Question 1

The City of Maysville's General Fund balance sheet for its December 31,2013 year end shows inventory of $28,000 and prepaid rent of $10,000.The city also had $60,000 of outstanding encumbrances in its General Fund at year-end.In December 2013,a grantor provided the City with $42,000 that must be used to buy musical instruments for the city's youth orchestra.No instruments had been purchased at year-end.How much should the city report as restricted fund balance in its General Fund on December 31,2013?

Accepted Answer

The correct answer is $42,000, which represents the grant provided specifically for the purchase of musical instruments. This amount is restricted for a specific purpose and should be reported as restricted fund balance in the General Fund. The other items listed (inventory, prepaid rent, and outstanding encumbrances) do not affect the restricted fund balance in this context.

Question 2

A county has $3,650,000 of outstanding encumbrances related to unassigned resources at year-end,December 31,2013.It expects to accept delivery on all orders in 2014.How should the county handle the outstanding encumbrances in its General Fund balance sheet at December 31,2013?

Accepted Answer

Encumbrances represent commitments related to unperformed (unfulfilled) contracts for goods or services. They should be reported as part of the assigned fund balance to indicate that these resources have been earmarked for specific purposes and are not available for general use.

Question 3

The attorneys for the City of Hensley believe that a lawsuit filed against the city will be settled late in the next fiscal year.The attorneys believe that it is probable that the city will have to pay the claimants $30,000 to settle the lawsuit,but it is possible that it could be settled for as little as $15,000 or as much as $40,000.How much should the city accrue as a liability in the General Fund for its current fiscal year?

Accepted Answer

The answer of The attorneys for the City of Hensley...

Question 4

The General Fund lends cash at the beginning of the year to an Enterprise Fund,expecting to be repaid before the end of the year.What account should be debited in the General Fund?

Accepted Answer

The General Fund should debit the "due from enterprise fund" account because it represents the amount owed to the General Fund by the Enterprise Fund. This account serves as an asset account for the General Fund and a liability account for the Enterprise Fund until the loan is repaid.

Question 5

Which of the following describes the proper accounting procedure for supplies in the General Fund?

Accepted Answer

CBoth A and C describe acceptable methods for accounting for supplies in the General Fund according to generally accepted accounting principles (GAAP) for governmental entities. A) allows for the choice between the purchases method (expensing supplies when purchased) and the consumption method (expensing supplies when used), with inventories shown on the balance sheet if they are material. C) describes the consumption method, where supplies are initially recorded as assets and then expensed as they are consumed.

Question 6

Which of the following best describes an assignment of fund balance?

Accepted Answer

An assignment of fund balance reflects a government's intent to spend resources for specific purposes, indicating plans or intentions for specific financial uses without the formal constraints associated with committed or restricted fund balances.

Question 7

The General Fund provides a recurring annual subsidy to the Mass Transit Enterprise Fund to keep bus fares at a reasonable level.How should the General Fund report the subsidy in its financial statements?

Accepted Answer

The General Fund should report the subsidy as a transfer out in its financial statements because it is transferring funds to another fund (Mass Transit Enterprise Fund). It is not an expenditure because the purpose of the subsidy is to support the operations of the Mass Transit Enterprise Fund and not for the benefit of the General Fund itself. It is not a long-term advance because the subsidy is provided annually and not as a one-time advance. It is also not a reimbursement because there is no expense incurred by the General Fund that needs to be reimbursed.

Question 8

A General Fund receives an invoice from the Electric Utility Fund (an Enterprise Fund)for electricity provided by the Utility Fund.When it receives the invoice,what account should be debited in the General Fund?

Accepted Answer

The General Fund should debit the Expenditures - Utility Services account when it receives an invoice from the Electric Utility Fund. This account represents the expenses incurred by the general government for utility services, including electricity. The Due From Electric Utility Fund account represents the amount owed to the General Fund by the Electric Utility Fund, and the Transfer In From Electric Utility Fund account represents the transfer of funds from the Electric Utility Fund to the General Fund, which is not applicable in this scenario. The Due To Electric Utility Fund account represents the amount owed by the General Fund to the Electric Utility Fund, which is also not applicable here. Therefore, the correct option is C) Expenditures - Utility Services.

Question 9

A city paid $40,000 for police cars with the expectation that they would have a useful life of four years.After three years,the city sold the cars for $3,000.How should the city account for the sale in the General Fund?

Accepted Answer

Under the modified accrual basis of accounting used in governmental funds, the sale of capital assets is not recorded in the same way as it is under full accrual accounting. Instead of recognizing gains or losses on the sale of assets, the proceeds from the sale are typically recorded as "other financing sources." Therefore, when the city sells the police cars, it should debit cash for the amount received ($3,000) and credit "other financing source--sale of capital assets" for the same amount, reflecting the inflow of financial resources from the sale.

Question 10

A town's garbage trucks accidentally sideswiped two parked automobiles in the year ended December 31,2013.One case was settled for $3,000,and the town expects to pay it in January 2014.In the other case,the claimant originally demanded $15,000.The town attorney thinks they can settle the claim for $10,000,but it probably will take two years to settle the case.What amount should the town report as a claims liability on the General Fund's December 31,2013 balance sheet?

Accepted Answer

As of December 31, 2013, the town only has one settled case that they expect to pay in January 2014 for $3,000. Therefore, the claims liability should be reported as $3,000. The other potential settlement that may occur in two years should not be included in the liability until it is actually settled.

Question 11

In the statement of revenues,expenditures,and changes in fund balances,a transfer received by the Debt Service Fund from the General Fund should be reported by the Debt Service Fund as a:

Accepted Answer

A transfer received by the Debt Service Fund from the General Fund is reported as a "transfer in" in the other financing sources/uses section of the statement of revenues, expenditures, and changes in fund balances. This is because it is a source of financing for the Debt Service Fund, which is not generated from its own operations or other revenue sources, but rather transferred from another fund.

Question 12

A city uses the purchases method of accounting for supplies in the General Fund.At year-end,the amount of supplies on hand is material and the city wants to report the inventory in its balance sheet.How should the General Fund record the inventory?

Accepted Answer

The correct way to record the inventory in the General Fund under the purchases method, when the inventory is material and the city wants to report it on the balance sheet, is to debit supplies inventory and credit nonspendable fund balance. This reflects that the inventory is not available for spending on other purposes.

Question 13

The General Fund of a city pays all utility bills received from private companies for services provided to city agencies.It then bills other funds for their shares of the bills.On May 10,the General Fund pays an electric bill for $230,000.It then sends a bill to the Library Special Revenue Fund for $4,000,representing the library's share of the bill.Which account should the General Fund credit when it sends the bill to the Library Special Revenue Fund?

Accepted Answer

The answer of The General Fund of a city pays...

Question 14

Governmental fund liabilities are:

Accepted Answer

Governmental fund liabilities are claims that can be paid using the current financial resources of the fund. They are not obligations that are due in the future or that require the use of long-term assets. Therefore, choice A, which states that governmental fund liabilities are claims against current financial resources, is the correct answer.

Question 15

Which of the following liabilities normally would not be reported in governmental funds?

Accepted Answer

Bonds payable are typically reported in the government-wide financial statements rather than the governmental funds financial statements. Governmental funds use the modified accrual basis of accounting, which focuses on short-term financial resources and liabilities, whereas bonds payable are long-term liabilities.

Question 16

The City of Maysville's General Fund balance sheet for its December 31,2013 year end shows inventory of $28,000 and prepaid rent of $10,000.The city also had $60,000 of outstanding encumbrances in its General Fund at year-end.In December 2013,a grantor provided the City with $42,000 that must be used to pay musicians who perform in the city's series of summer concerts in the park during 2014.How much should the city report as nonspendable fund balance in its General Fund on December 31,2013?

Accepted Answer

Nonspendable fund balance includes inventory and prepaid expenses, which total $38,000 ($28,000 + $10,000). The outstanding encumbrances and grant funds are either committed or assigned fund balances, not nonspendable.

Question 17

The city council decides to close the Library Special Revenue fund and send its remaining resources ($45,000 cash)to the General Fund.What account should the Library Special Revenue Fund debit when it sends the cash to the General Fund?

Accepted Answer

When a fund sends its remaining resources to another fund, it is considered a transfer out. Therefore, the Library Special Revenue Fund should debit the account "transfer out to general fund" to properly account for this transaction. Option A "advance to general fund" is incorrect because it implies the transfer of resources from the General Fund to the Library Special Revenue Fund, which is not the case. Option C "due from general fund" is incorrect because it implies that the General Fund owes money to the Library Special Revenue Fund, which is not the case. Option D "expenditures - fund closeout" is incorrect because it reflects a transaction that would happen in the receiving fund, not the transferring fund.

Question 18

Which of the following interfund transactions will be reported as a separate line item in the operating statement of a General Fund?

Accepted Answer

Transfers out to a debt service fund will be reported as a separate line item in the operating statement of a General Fund, while the other listed transactions will not be reported as separate line items.

Question 19

The City of Maysville's General Fund balance sheet for its December 31,2013 year end shows inventory of $28,000 and prepaid rent of $10,000.The city also had $60,000 of outstanding encumbrances related to unassigned resources in its General Fund at year-end.In December 2013,a grantor provided the City with $42,000 that must be used to pay musicians who perform in the city's series of summer concerts in the park during 2014.How much should the city report as assigned fund balance in its General Fund on December 31,2013?

Accepted Answer

The assigned fund balance includes amounts intended for specific purposes. The $60,000 of outstanding encumbrances related to unassigned resources should be reported as assigned fund balance.

Question 20

The highest level of decision-making authority for the City of Palo Pinto passes an ordinance that states that all royalty payments received from oil or gas production on city property must be used for street maintenance or improvements.As of the end of its current fiscal year,the city has $1,250,000 of unspent royalty payments.These amounts should be reported as part of:

Accepted Answer

The ordinance passed by the highest level of decision-making authority indicates a formal commitment of the funds for a specific purpose, which classifies the unspent royalty payments as a committed fund balance.

Quiz 5: The Governmental Fund Accounting Cycle