Question 1

Inventory in an Internal Service Fund would most likely be reflected in which of the following net position classifications?

Accepted Answer

Inventory in an Internal Service Fund is a current asset and therefore would be reflected in the unrestricted net position of the fund.

Question 2

The General Fund contributes $40,000 to an Internal Service Fund to subsidize its operations. The contribution is not considered to be an interfund loan. The Internal Service Fund will report this contribution as a

Accepted Answer

The contribution from the General Fund to the Internal Service Fund is considered a transfer in, as it is a non-reciprocal transfer of resources to support the operations of the Internal Service Fund.

Question 3

Caraway County has a Self-Insurance Internal Service Fund. If the fund purchases $100,000 of investments during the month, the

Accepted Answer

Purchasing investments involves exchanging one asset (cash) for another (investments), so the total assets of the fund remain the same; they are merely reallocated.

Question 4

A municipality's Central Garage Internal Service Fund had total billings for $8,000 for the month. Of the 40 vehicles serviced, 20 were police vehicles, 10 were water department vehicles, and 10 were wastewater department vehicles. What would the journal entry be to account for this transaction? $\begin{array}{llr}
&&\text { Debit }&\text {Credit }\
 \text { A. } &  \text { Accounts Receivable } &\$8,000\
& \text { Transfer from Other Funds } &&\$8,000\
\
 \text {B.  } & \text { Accounts Receivable } &\$8,000\
 &\text { Revenues-Charges for Services. } &&\$8,000\
\
 \text { C. } & \text {Due from General Fund  } &\$4,000\
& \text {  
Due from Water Fund} &2,000\
& \text { Due from Wastewater Fund } &2,000\
& \text {Revenues-Charges for Services  } &&\$8,000\
\
 \text {D.  } & \text { Due from General Fund } &\$4,000\
& \text {
Due from Water Fund  } &2,000\
& \text {  Due from Wastewater Fund} &2,000\
& \text {Transfer from Other Funds  } &&\$8,000\
\end{array}$

Accepted Answer

The answer of A municipality's Central Garage Internal Service Fund...

Question 5

The Central Warehouse Internal Service Fund purchased $15,000 of inventory on account, which was unpaid as of the month end. Which of the following statements regarding the accounting for the transaction is false?

Accepted Answer

Purchasing inventory on account increases inventory (an asset) and accounts payable (a liability), but it does not immediately affect expenses. Expenses increase when the inventory is used, not when it is purchased.

Question 6

A Motor Pool Internal Service Fund purchased ten new vehicles for their fleet inventory. The fund entered into a capital lease. The capitalizable cost totaled $300,000 and there was a $50,000 down payment. The entry to record the transaction in the Internal Service Fund would be $\begin{array}{llr}
&&\text { Debit }&\text {Credit }\
 \text {  A.} & \text {Vehicles.  } &\$300,000\
& \text { Expenditures. } &50,000\
& \text { Other Financing Source - Capital Lease } &&\$300,000\
& \text { Cash } &&50,000\
\
 \text { B. } & \text { Vehicles. } &\$300,000\
& \text { Other Financing Source - Capital Lease } &&\$250,000\
& \text {  Cash} &&50,000\
\
 \text { C. } & \text { Vehicles. } &\$300,000\
& \text { Capital Lease Payable } &&\$250,000\
& \text {  Cash} &&50,000\ 
\
 \text { D. } & \text {Vehicles.  } &\$250,000\
& \text { Expenditures. } &50,000\
& \text {Capital Lease Payable  } &&\$250,000\
& \text { Cash } &&50,000\
\end{array}$

Accepted Answer

The answer of A Motor Pool Internal Service Fund purchased...

Question 7

The General Fund paid $4,000 to the Internal Service Fund for services rendered. Which of the following statements accurately reflects the reporting effects of the transaction?

Accepted Answer

The Internal Service Fund will report revenues of $4,000 because it provided services to the General Fund, and the payment for these services is considered revenue for the Internal Service Fund. Internal Service Funds operate similarly to private businesses, and payments received for services rendered are recorded as revenues.

Question 8

Interest revenue earned by an Internal Service Fund will be reported on the statement of revenues, expenses, and changes in net position as

Accepted Answer

Interest revenue earned by an Internal Service Fund is considered a nonoperating revenue and will be reported as such on the statement of revenues, expenses, and changes in net position. Nonoperating revenues and expenses are typically those that arise from non-core activities or transactions, such as investments or financing arrangements.

Question 9

The use of an Internal Service Fund is mandated by generally accepted accounting principles for which of the following activities?

Accepted Answer

GAAP does not mandate the use of an Internal Service Fund for any specific activity, including risk financing activities, government motor pools, or centralized warehouses. The decision to use an Internal Service Fund is based on the government's judgment and specific circumstances.

Question 10

The Tullahoma School District's Print Shop Internal Service Fund received $25,000 from a state grant to help subsidize the purchase of new printing equipment. The Internal Service Fund will report this contribution as a

Accepted Answer

The $25,000 from the state grant is a capital contribution because it is specifically meant to subsidize the purchase of new printing equipment, which will be a long-term asset for the Print Shop Internal Service Fund.

Question 11

A government plans to create an Internal Service Fund to account for its new central warehouse. The General Fund loans the Internal Service Fund $100,000, which is going to pay back the loan interest-free in five years. The entry in the Internal Service Fund to record this transaction would be $\begin{array}{llr}
&&\text { Debit }&\text {Credit }\
 \text {  A.} & \text {  Cash } &\$100,000\
& \text {Revenue  } &&\$100,000\
\
  \text { B. } & \text { Cash  } &\$100,000\
& \text {Capital Contribution  } &&\$100,000\
\
 \text { C. } & \text {  Cash } &\$100,000\
& \text { Transfer from General Fund } &&\$100,000\
\
 \text { D. } & \text {  Cash } &\$100,000\
& \text {  Advance finm General Find} &&\$100,000\
\end{array}$

Accepted Answer

The answer of A government plans to create an Internal...

Question 12

The accounts listed below are taken from an Internal Service Fund adjusted trial balance (all amounts are in thousands):
   Requirements: Prepare Statement of Fund Net Position and Statement of Revenues, Expenses, and Changes in Fund Net Position for the year ended June 30, 20X3, for the City of Bell Buckle.

Accepted Answer

The answer of The accounts listed below are taken from...

Question 13

Listed below are selected transactions for the Maury County Internal Service Fund.
$\underline{\text{  Transactions: }}$
1. Purchased a building on January 2, 20X2, by paying $100,000 down and borrowing $350,000 on a 6%, 10-year mortgage. Assume semi-annual mortgage payments are due each June 30 and December 31, beginning this year. The building will be depreciated over 20 years with no salvage value using the straight-line method.
2. Purchased supplies on account, $58,000. The fund uses the perpetual inventory method when accounting for supplies.
3. Paid employee salaries, $120,000. Accrued salaries at year end were $13,000. Accrued salaries at the beginning of the year were $9,000.
4. Billed General Fund departments $400,000 for services provided to those departments. Billings to the Enterprise Fund totaled $30,000. 90% of these billings were collected by year end. The remaining 10% is not expected to be collected from the other funds until the second quarter of the next fiscal year.
5. The first semi-annual mortgage payment of $23,500 was made.
6. Paid $50,000 on account.
7. Supplies on hand at year end have a cost of $4,000. The beginning of the year inventory was $6,000.
8. The second semi-annual mortgage payment of $23,500 was made.
9. Record depreciation on the building for the year.

$\underline{\text{Requirements:  }}$ 
1. Prepare the journal entries required in the Internal Service Fund. If no entry is required, state "No entry required" and explain why.
2. Indicate the effects of each transaction on the accounting equation of the Internal Service Fund accounts. If an element of the equation is not affected or if the net effect is zero, put "NE" in the appropriate box. Do not leave any boxes blank.

Accepted Answer

The answer of Listed below are selected transactions for the...

Question 14

Which of the following would most likely be accounted for in an Internal Service Fund?

Accepted Answer

An Internal Service Fund is used to account for activities that provide goods or services to other departments or agencies of the same government on a cost-reimbursement basis. A central printing shop that primarily serves internal government departments fits this description.

Question 15

Nathan Township's General Fund transfers three vehicles to the Internal Service Fund. The vehicles, which have a useful life of five years, are transferred at the end of their fourth year. The original cost for all three vehicles totaled $75,000. The entry in the Internal Service Fund would be $\begin{array}{llr}
&&\text { Debit }&\text {Credit }\
\text {  A.} &  \text { Vehicles. } &\$75,000\
 &\text {  Accumulated Depreciation - Vehicles} &&\$60,000\
 &\text { Net Investment in Capital Assets } &&15,000\
 \
\text {B.  } &  \text { Vehicles. } &\$75,000\
 &\text {Accumulated Depreciation - Vehicles  } &&\$60,000\
 &\text {Capital Contributions  } &&15,000\
 \
\text { C. } &  \text {  Vehicles.} &\$15,000\
 &\text {Capital Contributions  } &&\$15,000\
 \
\text { D. } &  \text { Vehicles. } &\$75,000\
 &\text {  Accumulated Depreciation - Vehicles} &&\$60,000\
 &\text {  Transfer from General Fund} &&15,000\
\end{array}$

Accepted Answer

The answer of Nathan Township's General Fund transfers three vehicles...

Question 16

The Tullahoma School District's Print Shop Internal Service Fund received $25,000 from a state grant to help subsidize its printing operations. The Internal Service Fund will report this contribution as a

Accepted Answer

The $25,000 received from the state grant is considered a nonoperating revenue because it is not related to the Print Shop's regular business activities of providing printing services. Nonoperating revenues are reported separately from operating revenues on the financial statements.

Question 17

An Internal Service Fund had investments with an original cost of $100,000. As of the end of the fiscal year, the fair market value on these investments was $85,000. The Internal Service Fund would

Accepted Answer

The answer of An Internal Service Fund had investments with...

Question 18

The General Fund contributes $40,000 to an Internal Service Fund to subsidize the purchase of a capital asset. The contribution is not considered to be an interfund loan. The Internal Service Fund will report this contribution as a

Accepted Answer

The answer of The General Fund contributes $40,000 to an...

Question 19

An Internal Service Fund is considered to be

Accepted Answer

An Internal Service Fund is a proprietary fund, which means it is used to account for activities that provide goods or services to other departments within the same government entity. The purpose of an Internal Service Fund is to account for the costs of the goods or services provided, and to charge those costs to the departments that benefit from them.

Question 20

Five sections for reporting items in an Internal Service Fund Statement of Cash Flows prepared using the direct method (excluding the reconciliation of operating income to cash flows from operations) are:
A. Operating Activities
B. Noncapital Financing Activities
C. Capital and Related Financing Activities
D. Investing Activities
E. Noncash Financing and Investing Activities
Using these five sections, indicate in which section each of the following Internal Service Fund transactions should be reported. If a transaction should not be reported on the Statement of Cash Flows, indicate it using the letter "X".
1. Purchase of an Internal Service Fund capital asset for cash.
2. Providing services to other funds on a cash basis.
3. Issuing refunding bonds to refinance bonds issued 10 years ago to provide financing for capital asset acquisitions.
4. Sale of Internal Service Fund capital assets for cash.
5. Transfer from a Special Revenue Fund for the specific purpose of financing an Internal Service Fund capital asset purchase.
6. Payment of office workers' salaries.
7. Amortization of the Deferred Interest Expense Adjustment created when the capital asset debt was refunded.
8. Transfer to a Capital Projects Fund to provide financing for a general government capital asset construction project.
9. Purchases of investments with cash received from issuing bonds to finance construction of Internal Service Fund capital assets.
10. Transfer to the General Fund for the purpose of financing specific operating costs of a department accounted for in that fund.
11. Issuing bonds to provide operating cash for the Internal Service Fund.
12. Signing a capital lease for equipment to be used by activities accounted for in the Internal Service Fund.
13. Interest received during the year earned on investments.
14. Transfer the proceeds from the sale of an Internal Service Fund capital asset to the General Fund.
15. Depreciation on Internal Service Fund capital assets.
16. Proceeds of bonds issued to finance construction of Internal Service Fund capital assets.
17. Interest paid on bonds issued to finance construction of an Internal Service Fund capital asset.
18. Principal retirement payments on bonds issued to finance construction of Internal Service Fund capital assets
19. Unrealized gain on investments held at year end.
20. Receipt of a capital grant for an ongoing Internal Service Fund capital asset construction project.

Accepted Answer

The answer of Five sections for reporting items in an...

Quiz 11: Internal Service Funds