Question 1

If recording a general long-term liability in a governmental fund upon issuing a bond, the credit should be to a bonds payable account.

Accepted Answer

In governmental fund accounting, the issuance of long-term debt like bonds is not recorded as a liability (bonds payable) in the fund financial statements. Instead, the proceeds are recorded as other financing sources, reflecting the inflow of resources.

Question 2

Which of the following funds would use the modified accrual basis of accounting in preparing its fund financial statements?
A)City Electric Utility Enterprise Fund.
B)City Hall Capital Project Fund.
C)City Motor Pool Internal Service Fund.
D)City Employee Pension Trust Fund.

Accepted Answer

The modified accrual basis of accounting is used by governmental funds, such as the Capital Project Fund, which is used to account for financial resources used for the acquisition or construction of major capital facilities.

Question 3

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its fund financial statements.The City pays its employees bi-weekly on Friday.The fiscal year ended on Wednesday, June 30.Employees had been paid on Friday, June 25.The employees paid from the General Fund had earned $90,000 on Monday, Tuesday, and Wednesday June 28, 29, and 30.What entry, if any, should be made in the City's General Fund?
A)Debit Expenditures; Credit Wages and salaries payable.
B)Debit Expenses; Credit Wages and salaries payable.
C)Debit Expenditures; Credit Encumbrances.
D)No entry is required.

Accepted Answer

Since the City pays its employees bi-weekly on Friday, the wages earned by employees from Monday, Tuesday, and Wednesday (June 28, 29, and 30) would be paid in the next pay period. Therefore, a liability for these wages needs to be recorded in the current fiscal year. The entry to record this would be a debit to Expenditures and a credit to Wages and salaries payable.

Question 4

When accounting for inventory items in a governmental fund, a reservation of fund balance is always required when the consumption method is used.

Accepted Answer

In governmental accounting, the consumption method does not always require a reservation of fund balance for inventory items, as it recognizes inventory as an asset and expenses it as consumed.

Question 5

Most governments budget appropriate resources for principal and interest only for the period in which a payment is due-not for future payments.

Accepted Answer

Governments typically budget for principal and interest payments on a year-by-year basis, rather than accounting for future payments beyond the current budget period. This can create challenges for managing long-term debt and obligations.

Question 6

Which of the following funds would use the accrual basis of accounting in preparing its fund financial statements?
A)City General Fund.
B)City Hall Capital Project Fund.
C)City Motor Pool Internal Service Fund.
D)None of the above.

Accepted Answer

The City Motor Pool Internal Service Fund would use the accrual basis of accounting, as internal service funds are proprietary funds, which follow the accrual basis of accounting.

Question 7

When accounting for inventory items in a governmental fund, GASB standards permit the use of the consumption method only.

Accepted Answer

GASB standards allow for both the consumption method and the purchases method when accounting for inventory items in a governmental fund.

Question 8

The purchases method is consistent with full accrual basis of accounting.

Accepted Answer

The purchases method is typically associated with the cash basis or modified accrual basis of accounting, not the full accrual basis, which recognizes revenues when earned and expenses when incurred, regardless of the timing of cash flows.

Question 9

In budgeting for governmental funds, governments appropriate the resources for general capital assets in the periods when they are to be purchased, not in the periods in which the assets will be used.

Accepted Answer

This is because the appropriation of resources is done based on the timing of the purchase of general capital assets, not on when they will be used.

Question 10

In a governmental fund, expenditures for wages and salaries should be recognized in the period in which the employees earn them.

Accepted Answer

This is in accordance with the accrual basis of accounting which requires recognition of expenses when they are incurred, not when they are paid. In the case of wages and salaries, they are earned by employees as they work, and therefore should be recognized in the period in which they are earned, regardless of when they are paid.

Question 11

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its government-wide financial statements.The City pays its employees bi-weekly on Friday.The fiscal year ended on Wednesday, June 30.Employees had been paid on Friday, June 25.The employees paid from the General Fund had earned $90,000 on Monday, Tuesday, and Wednesday June 28, 29, and 30.They will earn $60,000 on Thursday and Friday July 1 and 2.What entry, if any, should be made on June 30?
A)Debit Expenditures $90,000; Credit Wages and salaries payable $90,000.
B)Debit Expenditure $150,000; Credit Wages and salaries payable $150,000.
C)Debit Expenses $90,000; Credit Wages and salaries payable $90,000.
D)No entry is required.

Accepted Answer

The answer of Assume that the City of Juneau maintains...

Question 12

Government-wide statements present revenues and expenses from the perspective of the government, not of individual funds.

Accepted Answer

Government-wide statements are prepared using the accrual basis of accounting and consolidate information from all funds of the government, including governmental, proprietary, and fiduciary funds. Therefore, they present a comprehensive view of the government's financial performance and position.

Question 13

As used in governmental accounting, expenditures are decreases in
A)Net Assets.
B)Net Financial Resources.
C)Net Cash.
D)Net Economic Resources.

Accepted Answer

In governmental accounting, expenditures are recorded as decreases in Net Financial Resources. This is because expenditures represent the government using up its financial resources in order to provide goods and services to the public. They do not necessarily represent a decrease in the overall economic resources of the government.

Question 14

Governmental fund liabilities are considered current only when they must be liquidated with expendable available financial resources-not, as in businesses and in the government-wide statements, when they must be paid within a year.

Accepted Answer

Governmental fund liabilities are considered current only when they must be liquidated with expendable available financial resources, such as unspent property tax revenues, rather than when they must be paid within a year as in businesses and in the government-wide statements.

Question 15

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment.The City has a policy that employees must take their vacation days during the year following the year in which it is earned.If they do not take vacation in the allotted period, they forfeit the vacation pay benefit.Traditionally, employees have taken 80% of the vacation days earned.During the current year, employees of the City of Orleans earned $600,000 in vacation pay.Assuming the city maintains its books and records in a manner to facilitate the preparation of its fund financial statements, which of the following entries is the correct entry in the General Fund to record the vacation pay earned during the current period?
A)Debit Expenditures $600,000; Credit Vacation payable $600,000.
B)Debit Expenses $600,000; Credit Vacation payable $600,000.
C)Debit Expenditures $480,000; Credit Vacation pay payable $480,000.
D)No entry required.

Accepted Answer

The answer of Employees of the City of Orleans earn...

Question 16

Employees of the City of Orleans earn ten days paid leave for each 12 months of employment.The City has a policy that employees must take their vacation days during the year following the year in which it is earned.If they do not take vacation in the allotted period, they forfeit the vacation pay benefit.Traditionally, employees have taken 80% of the vacation days earned.During the current year, employees of the City of Orleans earned $600,000 in vacation pay.Assuming the city maintains its books and records in a manner to facilitate the preparation of its government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?
A)Debit Expenditures $600,000; Credit Vacation payable $600,000.
B)Debit Expenses $600,000; Credit Vacation payable $600,000.
C)Debit Expenses $480,000; Credit Vacation pay payable $480,000.
D)No entry required.

Accepted Answer

The entry should be made only for the vacation pay that is expected to be taken by the employees in the following year as per the policy of the City of Orleans. Traditionally, employees have taken 80% of the vacation days earned, so only 80% of the vacation pay earned during the current year should be accrued as an expense in the current year. Therefore, the entry should be:

Debit Expenses $480,000; Credit Vacation Pay Payable $480,000.

Question 17

Employees of the General Fund of Scott City earn ten days of vacation for each 12 months of employment.The City permits employees to carry the vacation days forward as long as they wish.During the current year employees earned $800,000 of vacation benefits, of which the City estimates that $500,000 will be taken in the next year and the balance will be carried forward.Assuming that the City maintains its books and records in a manner that facilitates the preparation of its government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?
A)Debit Expenditures $800,000; Credit Vacation pay payable $800,000.
B)Debit Expenditures $500,000; Credit Vacation pay payable $500,000.
C)Debit Vacation expense $800,000; Credit Vacation pay payable $800,000.
D)No entry required.

Accepted Answer

The City should record the vacation pay earned as an expense in the current period, and create a liability for the unpaid vacation pay, which should be recorded as "Vacation pay payable." Therefore, the appropriate journal entry is to debit "Vacation expense" for $800,000 and to credit "Vacation pay payable" for $800,000. Option A and B are incorrect because they only record a portion of the amount earned, and D is incorrect because an entry is required.

Question 18

Employees of the General Fund of Scott City earn ten days of vacation for each 12 months of employment.The City permits employees to carry the vacation days forward as long as they wish.During the current year employees earned $800,000 of vacation benefits, of which the City estimates that $500,000 will be taken in the next year and the balance will be carried forward.Assuming that the City maintains its books and records in a manner that facilitates the preparation of its fund financial statements, which of the following entries is the correct entry in the General Fund to record the vacation pay earned during the current period?
A)Debit Expenditures $800,000; Credit Vacation pay payable $800,000.
B)Debit Expenditures $500,000; Credit Vacation pay payable $500,000.
C)Debit Vacation expense $800,000; Credit Vacation pay payable $800,000.
D)No entry required.

Accepted Answer

The answer of Employees of the General Fund of Scott...

Question 19

Per GASB standards, governments do not report general capital assets or depreciation in governmental funds.

Accepted Answer

GASB standards require that general capital assets and depreciation are reported in the government-wide financial statements instead of the governmental funds.

Question 20

Expenditures are generally recognized when resources are acquired; expenses when resources are consumed.

Accepted Answer

This statement is true. Expenditures refer to the acquisition of resources, such as goods or services, while expenses refer to the consumption of those resources in the process of generating revenue. As a result, expenditures are recognized when the resource is acquired, while expenses are recognized when the resource is consumed.

Quiz 5: Recognizing Expenditures in Governmental Funds