the net income of the fund.

Question 3

What basis of accounting is used by fiduciary funds?

Accepted Answer

Fiduciary funds use accrual accounting because they need to report assets and liabilities, as well as the changes in them, which is consistent with the nature of fiduciary activities that involve holding resources for the benefit of parties outside the government.

Question 4

The financial statements of a proprietary fund are similar to those of a business enterprise except for

Accepted Answer

The answer of The financial statements of a proprietary fund...

Question 5

What is a significant difference for agency funds when compared to governmental funds?

Accepted Answer

Agency funds, unlike governmental funds, do not report revenues because they are custodial in nature and do not involve the reporting entity's own revenue-generating activities. Instead, they account for resources held by the reporting entity in a purely custodial capacity.

Question 6

Proprietary funds are required to prepare financial statements that include: A. Statement of Activities
B. Statement of Revenues, Expenditures and Changes in Fund Balance
C. Balance Sheet
D. Statement of Cash Flows
E. Statement of Net Position
F. Statement of Revenues, Expenses and Changes in Net Position

Accepted Answer

Proprietary funds, which operate in a manner similar to private businesses, are required to prepare a Statement of Net Position (showing assets, liabilities, and net position), a Statement of Revenues, Expenses, and Changes in Net Position (reflecting operating results), and a Statement of Cash Flows (detailing cash inflows and outflows).

Question 7

The trust fund for a school library is required to prepare financial statements that include

Accepted Answer

The correct choice is D) Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position because these statements are specifically designed for fiduciary funds, like a trust fund, to report their net position and the changes therein over time, reflecting the financial position and the results of financial activities according to accounting standards for such entities.

Question 8

The fixed assets and long-term liabilities associated with Proprietary Funds are reported on the

Accepted Answer

Proprietary funds are used to account for operations that are similar to those found in the private sector, and their financial statements are prepared using accrual accounting rather than modified accrual accounting used by governmental funds. Therefore, the fixed assets and long-term liabilities associated with proprietary funds are reported on the financial statements of proprietary funds.

Question 9

Proceeds from bonds issued for the construction of capital assets are classified on the Statement of Cash Flows for an Enterprise Fund as

Accepted Answer

Proceeds from bonds issued for the construction of capital assets are considered a capital financing activity and should be classified as Cash Flows from Capital and Related Financing Activities on the Statement of Cash Flows for an Enterprise Fund. This is because the funds received from bond issuance are being used to finance long-term capital expenditures.

Question 10

On the Statement of Net Position,in place of stockholders' equity,proprietary funds report

Accepted Answer

Proprietary funds report net position instead of stockholders' equity because they are designed to report on the financial position of the government entity itself, not the interests of outside investors. Net position reflects the difference between the assets and liabilities of the fund, and includes both restricted and unrestricted components.

Question 11

At December 31,2014,an Enterprise Fund has the following adjusted accounts outstanding: $\begin{array}{ll}
\text { Insurance Expense } & \$ 2,000 \
\text { Depreciation Expense } & 3,000 \
\text { Supplies Expense } & 10,000 \
\text { Salaries Expense } & 100,000 \
\text { Service Revenues } & 123,000
\end{array}$ When preparing the closing entry for the temporary accounts at December 31,2014,the Enterprise Fund's accountant will

Accepted Answer

To determine the correct entry, calculate the difference between the total expenses and the service revenues. The total expenses are $2,000 + $3,000 + $10,000 + $100,000 = $115,000. The service revenues are $123,000. The difference, which represents the net increase in net position, is $123,000 - $115,000 = $8,000. In an Enterprise Fund, the closing entry to reflect the net increase in net position due to operations would be to credit Net Position, Unrestricted.

Question 12

On January 1,2014,the General Fund contributes $200,000 cash to the Internal Service Fund.On January 1,2014,the General Fund also loans $100,000 cash to the Internal Service Fund.On January 1,2014,what journal entry does the Internal Service Fund prepare?

Accepted Answer

The Internal Service Fund recognizes the $200,000 as contributed capital because it is a contribution from the General Fund, not a loan. The $100,000 is recognized as an advance from the General Fund because it is a loan that needs to be repaid. Therefore, the cash account is debited for the total amount received ($300,000), and the credits reflect the nature of the transactions: contributed capital for the contribution and an advance for the loan.

Question 13

Interest payments on loans outstanding that do not relate to acquiring,constructing or improving capital assets are classified as ________ on the cash flow statement for an Enterprise Fund.

Accepted Answer

Interest payments on loans outstanding that do not relate to acquiring, constructing or improving capital assets are classified as cash flows from noncapital financing activities on the cash flow statement for an Enterprise Fund.

Question 14

On January 1,2014,the Enterprise Fund for a local city receives an intergovernmental capital grant of $100,000 from the state government.Upon receipt of the cash on February 1,2014,qualifying expenses of $100,000 for the operating grant will be incurred.What journal entry did the Enterprise Fund prepare on January 1,2014?

Accepted Answer

The answer of On January 1,2014,the Enterprise Fund for a...

Question 15

In a Statement of Cash Flows for a proprietary fund,what are the primary categories of cash flow activities?

Accepted Answer

The primary categories of cash flow activities for a proprietary fund are Operating, Noncapital Financing, Capital and Related Financing, and Investing. Choice B correctly identifies these categories. Choice A is incorrect because it does not distinguish between types of financing activities. Choice C is incorrect because it combines financing and investing into each category instead of separating them. Choice D is incorrect because it does not distinguish between noncapital and capital activities.

Question 16

GASB requires ________ method(s)for the cash flow statement for proprietary funds.

Accepted Answer

GASB requires the direct method for the cash flow statement for proprietary funds, which shows the actual cash inflows and outflows during the period. This method helps to provide more useful information for assessing the entity's liquidity and financial performance. The indirect method is not allowed for proprietary funds by GASB.

Question 17

An enterprise fund collects $100,000 cash for customer deposits to insure timely payment for services.What journal entry did the enterprise fund prepare?

Accepted Answer

Customer deposits collected in advance for services are not recognized as revenue until the services are provided. Instead, they are recorded as a liability. The correct entry debits (increases) cash or restricted cash and credits (increases) a liability account, such as Customer Deposits, to reflect the obligation to either provide services or return the cash.

Question 18

The financial statements of proprietary funds are similar to business enterprises with the exception that proprietary funds do not

Accepted Answer

Proprietary funds are usually used to account for activities that are financed primarily by user fees, such as utility services or airport operations. As such, they do not report property taxes because they are not a significant source of revenue for these funds. However, proprietary funds do report fixed assets, separate current and noncurrent assets, and report noncurrent liabilities, just like business enterprises.

Question 19

Platinum City collects state sales taxes quarterly from local businesses and then gives the state revenue department the money at the end of the year.The sales taxes would go in Platinum City's

Accepted Answer

Agency funds are used to account for resources held by a government in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. Since Platinum City collects state sales taxes on behalf of the state and then passes them on to the state revenue department, this activity is best accounted for in an agency fund.

Question 20

What basis of accounting is used by proprietary funds?

Accepted Answer

Proprietary funds are used by government entities to provide goods and services to the public on a user-charge basis. These funds are accounted for using the accrual accounting method. Under accrual accounting, revenue is recognized in the period it is earned, regardless of whether the payment for the goods or services is received in the same period or not. Similarly, expenses are recognized in the period they are incurred, irrespective of whether the payment is made for the same in that period or not. This method provides a more accurate picture of the financial status of the fund compared to cash or modified accrual accounting.

Quiz 21: Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds