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Chapter 1 Governmental and Nonprofit AccountingEnvironment and Characteristics



1. Which of the following would not be considered a government or nonprofit organization?
A. A software company that sells software exclusively to state and local governments.

2. Which of the following activities would most likely be accounted for as a business-type activity?
A. Water operations.

3. Which of the following characteristics best distinguishes a government entity from a business
entity?
A. Those contributing resources to the entity do not necessarily receive a direct or proportionate
share the services.

4. Which source of financial resources is unique to governments?
A. Taxation.

5. Which of the following is not an operational accountability measure for a government?
A. Net income.

6. Which of the following is not a primary financial reporting objective of state and local government
(SLG) reporting?
A. Provide information necessary for investment and credit decisions.

7. The primary purpose of a fund is
A. To segregate an organization's resources according to the purpose(s) for which they are to be
used.

8. Which of the following is not a characteristic of a fund?
A. Separate legal entity.

9. Fixed-dollar budgets and appropriations are most often found in
A. Expendable funds.

10. Expenditures in a governmental (expendable) fund would not potentially include
A. Depreciation.

11. Expenses in a proprietary (nonexpendable) fund would not potentially include
A. Long-term debt principal retirement.

12. Expenses and expenditures are least likely to differ in amount for which type of transaction?
A. Salaries.

13. The primary users of external financial reports, as identified by the GASB, include all of the
following except
A. Other governments.






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14. What best describes the relationship of the FASB and the GASB?
A. They are co-equal bodies with different areas of responsibility for standards setting.

15. Which organization has the highest level of authority for a setting GAAP for nongovernment, not-
for-profit organizations?
A. Financial Accounting Standards Board (FASB).

16. Which of the following is considered to be an authoritative source of GAAP for a nongovernmental
not-for-profit organization?
A. FASB Accounting Standards Codification.

17. Which of the following is not a characteristic used to determine if an organization is a government?
A. An entity receives over half of its resources from other governmental entities.

18. The governmental GAAP hierarchy was established by
A. The Governmental Accounting Standards Board (GASB).

19. Which of the following has the highest level of authority for a government under GAAP?
A. AICPA Industry Audit and Accounting Guide for local governments cleared by the GASB.

20. Which of the following has the highest level of authority for a government in the governmental
GAAP hierarchy?
A. A GASB standard on pension accounting.

21. Which of the following has the highest level of authority for a government in the governmental
GAAP hierarchy?
A. GASB Codification of Governmental Accounting and Financial Reporting Standards.

22. Rank the following documents in the proper order in the governmental GAAP hierarchy:

a. GASB Implementation Guide.
b. GASB Interpretation.
c. GASB Technical Bulletin.
d. AICPA Practice Bulletin.

A. b; c; d; a.

Chapter 2 State and Local Government Accounting and Financial Reporting ModelThe
Foundation

1. If a government is obligated to legally report information in a manner that differs from GAAP
A. Both GAAP requirements and legal requirements must be met.

2. Which of the following is an official fund category used by state and local governments?
A. Governmental funds.

3. Which of the following is considered a proprietary fund?
A. Internal Service Fund.

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4. The operations of a city bus line receiving all its funding from user charges would be accounted for
in
A. An Enterprise Fund.

5. Which of the following is not considered a fiduciary fund?
A. Permanent Fund

6. Activities of a central motor pool that provides and services vehicles for the use of municipal
employees on official business should be accounted for in
A. Internal Service Fund.

7. A government can only have one
A. General Fund.

8. Which of the following is not considered a governmental fund?
A. Internal Service Fund.

9. Which of the following is the basic proprietary fund accounting equation?
A. Assets + Deferred Outflows Liabilities Deferred Inflows = Net Position.

10. Which of the following uses the flow of economic resources measurement focus?
A. Internal Service Fund.

11. Proprietary funds recognize
A. Expenses when the fund uses goods or services.

12. Which of the following is the basic governmental fund accounting equation?
A. Financial Assets + Deferred Outflows Related Liabilities Deferred Inflows = Fund Balance.

13. Which of the following uses the flow of current financial resources measurement focus?
A. Special Revenue Fund.

14. In which of the following financial statements should a government not report depreciation
expense?
A. Governmental fund financial statements.

15. The availability criterion for recognizing revenues applies to all of the following funds except
A. Internal Service Funds.

16. Governmental funds recognize
A. Expenditures when the fund incurs a liability.

17. Which of the following would not be classified as an expenditure?
A. Depreciation.

18. Assume that Kelly County issues $3,000,000 in general obligation bonds to build a new fire station
and $7,000,000 in revenue bonds to finance the upgrade of their water treatment facility. How will
these transactions affect the funds of the county?
A. Financial assets, but not the related fund liabilities, will increase in the Capital Projects Fund by
$3,000,000; current assets and the long-term liabilities will increase by $7,000,000 in the Water
Enterprise Fund.
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19. Ashley Woods Village issued $4,000,000 in general obligation bonds to finance the widening of a
local thoroughfare. This transaction will most likely
A. Increase fund balance in the Capital Projects Fund by $4,000,000.

20. Ashley Woods Village paid $1,000,000 principal and $200,000 interest on its general obligation
bonds that it issued to finance widening of a local thoroughfare. This transaction will most likely
A. Decrease fund balance in the Debt Service Fund by $1,200,000.

21. The police department of the city of Newport purchased 10 new patrol cars at the beginning of the
new budget year at a total cash price of $250,000. This purchase will
A. Have no effect on capital assets in the General Fund, but will decrease fund balance in the
General Fund by $250,000.

22. The City of Ruth owns and operates an electric utility. The utility purchases new electric
transmission lines for $6,000,000 so that it can provide electricity to new customers. This purchase
will most likely
A. Increase capital assets reported in the Enterprise Fund by $6,000,000.

23. A transaction in which a government issues general obligation bonds to finance the construction of
a new police station would
A. Increase fund balance in a Capital Projects Fund.

24. Incurring construction costs on a major general government capital project would
A. Decrease fund balance in a Capital Projects Fund.

25. Which one of the following accounts is not found in the General Capital Assets and General Long-
Term Liabilities accounts?
A. Investments.

26. Which one of the following accounts is not found in the General Capital Assets and General Long-
Term Liabilities accounts?
A. Cash (Restricted for capital asset purchases).

27. All of the following transactions decrease the fund balance of a governmental fund except
A. Retirement of the principal of a short-term note.

28. Capital outlay expenditures would be least likely in a
A. Debt Service Fund.

29. All of the following financial statements should be presented for a General Fund except a
A. Statement of cash flows.

30. In which accounting entity may a government report capital assets?
A. Enterprise Fund.

31. A city adds a new door to its downtown fire station. This is considered a relatively minor addition.
Which fund would most likely be used to account for the construction expenditures associated with
the door?
A. General Fund.


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32. Which of the following funds is reported as a governmental fund even though it is not considered
to be expendable in nature?
A. Permanent Fund

33. General government financial resources that are required to be used to pay principal and interest on
general government long-term debt are accounted for in
A. A Debt Service Fund.

34. General government financial resources to be used to finance construction of a general government
construction project typically should be accounted for in
A. A Capital Projects Fund.

35. The fund used to account for the acquisition or construction of major capital facilities and other
capital assets is the
A. Capital Projects Fund.

36. The receipts of a special tax levy to retire principal and pay interest on general obligation bonds
issued to finance the construction of a new fire hall should be accounted for in the
A. Debt Service Fund.


37. General government financial resources that are required to be used to pay teacher salaries for a
special education program are typically accounted for in a
A. Special Revenue Fund.

38. Receipts from a special fishing tax committed to maintain the (no-charge) public fishing pier
should be accounted for in
A. A Special Revenue Fund.


39. Incurring construction costs on a major general government capital project should require entries in
a
A. Capital Projects Fund.
40. A city levies a special property tax that is legally restricted to pay off the principal and interest on
bonds issued to build the city's new police headquarters. Which fund should be used to account for
the proceeds from the tax levy?
A. Debt Service Fund.

41. A state enacts a gasoline tax that is restricted for new highway construction. Which fund should be
used to account for the proceeds from the tax?
A. Capital Projects Fund.

42. The General Capital Assets nonfund account would be used to account for
A. Capital assets acquired with governmental fund resources that will be used in governmental
fund activities.

43. A government issues 10-year bonds to finance construction of an addition to city hall. The bonds
payable should be reported in the
A. General Long-Term Liabilities account.

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44. To account for amounts owed to general government bondholders that must be paid in the future, a
government should use
A. The General Long-Term Liabilities account.

45. Assume that the City of Wakefield purchased a tract of land to be used as a public park. The
purchase was financed with proceeds from a five-year note issued by a local lending institution.
Because of the time required for facilities construction and land improvements, the park itself will
not be ready for public use for at least two years. At the date of purchase, the city would most
likely account for the transaction in
A. The Capital Projects Fund, the General Capital Assets accounts, and the General Long-Term
Liabilities accounts.

46. The operation of a municipality's recreation facilities and sites such as ball fields, gymnasiums, and
tracks are most likely to be accounted for in a/an
A. General Fund.

47. To account for a donation to the City where the principal is to remain intact forever and the
earnings are to be used to benefit the Boy Scout and Girl Scout organizations in the City, the
government should use what fund type?
A. Private-Purpose Trust Fund.

48. Caraway County financed its new $6,000,000 courthouse by issuing general obligation bonds. In
the year financing was secured and construction began, the fund(s) and/or nonfund fund accounts
that would most likely be affected would be
A. The Capital Projects Fund, General Capital Assets Accounts, and the General Long-Term
Liability Accounts.

49. General purpose external financial reports for state and local government entities do not include
which of the following?
A. Transmittal Letter.

50. The Basic Financial Statements include all of the following except
A. Combining financial statements.

51. Basic financial statements exclude
A. Management's discussion and analysis.

52. Which of the following accounts is not included in a balance sheet of a governmental fund?
A. Equipment.

53. Government-wide financial statements include
A. A statement of net position.

54. A statement of revenues, expenditures, and changes in fund balance is required for each
A. Special Revenue Fund.


55. A statement of cash flows is required for which of the following?
A. Enterprise Fund.
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Chapter 3 The General Fund and Special Revenue Funds

1. A Special Revenue Fund
A. Is used to account for resources that are restricted or committed to expenditures for specific
purposes other than debt service or capital outlay.

2. A school district receives a federal grant of $200,000 that is restricted to support a program
designed to teach elementary school students a foreign language. The grant pays for only about five
percent of the program costs. The remaining funds for the program come from a special tax levy
made for this purpose. The program is accounted for in one fund. Which of the following funds
could be used for this activity?
A. Special Revenue Fund.

3. The accounting equation for a special revenue fund is
A. Financial Assets + Deferred Outflows Related Liabilities Deferred Inflows = Fund Balance.

4. Each of the following transactions would decrease fund balance in the General Fund except
A. Depreciation.

5. Employees of the City of Calderwood are paid from the General Fund. These employees are paid
for amounts earned over a two week period. The amount due the employees is disbursed one week
later. The last payroll period in December ended December 27, 20X2. The fiscal year ended
December 31, 20X2. The employees were paid January 3, 20X3. The salaries earned should be
reported as expenditures
A. In the current year in all cases.

6. The city of Brittainville's Special Revenue Fund levied $350,000 in taxes, of which 1% was
expected to be uncollectible during the current year. Also during the year, the fund collected
$7,500 of interest revenue and $50,000 was transferred from the General Fund. As a result of these
transactions fund balance will increase by
A. $404,000.

7. Ledford County levied property taxes of $10,000,000, 2% of which is expected to be uncollectible.
Prior to this new levy, the county still had $ 350,000 of uncollected taxes from previous years.
How much should be reported as Taxes Receivable after the new levy has been recorded?
A. $10,350,000.

8. General Fund expenditures for uncollectible accounts receivable should be reported in the period
that the receivable is
A. There are no expenditures for the write-off of uncollectible accounts.

9. A new computer, which had been estimated to cost $28,000, was received. The actual cost of the
computer was $29,400. To record this in the special revenue fund,
A. Expenditures should be debited for $29,400.
10. If a General Fund purchases capital assets with cash, what effect will this transaction have on the
assets and fund balance, respectively, of the fund?
A. Both assets and fund balance will decrease.

11. $40,000 of General Fund expenditures had been paid for from and recorded in a Special Revenue
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Fund. Upon discovery of this situation, $40,000 was paid from the General Fund to the Special
Revenue Fund. This transaction is recorded in the Special Revenue Fund by debiting Cash and
crediting
A. Expenditures.

12. A bill that should have been paid by a Special Revenue Fund was erroneously paid by the General
Fund. The General Fund refunds the amount to the Special Revenue Fund. This transaction is an
example of an interfund
A. Reimbursement transaction.

13. $1,000,000 of General Fund cash was contributed to provide permanent capital for a newly
established municipal landfill Enterprise Fund. This transaction is an example of an interfund
A. Transfer.

14. General Fund resources of $500,000 were contributed to a Capital Projects Fund to finance a
portion of the cost of a major capital project. This transaction is an example of an interfund
A. Transfer.

15. General Fund resources are provided to a Capital Projects Fund to finance a portion of a major
capital project. The Capital Projects Fund is required to repay the resources that it received from
the General Fund. This transaction is an example of an interfund
A. Loan.

16. A government's General Fund departments purchased electric services from the government's own
Electric Utility Enterprise Fund. This transaction is an example of an interfund
A. Services provided and used transaction.

17. If an Enterprise Fund transfers $10,000 to the General Fund and the General Fund loans $15,000 to
an Internal Service Fund, the effect on the fund balance of the General Fund would be
A. An increase of $10,000.

18. The city's central garage, which is accounted for as an Internal Service Fund, repairs and maintains
all of the city's vehicles. The fire department is accounted for in the General Fund. The Central
Garage Internal Service Fund sends a bill to the fire department for $18,000, which represents the
cost of maintaining fire trucks for the month. The Central Garage should record
A. Debit Due from General Fund and credit Revenues.

19. A city's police department receives goods from an Internal Service Fund for which it has not yet
paid the ISF. To record this transaction the city should record a credit to what account in the
General Fund?
A. Due to the Internal Service Fund.

20. Assume the General Fund borrows $50,000 from the Enterprise Fund. The interfund loan is
scheduled to be paid back in five years. Which of the following statements properly characterize
the reporting effects of this transaction?
A. General Fund Assets and Liabilities increase.

21. A city's General Fund provides a two-year loan to the Internal Service Fund. To record this
transaction the city should record a debit to what account in the General Fund?
A. Advance to the Internal Service Fund.

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22. A local school district issued a short-term note payable to purchase $500,000 of recreation
equipment. The note will be repaid with General Fund resources. The General Fund would record
A. Debit Expenditures Capital Outlay and credit Note Payable, for $500,000.

23. Taxes receivable of $80,000, which have a related allowance for uncollectible taxes of $8,000,
become delinquent. The entry to record this includes a debit to
A. Allowance for Uncollectible Current Taxes.

24. Accounts receivables are determined to be uncollectible and are written off. The following account
should be debited:
A. Allowance for Uncollectible Accounts Receivable.

25. In governmental funds, governments must accrue interest on
A. Short-term debt of the fund.

26. Which of the following should not be accrued as expenditures in a governmental fund at year end?
A. Interest incurred on long-term debt, but not yet due.

27. Assume the General Fund has two outstanding investments as of its 6/30/X5 year end, as follows:
$100,000 Certificate of Deposit, 6 month original maturity, 3% annual interest rate, purchased
4/30/X5
$500,000 Commercial Paper, 8 month original maturity, 3% annual interest rate, purchased
1/31/X5
The interest revenue that would be recorded in the GAAP-based external financial statements for
the General Fund as of 6/30/X5 would be
A. $6,750.

28. The Special Revenue Fund of the city of Wakefield ended its fiscal year with revenues of
$750,000, other financing sources of $50,000, and expenditures of $725,000. The closing entry in
the Special Revenue Fund would be

A.
B.

D. Revenues
Other Financing Sources
Expenditures
Fund Balance
$750,000
50,000


$725,000
75,000

29. For a transaction to be classified as an extraordinary item it must be
A. Unusual in nature and infrequent in occurrence.

31. For a transaction to be classified as a special item it must be
A. Unusual in nature or infrequent in occurrence and under the control of management.

32. Which of the following events could potentially qualify for reporting as an extraordinary item?
A. City Hall is hit by lightning and is significantly damaged by fire.




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33. The City of Trixie reports in their General Fund a $505,000 special item (an inflow) and a
$1,750,000 extraordinary item (an outflow) in the same year. Which of the following statements
would be false?
A. Fund balance would increase by only $505,000.

34. Restricted fund balance in the General Fund can be the result of
A. A city council passing enabling legislation that requires proceeds from a newly authorized sales
tax be spent on a downtown revitalization project.

35. Unassigned fund balance cannot be described as
A. A fund balance category that is used to report positive and negative balances in any
governmental fund.

36. Assume a city's General Fund has $75,000 of inventory, $600,000 of long-term loans receivable,
$250,000 long-term loans due from other funds, and $1,900,000 of investments. Based solely on
this information, the city's nonspendable fund balance would be
A. $925,000.

37. Which of the following could never be considered part of assigned fund balance?
A. Unassigned amounts loaned to another fund for more than one year.

38. Which of the following is an appropriate use of a fund balance restriction?
A. To report amounts that can only be used for specific purposes due to debt covenant constraints.

39. Hannah County has a total fund balance in the General Fund as of the end of the year of
$1,565,000. Assume the following:
The budget officer decided to set aside $405,000 for new road maintenance. The county's
governing board had previously given her this authority.
Unspent restricted drug enforcement grant proceeds of $75,000.
The county's governing board passed a resolution to use $500,000 for construction of a fleet
maintenance facility.
In the year-end financial statements, Hannah County would report unassigned fund balance and
assigned fund balance, respectively, in the General Fund as
A. $585,000 unassigned fund balance; $405,000 assigned fund balance.

40. Hannah County has a total fund balance in the General Fund as of the end of the year of
$1,565,000. Assume the following:
The budget officer decided to set aside $405,000 for new road maintenance. (The county's
governing board had previously given her this authority.)
Unspent restricted drug enforcement grant proceeds of $75,000
The county's governing board passed a resolution to use $500,000 for construction of a fleet
maintenance facility
In the year-end financial statements, Hannah County would report committed fund balance in the
General Fund as
A. $500,000.

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41. The following information pertains to the Scott County General Fund:
Expenditures $14,800,000
Revenues $14,200,000
The change in fund balance Scott County's General Fund for the year is a
A. $600,000 decrease.

42. The following information pertains to the Richardson County General Fund:
Expenditures $12,800
Revenues 9,200
Long-term bond issue proceeds 1,000
Short-term note principal retirements 250
Operating transfers to other funds 75
The change in fund balance for Richardson County's General Fund for the year is a
A. $2,675 decrease.

43. A government levies property taxes of $2,500,000, 1% of which are expected to prove
uncollectible. The property taxes should be reported in the General Fund statement of revenues,
expenditures, and changes in fund balances as
A. Revenues of $2,475,000 and no expenditures or other financing uses.

44. Which of the following does not affect the "Excess of Revenues over Expenditures"?
A. Transfers from Enterprise Funds.

45. A city acquired a dump truck for general government usage. The government paid nothing down
and signed a 10%, short-term note payable for the price of the truck, $80,000. The note will mature
in the next fiscal year. What items should appear in the statement of revenues, expenditures, and
changes in fund balance for the General Fund in the year the truck was purchased?
A. Capital outlay expenditures of $80,000 and interest expenditures on the note.

46. The General Fund had the following transactions during the month of June: (1) took delivery of 10
new patrol cars that had been ordered and encumbered the previous month the total costs were
$270,000; (2) issued purchase orders totaling $25,000 for various supplies; (3) issued payroll
checks in the amount of $110,000; and (4) various other short term liabilities were incurred in the
amount of $1,500. Expenditures in the General Fund for the month of June would be
A. $381,500.

47. Which of the following should be reported in the statement of revenues, expenditures, and changes
in fund balance of a General Fund?
A. Repayment of a long-term loan from a bank.

48. Which of the following would be classified as Other Financing Sources (Uses)?
A. Transfers from an Internal Service Fund.

Chapter 4 Budgeting, Budgetary Accounting, and Budgetary Reporting

1. What general ledger account is not needed for an expenditures subsidiary ledger?
A. Encumbrances Outstanding.

2. A city's General Fund general ledger includes accounts called Estimated Revenues, Appropriations,
and Encumbrances. This indicates that the city
A. Formally integrates its budget into its accounts.
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3. Under an encumbrance system, which account is debited when a purchase order is issued?
A. Encumbrances.

4. Which of the statements regarding the accounting for encumbrances is false?
A. The budgetary entry to record an encumbrance would be a debit to Encumbrances Outstanding
and a credit to Encumbrances.

5. As part of a government's basic financial statements and required supplementary information, a
budgetary comparison statement or schedule should be presented as
A. A basic financial statement.

6. A budgetary comparison schedule is required to include all of the following columns except
A. Actual on the GAAP basis.

7. The purpose of encumbrance accounting is to
A. Avoid expenditures exceeding appropriations.

8. The encumbrances method of budgetary reporting
A. Is where outstanding encumbrances are considered to be expenditures.

9. As part of a government's basic financial statements and required supplementary information, a
budgetary comparison schedule is required for which funds?
A. General Fund and certain Special Revenue Funds with legally adopted annual budgets.

10. Legal authority to expend resources is adopted by a city council in the budgeting process. These
legal authorizations are called
A. Appropriations.

11. Which of the following does not represent a common approach to budgeting expenditures?
A. Marginal increase budgeting.

12. A general budget is often a term used to describe a budget for all of the following except
A. An Enterprise Fund.

13. The most widely used approach to budgeting operating expenditures is
A. Object-of-expenditure.

14. Which of the following statements regarding revenue subsidiary ledgers is false?
A. The number of revenue subsidiary ledgers used is limited by the number of broad revenue
categories (e.g., taxes, licenses and permits, intergovernmental) that a governmental entity
reports.

15. The "Unencumbered Balance" in an expenditure subsidiary ledger represents
A. Appropriation less expenditures and encumbrances.

16. Common functional categories of expenditures in governmental funds include all of the following
except
A. Utilities.



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17. Managers may ration expenditure authority into either monthly or quarterly expenditure ceilings.
This would be an example of
A. An allotment.

18. During the year, Nathan Township amended their General Fund budget to reflect an increase in
appropriations of $50,000 to be funded by an appropriation of existing fund balance. What would
the necessary budgetary entry be to reflect this amendment?

Debit Credit
D. Budgetary Fund Balance
Appropriations
$50,000
50,000

19. Which of the following budgetary entries would the town of Geneva make upon adoption of its
Special Revenue Fund Budget for the year? Assume the following:

Estimated Revenues $6,400,000
Appropriations 6,080,000

Debit Credit
B. Estimated Revenues
Appropriations
Budgetary Fund Balance
$6,400,000
$6,080,000
320,000

20. Which of the following budgetary entries would the township of Brussels make upon adoption of
its General Fund budget for the year? Assume the following:

Estimated Revenues $10,365,000
Appropriations 10,500,000
Estimated Other Financing Sources (OFS) 200,000
Estimated Other Financing Uses (OFU) 15,000
Debit Credit
C. Estimated Revenues
Estimated OFS
Appropriations
Estimated OFU
Budgetary Fund Balance
$10,365,000
200,000


$10,500,000
15,000
50,000

21. A city ordered uniforms with an expected cost of $6,000 for policemen. The credit required to
record this transaction is
A. Encumbrances Outstanding.

22. A city ordered uniforms with an expected cost of $6,000 for policemen. This amount is
encumbered. The uniforms are received with an invoice of $5,900. The entries to record the receipt
of the uniforms should include a debit to
A. Encumbrances Outstanding of $6,000.

23. A city ordered uniforms with an expected cost of $6,000 for policemen. This amount is
encumbered. The uniforms are received with an invoice of $5,900. The entries to record the receipt
of the uniforms should include a credit to
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A. Encumbrances of $6,000.

24. The Town of Red Herring issued $60,000 of purchase orders. Assume that when all orders were
received, the actual cost was $59,000. How much would be recorded as expenditures when the
purchase orders were issued?
A. $0

25. A governmental fund budgetary comparison statement or schedule should
A. Be prepared on the same basis the budget was enacted.

26. When preparing a budgetary comparison statement for a General Fund, which column is optional?
A. Variance comparing the final budget to the actual amounts on a budgetary basis.

27. The Town of Red Herring issued $60,000 of purchase orders. Assume that when all orders were
received, the actual cost was $59,000. How much would be recorded as expenditures when the
goods are received?
A. $59,000.

28. Which of the following is not a common revenue source in a governmental fund budget?
A. Other financing sources.

29. The Town of Red Herring issued $60,000 of purchase orders and recorded the encumbrance.
Assume that when all orders were received, the actual cost was $59,000. What would be the net
change in the unencumbered balance when the goods are received?
A. $1,000 increase.

30. The following information pertains to the Scott County General Fund:
Appropriations $15,000,000
Estimated Revenues 14,000,000
Expenditures 14,800,000
Revenues 14,200,000
The change in Scott County's General Fund fund balance for the year is a
A. $600,000 decrease.

31. The following information pertains to the Richardson County General Fund:
Appropriations $10,000,000
Estimated Revenues 12,000,000
Expenditures 12,800,000
Revenues 9,200,000
Long-term note issue proceeds 1,000,000
Short-term note principal retirements 250,000
Operating transfers to other funds 75,000

The change in Richardson County's General Fund fund balance for the year is a
A. $2,675,000 decrease.

32. Which of the following fund balance classifications is used for budgetary accounting but not for
GAAP financial statement reporting?
A. Budgetary Fund Balance.

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Chapter 5 Revenue AccountingGovernmental Funds

1. Under the modified accrual basis, revenues are considered susceptible to accrual if
A. Both available to finance current period expenditures and objectively measurable.

2. Under the modified accrual basis, revenues are considered available to finance current period
expenditures if they are legally available and
A. Collected in the current period or soon enough thereafter to be used to pay liabilities of the
current period.

3. Property taxes are an example of which category of nonexchange transactions?
A. Imposed tax revenue.

4. Sale taxes are an example of which category of nonexchange transactions?
A. Derived tax revenue.

5. State reimbursement to schools for a portion of any special education costs incurred is an example
of which category of nonexchange transactions?
A. Government mandated nonexchange revenue.

6. How should taxes collected in advance in fiscal year 20X3 be reported in the fiscal year 20X3
General Fund financial statements?
A. As a deferred inflow on the balance sheet.

7. Which of the following should be included in tax revenues for the current year?
A. Taxes levied 2 years ago and collected in first 60 days of the next year.
B.
8. A government has a fiscal year end of June 30, 20X6. Tax bills for each fiscal year are prepared
and mailed in June prior to the beginning of the fiscal year for which they apply. Tax revenue for
the fiscal year ending June 30, 20X6, would include
A. Only taxes levied in June 20X5 which came available in either June 20X5 or between July 1,
20X5, and June 30, 20X6, as well as any taxes associated with the June 20X5 levy collected
within 60 days following June 30, 20X6.

9. Which of the following statements regarding tax revenue recognition in the General Fund is false?
A. Tax revenues are generally recorded at gross amounts of the levy, regardless of expected
collections.

10. A government levies property taxes and awards discounts for timely payment. How should the
government report discounts that it expects will be taken?
A. Deduct from the amount of taxes levied to determine property tax revenues.

11. Which of the following governmental fund revenue sources are typically recorded as revenues only
as they are actually received in cash?
A. Building permit fees.

12. The City of Jonesboro allows discounts on taxes. Specifically, taxpayers get a 1% discount on the
total tax if it is paid within one month of the initial levy. What would the journal entry be to record
the levy of $700,000 if the government anticipates there will be a 2% uncollectible rate and it is
anticipated that the discounts will be $5,000?
Debit Credit
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A. Taxes Receivable
Allowance for Uncollectible Taxes
Allowance for Discounts
Revenues
$700,000
$14,000
5,000
681,000

13. The Town of Lily Branch anticipated that discount opportunities of up to $3,000 would be taken by
their taxpayers. Which of the following statements accurately reflects the accounting for the
anticipated discounts when the taxes are levied?
A. Revenues are recorded at the time of levy net of anticipated discounts. Taxes receivable are
recorded at the full levy amount.

14. A government allows discounts on taxes if payments are made within two months of the levy date.
How does the government account for the discounts as they are being taken?
A. Allowance for discounts is debited for the amount of the discounts taken.

15. A county anticipated that $6,500 of discounts would be taken on their initial tax levy. Which of the
following statements is true if discounts were less than anticipated?
A. Revenues would be increased.

16. When a tax lien is formalized, a government must record an allowance for uncollectible tax liens
A. Only if the expected salable value of the property against which the lien was established is less
than the total amount of the liens receivable against that property.

17. A city levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is
expected to be uncollectible. The city collects $170,000 of its taxes during the year and another
$25,000 during the first two months of the following year. What amount of property tax revenues
should the city report in the General Fund financial statements for the current fiscal year?
A. $195,000

18. A city levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is
expected to be uncollectible. The city collects $170,000 of its taxes during the year and another
$25,000 during the first two months of the following year. In addition, the city collected $3,000 of
prior year taxes during the first two months of the current fiscal year and another $2,000 during the
remainder of the current fiscal year. What amount of property tax revenues should the city report in
the General Fund financial statements for the current fiscal year?
A. $197,000.

19. A city collected $750,000 of taxes levied during the current fiscal year (the total levy was
$780,000), $50,000 of past due taxes levied in a previous year, and $25,000 of prepayments for
next years taxes. The city should report tax revenue in the General Fund of
A. $800,000.

20. In Year 1, a county levied $1,500,000 of property taxes and collected $1,400,000 of that levy; in
Year 2, the levy was $1,550,000 and the related collections totaled $1,495,000; in Year 3, the levy
was $1,575,000 and the related collections totaled $1,530,000. Also, collections of past due taxes
in Years 1, 2, and 3 were $15,000, $14,000, and $19,000, respectively. Assuming that the General
Funds deferred revenue at the beginning of Year 1 was $410,000, what would deferred revenue be
as of the end of Year 3?
A. $562,000.

21. GASB Statement No.31 requires the following investments to be recorded at fair value except
17
A. Nonparticipating interest-earning investment contracts.

22. When a governmental entity is decreasing the fair market value of an investment, the appropriate
debit would be to
A. Investment income.

23. Which of the following statements regarding the accounting for investments in governmental funds
is false?
A. Interest revenue should be recognized on a cash basis.

24. A government received $30,000 of interest on investments of its General Fund during the year. The
fair value of its investments increased by $3,500 during the year. In its General Fund statement of
revenues, expenditures, and changes in fund balance the government should report
A. Investment income of $33,500 as revenues.

25. All of the following are examples of intergovernmental revenues except
A. Interest earned on investments in bonds issued by other governments.


26. Pass-through grants are accounted for
A. As revenues and expenditures or expenses in the appropriate fund of the pass-through entity
(primary recipient).

27. The county received a $1,500,000 restricted grant from the state government to be used to improve
its public safety department's communication systems. The county has met all eligibility
requirements of the grant. In the current year, the General Fund should report this grant as
A. Revenues.

28. If a city receives notification of a grant award and the actual proceeds sixty days prior to the start
of the grant period, the entry to record the grant in the Special Revenue Fund would be
A. A debit to cash and a credit to unearned revenue.

29. The county received a $1,500,000 restricted grant from the state government to be used to improve
its public safety department's communication systems. The county will not meet all eligibility
requirements of the grant until next fiscal year, when the county plans to begin incurring
expenditures for this purpose. In the current year, the General Fund should report this grant as
A. Unearned revenues.


30. The City of Ruth has been awarded a $1,000,000 federal expenditure-driven grant to improve bike
trails. The federal government advanced the city $600,000 when the grant was awarded on January
10, 20X8. The city incurred $418,000 of qualifying expenditures during 20X8. How much should
the city of Ruth recognize as unearned revenue for its fiscal year ending December 31, 20X8?
A. $182,000.

31. The City of Ruth has been awarded a $1,000,000 federal reimbursement grant to improve bike
trails. The city has incurred $418,000 of qualifying expenditures during the current year, for which
the federal government has reimbursed the city $180,000. How much should the city of Ruth
recognize as revenue for the current year?
A. $418,000.

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32. The City of Ruth has been awarded a $1,000,000 federal reimbursement grant to improve bike
trails. The city has incurred $418,000 of qualifying expenditures to date, for which the federal
government has reimbursed the city $180,000. How much should the city of Ruth show as due
from the federal government?
A. $238,000.

33. Clark County was hired by Catlett City, the largest city in the county, to maintain some of its roads.
Clark County billed Catlett City for its cost of maintaining the roads. The amount of the billing was
$60,000. Clark County should report the $60,000 as
A. A revenue.

34. The Ruby Falls Independent School District receives significant payments in lieu of taxes from the
federal government to reimburse the district for lost revenues because a military base, which is not
subject to property tax, is within the district's boundaries. These payments should be reported as
A. Revenue.

35. Inactive bank accounts that revert to the state after a period of time should be
A. Recognized as revenuenet of any amounts expected to be claimed by heirs.



36. The county received $75,000 from the annual sale of surplus general government property. The
proceeds are deposited in the General Fund. The General Fund should report the proceeds as
A. Other financing sources.

37. The county received a $75,000 payment in lieu of taxes from the water Enterprise Fund. The
Enterprise Fund receives no service from the county for this payment. The General Fund should
report the payment in
A. Other financing sources transfer.

38. Assume that a general capital asset was sold for $2,500. The asset was originally purchased for
$10,000 and has been in use for 3 years. It has an estimated life of 5 years. What entry would be
made in the General Fund to reflect this sale?
Debit Credit
C. Cash
Other Financing Sources
$2,500
$2,500

39. If an expenditure was inadvertently charged to the General Fund instead of the appropriate Special
Revenue Fund, what effect would the correction of this error later in the same fiscal year have on
the General Fund?
A. Expenditures would be decreased.

40. Assume the following transactions occurred in a school district General Fund during the year:
Charges for services collected - $25,000
Taxes levied - $2,450,000
Taxes collected from current year levy and prior year tax levies - $2,320,000
Tax prepayments received - $10,000
Grants earned and received during the year - $300,000
Grants awarded but not yet available - $250,000
The amount of revenues recorded in the General Fund for the year would be
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A. $2,645,000.
B.
Chapter 6 Expenditure AccountingGovernmental Funds

1. Expenditures are defined as
A. Decreases in net financial resources.

2. Which of the following is not a typical governmental fund liability, and thus not an expenditure
that is recognized when the liability is incurred?
A. Long-term note payable.

3. A city government purchased a new fire truck in Year 1 for $270,000. The city incurred an
additional $30,000 in transportation and calibration costs to ready it for use. It has an estimated
useful life of 20 years, though it is being financed over a 15 year period. The amount of
depreciation that will be reported each year in the General Fund will be
A. $0.

4. Assume that General Fund employees accrued $125,000 of compensated absences liability during
the year. Compensated absences liability, which is considered to be a long-term liability, decreased
$30,000 from the beginning of the year to the end of the year. The fund also actually paid $550,000
in salaries and wages during the year. At the end of the fiscal year, salaries and wages payable was
$12,000. The General Fund would report salaries and wages expenditures for the year of
A. $532,000.

5. Which of the following governmental fund expenditures would not be considered a current
operating expenditure?
A. Capital outlay.

6. The village of Bear Creek uses General Fund resources to pay debt service payments for its sole
outstanding general obligation bonds, which were issued to finance the new Village Hall. Which of
the following statements is false?
A. The General Fund may record an expenditure for only the interest portion of the debt service
payment.

7. Expenditures in a governmental fund are recognized when due for
A. Interest on general long-term debt.

8. Which of the following is not a managerial problem associated with expenditures?
A. Misapplication of the availability criterion.

9. The purchases method of accounting is permitted for
A. Both prepaid insurance and materials and supplies.
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10. Assume that the Village of Hannah uses the purchases method of inventory accounting. At the end
of the year the inventory levels have increased. What entry would be made to reflect the inventory
increase?
A. Debit Inventory of Supplies, Credit Other Financing Sources.

11. Assume that a government purchases $85,000 of inventory for the General Fund during the year.
The General Fund began the year with an inventory balance of $15,000 and ended the year with a
balance of $35,000. The General Fund uses the consumption method of inventory accounting and a
perpetual inventory system. The General Fund should report
A. Expenditures of $65,000 for the year.

12. If a government uses a perpetual inventory system for its General Fund and there is an inventory
overage at the end of the year, the inventory asset account should
A. Be increased and the expenditure account decreased.

13. A county uses the consumption method to account for General Fund materials and supplies. The
beginning inventory of materials and supplies was $122,000. The ending inventory was $150,000.
The beginning balance of reserve for encumbrances (for supplies ordered but not received at the
beginning of the year) was $50,000; the ending balance was $20,000. Supplies purchased during
the year totaled $750,000. The county General Fund should report expenditures for materials and
supplies for the year of
A. $722,000.

14. The General Fund reported a beginning balance of inventory of materials and supplies of $122,000.
The ending balance was $150,000. Supplies purchased during the year totaled $600,000. The
county uses the consumption method. The General Fund should report expenditures for materials
and supplies for the year of
A. $572,000.

15. The General Fund reported a beginning balance of inventory of materials and supplies of $122,000.
The ending balance was $150,000. Supplies received during the year (purchases) totaled $600,000.
The county uses the purchases method. The General Fund should report expenditures for materials
and supplies for the year of
A. $600,000.

16. A county uses the consumption method in accounting for insurance premium prepayments. At the
beginning of the fiscal year, the county paid a $24,000 insurance premium to cover the current year
and the subsequent fiscal year. At the end of the current year, the county will report in its General
Fund
A. Expenditures of $12,000 and a $12,000 prepaid asset.

17. In the year a city enters into a capital lease to finance a new sanitation truck, the General Fund will
report
A. A decrease in fund balance equal to the amount of any down payment required.

18. Interest expenditures of a governmental fund should include
A. Interest paid during the year, any interest that matured but was not paid during the year and
accrued interest on short-term debt recorded as a fund liability.

19. As payments are being made for debt service payments related to a capital lease, a General Fund
21
will report
A. Expenditures for the full amount of the debt service payment.


20. A county accounts for its debt service payments in the General Fund. The amount of unmatured,
unpaid interest on general long-term liabilities at the beginning of the year was $122,000. The
ending balance was $165,000. The General Fund also made principal payments of $600,000 and
interest payments of $150,000 during the year. The General Fund should report expenditures for
debt service for the year of
A. $750,000.



21. A city entered into a general government capital lease for equipment on July 1, 20X7. The
capitalizable cost of the equipment was $400,000. A down payment of $40,000 was made. The
next lease payment of $100,000 is due July 1, 20X8. The implicit rate of interest on the lease
agreement is 10%. The amount of expenditures that the city should report in its General Fund
statement of revenues, expenditures, and changes in fund balance for the year ended December 31,
20X7 is
A. $400,000.

22. A government entered into a general government capital lease for equipment during the year. The
capitalizable cost of the equipment was $400,000. A down payment of $40,000 was made. The
General Fund should report in its statement of revenues, expenditures, and changes in fund balance
an
A. Other financing source of $360,000.

23. The General Fund borrowed $10,000 on a six-month note, with 5.0% interest, on April 1. As of the
June 30 fiscal year end, the General Fund would report accrued interest payable in the amount of
A. $125.















24. Carter County entered into capital lease to finance an Emergency-911 telecommunications system.
The capitalizable cost of the equipment was $185,000. The county made a required down payment
of $25,000. The first debt service payment will not be due until the next fiscal year. The entry to
record the inception of this lease in the General Fund would be
22

Debit Credit
B. Expenditures
Other Financing Source
Cash
$185,000
$160,000
25,000

25. A government has a principal and interest payment on long-term debt coming due in the next fiscal
year. Which condition must hold true for the government to treat the payment as an expenditure in
the current fiscal year?
A. The payment must come due early in the next fiscal year, and the government must transfer the
cash for the payment to the debt service fund consistently from year-to-year.

26. Nathan Township financed emergency repairs on the Township Hall by borrowing on a $200,000,
6 month short-term note. The interest rate on the note was 6% and it was issued 2 months prior to
the end of the fiscal year. Which of the following statements accurately reflects how the General
Fund will be affected in the year the financing was acquired?
A. The General Fund will report a Note Payable of $200,000.

27. A government has claims and judgments outstanding at the beginning of 20X5 of $1,000,000.
These claims and judgments are expected to result in awards against the government of $800,000.
$75,000 of these claims is due and payable from the General Fund at December 31, 20X4. At the
end of 20X5, the government has claims and judgments outstanding of $2,000,000. These claims
and judgments are expected to result in awards against the government of $1,200,000. None of
these claims are due and payable from the General Fund at December 31, 20X5. The government
paid claims and judgments of $400,000 during 20X5. General Fund expenditures for claims and
judgments for 20X5 should be reported at what amount?
A. $325,000.

28. A government has a liability for accrued compensated absences at the beginning of 20X5 of
$500,000. This liability did not mature in 20X4. At the end of 20X5, the government has a liability
for accrued compensated absences (not due and payable) of $600,000. In addition, the government
had $10,000 of matured compensated absences to be paid in early 20X6 from existing fund assets.
The government paid compensated absences of $400,000 during 20X5. The General Fund
expenditures for compensated absences for 20X5 should be reported at what amount?
A. $410,000.

29. A court judgment was rendered against a county in which they were ordered to pay $500,000 in
equal installments over a five-year period to the plaintiff. The county's General Fund will
A. Report expenditures of $100,000 in Year 1.

30. Assume that Onyx County's annual required contribution for their OPEB plan was determined to be
$35,000. The county, however, chose to only fund $10,000 of that amount for the current year. The
General Fund, which is the only fund with employees, would recognize expenditures in the current
year of
A. $10,000.

23
31. A city's annual required contribution for the OPEB plan offered to their General Fund employees is
$14,000. The city does not choose to make the annual required contribution but instead will
continue to pay postretirement benefits as they come due. The current year's benefit payments total
$2,500. The General Fund would recognize an expenditure of
A. $2,500.

32. City of Alnwick makes pension contributions on behalf of its employees to both a defined benefit
plan and a defined contribution plan. Assume that the employer contributions for the fiscal year
totaled $55,000 for the defined benefit plan and $35,000 for the defined contribution plan. The
General Fund will report
A. Total expenditures of $90,000.

33. The following benefits are examples of other postemployment benefits (OPEexcept for
A. Pension benefits.