AC471 CH 5

A government enters into a lease agreement for the purchase of a new snow plow. The present value of the future lease payments is $845,500 and there is a down payment at the inception of the lease of $25,000. The snow plow should be recorded in the General Fund at:

$0.

During the year, a wealthy local merchant donated a building to the city of Rosewood. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The acquisition value of the donation at the date of the gift was $600,000. At what amount should Rosewood record this donated property in the General Fund?

$0.

The following items were included in Castle City's General Fund expenditures for the year ended June Personal computer for the city treasurer $6,000 Furniture for the mayor's office 20,000 How much should be classified as capital assets in Castle City's government-wide statement of net position at June 30?

$26,000.

The following balances are included in the subsidiary records of Sinclair: What is the total amount of general capital assets held by the town?

$5,275,000.

The following general capital assets were owned by the Town of Otterville: Town Buildings $3,250,000 Intangible Assets 1,000,000 Streets, Sidewalks, and water lines 2,000,000 What amount should be recorded as capital assets in the town's governmental activities accounts?

$6,250,000

During the year, a wealthy local merchant donated a building to the City of Rosewood. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The acquisition value of the donation at the date of the gift was $600,000. At what amount should this contribution be recorded in the governmental activities accounts at the government-wide level?

$600,000.

A government enters into a lease agreement for the purchase of a new snow plow. The present value of the future lease payments is $845,500 and there is a down payment at the inception of the lease of $25,000. The snow plow should be recorded in the government-wide statement of net position at:

$870,500.

Equipment that had been acquired several years ago by a special revenue fund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the governmental activities journal will include all of the following except:

A credit to Other Financing Sources for $5,000.

At the inception of a lease for equipment the journal entry required in the capital projects fund will include which of the following?

A credit to Other Financing Sources—Lease Agreement.

Equipment that had been acquired several years ago by a special revenue fund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the special revenue fund will include:

A debit to Cash for $15,000.

When a government transfers the rights and obligations of an asset to another legally separate governmental or private sector entity, the transaction is referred to as:

A service concession arrangement.

Capital assets donated to a government are valued at

Acquisition value.

Maxim County just completed construction of a new town hall to be used for its government offices. The employees have moved in and the new building is officially in use. The county used a capital projects fund to account for the construction of the building, and the building came in under budget. There is a fund balance of $12,000. The county should:

All of the above may be appropriate ways to treat the fund balance.

Governments can opt not to capitalize collections or individual works of art or historical treasures if the collection is:

All of the options are correct.

Under GASB standards, intangible assets include

All these answer options are correct.

Callaway County issued $10,000,000 in bonds at 101 for the purpose of constructing a new County Recreation Center. State law requires that any premium on bond issues be deposited directly in a debt service fund for eventual repayment of bond principal. The journal entry to record issuance of the bonds will require a (an):

Both Credit to Other Financing Sources—Proceeds of Bonds in the capital projects fund and Credit to Other Financing Sources—Premium on Bonds in the debt service fund are correct.

How should a lease for a general capital asset be recorded in the governmental activities accounts at the inception of the lease?

Both Debit to a lease asset account and Credit to Lease Obligations Payable are correct.

A capital projects fund might be used to account for which of the following activities?

Building a parking garage.

Which of the following is not a required disclosure about each major class of capital assets?

Capital acquisitions and sales or other dispositions during the year showing the date and method of acquisition or disposition.

When a snowplow is purchased by a government, it should be recorded in the governmental activities general journal as a(an):

Capital asset.

In which of the following would it not be appropriate to record depreciation of capital assets?

Capital projects fund.

A capital projects fund would probably not be used for which of the following assets?

Construction and installation of new shelving in the mayor's office.

Premiums received on tax-supported bonds are generally transferred to what fund?

Debt service.

Machinery and equipment depreciation expense for general capital assets totaled $163,000 for the reporting period. Which of the following correctly defines the recording of depreciation for general capital assets?

Depreciation expense is allocated and recorded at the government-wide level with a debit to the functions or programs of government and a credit to accumulated depreciation.

Which of the following is a correct statement regarding the use of the modified approach for accounting for eligible infrastructure assets?

Depreciation on eligible infrastructure assets need not be recorded if the assets are being maintained at or above the established condition level.

In the Governmental Activities column of the government-wide statement of net position, Bond Anticipation Notes (BANs) are recorded as

Either short-term or long-term liabilities depending upon the intent of the government to refinance the liability.

Neighborville enters into a lease agreement for new copiers in all its city hall offices. In the General Fund at the inception of the lease, it should record

Expenditures equal to the capitalizable cost of the lease asset regardless of the amount of lease payments made during the year.

In Fulbright County, the Culture and Recreation Department constructed a library in one of the county's high-growth areas. The construction was funded by a number of sources. Below is selected information related to the Library Capital Project Fund. All activity related to the library construction occurred within the current fiscal year. The county operates on a calendar-year basis. 6. The capital projects fund temporary accounts were closed to Fund Balance—Restricted. The resources are restricted because they were obtained from bonded debt issued exclusively for library construction. The capital projects fund was closed by transferring remaining funds to the debt service fund for use in library construction debt repayment.

Explanation Capital Projects Fund: Note: There would also be an entry in the debt service fund. Governmental Activities: No entry since the closing only relates to the fund.

Prepare journal entries for each of the following transactions entered into by the City of Loveland. 5. The city records a half year of straight-line depreciation on capital assets placed in service during the year. The building in item 4 above has an estimated 30-year life and no salvage value.

Explanation (9,720,000/30 years × ½ year = 162,000)

In Fulbright County, the Culture and Recreation Department constructed a library in one of the county's high-growth areas. The construction was funded by a number of sources. Below is selected information related to the Library Capital Project Fund. All activity related to the library construction occurred within the current fiscal year. The county operates on a calendar-year basis. 1. The county issued $6,000,000 of 4 percent bonds, with interest payable semiannually on January 1 and July 1. The bonds sold for 101 on February 1. Proceeds from the bonds were to be used for construction of the library, with all interest and premiums received to be used to service the debt issue. Assume the premium and interest are recorded directly in the debt service fund.

Explanation 1.Governmental Activities: Note: This assumes the premium and interest are recorded directly in the debt service fund. If the premium and interest were first recorded in the capital projects fund, the capital projects fund would also credit Due to Debt Service Fund for $80,000.Accrued Interest Payable (or Expenses—Interest on Bonds) = ($6,000,000 × 0.04 × 1/12 = $20,000)

In Fulbright County, the Culture and Recreation Department constructed a library in one of the county's high-growth areas. The construction was funded by a number of sources. Below is selected information related to the Library Capital Project Fund. All activity related to the library construction occurred within the current fiscal year. The county operates on a calendar-year basis. 4. A construction contract was awarded in the amount of $6,800,000.

Explanation Governmental Activities: Budgetary transactions are not recorded in the governmental activities journal

In Fulbright County, the Culture and Recreation Department constructed a library in one of the county's high-growth areas. The construction was funded by a number of sources. Below is selected information related to the Library Capital Project Fund. All activity related to the library construction occurred within the current fiscal year. The county operates on a calendar-year basis. 3. The Library Special Revenue Fund transferred $250,000 for use in construction of the library.

Explanation Governmental Activities: No entry when transfers are between governmental funds.(Note: There would also be an entry in the special revenue fund.)

Which of the following statements regarding capital assets is not true?

Fiduciary funds do not account for property, plant, and equipment within the fund financial statements.

A general capital asset constructed several years ago by a capital projects fund was sold by the General Fund. Entries are necessary in the:

General Fund and governmental activities.

Which of the following statements is correct concerning interest expenditures incurred during the period of construction of capital projects?

Interest expenditures may not be capitalized as part of the cost of general capital assets reported in governmental activities.

Neighborville enters into a lease agreement for new copiers in all its city hall offices. In the governmental activities journal at the inception of the lease, it should record

Leased equipment balances equal to the capitalizable cost of the lease assets regardless of the amount of lease payments made during the year.

Arbitrage rules under the Internal Revenue Code

Limit the investment of bond proceeds to securities whose yield does not exceed that of the new debt.

GASB standards require that general capital assets be recorded in the fund statements at:

None of the options are correct.

Two new copiers were purchased for use by the city clerk's office using General Fund resources. The copiers cost $15,000 each; the city's capitalization threshold is $5,000. Which of the following entries would be required to completely record this transaction?

Option C

The City of Deauville entered into a service concession arrangement (SCA) with Water Wonders, Inc., to operate the city pool for the next 20 years. Water Wonders has agreed to pay the city $3,000,000 up front as a part of this agreement. According to the agreement, Water Wonders will be responsible for operating the pool, and the city will continue to be responsible for costs related to maintaining it. In addition, Water Wonders has the right to collect fees from the public for their use of the pool, although the rates are subject to approval by the city. The city should:

Record the receipt of the cash payment, a liability for the present value of the cost of required future maintenance, and a deferred inflow of resources for the difference between the cash payment and the liability.

In late April, the Acme Construction Co. submitted a $1,200,000 progress billing on a construction contract. On May 2, the bill was approved for payment, subject to a ten percent retention, as provided by the contract. Construction expenditures should be debited when:

The bill is approved for payment.

To offset engineering and design costs incurred prior to the issuance of a long-term bond issue, a capital projects fund borrowed the sum of $75,000 on a short-term basis from First National Bank. This transaction should be recorded in:

The capital projects fund.

Capital assets used by governmental funds should be reported in:

The governmental activities column of the government-wide statements.

Under a service concession arrangement:

The transferring government continues to report the transferred asset as a capital asset and any related contractual obligations as liabilities.

Under GASB standards, which of the following would be considered an example of an intangible asset?

Water rights associated with the springs that supply the water to the lake.

In the current year, the building occupied by Sunshine City's Culture and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years since a hurricane had hit the Sunshine City area, although hurricanes in Sunshine City's geographic area are not uncommon. The building had been purchased 10 years earlier at a cost of $2,000,000 and had accumulated depreciation of $500,000 as of the date of the hurricane. Based on a restoration cost analysis, city engineers estimate the impairment loss at $230,000; however, the city expects during the next fiscal year to receive insurance recoveries of $120,000 for the damage. Required a. Should the estimated impairment loss be reported as an extraordinary item? As a special item? b. Record the estimated impairment loss in the journal for governmental activities at the government-wide level. c. How should the insurance recovery be reported in the following fiscal year?

a. Ordinary expense, disclosed in the notes to the financial statements b. attachment c. Program revenue Explanation a.Because Sunshine City is located in an area that is susceptible to hurricanes, the unusual criterion would not be met for the loss to be reported as extraordinary. To be reported as a special item requires that the event be either unusual or infrequent in occurrence (but not both) and be within management's control. Since this is the first hurricane to hit the city in 48 years, the infrequent criterion would appear to be met, but hurricanes may be considered frequent for the broader geographic area. Moreover, the hurricane was clearly beyond management's control, so this event cannot be reported as a special item. In addition to reporting the item as an ordinary expense, it should be disclosed in the notes to the financial statement if it is deemed to be significant and infrequently occurring.c.GASB requires that the $120,000 insurance recoveries be reported as program revenues (presumably of the Culture and Recreation function in the Capital Grants and Contributions column under Governmental Activities) on the government-wide statement of activities in the year received. In addition, it should be reported as an other financing source by the General Fund.