Question 1

Retainage payable will most likely appear in which financial statement?

Accepted Answer

Retainage payable is a liability that is typically associated with a construction project, and therefore would most likely appear on the capital projects fund balance sheet, which reflects the financial activity of the fund used to account for the construction project.

Question 2

Capital assets that were financed through governmental fund activities will appear in which financial statement?

Accepted Answer

Capital assets that were financed through governmental fund activities are reported in the government-wide statement of net assets. This statement consolidates all of a government's financial information, including capital assets, into a single, comprehensive overview, reflecting the total financial position of the government, including assets financed through governmental funds.

Question 3

Which of the following is a characteristic of a Permanent Fund?

Accepted Answer

Permanent funds are designed so that the earnings (but not the principal amount) can be used to fund government programs or services that benefit the public.

Question 4

Depending on the restrictions placed on resources used to acquire a police car,the acquisition of the car could be reported in which of the following funds?

Accepted Answer

The acquisition of a police car could be reported in the general fund if it's considered a routine operational expense, in the special revenue fund if it's purchased with money that is restricted or committed to public safety, and in the capital projects fund if it's considered a significant capital outlay. Therefore, depending on the restrictions placed on the resources used, it could be reported in any of the mentioned funds.

Question 5

How should a fixed asset acquired through a capital lease agreement be recorded in a General Fund?

Accepted Answer

A fixed asset acquired through a capital lease agreement should be recorded at the present value of the future lease payments. This is because a capital lease is essentially a form of financing, and the asset is not owned outright until the lease payments have been made in full. Therefore, the expenditure should be debited and the other financing source - capital leases should be credited. This records the liability for the lease agreement and the asset acquired through it. Option B is incorrect because it records the full amount of future lease payments, which would overstate the asset value and understate the liability. Option C is also incorrect because it records the liability separately from the asset, leading to unbalanced accounts. Option D is incorrect because an entry is needed at the time of acquisition to accurately reflect the financial position of the organization.

Question 6

(Journal entries to record a capital lease transaction)
A town enters into a lease-purchase agreement with Trucks,Inc.to acquire four garbage trucks.The agreement provides that the town pay $100,000 at the end of each year for four years.Upon full payment,the trucks become town property.The agreement is based on an interest rate of 7%.(The present value of an annuity of $1 for 4 periods at 7% is 3.3872. )The lease agreement is accounted for in the General Fund.
Required:
Prepare journal entries for the General Fund to record (a)the lease agreement and the lease payment (b)at the end of the first year and (c)at the end of the second year.

Accepted Answer

The answer of (Journal entries to record a capital lease...

Question 7

A capital project is completed,but $500,000 remains in a capital projects fund.How should the government use the $500,000 remaining in the capital projects fund?

Accepted Answer

The correct approach is to consult provisions of relevant grant and bond issues, which may provide guidance regarding the use of the remaining funds. This ensures compliance with any restrictions or conditions attached to the funding sources.

Question 8

A city acquires equipment on January 1,2013 by means of a capital lease agreement.The agreement calls for paying the leasing company $300,000 in three $100,000 annual payments,starting December 31,2013.The present value of the three lease payments,using a 6% interest rate,is $267,300.The city will make the lease payments from the General Fund.What journal entry should the city make on January 1,2013 in the Fund?

Accepted Answer

The correct journal entry for the city on January 1, 2013, in the Fund, is to debit expenditures - capital outlay and credit other financing sources for $267,300. This is because, in governmental accounting, transactions in the General Fund are recorded at the present value of the lease payments at the inception of the lease, which is $267,300 in this case.

Question 9

A city constructs a new building by issuing debt in the amount of $3 million.How should the city report the debt proceeds in its Capital Projects Fund statement of revenues,expenditures,and changes in fund balance?

Accepted Answer

The debt proceeds should be reported as an other financing source because it represents an inflow of resources that will be used to finance the capital project. Reporting it as a revenue would overstate the actual revenue of the fund, and reporting it as a liability would not accurately reflect the fact that the resources will be used to finance the project. The option to report it as "due to the debt service fund" is not applicable in this scenario.

Question 10

A Debt Service Fund accumulates resources to retire debt that is due in a lump sum in the year 2014.The Fund held marketable securities that cost $900,000 when purchased during 2006 and 2007.The securities had fair market values of $875,000 on January 1,2013,and $930,000 on December 31,2013.The average fair market value during the year was $895,000.At what amount should the Fund report the securities in its balance sheet on December 31,2013?

Accepted Answer

The securities should be reported at their fair market value at the end of the reporting period, which is December 31, 2013. The fair market value on that date was $930,000, making choice D the correct answer.

Question 11

A government may have arbitrage when:

Accepted Answer

Arbitrage is the process of taking advantage of the differences in interest rates between two financial instruments to make a profit. In this case, the government is borrowing at a lower tax-exempt rate and investing the funds at a higher rate, earning a profit from the difference in rates. This is a form of arbitrage.

Question 12

The largest dollar amount of resources flowing into a capital projects fund normally will come from

Accepted Answer

Bond proceeds are the most common method of financing capital projects, as they allow the government to borrow large sums of money to be repaid over a long period of time. This is typically a primary source of revenue for capital projects funds. Dedicated property taxes and user charges may also be sources of funding, but they typically provide smaller amounts of revenue. Interest on investments is a secondary source of revenue for capital projects funds.

Question 13

The largest dollar amount of resources flowing into a general obligation debt service fund normally will come from

Accepted Answer

Tax revenues and interfund transfers typically make up the largest dollar amount of resources flowing into a general obligation debt service fund. This is because the purpose of the fund is to pay for debt service on bonds issued by the governmental entity. Tax revenues may include property taxes, sales taxes, or various other taxes collected by the government. Interfund transfers may come from other funds within the same governmental entity, such as a general fund or enterprise fund.

Question 14

The operations of a debt service fund generally are controlled by which of the following mechanisms?

Accepted Answer

The operations of a debt service fund are generally controlled by bond indentures, which are legal contracts between a debtor and a creditor that require the debtor to make payments to the creditor according to a specified schedule. The bond indenture may also outline any covenants or restrictions on the debtor's actions. Encumbrance accounting pertains to the budgetary accounting process and is not directly related to the operations of a debt service fund. Legislative oversight and review may provide some level of oversight, but the primary control mechanism for debt service funds are the bond indentures. Break-even analysis is a tool used for financial forecasting and planning, but it is not a control mechanism for debt service funds.

Question 15

(Preparing entries to close a Capital Projects Fund)[see p.195… uses "close" not "abolish"]
You are the Finance Director of the Town of Blue Mountain.Presented below is the trial balance for a Capital Projects Fund of the Town at October 31,2013.The Town Engineer has advised you that the project accounted for within this fund,a new system of bicycle trails,is complete and formal acceptance by the Town is pending.The Town Council has directed you to abolish this fund and transfer any remaining net assets to the Town's Debt Service Fund.Prepare the entries necessary to settle the remaining liabilities of the fund,close the accounts,and transfer the remaining net assets to the Debt Service Fund.
.

Accepted Answer

The answer of (Preparing entries to close a Capital Projects...

Question 16

How should marketable securities be valued when reported in a Permanent Fund's balance sheet?

Accepted Answer

Marketable securities should be valued at their fair value as of the balance sheet date, in accordance with Generally Accepted Accounting Principles (GAAP). This provides a more accurate representation of the current value of the investments and their impact on the Permanent Fund's financial position. Valuing them at their cost or purchase price may not reflect their current market value and could lead to misinterpretation of the fund's financial status.

Question 17

What type of fund is most likely used to account for the spending of income earned by a Permanent Fund?

Accepted Answer

The income earned by a Permanent Fund is often used for a specific purpose, such as education, healthcare, or infrastructure. This type of fund is best accounted for using a special revenue fund, which allows for the tracking of revenues and expenditures related to a specific revenue source or type of activity. The other options, such as agency fund, private-purpose trust fund, and enterprise fund, are not typically used for this purpose.

Quiz 6: The Governmental Fund Accounting Cycle