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									ACCY 161 – Fall 2008                    Exam #2 FORM I - KEY                              November 4st

                                             KEY – Form I
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 capital projects fund
     c. The governmental activities accounts at the government-wide level.
     d. Both b.and c.
     e. a. and b. and c. are all correct answers.

2.   Which of the following would be considered a general capital asset?
     a. A vehicle purchased from general fund revenues.
     b. A vehicle purchased and maintained by an enterprise fund.
     c. A computer purchased from revenues of an internal service fund and used by the supplies de-
        partment.
     d. Real estate purchased with the assets of a pension trust fund.
     e. a. and b. and c. are all correct. d. is and investment and not a general capital asset.

3.   The following items were included in the City of Lone Pine’s General Fund expenditures for the year
     ended June
                               Personal computer for the city treasurer        $9,000
                               Furniture for the mayor’     s office          $16,000

How much should be classified as capital assets in Lone Pine’s General Fund balance sheet at June 30?
   a. $ 0. – capital assets are not in the fund statements
   b. $ 9,000.
   c. $16,000.
   d. $25,000.
   e. none of the above are correct

4.   Which of the following funds of a government uses the modified accrual basis of accounting?
     a. Private-purpose trust fund.
     b. Capital projects. – see page 46
     c. Internal service.
     d. Enterprise.

5.   The city of Columbus issued bonds at par for the construction of a new city office building. Receipt
     of the bond proceeds would result in journal entries in which funds? Select the best answer.
     a. Capital Projects Fund: Yes; Debt Service Fund: No - $$$ can go to the capital projects fund
     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
     e. None of these answers would be appropriate




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ACCY 161 – Fall 2008                    Exam #2 FORM I - KEY                                 November 4st

6.   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 depre-
         ciation expense in the governmental activities accounts.

7.   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. – see glossary
     d. Current liability.

8.   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. – see glossary

9.   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.

10. Which of the following are properly accounted for in the governmental fund 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.
    e. None of the above – these are in the governmental activities accounts

11. A debt service fund is a (an)
    a. Nonexpendable fund.
    b. Governmental fund. – see glossary
    c. Fiduciary fund.
    d. Proprietary fund.

12. 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 proceeds 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.
    e. Both a. and c. are correct – c would be and “other financing source.”
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ACCY 161 – Fall 2008                    Exam #2 FORM I - KEY                                 November 4st


13. On the due date for bond interest, the debt service fund journal entry (or entries) will include (there
    may be other entries as well, but will include):
    a. A debit to Interest Payable.
    b. A credit to Encumbrances. – encumbrances not used in the debt service fund
    c. A debit to Expendituresond Interest. – see next question
    d. A debit to Interest Expense.
    e. a. and b. and c. are all correct

14. 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.

15. Which of the following debt service fund accounts would not be closed at the end of each fiscal year?
    a. Estimated Revenues.
    b. Fund Balance. – this is where the accounts are closed
    c. Revenues.
    d. Expenditures—Bond Interest.

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. Proceeds from general obligation bonds should be recorded in the
    a. Debt service fund.
    b. General obligation bond fund. – this fund does not exist
    c. Permanent fund.
    d. Capital projects fund. – this is only answer that works

18. 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.

19. Which of the following assets would not be found in the balance sheet of a debt service fund?
    a. Cash
    b. Investments.
    c. Equipment. – has no equipment
    d. Interest Receivable.
    e. All the above can be found on the balance sheet of a debt service fund.




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ACCY 161 – Fall 2008                  Exam #2 FORM I - KEY                                November 4st

20. Which of the following is a true statement regarding in-substance defeasance of bonds?
    a. The government must place cash or other assets in an irrevocable trust sufficient to pay all
       future interest and principal payments for the debt being defeased.
    b. The government must agree to maintain sufficient cash and investment balances in its debt ser-
       vice fund to cover all interest and principal payments for the debt being defeased.
    c. The government must pledge to transfer amounts to an escrow agent prior to the due date for
       each interest and principal payment for the debt being defeased.
    d. Any of the above approaches are acceptable under GAAP.

21. 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. – internal vs. external customers
    c. The number of basic financial statements required.
    d. The measurement focus on economic resources for enterprise funds and current financial re-
       sources for internal service funds.

22. Depreciation on capital assets used by an enterprise fund of a government
    a. Should not be recorded for infrastructure assets.
    b. Should be recorded in the General Fund as an expenditure.
    c. Should be recorded in the enterprise fund by a debit to an expense account.
    d. Should be recorded in the governmental activities accounts.

23. An internal service fund normally uses which of the following budgetary accounts?
    a. Estimated Revenues.
    b. Appropriations.
    c. Encumbrances.
    d. a. and b. and c. are all used for an internal service fund
    e. None of the above. – budgetary accounts not used – see page 46

24. Which of the following is the most reliable means of distinguishing a trust relationship from an agen-
    cy relationship for purposes of deciding which type of fiduciary fund should be used?
    a. Examine the amount of money involved; agency relationships generally involve smaller
         amounts.
    b. Examine the aggregate of factors, such as the enactment that brought the relationship into exis-
         tence, statutes, regulations, etc, that help define the nature of the relationship.
    c. Examine the length of time assets will be held; trust relationships are generally in existence
         longer than agency relationships.
    d. Examine the wording of any agreements to determine if the word "trust" or "agency" is used.

25. Which of the following is a valid reason for establishing a tax agency fund and charging a collection
    fee to other governments?
    a. To help eliminate a General Fund deficit.
    b. To increase the total amount of taxes levied.
    c. To avoid overlapping taxes.
    d. To realize administrative efficiencies from centralizing tax billing and collection activities.

26. Which of the following accounts is least likely to be used by a tax agency fund?
    a. Cash.
    b. Revenues. – see page 46
    c. Taxes receivable for other funds and units.
    d. Due to other funds and units.
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ACCY 161 – Fall 2008                    Exam #2 FORM I - KEY                                November 4st

27. A difference between the accounting for agency funds and governmental funds is
    a. Agency funds are not included on any fund financial statements.
    b. Agency funds use a different basis of accounting.
    c. Agency funds do not report fund balances; only assets and liabilities.
    d. B and C. – see page 46

28. Which of the following is the appropriate measurement focus for agency funds?
    a. Economic resources.
    b. Current financial resources.
    c. Cash and cash equivalents.
    d. None of the above.

29. Which of the following would not be included within the financial section of the comprehensive an-
    nual financial report (CAFR)?
    a. Management's discussion and analysis (MD&A).
    b. Management's letter of transmittal.
    c. Independent auditor's report.
    d. Required supplementary information (RSI).

30. What constitutes the basic financial statements of a government?
    a. Financial section of the comprehensive annual financial report (CAFR).
    b. Government-wide financial statements plus notes.
    c. Government-wide financial statements plus fund financial statements plus notes. – see page 8
    d. Government-wide financial statements plus fund financial statements plus notes plus required
       supplementary information (RSI).

                                  Extra Credit Questions – Two Points Each

31. The term that is defined as determining whether current-year revenues are sufficient to pay for the
    services provided that year and whether future taxpayers will be required to assume burdens for ser-
    vices previously provided is
    a. Financial position.
    b. Financial condition.
    c. Interperiod equity.
    d. None of these terms.

32. The term that is closely related to the concept of liquidity is
    a. Financial condition.
    b. Financial position.
    c. Interperiod equity.
    d. None of these terms.

33. Which of the following financial concepts has been defined by the GASB as "the probability that a
    government will meet both its financial obligations to creditors, consumers, employees, taxpayers,
    suppliers, constituents, and others as they become due and its service obligation to constituents, both
    currently and in the future?"
    a. Liquidity.
    b. Financial position.
    c. Financial leverage.
    d. Financial condition. – see glossary

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ACCY 161 – Fall 2008                   Exam #2 FORM I - KEY                                  November 4st

34. A term that describes a government’s ongoing ability and willingness to raise revenues, incur debt,
    and meet its financial obligations as they become due is
    a. Financial condition.
    b. Fiscal capacity. – see glossary
    c. Economic condition.
    d. Financial position.

      FOR PART TWO CONTINUE TO USE YOUR SCANTRON TO
                  RECORD YOUR ANSWERS
Part II – Three Problems (30 points – 10 points each composed of five multiple choice questions at
two points each). Each of the three problems provides you with a short situation followed my five
multiple-choice questions – two points each – on either journal entries or amounts related to the
transactions. Enter your answer on the Scantron. You can make notes on the exam if you want.
Note the amounts used are unrealistically small, but that makes it easier to do the calculations. Un-
less otherwise stated the entries referred to can be to either the fund accounts or the governmental
activities accounts.

Problem A: Vannan County will be building a new community center. The current year budget allo-
cated $100 of general funds for the construction and approved a bond issue of $3,000 (to be issued by the
capital projects fund) to fund 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 select the answer that is most appropriate.

35. When the bonds are issued there will be a:
    a. credit to a bonds payable account – in the governmental activities accounts
    b. credit to due from general fund account – no activity here
    c. credit to other financing sources account – in the governmental fund accounts
    d. a. and c. are both correct
    e. a. and b. and c. are all correct

36. For the $100 of general funds resources:
    a. there will be a budgetary entry on the general fund accounts
    b. there will be a budgetary entry on the capital projects accounts
    c. both a. and b. are correct
    d. neither a. nor b. are correct as they offset each other.

37. A contract is issued for $25 for construction site preparation. When this happens:
    a. there is a debit to encumbrances
    b. there is a debit to construction in process
    c. both a. and b. are correct

38. When the first invoice is submitted by the contractor there will a(an):
    a. entry to vouchers or contracts payable
    b. entry to construction in process
    c. both a. and b. are correct
    d. neither a. nor b. are correct


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ACCY 161 – Fall 2008                  Exam #2 FORM I - KEY                                November 4st

39. When the project is completed, there will be an entry to:
    a. credit the construction in process account – in the governmental activities accounts
    b. debit cash
    c. debit to encumbrances
    d. both a. and c. are correct
    e. none of the above are correct.

Problem B: The following transactions occurred for Sandy City during the fiscal year 2009 which has a
year end of June 30, 2009.The county’s general fund sold bonds on July 1, 2007 in the amount of $1,000
at par. The bonds pay interest semi-annually with a stated annual rate of 8%. The repayment of the bonds
is to be managed by the county’s Debt Service Fund from property tax revenues that will be transferred as
needed from the general fund. The transactions were recorded with dual tracking, and as such, there are
entries on both the governmental funds side and the government-wide side (the governmental activities
accounts) where appropriate. For each of the following situations select the answer that is most appropri-
ate.
40. When the budget is recorded for Sandy City for the sale of the bonds:
    a. no entries are required on the debt service fund
    b. there will be a credit to estimated revenues
    c. there will be a credit to estimated other financing sources
    d. a. and b. are correct
    e. a. and c. are correct

41. When the bonds are sold, there will be a:
    a. debit to cash in the debt service fund accounts
    b. a debit to cash in the general fund accounts
    c. a credit to other financing uses – this would be sources, not uses
    d. both a. and c. are correct
    e. both b. and c. are correct

42. Since the bond repayment will be managed by the debt service fund: this question dropped – credit giv-
    en
    a. there will be no entry on the governmental activities accounts
    b. the entry on the governmental activities is optional
    c. there will be a credit to other financing sources
    d. all the above are correct

43. When an interest payment is made there is:
    a. a debit to the reserve for encumbrances
    b. a debit to interest expense – governmental activities accounts
    c. a debit to debt service expenditures – interest – governmental fund accounts
    d. both b. and c. are correct
    e. a. and b. and c. are all correct

44. When a principal payment is made there is:
    a. a debit to the reserve for encumbrances
    b. a debit to bonds payable
    c. a debit to debt service expenditures – principal
    d. both b. and c. are correct – same as above
    e. a. and b. and c. are all correct


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ACCY 161 – Fall 2008                  Exam #2 FORM I - KEY                                   November 4st

Problem C: Santana County uses a tax agency 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 coun-
ty. The county charges an administrative fee of 2% of collections to cover expenses. During the fiscal
year ended June 30, 2009 the following transactions occurred. For each of the following situations select
the answer that is most appropriate.
45. The agency agrees to collect $10,000 in property taxes for the Santana School District
    a. No entry is required
    b. A budget entry is required on the agency’s accounts
    c. There is a debit to an accounts receivable on the agency accounts
    d. Both b. and c. are correct
    e. None of the above are correct

46. The agency agrees to collect $2,000 in estimated sales taxes for the Santana School District
    a. No entry is required – entry not made for sales tax until collected; not like the prior question
    b. A budget entry is required on the agency’s accounts
    c. There is a debit to an accounts receivable on the agency accounts
    d. Both b. and c. are correct
    e. None of the above are correct

47. The agency collects $4,000 in property taxes for various governmental entities including the school
    district
    a. There is a credit to revenue on the agency’s books
    b. There is a credit to an accounts receivable account on the agency books – see page 309
    c. There is a credit to additions on the agency’s books
    d. Both a. and b. are correct
    e. Both a. and c. are correct

48. The agency collects $500 in sales tax for various governmental entities.
    a. There is a credit to revenue on the agency’s books
    b. There is a credit to an accounts receivable account on the agency books
    c. There is a credit to additions on the agency’s books – see practice exam
    d. Both a. and b. are correct
    e. Both a. and c. are correct

49. The agency transfer half of the agreed upon amount of property taxes for the Santana School District
    a. The payment to the school district will be for $1,000.
    b. The debit for the payment will be to deductions account
    c. The payment to the school district will be for $980 - $2,000/2 less 2% collection fee
    d. Both a. and c. are correct
    e. Both b. and c. are correct.

Part III: Closing Entries: Enter the following transactions on the t-accounts. When complete show
the balance in the Fund Balance account. Note that BB stands for beginning balance.
1. Budgeted revenues are $1,000
2. Budget expenditures are $900
3. Purchase orders are issued for $850
4. Revenue is collected in the amount of $1,100
5. Good are received in the amount of $850 which is the same as the related amount of the purchase or-
    ders
6. Year-end entries are made

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ACCY 161 – Fall 2008                 Exam #2 FORM I - KEY                        November 4st

Use this area for notes:                                             Fund Balance
                                                                                   300 BB
So at the end: Assets = Liabilities + Fund Balance of                        1000 #1
                                                                    #2 900
1600 = 1050 + 550                                                 #6a 1000
                                                                             900 #6a
                                                                    6b 850
                                                                             1100 6b
                                                                             550 EB




       Estimated Revenues                   Appropriations               Encumbrances
         # 1000                                    900 #2              #3a 850
                 1000 #6a                  #6a 900                             850 #5
     EB 0                                                  EB 0          EB 0




              Cash                         Vouchers Payable       Reserve for Encumbrances
    BB 500                                              200 BB                  850 #3a
       #4 1100                                      850 3b            #5 850
       EB 1600                                      1050 EB                     EB 0




         Actual Revenue                    All Expenditures
                 1100 #4                   3b 850
        6b 1100                                    850 6b
                  EB 0                       EB 0




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