Governmental & Non Profit Accounting CH 1-3 Exam MC

A city collects property taxes for the benefit of sanitary, park, and school districts (all of which are legally separate governmental units) and periodically remits collections to these units. Which fund is used to account for this activity?

Agency Fund

A state government collects sales taxes both for the state and for all counties within the state that levy a sales tax. In which fund should the state record the liability for sales taxes it holds on behalf of the counties?

Agency Fund

Which fund would a city use if it had a separate fund to hold and then remit to an insurance company the lump sum of hospital-surgical insurance premiums collected as payroll deductions from employees?

Agency Fund

Which of the following statements is true regarding accounting for capital assets by state and local governments?

Capital outlays are recorded as capital outlay expenditures in the General Fund.

To provide for the retirement of general obligation bonds, a city transfers a portion of its general revenue receipts to a separate fund. In which fund should the city account for receipt of the transfer?

Debt Service Fund

Which fund should record the receipts from a special tax levied to pay principal and interest on general obligation bonds issued to finance the construction of a city hall?

Debt Service Fund

Which of the following funds of a governmental unit uses the modified accrual basis of accounting?

Debt Service Fund

Several years ago, a city established a fund to retire general obligation bonds issued for the purpose of constructing a new police station. This year the city made a $50,000 contribution to that fund from its general revenues. The fund also realized $15,000 in revenue from its investments. The bonds due this year were retired. This year's transactions require accounting recognition in which funds?

Debt Service Fund and General Fund

A transaction in which a municipal electric utility issues bonds (to be repaid from its own operations) requires accounting recognition in which fund?

Enterprise Fund

Which fund should be used to account for the operations of a municipal swimming pool receiving the majority of its support from charges to users?

Enterprise Fund

Which fund would recognize a transaction in which a municipal electric utility paid $150,000 for new equipment out of its earnings?

Enterprise Fund

Which of the following funds is likely to have the caption "equipment" in its fund balance sheet/statement of net position?

Enterprise Fund

Which of the following funds is likely to have the caption "long-term bonds payable" in its fund balance sheet/statement of net position?

Enterprise Fund

When a municipal electric utility bills the municipal Police Department for electric services, two funds are needed to record the transaction. Which two are needed?

Enterprise Fund and General Fund

Which of the following statements is true regarding the accounting measurement implications of the current financial resources measurement focus and modified accrual basis of accounting?

Expenditures and liabilities for compensated absences are recognized when the liabilities come due for payment as employees resign or retire.

A county is responsible for holding temporarily idle funds owned by school districts and investing the funds until needed. Which type of fund should the county use to report the activities and balances held for the school districts?

Fiduciary type

Which of the following funds of a governmental unit records the acquisition of a fixed asset as an expenditure rather than as an asset?

General Fund

Which of the following fund categories uses the current financial resources measurement focus and the modified accrual basis of accounting?

Governmental yes Proprietary no

A city maintains a motor pool for all city-owned vehicles. It charges city agencies as the vehicles are used, so that the charges cover the cost of operating and maintaining the vehicles. Which fund should the city use to account for pool revenues and expenses?

Internal Service Fund

Bay Creek's municipal motor pool maintains all city-owned vehicles and charges the various departments for the cost of rendering those services. In which of the following funds should Bay Creek account for the cost of such maintenance?

Internal Service Fund

Which fund should record the fixed assets of a central purchasing and stores department organized to serve all municipal departments?

Internal Service Fund

Which fund should record the liability for general obligation bonds issued for constructing a city hall and serviced from tax revenues?

None of the above

Which fund would be used to account for the activities of a municipal employee retirement plan that is financed by equal employer and employee contributions?

Pension Trust Fund

Which fund should be used to account for a special tax on business district properties to finance the cost of decorations and special lighting during a holiday season?

Special Revenue Fund

which of the following events results in a debit to the encumbrances account

a purchase order is placed

Successful entities prepare budgets. Which of the following entities is generally required by law to prepare a budget? Select one: a. Governments. b. All of the above are required by law to prepare a budget. c. Commercial business enterprises. d. Nonprofit entities.

a. Governments.

Which of the following type of entities prepares both entity-wide and fund financial statements? Select one: a. State and local governments. b. Federal government. c. Nonprofit entities. d. Business enterprises.

a. State and local governments.

Which of the following type of entities prepares financial statements using both the modified accrual basis of accounting and the accrual basis of accounting? Select one: a. State and local governments. b. Federal government. c. Business enterprises. d. Nonprofit entities.

a. State and local governments.

Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they _____.

are earned or levied and become available and measurable

Under the modified accrual basis of accounting for a government, property tax revenues should be recognized in the accounting period in which they

are levied and become measurable and available

A city's general fund transfers resources to the debt service fund. How should the transfer out of the general fund and into the debt service fund be reported in the governmental funds statement of revenues, expenditures and changes in fund balance?

as transfers in and out, in the other financing sources (uses) section of the statement

Governments and nonprofit entities are similar in many ways. Which of the following statements is not true? a. Neither governments nor nonprofit entities have a profit motive. b. Both governments and nonprofit entities assess taxes. c. Both governments and nonprofit entities often report restricted resources. d. Both governments and nonprofit entities provide services.

b. Both governments and nonprofit entities assess taxes.

Users of governmental and nonprofit financial reports use financial statements to answer a number of questions. Which of the following can at least partially be answered by reading a government or nonprofit's financial statements? Select one: a. None of the above. b. Financial statements can be used to answer all of the aforementioned questions. c. What is the likelihood of the entity's ability to pay its short-term and long-term financial obligations? d. What is the entity's ability to continue to provide a particular level of services? e. Does the entity have sufficient financial resources to provide a reasonable cushion against near-term revenue shortfalls caused by economic contraction?

b. Financial statements can be used to answer all of the aforementioned questions.

Which of the following is generally the major source of revenues for governments? Select one: a. Revenue from exchange transactions. b. Taxes. c. Revenue from investments. d. Voluntary donations.

b. Taxes

Which of the following type of entities follows FASAB standards when preparing financial statements? Select one: a. Nonprofit entities. b. Business enterprises. c. Federal government. d. State and local governments.

c. Federal government.

Which fund should record the proceeds of a federal grant made to assist in financing the future construction of a police training facility?

capital funds project

A state government collects sales taxes for the state and for all counties within the state that levy a sales tax. In which fund should the state record the liability for sales taxes it holds for the counties, pending remittance of the cash to them?

custodial fund

Which of the following types of entities follow FASB standards when preparing financial statements? Select one: a. State and local governments and nonprofit entities. b. Business enterprises and the federal government. c. Federal government and state and local governments. d. Nonprofit entities and business enterprises.

d. Nonprofit entities and business enterprises.

Why do governments and nonprofit entities use fund accounting? Select one: a. To allow managers more flexibility when budgeting. b. To better match revenues and expenses. c. To help limit errors when posting general journal entries to the general ledger. d. To help ensure restricted resources are spent for their intended purpose.

d. To help ensure restricted resources are spent for their intended purpose.

Several years ago, a city established a fund to retire general obligation bonds issues for the purpose of constructing a new police station. This year the city made a $50,000 contribution to that fund from its general revenues. The fund also realized $15,000 in revenue from its investments. The bonds due this year were retired. This year's transactions require accounting recognition in which funds?

debt service fund and general fund

Which of the following is not included when preparing cash forecasts?

depreciation

Which of the following type of entities commonly uses fund accounting for internal reporting purposes? Select one: a. State and local governments. b. Business enterprises. c. Nonprofit entities. d. Both a and b. e. Both a and c.

e. Both a and c.

Which of the following statements is true regarding the accounting measurement implications of the current financial resources measurement focus and the modified accrual basis of accounting?

expenditures and liabilities for compensated employees are recognized when the liabilities come due for payment as employees resign or retire

in the appropriate ledger, the amount available for spending at any moment is the total appropriation minus

expenditures plus outstanding encumbrances

An Enterprise Fund may not be used if the entity, such as a provider of mass transit services, receives subsidies from the General Fund.

false

As a general rule, property taxes are recognized as revenue in the year for which the taxes are levied, regardless of when they are expected to be collected.

false

Capital Projects Funds are used to account for and report on all capital assets, whether they are financed from the proceeds of general obligation bonds or from revenue bonds sold by proprietary funds.

false

Capital assets are recognized as assets and depreciated over their estimated useful lives.

false

Capital outlays are never made from the General Fund.

false

Debt Service Funds are used to accumulate resources for paying debt service in the current year, but not in future years.

false

Governments may access the resources of fiduciary funds to help support their own programs

false

Special Revenue Funds cannot be used if a portion of the revenues are derived from transfers from the General Fund.

false

To ascertain the amount of capital assets acquired by an Enterprise Fund during the year, you should read the statement of revenue, expenses, and changes in net position.

false

When Enterprise Funds are used, expenses are accrued only if they are expected to be paid within 60 days after the end of the year.

false

A city owned electric utility, which serves primarily the city's residents, sends a bill to the city for electricity provided to the police, sanitation and other operating departments. Which pair of funds is needed to record this transaction?

internal service fund and general fund

Which of the following is classified as an object-of-expenditure?

materials and supplies

when the city's budget is approved, the total amount appropriated is greater than the estimated revenues. What are the financial implications of that budget?

the city anticipates a budget deficit

Enterprise Funds are used when a governmental entity sells products or services primarily to external parties (such as the general public) for a fee or user charge.

true

Liabilities for compensated absences are not accrued unless they are required to be liquidated with current financial resources.

true

Repayments of bond principal are recorded as expenditures.

true

Special Revenue Funds are used if the law restricts one or more specific sources of revenue, rather than general tax revenues, for specific purposes.

true

When Enterprise Funds are used, revenues are recognized in the period they are earned, even if cash has not been received.

true

When a government sponsors an Investment Trust Fund, the portion that belongs to other governments is reported as assets of the Fund, but the portion belonging to the sponsoring government is not.

true