Chapter 18 Test Bank

AN INTRODUCTION TO ACCOUNTING FOR STATE AND

LOCAL GOVERNMENTAL UNITS

Multiple Choice Questions

LO1
1.

Before the establishment of the Governmental

Standards
Board,
which
organization
developed
governments?
a.
b.
c.
d.

LO1
2.

Financial Accounting Standards Board statements.

GASB statements.
EITF.
Accountants must exercise judgment because there was no
structured organization for governmental GAAP.

The key focus of government fund accounting concerns

a.
b.
c.
d.

LO2
4.

The Financial Accounting Standards Board.

The Financial Accounting Foundation.
The National Council on Governmental Accounting.
There was no structured organization for governmental GAAP
before the GASB.

What GAAP pronouncements take precedence for an auditor under

SAS 69?
a.
b.
c.
d.

LO2
3.

Accounting
GAAP
for

capital expenditures.
intergovernmental transfers from the general fund.
income measurement.
the flow of current financial resources.

When vehicles impounded by the city police are sold, the cash
goes into which fund?
a.
b.
c.
d.

The
The
The
The

general fund.
debt service fund.
fiduciary fund.
proprietary fund.

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LO2
5.

Budgeted authority for expenditures that provide legislative

control over expenditures are referred to as
a.
b.
c.
d.

LO2
6.

appropriations.
allotments.
allocations.
encumbrances

Because a fund is an accounting entity, each fund has

I. its own accounting equation.
II. its own journals, ledgers, and other accounting records.
III. its own separate auditor.
a.
b.
c.
d.

LO3
7.

I only.
II only.
I and II.
I, II and III.

One of the required proprietary fund financial statements is

a
a. statement of
b. statement of
earnings.
c. statement of
d. statement of
balance.

LO3
8.

activity changes.
revenues, expenditures, and changes in fund

Under the modified accrual basis of accounting, revenues are

recognized in the period
a.
b.
c.
d.

LO4
9.

cash flows.
revenues, expenses, and changes in retained

when
when
when
when

the relevant service is done.

they are collected.
the enterprise customer is billed.
become both measurable and available.

Under GASB 33, which of the following is an exchange

transaction?
a. When the home owner pays property taxes
b. When a university receives a federal grant for managing
research.
c. When an aquatic center receives cash for a group swim.
d. When an employer deducts money for state tax withholding.
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LO4
10.

Which fund would most likely report depreciation expense?

a.
b.
c.
d.

LO4
11.

Which type of fund is used to account for a government activity

that sells goods or services either solely or almost solely to
external customers?
a.
b.
c.
d.

LO4
12.

A temporary fund.
A general fund.
An agency fund.
An enterprise fund.

Centralized data processing, central motor pools and garages,

centralized risk-financing activities, and central stores
typically would be accounted for using what type of fund?
a.
b.
c.
d.

LO4
13.

An intergovernmental service fund.

An enterprise fund.
A capital projects fund.
A debt service fund.

An agency fund.
An enterprise fund.
An internal service fund.
A trust fund.

The modified accrual basis of accounting is used for

a.
b.
c.
d.

LO4
14.

governmental funds.
proprietary funds.
internal service funds.
both a and c.

Goodtime City makes a levy on its seafront businesses for a

retaining wall. Which of the following funds will have
transactions?
a.
b.
c.
d.

A
A
A
A

general
capital
special
capital

fund.
projects and general fund.
revenue fund.
projects and special revenue fund.

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LO5
15.

Motor fuel taxes are

a.
b.
c.
d.

LO5
16.

A budget in government accounting

a.
b.
c.
d.

LO5
17.

derived tax revenues.

imposed non exchange revenues.
government-mandated nonexchange transactions.
voluntary nonexchange transactions.

only applies to the general fund.

is a guideline for government management.
has the force of law.
only applies to proprietary funds.

A component unit
a. requires discrete CAFR presentation of the primary
government.
b. does not appear in CAFR unless it is a proprietary fund of
a primary government.
c. activities are held responsible to a primary government.
d. activities will be financially accountable to a primary
government even though it is a legally separate
organization.

LO6
18.

Government-wide financial statements include a

a. balance sheet, an income statement, and
flows.
b. statement of net assets, a statement of
statement of cash flows.
c. statement of net assets and a statement
d. statement of activities and a statement

LO6
19.

a statement of cash
activities, and a
of activities.
of cash flows.

A comprehensive annual financial report has the following three

major sections
a. introductory, financial, and management's discussion and
analysis.
b. introductory, financial, and statistical.
c. transmittal, financial, and statistical.
d. transmittal, financial, and management's discussion and
analysis.

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LO6
20.

Government-wide financial statements exclude the

a.
b.
c.
d.

general fund.
fiduciary funds.
proprietary funds.
special revenue funds.

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LO3
Exercise 1
The following are transactions for the city of Novo.
a.
b.
c.
d.
of
e.

Borrowed $10,000 by issuing a three-month note.

Paid $2,000 for equipment.
Services for $250 were billed and collected.
Issued general obligation bonds, par value of $5,000, at 101 (101%
par value) to finance construction of a building.
Incurred and paid construction costs of $2,500 on the building.

Required:
1. Analyze the above transactions by using the accounting equation
for a governmental fund.

LO3
Exercise 2
The following are transactions for the city of Novo.
a.
b.
c.
d.
of
e.

Borrowed $10,000 by issuing a three-month note.

Paid $2,000 for equipment.
Services for $250 were billed and collected.
Issued general obligation bonds, par value of $5,000, at 101 (101%
par value) to finance construction of a building.
Incurred and paid construction costs of $2,500 on the building.

Required:
1. Analyze the above transactions by using the accounting equation
for a proprietary fund.

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LO3
Exercise 3
The following are transactions for the city of Oz.
a. Borrowed $10,000 by issuing a two-year note.
b. Issued a purchase order to a vendor for equipment worth $3,000.
c. Licenses for $350 were billed on account.
d. Received a $5,000 capital grant from another governmental fund.
e. Accrued employee salary costs of $3,500.

Required:
1. Analyze the above transactions by using the accounting equation
for a governmental fund.

LO3
Exercise 4
The following are transactions for the city of Oz.
a. Borrowed $10,000 by issuing a two-year note.
b. Issued a purchase order to a vendor for equipment worth $3,000.
c. Licenses for $350 were billed on account.
d. Received a $5,000 capital grant from another governmental fund.
e. Accrued employee salary costs of $3,500.

Required:
1. Analyze the above transactions by using the accounting equation
for a proprietary fund.

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LO4
Exercise 5
For each of the following funds and entities:
Internal Service Fund
Investment Trust Fund
Debt Service Fund
Special Revenue Fund
Required:
1. Identify the financial statements and/or schedules required to be
presented.
2. State the required basis of accounting.

LO4
Exercise 6
For each of the following funds and entities:
Capital Projects Fund
Pension Trust Fund
Permanent Fund
Proprietary Fund
Required:
1. Identify the financial statements and/or schedules required to be
presented.
2. State the required basis of accounting.

LO4
Exercise 7
For each of the following events or transactions, identify the fund
or funds that will be affected.
1. A city government provides electricity services to residents for a
fee.
2. A printing shop was established to handle the printing needs of a
county government.
3. A philanthropist donates $1 million for a memorial.
4. A state government collects sales taxes on behalf of the state and
for some of its counties and municipalities.
5. Interest is paid on a state government's general obligation bonds.
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LO4
Exercise 8
For each of the following events or transactions, identify the fund
or funds that will be affected.
1. A city government charges a fee for the use of the municipal golf
course.
2. Interest is paid on state government revenue bonds.
3. A motor pool was established to handle the vehicle needs of a
county government.
4. A county government receives a large contribution specifying that
income from the contribution be distributed each year to three city
libraries within the county. The principal is to remain intact
indefinitely.
5. A state government acquires the use of general fixed assets by
entering into a capital lease contract.

LO4
Exercise 9
For each of the following events or transactions, identify the fund
or funds that will be affected.
1. A central purchasing department was established to handle all the
purchasing needs of a county government.
2. A county government levies real property taxes on behalf of the
county and its municipalities.
3. A county government receives a large contribution specifying that
income from the contribution be distributed each year to the county
zoo. The principal is to remain intact indefinitely.
4. A county government establishes an investment pool to manage the
cash and marketable securities of the county and participating
municipalities
5. A city government pays the final contract retained percentage for
a new fire station.

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LO6
Exercise 10
List the financial statements and/or schedules required to be
presented for each of the following funds and entities as well as the
required basis of accounting.
1.
2.
3.
4.

Agency Fund
General Fund
Private-purpose Trust Fund
Government-wide Financial Statements

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SOLUTIONS
Multiple Choice Questions
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

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Exercise 1
Governmental fund
equation
Current assets
Current
liabilities
Fund balance

a
+10,000

b
-2,000

c
+250

d
+5,050

e
-2,500

-2,000

+250

+5,050

-2,500

b
-2,000
+2,000

c
+250

d
+5,050

e
-2,500
+2,500

+10,000

Exercise 2
Proprietary fund
equation
Current assets
Noncurrent assets
Current
liabilities
Noncurrent
liabilities
Net Assets

a
+10,000
+10,000

+5,050
+250

Exercise 3
Governmental fund
equation
Current assets
Current
liabilities
Fund balance

a
+10,000

b
0
0

+10,000

c
+350

d
+5,000

e
+3,500

+350

+5,000

c
+350

d
+5,000

-3,500

Exercise 4
Proprietary fund
equation
Current assets
Noncurrent assets
Current
liabilities
Noncurrent
liabilities
Net assets

a
+10,000

+10,000

b
0
0
0
0
0

e
+3500

+350

+5,000

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-3,500

Exercise 5
1.
2.
3.
4.

Balance Sheet and Statement of Revenues, Expenditures, and Changes

in Fund Balances. All statements are prepared on the modified
accrual basis.
Balance Sheet and Statement of Revenues, Expenditures, and Changes
in Fund Balances. All statements are prepared on the modified
accrual basis.
Statement of Fiduciary (Plan) Net Assets and Statement of Changes
in Fiduciary (Plan) Net Assets. All statements are prepared on the
accrual basis.
Statement of Net Assets, Statement of Revenues, Expenses, and
Changes in Net Assets and a Statement of Cash Flows (direct method
only). All statements are prepared on the accrual basis.

Exercise 6
1.
2.
3.
4.

Balance Sheet and Statement of Revenues, Expenditures, and Changes

in Fund Balances. All statements are prepared on the modified
accrual basis.
Balance Sheet and Statement of Revenues, Expenditures, and Changes
in Fund Balances. All statements are prepared on the modified
accrual basis.
Statement of Fiduciary (Investment) Net Assets and Statement of
Changes in Fiduciary (Investment) Net Assets. All statements are
prepared on the accrual basis.
Statement of Net Assets, Statement of Revenues, Expenses, and
Changes in Net Assets and a Statement of Cash Flows (direct method
only). All statements are prepared on the accrual basis.

Exercise 7
1. Enterprise Fund
2. Internal Service Fund
3. Permanent Fund
4. General Fund and Agency Fund
5. Debt Service Fund
Exercise 8
1.
2.
3.
4.
5.

Enterprise Fund
Debt Service Fund
Internal Service Fund
Fiduciary (Private-purpose) Trust Fund
General Fund

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Exercise 9
1. Internal Service Fund
2. General Fund and Agency Fund
3. Permanent Fund
4. Fiduciary (Investment) Trust Fund
5. Capital Projects Fund

Exercise 10
1.

Statement of Fiduciary Net Assets and Statement of Changes in

Fiduciary Net Assets. All statements are prepared on the accrual
basis.
2. Balance Sheet, Statement of Revenues, Expenditures, and Changes
in Fund Balances and a Budgetary Comparison Schedule. All
statements are prepared on the modified accrual basis.
3. Statement of Fiduciary Net Assets and Statement of Changes in
Fiduciary Net Assets. All statements are prepared on the accrual
basis.
4. Statement of Net Assets and Statement of Activities. All statements
are prepared on the accrual basis.

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