CH 9. Gov

20. Which of the following is NOT true about internal service funds as reported in the fund financial statements? a) Costs reported by internal service funds are reported twice within the same set of financial statements. b) Billing rates must be set to cover the full cost of providing the goods or services. c) Depreciation can be charged to governmental funds through the billing rates established by the internal service fund. d) Deficits or surpluses in the general fund can be transferred to the internal service fund by adjusting the billing rates.

B

21. In the Statement of Net Assets, the net assets of a proprietary fund should be displayed in which of the following categories? a) Unrestricted Fund Balance; Restricted Fund Balance, Invested in Capital Assets, Net of Related Debt. b) Unrestricted Net Assets; Restricted Net Assets; Invested in Capital Assets, Net of Related Debt. c) Unrestricted Net Assets; Restricted Net Assets; Net Assets Available for Use. d) Net Assets Available for Use.

B

26. A governmental entity operates landfill. In the Landfill Enterprise Fund financial statements, which of the following would be reported as a restricted asset? a) Cash received from the sale of bonds that must, based on the debt covenant, be spent only on building a new landfill runoff treatment plant. b) Cash that management has voted to use only for landfill expansion. c) Cash received from the General Fund that will be used only to expand the landfill. d) None of the above.

A

39. Which of the following entities is required to use the direct method to report its cash flows? a) City of Gaston Utility Fund. b) United Way. c) General Motors. d) Oak Grove Water Users Association.

A

41. The reporting of activities by an Enterprise Fund is most likely optional if: a) Fees are charged to external users for goods or services. b) The entity's pricing policies set fees and charges to recover costs. c) The entity is financed with debt, and the only security is a pledge of the activity's net revenues from fees and charges. d) The entity's costs are legally required to be recovered from fees and charges.

A

7. Which of the following is NOT a budget typically prepared for an activity accounted for in a proprietary fund? a) Appropriation budget. b) Cash budget. c) Capital budget. d) Flexible budget.

A

9. A proprietary fund of a governmental entity has donor-restricted assets on its balance sheet. Which of the following best describes where and how those assets will generally be displayed? a) In a separate restricted asset category on the statement of net assets. b) Intermingled with other assets on the statement of net assets. c) Intermingled with other assets on the statement of net assets but footnoted. d) In a separate restricted fund.

A

1. The appropriate measurement focus for the business-type activities of the City of Rockford is a) Current financial resources. b) Economic resources. c) Both (a) and (b). d) None of the above.

B

29. When a governmental enterprise fund has restricted assets on its balance sheet, which of the following is a true statement? a) The total of the restricted assets in the asset section will be equal to the "Restricted Net Assets" amount in the equity section. b) The total of the restricted assets will be offset by a liability of an equal amount. c) The total of the restricted assets less related liabilities will be equal to the "Restricted Net Assets" amount in the equity section. d) None of the above statements is true.

C

3. The appropriate basis of accounting for the proprietary funds of a governmental entity is a) Cash basis. b) Modified accrual. c) Full accrual. d) None of the above.

C

30. Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements a) In the business-type activities column. b) In the internal service fund column. c) In the governmental activities column. d) These balances should not be presented on the government-wide financial statements.

C

31. On the fund financial statements, internal service activities should be presented a) In the Propriety Fund statements, net of interfund eliminations. b) In the Governmental Fund statements, net of interfund eliminations. c) In the Proprietary fund statements, without any interfund eliminations. d) In the Governmental Fund statements, without any interfund eliminations.

C

32. Cash flows from Investing Activities include which of the following as cash inflows a) Cash collection of receivable for sale of services. b) Grants for operating activities. c) Interest and dividends received. d) Purchases of investments.

C

38. Cash flows from Noncapital Financing Activities include which of the following as outflows a) Repayment of bonds issued to finance construction of City Hall. b) Deposits into investment pools. c) Loans to another fund of the entity. d) Grants made to other governments to support operating activities.

C

40. Which of the following factors are considered by rating agencies when considering revenue bond debt? a) Tax base. b) Assessed valuation of property in jurisdiction. c) History of rates and rate increases. d) Demographics.

C

12. The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund. At the date of issue, the appropriate entry in the Internal Service Fund is a $ 2 million debit to cash and a $2 million credit to a) Bonds payable. b) Capital contribution (Revenues). c) Capital contributed (Revenues) AND show $2 million as an addition to the Schedule of Changes in Long-term Obligations. d) No entry in the proprietary fund. Show $2 million as an addition to the Schedule of Changes in Long-term Obligations.

A

13. Which of the following is the best rationale/justification for reporting the business-type activities of a government in a separate fund? a) Laws or regulations require that the activity's costs of providing services be recovered by fees and charges rather than general purpose taxes or similar charges. b) Separate funds facilitate budgeting, planning, and controlling. c) Separate funds facilitate the assessment of performance of the activity. d) Separate funds facilitate the assessment of fiscal status of the activity.

A

15. Burton County issued $6 million of revenue bonds to finance construction of additional physical plant facilities for the City Sewer System that is accounted for in an enterprise fund. The bond agreement requires that $.5 million of the proceeds be invested in U.S. Treasury securities to be used to service the debt if revenues in a particular year are insufficient to do so. At the time of the sale of the bonds, the County debited restricted cash and credited bonds payable. What additional entry, if any, would be needed? a) No additional entry would be needed at this time. b) Debit Restricted net assets $.5 million; Unrestricted net assets $.5 million. c) Debit Unrestricted net assets $.5 millions; Credit Restricted net assets $.5 million. d) Debit Unrestricted retained earnings $.5 million; Credit Restricted retained earnings $.5 million.

A

16. Franklin County operates a solid waste landfill that is accounted for in an enterprise fund. The County calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $300,000. The entry(ies) to record this cost should be a) Debit Landfill expense $300,000; Credit Liability for landfill costs $300,000 b) Debit Landfill expense $300,000; Credit Liability for landfill costs $300,000 AND Include an addition of $300,000 on the Schedule of Changes in Long-term Obligations. c) Show only an addition of $300,000 on the Schedule of Changes in Long-term Obligations. d) No entry in any fund; No entry in the Schedule of Changes in Long-term Liabilities.

A

19. Over the long run, governmental internal service funds are intended to a) Generate revenues sufficient to cover the full costs of providing services. b) Generate revenues sufficient to cover the full costs of providing services and to earn a profit. c) Generate revenues sufficient to cover the current operating costs of providing services. d) Generate revenues sufficient to cover the current operating costs of providing services and to earn an operating profit.

A

24. Washington County has designated the General Fund as the single fund to account for its self-insurance activities. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities? a) The amount of "premium" charged to the other funds. b) The amount of actual claims expenditures. c) The actuarially determined amount necessary to cover claims, expenditures, and catastrophic losses. d) The amount transferred from other funds and activities to the general fund for self-insurance purposes.

B

During the year the City's Self-Insurance Internal Service Fund billed the General Fund $600,000 for "premiums," of which $60,000 was for catastrophic losses and the balance was the premium computed on an actuarially determined basis. During the year the City incurred $500,000 in claims losses. The total amount transferred to the Self-Insurance Fund by the General Fund was $620,000. 28. The amount the City General Fund can recognize as an expenditure is a) $620,000. b) $600,000. c) $540,000. d) $500,000.

B

During the year the City's Self-Insurance Internal Service Fund billed the General Fund $600,000 for "premiums," of which $60,000 was for catastrophic losses and the balance was the premium computed on an actuarially determined basis. During the year the City incurred $500,000 in claims losses. The total amount transferred to the Self-Insurance Fund by the General Fund was $620,000. 27. The amount the City Self-Insurance Fund can recognize as revenue is a) $620,000 b) $600,000. c) $540,000. d) $500,000.

B

The City of Brockton voted to establish an internal service fund to account for its printing services. The City transferred $500,000 cash from the General Fund to the newly created internal service fund. 10. The appropriate entry in the general fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to a) Due from internal service fund. b) Transfer out. c) Expenditures. d) Investment in internal service fund.

B

The City of Brockton voted to establish an internal service fund to account for its printing services. The City transferred $500,000 cash from the General Fund to the newly created internal service fund. 11. The appropriate entry in the internal service fund is a debit to cash for $500,000 and a credit for $500,000 to a) Due to general fund. b) Transfer in. c) Capital contribution (Revenues). d) Investment provided by the general fund.

B

17. Marsh Lake County operates a solid waste landfill that is accounted for in a governmental fund. The County calculated this year's portion of the total closure and postclosure costs associated with the landfill to be $600,000. The entry to record this cost should be a) Debit Landfill expenditure $600,000; Credit Liability for landfill costs $600,000 b) Debit Landfill expenditure $600,000; Credit Liability for landfill costs $600,000 AND Include $600,000 as an addition on the Schedule of Changes in Long-Term Obligations. c) No entry in the fund; include $600,000 on the Schedule of Changes in Long-Term Obligations. d) No entry in any fund or Schedule.

C

18. During the current year, the Wilson County Landfill Enterprise Fund installed wells designed to assist in the ground water monitoring process after closure for their solid waste landfill. The landfill has reached 40% of its capacity and is expected to continue to accept waste until 2012. The costs of the wells were $80,000. The appropriate entry to record this event is a credit to Cash for $80,000 and an $80,000 debit to a) Fixed assets. b) Landfill expenses. c) Liability for landfill costs. d) Deferred expenses.

C

2. Which of the following is not a proprietary fund? a) City Water Enterprise Fund. b) City Motor Pool Internal Service Fund. c) City Hall Capital Project Fund. d) None of the above. They are all proprietary funds.

C

22. A Statement of Revenues, Expenses, and Changes in Fund Net Assets should include which of the following in addition to operating revenues and operating expenses and ending Net Assets a) Nonoperating revenues and expenses. b) Nonoperating revenues and expenses, and Other Changes in Net Assets. c) Nonoperating revenues and expenses, Capital Contributions and Other Changes in Net Assets, Beginning Net Assets. d) None of the above.

C

23. In which of the following circumstances must an enterprise fund be used to account for the activity? a) A newly created electric utility fund will finance its operations by a charge to users based on kilowatt hours used. b) To finance the acquisition of plant facilities, a newly created electric utility issues general obligation debt. c) To finance the acquisition of plant facilities, a newly created electric utility issues revenue bonds that will be repaid solely from operations of the electric utility. d) To acquire needed plant facilities, a newly created electric utility enters into long-term lease agreements.

C

25. Lehi City has designated an internal service fund as the single fund to account for its self-insurance activities. Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities? a) The amount of "premium" charged to the General Fund by the internal service fund. b) The amount of actual losses incurred by the insurance activity. c) The actuarially determined amount necessary to cover claims, expenditures, and catastrophic losses. d) The amount transferred from the General Fund to the internal service fund for self-insurance purposes.

C

5. Which of the following is a valid argument for separate accounting principles for proprietary activities? a) Two separate measurement focuses and bases for accounting within the same set of financial statements are confusing. b) There are no clear-cut distinctions between business and non-business activities. c) The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. d) Surveys of statement users indicate that information on depreciation is not of high priority to governmental decision makers.

C

6. Which of the following is a key reason for using business-type accounting to account for proprietary fund activities? a) The modified accrual basis of accounting captures all the resources and obligations associated with an activity. b) Depreciation is not recognized in business-type accounting in governments and surveys of statement users indicate that information on depreciation is not of high priority to governmental decision makers. c) The measurement focus on all economic resources is more consistent with the GASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. d) Business-type accounting facilitates comparisons with governmental activities.

C

14. Which of the following are required basic statements of a Proprietary Fund? a) Balance Sheet and Income Statement. b) Balance Sheet; Statement of Revenues, Expenses, and Changes in Retained Earnings; and Statement of Cash Flows. c) Statement of Net Assets and Statement of Revenues, Expenses, and Changes in Fund Net Assets. d) Statement of Net Assets; Statement of Revenues, Expenses, and Changes in Fund Net Assets; and Statement of Cash Flows.

D

33. Cash flows from Capital and Related Financing Activities include which of the following as cash outflows a) Grants to other governments for operating activities. b) Grants to other governments for capital asset acquisitions. c) Payments for services performed by other funds. d) Purchases of capital assets.

D

34. Cash flows from Operating Activities include which of the following as inflows a) Proceeds from short-term borrowing to finance operations. b) Receipts from property taxes levied to support operations of the activity. c) Grants from other governments to finance an operating deficit. d) Any cash receipt that does not meet the definition of investing, capital and related financing, or noncapital financing activities.

D

35. Cash flows from Investing Activities include which of the following as outflows a) Repayments of short-term borrowing to finance operations. b) Interest received on investments. c) Cash transfers to other funds. d) Purchase of short-term investments.

D

36. Cash flows from Capital and Related Financing Activities include which of the following as inflows a) Repayment of bonds issued to construct a new city hall building. b) Interest received on investments. c) Grant from the state to subsidize the mass transit system. d) Receipts from the sale of an old backhoe that had been used in general government activities.

D

37. Cash flows from Investing Activities do NOT include which of the following as inflows a) Receipts from the sale of marketable securities. b) Interest received on bonds held as short-term investments. c) Interest received on bonds held as long-term investments. d) Transfers to other funds.

D

4. Which of the following is a valid reason for governmental entities to engage in business-type activities? a) The entity does not want control over the activity. b) The activity competes with general government activities. c) The entity does not want to subsidize the activity. d) The entity can provide the services more cheaply or efficiently than can a private firm.

D

42. The Financial Statements of a Proprietary fund are prepared using the Full Accrual Modified Economic Resources Current Financial Basis Accrual Basis Measurement Focus Resources Measure- ment Focus a) No Yes Yes No b) Yes No No Yes c) No Yes No Yes d) Yes No Yes No

D

43. The following transactions were among those reported by Madison City's water utility enterprise fund for the current year: Proceeds from sales of revenue bonds $3,900,000 Cash received from customer households $1,600,000 Capital Contributed by subdivisions $700,000 In the water utility enterprise fund's statement of cash flows for the current year, what amount should be reported as cash flows from capital and related financing activities? a) $3,900,000 b) $6,200,000 c) $5,500,000 d) $4,600,000

D

8. A governmental entity reports its utility services provided to the citizens in a proprietary fund. Which of the following best represents an acceptable election of accounting standards for the proprietary fund? Unless the FASB pronouncement conflicts with or contradicts a GASB pronouncement, a propriety fund must adhere to a) All FASB pronouncements. b) All FASB pronouncements issued prior to November 30, 1989, as well as any post-November 30, 1989 pronouncements specifically adopted by GASB. c) It must apply only GASB standards. d) It may elect either (a) or (b).

D