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4–1. Explain why some transactions for governmental activities at the government- wide level are reported differently than transactions for the General Fund. Give some examples of transactions that would be recorded in the general journals of ( a ) only the General Fund, ( b ) only governmental activities at the government- wide level, and ( c ) both.

4-1. Underthe GASB financial reporting model, governmental activities are reported on along-term perspective at the government-wide level using the economic resourcesmeasurement focus and the accrual basis of accounting, similar to businessaccounting. This means that both currentand noncurrent assets and liabilities, as well as deferred inflows and outflowsof resources, are reported on the statement of net position. Revenues, expenses, and other financingsources and uses recognized on the accrual basis, are reported on the statementof activities. Conversely, the GeneralFund reports on a short-term perspective using the current financial resourcesmeasurement focus and the modified accrual basis of accounting. Therefore, the General Fund reports onlycurrent assets, current liabilities, and deferred inflows and outflows ofresources. Revenues and expenditures andother financing sources and uses, recognized on the modified accrual basis, arereported on the statement of revenues, expenditures, and changes in fundbalances. Examples of transactions or eventsthat are recorded only in the General Fund general journal include budgetaryentries and encumbrance transactions. Examples of transactions that are recordedonly in the governmental activities general journal include depreciationexpense on general capital assets and accrual of interest on long-term debt (asdiscussed in Chapter 6). Purchases of goods and services, salaries and wages,and most revenue items are examples of transactions that are recorded in boththe General Fund general journal and the governmental activities journal.lhO5

4–2. When preparing the statement or schedule of revenues, expenditures, and changes in fund balance on the budgetary basis, how are encumbrances outstanding at year end treated if they will be honored in the upcoming year?

In the statement or schedule of revenues,expenditures, and changes in fund balance prepared on the budgetary basis, anyencumbrances outstanding at year end are added to expenditures in the budgetarybasis column. By including any amountsencumbered that are expected to be honored with expenditures, both committedand spent amounts from the year are compared to the current year’s budget. Allowingencumbrances to remain outstanding prevents them from being dishonored orreappropriated to a future period. The change in encumbrances outstanding at thebeginning and end of the year will have to be added or subtracted from the excessof revenues over expenditures to arrive at a change in fund balance thatarticulates to the statement of revenues, expenditures, and changes in fundbalance.ene6.N2

4–3. In many cases, property taxes comprise a significant source of revenue and cash receipts for a government. If property tax cash collections typically occur during one or two collection periods, how do governments manage working capital needs?

Sincecash inflows to governments often do not occur on a consistent basis, many governmentsborrow money on a short-term basis. The taxing power of the government isample security for short-term debt, thus banks customarily meet the workingcapital needsof a government by issuing a tax anticipation note from the government.\NGu3

4–4. During a recession citizens and governments see a substantial decline in the value of homes. How might this decline in value impact the a government’s gross property tax levy?

Sinceproperty tax levies are based on assessed/market values of property, whenproperty values decline and no change in levy rate is made, tax collectionswill fall, sometimes dramatically. Since this impairs the government’s abilityto function, the government may be forced to raise the property tax levy inorder to stabilize the amount of taxes collected. However, in many cases, a government’s taxingauthority has limits. No

4–5. If the General Fund of a certain city needs $6,720,000 of revenue from property taxes to finance estimated expenditures of the next fiscal year and historical experience indicates that 4 percent of the gross levy will not be collected, what should be the amount of the gross levy for property taxes? Show all computa- tions in good form.

4–6. How does accounting in a governmental fund for the purchase of supplies from an outside vendor differ from the purchase of supplies from an internal service fund?

Whenrecording a purchase from either an internal service fund or an externalvendor, a governmental fund will use encumbrance accounting. When goods are received, the encumbrance willbe reversed, and an expenditure will be recorded. The primary difference, fromthe perspective of the governmental fund, is the amount recorded. Purchases from outside vendors are recordedat the purchase price; while purchases from an internal service fund arerecorded at the cost to the government as a whole. N83

4–7. Explain why some governments may account for inventories of supplies using the purchases method in the General Fund and the consumption method at the government-wide level? How would the amount reported for expenditures in the General Fund compare with the amount of expenses reported at the government- wide level if the two methods of inventory accounting are used?

Thepurchases method is consistent with the modified accrual basis of accounting asan expenditure is recognized for the full cost of supplies when purchased,regardless of the amount used during the year. The consumption method isconsistent with the accrual basis of accounting as an expenditure or expense isrecognized for the cost of supplies used during the year. Some governments may choose to use thepurchases method in the General Fund, since it is more consistent with themodified accrual basis used for budgeting. At the government-wide level, GASB standards require the use of accrualaccounting. The purchases method would thereforebe inappropriate at the government-wide level.


4–8. The computer department of a certain city, a General Fund department, charges other funds for data processing services. At the end of the fiscal year, the Gen- eral Fund is owed $5,000 by the City Library Fund (a special revenue fund) and $8,000 by the City Electric Fund (an enterprise fund) for service billed but still unpaid. How would these interfund receivables and payables be reported in the Governmental Activities column of the government-wide statement of net position?

Becauseactivities of the General Fund and City Library Fund are both reported in theGovernmental Activities column at the government-wide level, the $5,000receivable by the General Fund and payable by the City Library Fund areoff-setting and are not reported at the government-wide level. However, since activities of the CityElectric Fund are reported in the Business-type Activities column at thegovernment-wide level, the $8,000 balance owed is a receivable of one column(Governmental Activities) and a payable of another column (Business-typeActivities). The amounts are reported asa single line item in the Assets section of the statement of net positioncalled Internal Balances, reporting $8,000 in the Governmental Activitiescolumn and ($8,000) in the Business-type Activities column. vҧknTBFl32p%@|

4–9. How does a permanent fund differ from public-purpose trusts that are reported in special revenue funds? How does it differ from private-purpose trust funds?

4-9. Permanent funds and special revenue fundsare both governmental fund types. If a public-purpose trust requires that theprincipal amount of the contribution not be expended, but that earnings on theprincipal (as defined in the trust agreement or by law) can be expended for aspecified purpose, the trust must be accounted for in a permanent fund. On the other hand, if the public-purposetrust permits both the principal of the contribution and all earnings to beexpended for the specified purpose, then a special revenue fund is used. If a trust provides benefit to an external party,organization, or other government, it is a private-purposetrust and must be recorded in a private-purpose trust fund—a fiduciary fundtype.[Nc2

4–10. Name the four classes of nonexchange transactions defined by GASB standards and explain the revenue and expenditure/expense recognition rules applicable to each class.

4-9. As shown in Appendix A to Chapter 4, thefour classes of nonexchange transactions are (1) derived tax revenues, (2)imposed nonexchange revenues, (3) government-mandated nonexchange transactions,and (4) voluntary nonexchange transactions. For derived tax revenues, such as sales andsimilar taxes, revenues should be recognized when the underlying exchange(e.g., sale of goods or services) has occurred. Revenues for imposed nonexchange revenues should be recognized whenresources are required to be used or the first period that use ispermitted. For both government-mandatedand voluntary transactions, revenues (and expenses or expenditures for theother party) should be recognized in the period when all eligibilityrequirements, such as meeting matching requirements, have been met, unlessreceived (or paid) in advance of use in a following period. If cash is received in advance of eligibilityrequirements having been met, the receipt should be reported as a liability. Resourcesreceived before time requirements are met, but after all other eligibilityrequirements have been met, should be reported as a deferred inflow ofresources by the recipient.


1. When equipment was purchased with General Fund resources, which of the following accounts would have been debited in the General Fund?



a. Expenditures.




b. Equipment.




c. Encumbrances.




d. No entry should be made in the General Fund.

a. Expenditures.

2. Goods for which a purchase order had been placed at an estimated cost of $1,600 were received at an actual cost of $1,550. The journal entry in the General Fund to record the receipt of the goods will include a:




a. Debit to Encumbrances Outstanding for $1,600.


b. Credit to Vouchers Payable for $1,550.


c. Debit to Expenditures for $1,550.


d. All of the above are correct.

d. All of the above are correct.

3. Which of the following items would be reported as General Revenue on the government-wide statement of activities?




a. Parking fines.


b. Federal grants earmarked for specific programs.


c. Animal licensing fees.


d. Sales taxes earmarked for maintenance of roads and bridges.

d. Sales taxes earmarked for maintenance of roads and bridges.


b

5. Carroll City levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is expected to be uncollectible. The city collects $170,000 of its taxes during the year and another $25,000 during the first two months of the following year. In addition, the city collected $3,000 of prior year taxes during the first two months of the current fiscal year and another $2,000 during the remainder of the current fiscal year. What amount of property tax revenues should the city report in the governmental fund financial statements for the current fiscal year?


a . $200,000.


b . $198,000.


c . $197,000.


d . $195,000.

c

6. Carroll City levies $200,000 of property taxes for its current fiscal year. One percent of the tax levy is expected to be uncollectible. The city collects$170,000 of its taxes during the year and another $25,000 during the first two months of the following year. In addition, the city collected $3,000 of prior year taxes during the first two months of the current fiscal year and another $2,000 during the remainder of the current fiscal year. What amount of property tax revenues should the city report in the government-wide financial statements for the current fiscal year?


a . $200,000.


b . $198,000.


c . $197,000.


d . $195,000.

b

7. The Village of Frederick borrowed $1,000,000 from a local bank by issuing 4 percent tax anticipation notes. If the village repaid the tax anticipation notes six months later after collecting its next installment of property taxes, the General Fund journal entry to record the repayment will include:


a. A debit to Tax Anticipation Notes Payable for $1,000,000.


b. A debit to Expenditures for $20,000.


c. A debit to Expenditures for $1,020,000.


d. Both a and b .

d

8. Which of the following transactions is reported on the government-wide financial statements?




a. An interfund loan from the General Fund to a special revenue fund.


b. Equipment used by the General Fund is transferred to an internal service fund that predominantly serves departments that are engaged in govern- mental activities.


c. The City Airport Fund, an enterprise fund, transfers a portion of boarding fees charged to passengers to the General Fund.


d. An interfund transfer is made between the General Fund and the Debt Service Fund.

c

9. Clarion Township was approved for a grant from the federal government. The grant provides for reimbursement up to $200,000 for expenditures in- curred to weatherize homes for low-income persons. Upon notification that the grant had been approved, but before weatherization activities have be- gun, Clarion Township should:




a. Make no journal entry.


b. Debit Due from Federal Government for $200,000.


c. Credit Deferred Inflow of Resources for $200,000.


d. Both b and c .

a

10. The City of Marshfield uses the purchases method for recording its inven- tory of supplies in the General Fund. Rather than using a perpetual inven- tory system, inventories are updated at year-end based on a physical count. Physical inventories were $112,000 and $128,000 at December 31, 2016 and 2017, respectively. The adjusting journal entry on December 31, 2017, will include a:




a. Debit to Inventory of Supplies for $16,000. b. Debit to Expenditures for $16,000.


c. Credit to Inventory of Supplies for $16,000. d. Credit to Expenditures for $16,000.

a