Question 1

The use of an Enterprise Fund is required by generally accepted accounting principles in each of the following situations except

Accepted Answer

Enterprise Funds are required when activities are financed with debt secured by revenues, when laws require cost recovery through fees, or when pricing policies are designed for cost recovery. However, merely charging user fees does not necessitate an Enterprise Fund.

Question 2

Which of the following statements is false concerning interest capitalization?

Accepted Answer

Generally accepted accounting principles allow for the capitalization of certain types of interest in Enterprise Funds, so statement A is true. Statement B is also true, as restricted gifts or grants may have specific requirements that prohibit the capitalization of interest costs. Statement C is true, as the tax-exempt status of debt can affect the calculation of interest costs. However, statement D is false, as interest capitalization is allowed in Enterprise Funds under certain circumstances.

Question 3

Refunding bonds were issued by an Enterprise Fund with a face value of $15,000,000 at a 1% discount. Issuance costs were $225,000. The entry to record the issuance of the refunding bonds would be  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\begin{array}{lrr}
&\text { Debit } &\quad \text { Credit }
\end{array}$
A)
$\begin{array}{lrr}
\text { Cash } & \$ 14,625,000 & \
\text { Expenditures } & 225,000 & \
\text { Other Financing Uses - Discount } & 150,000 & \
\quad \text { Other Financing Sources - Bonds } & & \$ 15,000,000 \
\end{array}$

B)
$\begin{array}{lrr}
\text { Cash } & \$ 14,625,000 & \
\text { Expenditures } & 225,000 & \
\quad \text { Other Financing Sources - Bonds } & & \$ 14,850,000 \\end{array}$

C)
$\begin{array}{lrr} \text { Cash } & \$ 14,625,000 & \
\text { Unamortized Deferred Charges/Discount } & 375,000\
\text { Bond Payable } & &\$15,000,000\
\end{array}$

D)
$\begin{array}{lrr}
\text { Cash } &\quad\quad\quad\quad\quad\quad\quad\quad \$ 14,625,000 & \
\text { Bond Issuance Expense } & 225,000 & \
\text { Unamortized Discount } & 150,000 & \
\quad \text { Bonds Payable } & & \$ 15,000,000
\end{array}$

Accepted Answer

D

Question 4

Dayton County decided to refund an outstanding term bond issue in its Enterprise Fund. The old bonds have a par value of $3,200 and an unamortized premium of $120. These bonds are scheduled to mature in 6 more years.
Transactions:
1. On January 2, 20x2, the County issued refunding bonds at par, $3,700. The bonds bear interest at 5% payable annually and mature in five years. The bond issuance costs were $250.
2. On January 2, The County paid $3,800 into an irrevocable trust in order to defease in substance the previously outstanding bonds payable of the Enterprise Fund.
3. The annual interest payment on the new bonds was made on December 31 when due.
Requirements:
1. Prepare the journal entries required in an Enterprise. 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 Enterprise Fund accounts. If an element of the equation is not affected or if the net effect is zero, put "NE" in the appropriate box.

Accepted Answer

The answer of Dayton County decided to refund an outstanding...

Question 5

When accounting for inventory in an Enterprise Fund, which of the following methods should be used for external financial reporting?

Accepted Answer

The consumption method is used for external financial reporting in an Enterprise Fund because it recognizes inventory as an expense when it is used rather than when it is purchased, aligning with the accrual basis of accounting typical for such funds.

Question 6

The city, which has a December 31 year end, was awarded a $400,000 federal grant for a system hardware upgrade to meet FCC requirements. The grant was awarded and distributed to the fund in June 20X7. However, the capital project is not expected to be completed until June 20X8. As of December 31, 20X7, the Cable Enterprise Fund should

Accepted Answer

The grant is a capital contribution because it is not expected to be used to pay for operating expenses.

Question 7

A city's Enterprise Fund sold land, which rarely occurs in the government. The land was originally purchased at $35,000 and sold for $235,000. The Enterprise fund would record the sale as a

Accepted Answer

The answer of A city's Enterprise Fund sold land, which...

Question 8

An Enterprise Fund contributed $85,000 to the General Fund for operations. The money is not intended to be a loan. Which of the following statements is true?

Accepted Answer

A transfer out is recorded when funds are transferred from one fund to another without the expectation of repayment. In this case, the Enterprise Fund is transferring $85,000 to the General Fund for operations, and this is not intended to be a loan. Therefore, the Enterprise Fund will report transfers out of $85,000.

Question 9

A general government department donates a capital asset with an original cost of $50,000 to an Enterprise Fund. The net book value as of the date of donation is $17,500. The entry that should be recorded by the Enterprise Fund would be

Accepted Answer

The Enterprise Fund should record the capital asset at its original cost of $50,000, with accumulated depreciation of $32,500, resulting in a net book value of $17,500, which is credited as a capital contribution.

Question 10

A government defeased in substance $10 million of old Enterprise Fund bonds by paying $12 million into a qualifying trust for that purpose. The refunded bonds had an unamortized premium of $200,000 and bond issue costs of $50,000. No borrowed resources were used to accomplish the defeasance. What amount of deferred interest expense adjustment should the government report?

Accepted Answer

The answer of A government defeased in substance $10 million...

Question 11

The following transactions occurred in the City of Jimtown Enterprise Fund:
1. Equipment belonging to the Enterprise Fund was sold for $300.
2. The proceeds from the sale of the asset were transferred to the General Fund.
3. Cash, $2,800, was paid for construction costs. The cash was paid out of unrestricted cash available for any Enterprise Fund purpose-i.e., was not set aside strictly for capital asset construction or acquisition.
4. Paid principal, $18, and interest, $59, on a mortgage note.
5. The Enterprise Fund collected $12,500 from external customers and $2,500 from the General Fund for services.
6. The City signed a lease for equipment. The present value of the future payments and fair value of the equipment is $5,000, and the City made a down payment of $500
7. Proceeds of bonds issued to refund previously outstanding bonds which had been issued to finance plant expansion several years earlier, $18,000.
8. Interest paid on the refunding bonds, $1,080.
9. Cash proceeds from sale of investments, $900. Investments were purchased with the proceeds of debt issued to finance construction of specialized equipment that is almost completed.
10. Cash received from a capital grant, $5,000.
11. Cash paid for construction costs that qualify under the capital grant, $1,500.
12. The City acquired land for future plant expansion, $750, by issuing a 10-year bond in the same amount.
13. Cash received from operating grants, $500.
14. Cash paid for salaries covered by operating grant, $85.
15. The City had an unrealized gain on investments of $12.
16. The Enterprise Fund incurred $10,000 in operating expenses, including $1,000 in depreciation, $3,000 for employees, and $6,000 paid to suppliers. All but $500 of the salary expenses were paid by year end.
17. Cash paid for equipment purchased with the proceeds of an operating grant, $34.
18. Cash received from the General Fund to cover part of the cost of plant expansion, $1,000.
19. Cash proceeds from the sale of fund capital assets, $23.
20. Cash received from another fund as a 6-month loan for the sole purpose of financing purchase of equipment, $90.
The balance of cash and cash equivalents at October 1, 20X1, was $313. The balance of cash and cash equivalents at year end 9/30/20X2 is $26,250.
Requirement: Prepare the City of Jimtown Enterprise Fund Statement of Cash Flows for the year ended September 30, 20X2. You may exclude the reconciliation of operating income to cash flows from operating activities.

Accepted Answer

The answer of The following transactions occurred in the City...

Question 12

A developer agreed to pay for water and wastewater infrastructure associated with one of his development projects. Once the work is completed and the new lines are connected, they will become part of the city's Enterprise Fund capital assets. The entry that should be recorded by the Enterprise Fund when the project is complete would be

Accepted Answer

The developer's payment for the infrastructure is considered a capital contribution, which should be recorded with a debit to capital assets and a credit to capital contribution. The transfer in option (choice C) is not applicable in this scenario as there is no transfer of funds from another fund. Nonoperating revenues (choice D) are typically associated with sources of income not related to the enterprise fund's primary operations.

Question 13

Listed below are selected transactions for the Rhea County Garbage Service, which is accounted for in an Enterprise Fund. All amounts are in thousands of dollars.
Transactions:
1. Services of $5,000 were provided and billed to outside customers.
2. Services of $750 were provided and billed to the General Fund.
3. $750 was collected from other funds, and $4,000 was collected on account.
4. $20 of accounts receivable were written off as uncollectible.
5. Estimated bad debts for the year were $100.
Requirements:
1. Prepare the journal entries required in the Enterprise Fund. If no entry is required, state "No entry required" and explain why.
2. Compute the amount of sales revenues that should be reported for the Enterprise Fund.
3. Indicate the effects of each transaction on the accounting equation of the Enterprise Fund accounts. If an element of the equation is not affected or if the net effect is zero, put "NE" in the appropriate box.

Accepted Answer

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

Question 14

An Enterprise Fund is donating a capital asset with a net book value of $25,000 to a general government department. The entry that should be recorded for the Enterprise Fund would be

Accepted Answer

The answer of An Enterprise Fund is donating a capital...

Question 15

Over the course of one year, Obed County received two grants:
-$10,000 grant in cash to be used to finance half the cost of expanding the town's water treatment plant. All eligibility requirements have been met.
-$40 grant to educate users on water conservation measures and to monitor water usage by a study group.
Transactions:
1. Received the grant to assist in expanding the water treatment plant.
2. Signed a contract with Swann & Hall Construction to build the water treatment plant expansion, $20,000. The construction project is expected to take less than one year.
3. Received a $5,000 transfer from the General Fund to cover part of the cost of expanding the treatment plant.
4. Received an invoice from S&H Construction for 30% of the project. Paid the contractor the invoiced amount less a 10% retainage.
5. Received the grant to do the water study.
6. Issued $5,000 in bonds at mid-year at par to provide part of the financing for the treatment plant expansion. The bond issue costs were 1% of the face value. The bonds bear interest at 6%, payable semiannually.
7. Received a second invoice for 50% of the project. Paid the contractor the invoiced amount less a 10% retainage.
8. Expenses incurred and paid during the year under this second grant total $30.
9. Received the final invoice from the contractor. The expansion project was finished on-time and in accordance with the contract. Paid the contractor all amounts owed.
10. Make any necessary year-end adjusting entries.
Requirements:
1. Prepare the journal entries required in an Enterprise. 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 Enterprise Fund accounts. If an element of the equation is not affected or if the net effect is zero, put "NE" in the appropriate box.
3. How would these grants be reported in the statement of revenues, expenses, and changes in net position of the Enterprise Fund?
4. Assuming year-end had occurred after transaction #4, how would the grant and transfer affect the Statement of Net Position for the Enterprise Fund.

Accepted Answer

The answer of Over the course of one year, Obed...

Question 16

A government defeased in substance $10 million of old Enterprise Fund bonds by paying $12 million into a qualifying trust for that purpose. The refunded bonds had an unamortized premium of $200,000 and bond issue costs of $50,000. Resources to finance the defeasance of the old bonds were provided by issuing $12,000,000 of new bonds issued at par. What amount of deferred interest expense adjustment should the government report?

Accepted Answer

The deferred interest expense adjustment is calculated as the difference between the present value of the new bonds and the carrying value of the old bonds. The present value of the new bonds is $12,000,000, and the carrying value of the old bonds is $10,200,000 ($10,000,000 face value + $200,000 unamortized premium - $50,000 bond issue costs). Therefore, the deferred interest expense adjustment is $1,800,000 ($12,000,000 - $10,200,000).

Question 17

A city's Enterprise Fund issued revenue bonds with a face value of $10,000,000. The bonds were issued with a 2% premium and the issuance costs totaled $150,000. When the bonds are issued, the Enterprise Fund will report total other financing sources in the amount of

Accepted Answer

The answer of A city's Enterprise Fund issued revenue bonds...

Question 18

An Enterprise Fund entered into a capital lease for the purchase of equipment. The capitalizable cost of the asset was $300,000 and fund made a $30,000 down payment. In the year of inception the Enterprise Fund would report

Accepted Answer

Capital leases are treated as the acquisition of an asset and the incurrence of an obligation. The enterprise fund would report the equipment as a capital asset at its capitalizable cost of $300,000, regardless of the down payment made.

Question 19

A city Enterprise Fund received an operating grant during the fiscal year. The Enterprise Fund will report this grant on the statement of revenues, expenses, and changes in net position as

Accepted Answer

Operating grants are typically reported as non-operating revenues in the financial statements of an Enterprise Fund.

Question 20

Which of the following conditions is not a requirement that an activity which provides services for a user fee be reported in an Enterprise Fund?

Accepted Answer

An Enterprise Fund is used when an activity is financed and operated in a manner similar to private business enterprises, where the intent is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. The main source of revenue being charges to external users is not a requirement for reporting in an Enterprise Fund.

Quiz 10: Enterprise Funds