Chapter 20 Test Bank
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS -
PROPRIETARY AND FIDUCIARY FUNDS
Multiple Choice Questions
LO1
1. What basis of accounting is used by proprietary funds?
a. Modified accrual accounting. b. Accrual accounting.
c. Cash basis accounting. d. Fair value accounting.
LO1
2. Enterprise funds are accounted for in a manner similar to
a. internal service funds. b. construction project funds. c. agency funds.
d. private-purpose trust funds.
LO1
3. Payments in lieu of taxes from an enterprise fund should be reported as a(n)
a. operating expense. b. operating transfer out. c. nonoperating expense.
d. nonoperating transfer out.
LO1
4. The enterprise fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund balance.
c. current assets + noncurrent assets + liabilities = net assets.
LO1
5. Depreciation of a proprietary fund’s fixed assets is
I. reported in the governmental-wide financial statements. II.recorded in the proprietary fund.
6. Which of the following funds is not included in government-wide financial statements?
a. Internal service funds. b. Enterprise funds. c. Fiduciary funds. d. Permanent funds.
LO2
7. In a proprietary fund statement of cash flows, cash paid to other funds, except for interfund services used, should be classified as a cash outflow from
a. operating activities.
b. noncapital financing activities.
c. capital and related financing activities. d. investing activities.
LO2
8. Major categories of the enterprise fund cash flow statement include all of the following except cash flows from
a. investing activities.
b. restricted and unrestricted fund balances. c. noncapital financing activities.
d. capital and related financing activities.
LO2
9. GASB’s cash flow statement reporting
a. requires the direct method. b. requires the indirect method.
c. permits either the direct or indirect method.
LO3
10. The agency fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund balance.
c. current assets + noncurrent assets + liabilities = net assets.
d. current assets + noncurrent assets - liabilities = net assets.
LO3
11. Which of the following does not appear on the statement of cash flows as an operating activity?
a. Receipts from interfund reimbursements. b. Payments for taxes and in lieu of taxes. c. Payments for interest.
d. Fines for late service payments.
LO3
12. Which of the following is not a fiduciary fund?
a. A permanent fund. b. A proprietary fund. c. A trust fund.
d. An agency fund.
LO3
13. What basis of accounting is used by fiduciary funds?
a. Modified accrual accounting. b. Accrual accounting.
c. Cash basis accounting. d. Present value accounting.
LO3
14. Prudent City collects state sales taxes quarterly from local businesses and then gives the state revenue department the money at the end of the year. The sales taxes would go in Prudent City’s
LO3
15. In reference to agency funds, which of the following statements is correct?
a. Agency funds are fiduciary funds used to account for resources that governments hold in a custodial capacity. b. Agency funds can arise from the normal and recurring
operations of other funds.
c. Agency funds can be used when the governmental entity undertakes necessary administrative duties, such as determining the eligibility of potential recipients. d. All of the above are correct.
LO3
16. Private-purpose trust funds are accounted for in the same manner as
a. permanent funds. b. proprietary funds.
c. special revenue funds. d. fiduciary funds.
LO3
17. In reference to trust funds, which of the following statements is correct?
a. Investment trust funds are fiduciary funds used to account for multigovernmental external investment pools sponsored by a governmental agency.
b. Private-purpose trust funds are fiduciary funds used to account for resources that are held for the benefit of parties outside of the governmental agency.
c. Pension trust funds are fiduciary funds used when a
government acts as trustee for a defined pension plan for a governmental entity.
d. All of the above are correct.
LO4
18. The two required financial statements for defined benefit pension plans are a statement of
a. plan net assets and a schedule of funding progress. b. plan net assets and a statement of changes in plan net
assets.
c. changes in plan net assets and a schedule of employer contributions.
LO4
19. A pension trust fund statement of changes in plan net assets would include all of the following except
a. employer contributions. b. employee contributions. c. benefit payments.
d. cash surrender value.
LO4
20. In reference to governmental accounting for public employee retirement systems (PERS), which of the following statements is correct?
a. PERS are subject to ERISA regulations.
b. Governments often turn to FASB for guidance in their efforts to comply with pension regulations.
c. GASB pension standards require governments to present a schedule of funding progress for defined benefit pension plans.
LO1
Exercise 1
Prepare journal entries to record the following transactions in the enterprise fund for a state university.
1. Tuition and fees assessed total $8,000,000 of which 80% was
collected by year-end; scholarships were granted for $300,000 and $200,000 was estimated to be uncollectible.
2. Revenues collected from sales and services to the university bookstore were $1,200,000.
3. Salaries and wages were $3,000,000, of which $200,000 was for employees of the university bookstore.
4. Unrestricted cash was used to pay the long-term mortgage on the university's buildings: $1,500,000 for interest and $500,000 for mortgage principal.
5. Restricted contributions of $800,000 for a specific academic program were received.
6. Expenditures of $445,000 for the restricted program were incurred and paid.
7. Equipment of $55,000 was purchased and paid for with unrestricted cash.
LO1
Exercise 2
Spencer College assessed $1,350,000 in student tuition for the fall semester. The college estimates bad debts will be 2% of the gross assessed tuition. Spencer is located in Montana where a scholarship program provides for tuition waivers totaling $120,000. Estimated uncollectible tuition is $13,500.
Determine the amount of revenue to be reported in the Spencer enterprise fund.
LO1
Exercise 3
Record the following transactions in the Porter Hospital enterprise fund:
1. Gross patient services revenues: $10,000,000.
2. Included in the above revenues are: charity services, $200,000; contractual adjustments, $700,000; and estimated uncollectible amounts, $350,000.
3. Purchased equipment by issuing a 5-year note for $80,000. 4. Received cash donations restricted for a capital building
addition program, $2,200,000.
LO1
Exercise 4
Journalize the following utility transactions in the Brown County enterprise fund:
1. Billings to external customers $1,600,000, billings to Brown County governmental funds $130,000.
2. Collected refundable deposits from new utility customers $10,000.
3. Collected 95% of all billings by fiscal year-end.
4. Refunded $4,000 in deposits to former utility customers.
5. Unbilled services to outside customers at year-end $14,000.
LO1
Exercise 5
Prepare journal entries in an Internal Service Fund of Prat County to record each of the following transactions.
1. Purchased equipment on September 1 by paying $25,000 down and borrowing $100,000 on a 6%, 2-year note.
2. Billed General Fund departments $620,000 for services provided to those departments. Billings to the Enterprise Fund totaled
$165,000. All billings were collected by year-end except for $100,000 charged to the General Fund.
LO1
Exercise 6
Journalize the following utility transactions in the Starkey County enterprise fund:
1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1 (an interest payment date). The bond proceeds are to be used for new plant construction and the issue will mature in 20 years.
2. Depreciation for the year-ended December 31 included $300,000 for buildings and $190,000 for equipment.
3. The utility paid $600,000 in construction costs for the new plant.
4. Interest on the revenue bonds was accrued at year-end.
LO1
Exercise 7
Prepare journal entries to record the following grant-related transactions of an enterprise fund.
1. Received an operating grant in cash from the state, $2,500,000. 2. Incurred and paid qualifying expenses on the grant program,
$1,600,000.
3. Received a federal grant to finance construction of a plant, $4,500,000 (cash received in advance).
4. Incurred and paid construction cost on the plant, $3,000,000.
LO2
Exercise 8
Based upon the provided 2006 annual cash flow information, prepare a cash flow statement for the Blue Valley Aquatic Center enterprise fund.
LO2
Exercise 9
The four cash flow activities required in a government proprietary fund's statement of cash flows are listed below and assigned a letter code.
A) Cash flows from operating activities
B) Cash flows from noncapital financing activities
C) Cash flows from capital and related financing activities D) Cash flows from investing activities
Required:
Use the correct letter code to indicate where each of the following ten items should be reported in the statement of cash flows.
1. An enterprise fund fixed asset was sold for cash.
2. The proceeds from the sale of the fixed asset were transferred to the general fund.
3. Paid principal, $100, 000, and interest, $250,000, on a mortgage. 4. Cash proceeds from sale of investments, $90,000. Investments were
purchased with the proceeds of debt issued to finance
construction of specialized equipment that is almost completed. 5. Cash paid for new equipment, $22,000.
6. Cash received from the general fund to cover part of the cost of plant expansion, $1,000,000.
7. Cash received from another fund as a 6-month loan for the sole purpose of financing purchase of equipment, $90,000.
8. Cash proceeds from issuing bonds for an enterprise fund construction project.
9. Cash paid to employees for salaries.
10. Cash received from interest earned on investments.
LO2
Exercise 10
SOLUTIONS
Multiple Choice Questions
1. b
2. a
3. d
4. d
5. c
6. a
7. b
8. b
9. a
10. a
11. a
12. b
13. b
14. c
15. a I wrote a replacement question.
16. d
17. d I wrote a replacement question.
18. a
19. d
Exercise 1
1.
Tuition and fees receivable ... 8,000,000 Tuition revenue ... 8,000,000
Scholarships expense ... 300,000 Bad debts expense ... 200,000
Tuition and fees receivable ... 300,000
Allowance for uncollectible accounts 200,000
Cash ... 6,400,000
Tuition and fees receivable ... 6,400,000
2.
Cash ... 1,200,000
Auxiliary enterprises revenue ... 1,200,000
3.
Educational and general expenses 2,800,000 Auxiliary enterprises expense ... 200,000
Cash ... 3,000,000
4.
Interest expense ... 1,500,000 Mortgage payable ... 500,000
Cash ... 2,000,000
5.
Restricted cash ... 800,000
Deferred contribution revenue ... 800,000
6.
Educational expense ... 445,000
Restricted cash ... 445,000
Deferred contribution revenue ... 445,000 Contribution revenue ... 445,000
7.
Equipment ... 55,000
Cash ... 55,000
Exercise 2
The full amount of tuition charges is recognized. The tuition waivers and the uncollectible accounts should be reported as expenses.
Exercise 3
1.
Accounts receivable/Cash ... 10,000,000
Patient service revenue ... 10,000,000
2.
Charity service adjustments ... 200,000 Contract adjustments ... 700,000 Bad debt expense ... 350,000
Accounts receivable ... 900,000
Allowance for uncollectible accounts 350,000
3.
Equipment ... 80,000
Notes payable ... 80,000
4.
Restricted cash ... 2,200,000
Deferred contribution revenue ... 2,200,000
5.
Construction in progress ... 180,000 Deferred contribution revenue ... 180,000
Restricted cash ... 180,000
Contribution revenue ... 180,000
Exercise 4
1.
Accounts receivable ... 1,600,000 Due from other funds ... 130,000
Service revenue ... 1,730,000
2.
Restricted cash ... 10,000
Customer deposits ... 10,000
3.
Cash ... 1,643,500
Accounts receivable ... 1,520,000
Due from other funds ... 123,500
4.
Customer deposits ... 4,000
Restricted cash ... 4,000
5.
Accounts receivable ... 14,000
Exercise 5
1. Equipment ... 125,000
Cash ... 25,000
Notes payable ... 100,000
2. Due from general fund ... 620,000 Due from enterprise fund ... 165,000
Service revenues ... 785,000
Cash ... 685,000
Due from general fund ... 520,000
Due from enterprise fund ... 165,000
3. Interest expense ... 2,000
Interest payable ... 2,000
($100,000 X .06 X 4/12 = $2,000)
Depreciation expense ... 8,333
Accumulated depreciation-equip. .. 8,333
($125,000 / 5 years) X 4/12 = $8,333
Exercise 6
1. Restricted cash 3,920,000
Discount on revenue bonds ... 80,000
Bonds payable ... 4,000,000
2. Depreciation expense ... 490,000
Accumulated depreciation-building 300,000 Accumulated depreciation-equipment 190,000
3. Construction in progress ... 600,000
Restricted cash ... 600,000
4. Interest expense ... 132,000
Discount on revenue bonds ... 2,000
Interest payable ... 130,000
(Interest payable = $4,000,000 x 6.5% x 1/2 = $130,000) (Discount amortization = $80,000/20 x 1/2 = $2,000)
2. Expenses ... 1,600,000
Restricted cash ... 1,600,000
Deferred grant revenues ... 1,600,000
Nonoperating revenues--grants .... 1,600,000
3. Restricted cash ... 4,500,000
Deferred contributed capital ... 4,500,000
4. Construction in progress ... 3,000,000
Restricted cash ... 3,000,000
Deferred contributed capital ... 3,000,000
Contributed capital ... 3,000,000
Exercise 8
Red River Municipal Golf Course Fund Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers $ 650,000 Cash paid for operating expenses (548,000)
Net cash provided $ 102,000 Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note 75,000 Cash paid for interest ( 3,000) Operating transfer out - other funds (60,000)
Net cash provided 12,000 Cash Flows from Capital and Related
Financing activities:
Cash paid on capital improvements (85,000)
Net cash used ( 85,000) Cash Flows from Investing Activities:
Interest received 2,000
Net cash provided 2,000 Net increase in unrestricted cash 31,000 Cash balance, January 1, 2006 15,000 Cash balance, December 31, 2006 $ 46,000
Exercise 9
4. D 5. C 6. C 7. C 8. C 9. A 10. D
Exercise 10
Downtown University Motor Pool Fund Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers $ 850,000 Cash paid for operating expenses (700,000)
Net cash provided $ 150,000 Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note 40,000 Cash received from general fund -
Noncapital loan 20,000 Cash paid for interest ( 2,000) Operating transfer out - other funds (65,000)
Net cash used ( 7,000) Cash Flows from Capital and Related
Financing activities:
Principal paid on capital debt (50,000) Interest paid on capital debt (10,000) Cash paid on capital improvements (75,000)
Net cash used (135,000) Cash Flows from Investing Activities:
Interest received 1,000
