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					ACCY 161 – Spring 2007                               Exam #2 - KEY
Part I: 70 points – 35 questions - two points each. Answer each question as indicated and put your answer
on the Scantron. I would also recommend that you put your answer on the exam as well. Choose what you
think is the best answer. If you think a question is unclear, put a comment on the exam under or next to the
question. Read each question slowly and carefully. Circle your answer on the exam if you want to record
you answer there as well as on the Scantron.

1.    Accountability for capital assets used by departments accounted for by the governmental funds of a
     government should be established in
     a. The appropriate governmental funds.
     b. The property, plant, and equipment fund.
     c. Departmental memorandum records.
     d. The governmental activities accounts at the government-wide level.

2. The following items were included in Prairie City's General Fund expenditures for the year ended June
          Personal computer for the city treasurer               $4,000
          Furniture for the mayor’ s office                     $10,000

 How much should be classified as capital assets in Prairie City's General Fund balance sheet at June 30?
   a. $ 0.
   b. $ 4,000.
   c. $10,000.
   d. $14,000.

3. The following general capital assets were owned by the town of Otterville:
           Town buildings                                 $3,250,000
           Equipment                                       1,000,000
           Streets, sidewalks, and water mains             2,000,000

 What amount should be recorded as capital assets in the town's governmental activities accounts if
 Otterville follows GASB standards?
   a. $ 0.
   b. $2,000,000.
   c. $4,250,000.
   d. $6,250,000.

4. Equipment in general governmental service that had been acquired several years ago by a capital projects
   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. A debit to cash for $15,000.
   b. A debit to accumulated depreciation of $30,000.
   c. A credit to equipment for $40,000.
   d. All of the entries above will be made.

5. Which of the following funds of a government uses the modified accrual basis of accounting?
   a. Private-purpose trust fund.
   b. Capital projects.
   c. Internal service.
   d. Enterprise.

6. The city of Columbus issued bonds at par for the construction of a new city office building. Receipt of

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ACCY 161 – Spring 2007                      Exam #2 - KEY
   the bond proceeds would result in journal entries in which funds?
   a. Capital Projects Fund: Yes; Debt Service Fund: No
   b. Capital Projects Fund: No; Debt Service Fund: Yes
   c. Capital Projects Fund: Yes; Debt Service Fund: Yes
   d. Capital Projects Fund: No; Debt Service Fund: No

7. With regard to depreciation of general capital assets
   a. Depreciation expense should be charged in the appropriate governmental funds, and reported in the
      governmental activities accounts.
   b. Depreciation expense must be recorded in the governmental fund, but no depreciation expense can be
      recorded in the governmental activities accounts.
   c. No depreciation can be recorded in any governmental fund, but depreciation expense must be
      reported in the governmental activities accounts.
   d. No depreciation can be recorded in any governmental fund, nor is it permissible to record
      depreciation expense in the governmental activities accounts.

8. Interfund transfers from the General Fund to a capital projects fund to provide partial financing of a
   capital project would be reported by the capital projects fund as a (an)
   a. Fund balance addition.
   b. Revenue.
   c. Other financing source.
   d. Current liability.

9. Which of the following is not true for capital projects funds?
   a. GASB standards require that construction work in progress be capitalized in the capital projects funds
      until the project is completed.
   b. Encumbrance accounting is generally used.
   c. Cash or receivables from special assessments to finance construction projects should be
      recorded as assets of capital projects funds.
   d. Capital projects funds may account for financial resources provided by federal grants as well as for
      bond proceeds.

10. For which of the following assets can the “modified approach” be elected in lieu of depreciation?
    a. Buildings and equipment.
    b. All general capital assets.
    c. All capital assets.
    d. Eligible infrastructure assets.

11. Which of the following is one of the requirements that must be met to elect not to depreciate certain
    eligible infrastructure assets?
    a. The government omits the cost of the assets from the government-wide statement of net assets.
    b. The government maintains the assets in a condition level that far exceeds the prescribed level.
    c. The government manages the assets using an asset management system that meets specific
        criteria.
    d. The government gets permission of the Government Accounting Standards Board.

12. Which of the following are properly accounted for in the governmental activities accounts?
    a. Tax-supported general obligation bonds.
    b. Obligations under capital leases used to finance general capital assets.
    c. The long-term portion of judgments and claims.
    d. All of the above.

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ACCY 161 – Spring 2007                        Exam #2 - KEY

13. Which of the following resource inflows would be recorded as a revenue of a debt service fund?
    a. Property taxes levied by the debt service fund for debt service purposes.
    b. Receipt of the premium on a new bond issue.
    c. Taxes collected by the General Fund and transferred to the debt service fund.
    d. Transfer of the residual equity of a capital project from a capital projects fund to the debt service
       fund.

14. On the due date for bond interest, the debt service fund journal entry (or entries) will include
    a. A debit to Appropriations.
    b. A debit to Interfund Transfers In.
    c. A debit to Expendituresond Interest.
    d. A debit to Interest Expense.

15. Interest expenditures on bonds payable should be recorded in a debt service fund
    a. At the end of the fiscal period if the interest due date does not coincide with the end of the fiscal
        period.
    b. When bonds are issued.
    c. When paid.
    d. When legally payable.

16. The liability for general obligation bonds should be recorded in
    a. General Fund.
    b. Capital projects fund.
    c. Governmental activities journal.
    d. Debt service fund.

17. On the due date for bond interest, the debt service fund journal entry (or entries) will include a debit to
    a. Expenditures—bond interest.
    b. Transfers in.
    c. Appropriations.
    d. Interest expense.

18. Proceeds from general obligation bonds should be recorded in the
    a. Debt service fund.
    b. General obligation bond fund. no such fund
    c. Permanent fund.
    d. Capital projects fund. – best answer

19. Debt service funds are used to account for which of the following
    a. Payment of interest only on general long-term debt.
    b. Payment of principal only on general long-term debt.
    c. Payment of principal and interest on general long-term debt.
    d. Payment of principal and interest on all debt of the government, including that of enterprise funds.

20. Debt service funds are used to record
    a. Both principal and interest payments of debt issues.
    b. Only interest payments on debt issues.
    c. Only principal payments of debt issues.
    d. Neither principal nor interest payments of debt issues.


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ACCY 161 – Spring 2007                      Exam #2 - KEY
21. When the debt service fund makes a payment of principal and interest on an outstanding long-term debt,
    the governmental activities accounts
    a. Reflect the principal payment only.
    b. Reflect the interest payment only.
    c. Has no record of the transaction.
    d. Reflects both principal and interest payments.

22. Revenue bonds sold by a water utility fund, upon sale, would be recorded
    a. In the governmental activities accounts as a liability.
    b. In an enterprise fund as "proceeds of bonds."
    c. In an enterprise fund as a liability.
    d. In an enterprise fund as a revenue.

23. Which of the following is not true?
    a. The debt service activity of a government may be properly accounted for within the General Fund
       unless law mandates the use of a debt service fund.
    b. Debt service funds, unlike the General Fund and special revenue funds, do not use budgetary
       accounting procedures.
    c. Expenditures for interest on tax supported long-term debt are not accrued, even though debt service
       funds are accounted for on the modified accrual basis.
    d. At year-end, budgetary and operating statement accounts of a debt service fund are closed in the same
       manner as is true for a General Fund or for special revenue funds.

24. Which of the following is a difference between enterprise funds and internal service funds?
    a. The use of cost accounting by enterprise funds but not internal service funds.
    b. The identity of those who benefit from the fund's service.
    c. The number of basic financial statements required.
    d. The measurement focus on economic resources for enterprise funds and current financial resources
       for internal service funds.

25. Which of the following funds of a government would account for depreciation in the accounts of the
    fund?
    a. General.
    b. Internal service.
    c. Capital projects.
    d. Special revenue.

26. Under utility regulatory accounting principles (RAP), the account "Utility Plant Acquisition
    Adjustment" reflects
    a. The difference between the amount paid for utility plant and the amount originally paid by the
       utility that first placed the plant into public service, less accumulated depreciation.
    b. The difference between the fair market value of the utility plant and the amount paid for it, less
       accumulated depreciation.
    c. The difference between the amount paid for the utility plant less its current replacement cost.
    d. The difference between the amount paid for the utility plant less the fair market value of its tangible
       plant assets.

27. For which of the following assets can the “modified approach” be elected in lieu of depreciation?
    a. Eligible infrastructure assets.
    b. All general capital assets.
    c. Buildings and equipment.

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ACCY 161 – Spring 2007                        Exam #2 - KEY
   d. All capital assets.

28. Which of the following accounts is least likely to be used by a tax agency fund?
    a. Cash.
    b. Revenues.
    c. Taxes receivable for other funds and units.
    d. Due to other funds and units.

29. When a cash and investment pool of a certain city was established, the debt service fund transferred
    investments to the pool having a cost of $3,000,000 but a current fair market value of $3,100,000. To
    record this transaction, the journal entry made by the debt service fund will include:
    a. A debit to Equity in Pooled Cash and Investments in the amount of $3,100,000.
    b. A credit to Revenues—Change in Fair Value of Investments in the amount of $100,000.
    c. A credit to Investments in the amount of $3,000,000.
    d. All of the above.

30. A citizen contributed $200,000 to the city stipulating that the money be invested and that the earnings
    thereon be used for maintenance of the city municipal swimming pool. The $200,000 would most
    appropriately be recorded in a (an)
    a. Agency fund.
    b. Private-purpose trust fund.
    c. Permanent fund.
    d. Endowment fund.

31. Which of the following activities would be accounted for by a trust fund?
    a. Deposits held for customers of a city-owned electric utility.
    b. Assets passed-through the state government to the local government.
    c. Assets held for special assessment bondholders for which the city has no liability.
    d. Assets which are used for maintenance of a private golf course, which is used by many city residents.

32. What is the paramount objective of general purpose external financial reporting?
    a. Reliability.
    b. Relevance.
    c. Accountability.
    d. Understandability.


33. Government-wide financial statements present the government's financial position using
    a. Total financial resources measurement focus/accrual basis of accounting.
    b. Economic resources measurement focus/accrual basis of accounting.
    c. Current financial resources measurement focus/modified accrual basis of accounting.
    d. Current financial resources measurement focus/cash basis of accounting.

34. Infrastructure assets and long-term liabilities will be reported in the
    a. Letter of transmittal.
    b. Fund financial statements.
    c. Management's discussion and analysis.
    d. Government-wide financial statements.




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ACCY 161 – Spring 2007                       Exam #2 - KEY
Part II – Problems – three at ten points each. Enter the journal entries for the transactions in the
   space provide.
Problem A: The City of Mt. Angel will be building anew recreation center. The current year budget
allocated $50,000 of general funds for the construction and approved a bond issue of $5,000,000 (issued by
the capital projects fund) to complete the funding for the project. The city uses a capital projects fund for all
major construction such as this. The transactions were recorded with dual tracking and as such, the entries
are made on both the governmental-funds side and the government-wide side (the governmental activities
accounts) where appropriate. For each of the following situations show the accounting entries as requested

1.   What are the budgetary entries for the above project in the capital project fund?
#                            Accounts                                       Debit                Credit
     Estimated Other Financing Sources – Sale of Bonds                       5,000,000
     Estimated Other Financing Sources – Transfers In                           50,000
            Fund Balance                                                                    5,050,000
     No GW entry here
2.   A purchase order was issued for initial construction work in the amount of $40,000.
#                              Accounts                                     Debit                Credit
     Encumbrances                                                               40,000
          Reserve for Encumbrances                                                          40,000




3.   The $5,000,000 bonds were issued by the Capital Projects Fund and sold at par. Make the entries for
     both the capital project fund and the governmental activities accounts.
#                              Accounts                                     Debit                Credit
     Cash                                                                    5,000,000
            Other Financing Sources – Bond Proceeds                                         5,000,000

     Cash                                                                     5,000,000
            Bonds Payable                                                                   5,000,000

4.   An invoice was received and approved for payment for $30,000 for the initial construction work. Make
     the entries for both the capital project fund and the governmental activities accounts.
 #                              Accounts                                      Debit                  Credit
      Reserve for Encumbrances                                                     30,000
             Encumbrances                                                                    30,000
      Expenditures – Capital Projects                                              30,000
             Vouchers Payable                                                                30,000

GW C-I-P                                                                           30,000
              Vouchers Payable                                                               30,000




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ACCY 161 – Spring 2007                      Exam #2 - KEY
Problem B: The following transactions occurred for Ashley County during the fiscal year 2007 which has a
year end of June 30, 2006.The county sold bonds on January 2, 2007 the amount of $3,000,000 at par. The
bonds pay interest semi-annually with a stated annual rate of 8%. The bonds were for use by the county for
general improvements. The repayment of the bonds is to be managed by the county’s Debt Service Fund.
The transactions were recorded with dual tracking to be in compliance with GASB 34. As such, the entries
are made on both the governmental funds side and the government-wide side (the governmental activities
accounts) where appropriate. For each of the following situations show the accounting entries as requested.
Where appropriate, indicate what fund is being used.
1.   What entries are made when the bonds are sold on January 2, 2007 for both the governmental fund
     accounts (both the general fund and the debt service fund) and the government-wide accounts?

 #                             Accounts                                   Debit               Credit
GF    Cash                                                                 3,000,000
              Other Financing Sources – Bond Proceeds                                    3,000,000

DSF No entry

GW    Cash                                                                   3,000,000
              Bonds Payable                                                              3,000,000



2.   The general fund transfers $30,000 to the debt service fund. What entries are made for both the
     governmental fund accounts and the government-wide accounts?

 #                            Accounts                                    Debit               Credit
GF    Other Financing Uses – Transfer Out                                     30,000
             Cash                                                                        30,000

DSF Cash                                                                        30,000
              Other Financing Sources – Transfer In                                      30,000

GW    No entry

3.   The first interest payment is to be made on July 2, 2007. The following would entries for the debt
     service fund and the governmental activities accounts would be made on June 30 prior to the closing
     entries. Assume the government-wide accounting uses full accrual accounting and prepares monthly
     financial statements:

 #                            Accounts                                    Debit               Credit
DSF No entry, not yet legally due

GW    Interest Expense (1/12 x 8% x 3,000,000)                      20,000
              Interest Payable                                                           20,000
      To accrue one month’s interest expense.




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ACCY 161 – Spring 2007                       Exam #2 - KEY

Problem C: Faith County uses a fiduciary fund to account for the collection of both property taxes and
other taxes for its own general fund and for a number of other governmental entities within the county.
During the fiscal year ended June 30, 2007 the following transactions occurred. Prepare the journal entries,
if needed, as requested in the form provided:

#1. Faith County determines that the full amount of the property taxes to be collected for other governmental
entities would be $6,000,000:
     Faith County School District                $3,000,000
     Hidden Valley Utility District              $2,000,000
     Faith Fire District                         $1,000,000
#                          Accounts                                          Debit                  Credit
    Taxes Rec. for Other Governmental Entities                                6,000,000
           Due to Other Governmental Entities                                               6,000,000




#2. During April, 2007, Faith County Tax Collection Agency Fund collected $3,000,000 of the amount of
the property taxes due and collected and additional $250,000 of use taxes (it is like a sales tax).

#                             Accounts                                       Debit                  Credit
    Cash                                                                      3,250,000
            Taxes Rec. for Other Governmental Entities                                      3,000,000
            Due to Other Governmental Entities - Use Taxes                                  250,000




#3. Faith County then determines that of the $3,000,000 in property tax collections, $1,500,000 is for the
Faith County School District and makes the payment to the district after an adjustment for a 1% collection
fee which is subsequently paid (by check) to the general fund of Faith County.

The $250,000 use tax collection is for the fire district and the agency fund makes a payment to the district for
the full amount less a 2% collection fee which is subsequently paid to the county’s general fund.
#                          Accounts                                          Debit                  Credit
    Due to Other Governmental Entities                                        1,500,000
           Due to General Fund                                                              15,000
           Cash                                                                             1485,000

    Due to General Fund                                                          15,000
           Cash                                                                             15,000

    Due to Other Governmental Entities                               250,000
           Due to General Fund                                                              5,000
           Cash                                                                             245,000

    Due to General Fund                                              5,000
           Cash                                                                             5,000


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