Question 1

When a city plans to build a fire station by issuing long-term debt, it could obtain money to start construction before the bonds are sold by

Accepted Answer

Issuing Bond Anticipation Notes allows the city to obtain short-term financing to start construction before the long-term bonds are sold. This is a common practice in municipal finance. Selling old fire trucks or borrowing from the pension trust fund may not be feasible or advisable, and issuing Tax Anticipation Notes would not be relevant in this scenario.

Question 2

Service-type special assessments:

Accepted Answer

Service-type special assessments typically result in a single charge to the property tax bill, are accounted for in the fund type that best reflects the nature of the transaction, and cover operating activities.

Question 3

A government may decide to do an advance refunding of long-term debt to remove legal impairments or lower the effective interest rate.If the refunding does not pay off the old debt, but simply sets aside monies irrevocably with a trustee to pay it as it comes due, it is a(n)

Accepted Answer

The process described in the question is a defeasance of debt. Defeasance is a process in which an issuer sets aside cash, securities, or other assets in a trust to pay off outstanding debt. The legal title of the defeased bonds is transferred to the trustee, and the issuer is no longer responsible for paying the principal and interest on the bonds. Instead, the trustee uses the trust assets to make the payments as they become due. This allows the issuer to remove the debt from its balance sheet and potentially lower its effective interest rate while leaving the debt outstanding.

Question 4

Permanent Funds are established to

Accepted Answer

Permanent Funds are established to account for public purpose trust for which only the earnings are expendable for a specific purpose. The principal is kept intact and invested to generate income which is used for a specific purpose. This ensures that the original donation continues to provide for its intended purpose in perpetuity.

Question 5

The primary purpose of Debt Service funds is to serve as monies set aside for an insubstance defeasance.

Accepted Answer

The primary purpose of Debt Service funds is to make principal and interest payments on outstanding debt.

Question 6

Which of the following fund types have accounting principles most closely related to those of the General Fund?

Accepted Answer

The General Fund and Special Revenues funds use similar accounting principles as both are used to account for the ongoing operations and expenditures of the government. The Pension Trust, Enterprise, and Agency funds have unique accounting principles related to their purposes and sources of funding.

Question 7

The Pension Trust Fund is a Fiduciary Fund, which will be accounted for using the accrual basis of accounting.

Accepted Answer

Fiduciary funds, such as the Pension Trust Fund, are typically accounted for using the accrual basis of accounting. This is because they are responsible for managing and administering assets on behalf of others (i.e. beneficiaries of the pension plan) and therefore need to accurately reflect the financial position and performance of the fund.

Question 8

On December 1, $125,000 was deposited with a fiscal agent for payment on bonds payable in the amount of $90,000 and interest payable for $35,000 due maturing on the last day of December.This will require a debit of

Accepted Answer

The deposit with the fiscal agent is a transfer out of the General Fund.

Question 9

In a Special Revenue Fund, sufficient revenue should exist to fund the activities, but funds should not accumulate beyond reasonable needs.

Accepted Answer

A Special Revenue Fund is a type of fund used to account for and report financial resources that are restricted, committed or assigned for specific purposes other than capital projects or debt service. It is expected to have sufficient revenue to fund the activities for which it was created. However, funds should not accumulate beyond reasonable needs, and any excess funds should be used for the purpose for which the fund was created or transferred to other funds. Therefore, Option A is correct.

Question 10

Proceeds from the sale of general obligation bonds would be considered an other financing source.

Accepted Answer

Proceeds from the sale of general obligation bonds are a form of funding for government projects and are considered an other financing source. This is because they are not classified as revenue or taxes, but rather as borrowing.

Question 11

Utilizing serial bonds to raise long term resources is preferred in debt service funds because:

Accepted Answer

Serial bonds are preferred because they do not require a large accumulation of money in a sinking fund, as the principal is repaid in installments over time.

Question 12

Public Purpose Trusts are accounted for in the Permanent Funds, which are accounted for under the modified cash basis.

Accepted Answer

Public Purpose Trusts are accounted for in the Fiduciary Funds, not the Permanent Funds, and they use the accrual basis of accounting, not the modified cash basis.

Question 13

In the Statement of Cash Flow for a Proprietary Fund, the acquisition or disposition of a fixed asset, and related grants or transfers, would be excluded in cash flows from capital and related financing activities.

Accepted Answer

In the Statement of Cash Flow for a Proprietary Fund, the acquisition or disposition of a fixed asset, and related grants or transfers, are included in cash flows from capital and related financing activities, reflecting how these transactions affect the fund's cash position.

Question 14

The primary function of debt service funds is to account for financial resources accumulated to cover the payment of principal and interest on general government obligations.

Accepted Answer

This statement is true. Debt service funds are established to account for the resources set aside for the payment of principal and interest on government loans and other obligations. They ensure that these payments are made timely and efficiently, and that the government does not default on its debt obligations.

Question 15

In a Debt Service fund:

Accepted Answer

In a Debt Service fund, expenditures for interest and principal are recognized when they are due. This ensures that the fund remains separate from other funds and that the available resources are used to service the debt obligations in a timely manner.

Answer: C 
 Long-term debt is reduced by principal payments in a Debt Service fund. This reflects the payment made towards existing debt, thereby reducing the outstanding loan amount.

Answer: D 
 Incorrect. Funds transferred from the General Fund to cover debt payments are not recorded as revenue in a Debt Service fund. Instead, they are recorded as transfers in to reflect the source of the funds used for debt servicing.

Question 16

Special revenue funds are used when revenues are collected for a general purpose and not attributed to any specific project.

Accepted Answer

Special revenue funds are used when revenues are collected for a specific purpose or project, rather than a general purpose.

Question 17

When the General Fund sends fund to another fund, for which it does not expect repayment, it is considered an Expenditure.

Accepted Answer

When the General Fund sends funds to another fund, for which it does not expect repayment, it is considered a transfer, not an expenditure. Expenditures are payments made for goods or services received.

Question 18

In a Capital Projects Fund, when a contract is signed with a contractor to construct a fixed asset, the amount of the contract is:

Accepted Answer

When a contract is signed with a contractor to construct a fixed asset in a Capital Projects Fund, the amount of the contract is debited to Encumbrances as it represents the amount of budgetary resources committed but not yet spent. Once the work is completed, the Encumbrances are reversed and Expenditures are debited. Contracts Payable and Other Financing Sources are not affected at this point.

Question 19

Capital projects expected to take several years to complete and involve large amounts of money

Accepted Answer

Capital projects that are expected to take several years to complete and involve large amounts of money typically operate under an annual budget. This budget includes expected revenues and estimated expenditures for the current fiscal year, allowing for regular review and adjustments as the project progresses.

Question 20

The financial statements of fiduciary funds include Fund Balances, and Net Assets.

Accepted Answer

Fiduciary funds financial statements include Net Position, not Fund Balances. Fund Balances are associated with governmental funds, while Net Position is used in the context of fiduciary funds and proprietary funds to reflect the difference between assets and liabilities.

Quiz 16: Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds