Accy 407 - Chapter 4

Front 1

The dual-track approach to governmental accounting used in this text is most useful because:

A) It parallels the approach used by most governments that have adopted the GASBS 34 reporting model.
B) It is the only way that a government can meet the requirements of the GASBS 34 reporting model.
C) Most governments do not possess the computer capabilities to classify and aggregate accounting information in the ways required to prepare both governmental and fund financial statements.
D) It helps the student learn the different ways in which accounting transactions and events affect the government-wide and fund financial statements, as well as providing a manual accounting system that aids in preparing both kinds of statements.

Back 1

D) It helps the student learn the different ways in which accounting transactions and events affect the government-wide and fund financial statements, as well as providing a manual accounting system that aids in preparing both kinds of statements.

Front 2

A General Fund balance sheet differs from a government-wide statement of net assets in that:

A) A General Fund balance sheet reports only current assets and liabilities; a government-wide statement of net assets reports current and noncurrent assets as well as current and noncurrent liabilities.
B) A General Fund balance sheet reports material amounts of inventories of supplies; a government-wide statement of net assets does not report inventories of supplies.
C) A General Fund balance sheet reports fund balances as restricted or unrestricted; a government-wide statement of net assets segregates amounts of net assets as unrestricted; restricted; or invested in capital assets, net of related debt.
D) All of the above are correct.

Back 2

A) A General Fund balance sheet reports only current assets and liabilities; a government-wide statement of net assets reports current and noncurrent assets as well as current and noncurrent liabilities.

Choice B is incorrect since material amounts of supplies inventories should be reported on both the General Fund balance sheet and government-wide statement of net assets (see Illustration 4-1). Although choice C might look correct, it is not. Fund balances on the General Fund balance sheet should be reported in reserved and unreserved categories, not restricted and unrestricted.

Front 3

The net assets section of the government-wide statement of net assets reports the three categories:

A) Unreserved; reserved; and invested in capital assets, net of related debt.
B) Unrestricted; restricted; and invested in capital assets, net of related debt.
C) Unrestricted, reserved, and designated.
D) Unrestricted, restricted, and reserved.

Back 3

B) Unrestricted; restricted; and invested in capital assets, net of related debt.

Front 4

Which of the following is properly reported as a liability of the General Fund?

A) General Obligation Bonds Payable.
B) Capital Lease Obligations.
C) Vouchers Payable.
D) All of the above.

Back 4

C) Vouchers Payable.


The General Fund, and all governmental funds for that matter, report only current assets and current liabilities. The only current liability among the choices given is Vouchers Payable.

Front 5

When the annual budget is recorded, the legislative authorization to expend resources is:

A) Credited to Appropriations.
B) Debited to Expenditures.
C) Credited to Expenditures.
D) Debited to Appropriations.

Back 5

A) Credited to Appropriations.

As part of the journal entry to record the annual budget, the Appropriations account is credited for the amount of expenditures that have been authorized in the budget.

Front 6

Office equipment ordered by the city clerk was received at an actual cost of $4,200. When the equipment was ordered, an encumbrance was recorded in the amount of $4,000. The General Fund journal entry to record receipt of this equipment should include:

A) A debit to Expenditures in the amount of $4,000.
B) A debit to Expenditures in the amount of $4,200.
C) A debit to Encumbrances in the amount of $4,000.
D) A debit to Encumbrances in the amount of $4,200.

Back 6

B) A debit to Expenditures in the amount of $4,200.

In the General Fund, Expenditures will be debited for the actual amount of $4,200. Equipment will be debited for the same amount in the governmental activities general journal at the government-wide level. In addition, the original encumbrance entry in the General Journal will be reversed in the original estimated amount of $4,000. This entry requires a credit to Encumbrances, not a debit.

Front 7

Which of the following would be recorded as a program revenue in the governmental activities journal?

A) Property taxes.
B) Motor fuel taxes.
C) Sales taxes.
D) None of the above.

Back 7

D) None of the above.

GASB takes the position that all taxes, even those that may be earmarked for a specific function or program, should be reported as a General Revenue in the government-wide statement of activities. Thus, none of these items would be reported as program revenue.

Front 8

Which of the following represents the typical sequence of expenditure-related transactions?

A) Appropriation, Encumbrance, Disbursement, Expenditure.
B) Appropriation, Encumbrance, Expenditure, Disbursement.
C) Encumbrance, Appropriation, Expenditure, Disbursement.
D) Encumbrance, Appropriation, Disbursement, Expenditure.

Back 8

B) Appropriation, Encumbrance, Expenditure, Disbursement.

Choice B is the best choice since it represents the typical sequence of budget authorization, place an order for goods, receipt of goods, and payment for goods received.

Front 9

The assessed valuation of Jackson County's nonexempt taxable property is $500,000,000. For the current fiscal year, Jackson County's Commission has set a property tax rate of $4 per $100 of assessed valuation. For the past 10 years, property tax collections have averaged 96 percent of taxes levied. Based on this information, the journal entry in Jackson County's General Fund to record its tax levy will include a:

A) Debit to Taxes Receivable—Current in the amount of $19,200,000.
B) Debit to Taxes Receivable—Current in the amount of $20,000,000.
C) Debit to Revenues in the amount of $19,200,000.
D) Both B and C are correct.

Back 9

B) Debit to Taxes Receivable—Current in the amount of $20,000,000.

The journal entry will be a debit to Taxes Receivable—Current for $20,000,000 ($4 X ($500,000,000/$100)) and credits to Estimated Uncollectible Current Taxes for $800,000 and to Revenues for $19,200,000. Thus, Choice B is the correct response.

Front 10

On December 31, the end of the Town of Salem's current fiscal year, uncollected property taxes of $900,000 became delinquent. The related estimated uncollectible account balance on these taxes was $90,000. On the same date, penalties on the delinquent taxes were assessed in the amount of $45,000. The town estimated that 10 percent of the penalties would not be collected. The journal entry to record this transaction in the General Fund general journal will include a:

A) Debit to Estimated Uncollectible Delinquent Taxes for $90,000.
B) Credit to Deferred Revenues for $900,000.
C) Credit to Revenues for $40,500.
D) Debit to Taxes Receivable Delinquent for $990,000.

Back 10

C) Credit to Revenues for $40,500.

Recording this event requires a journal entry to reclassify the current tax receivable and its related estimated uncollectible account balance to delinquent status. In addition, an entry is made to recognize interest and penalties receivable, an estimated uncollectible amount, and revenues, recorded net of the estimated uncollectible amount. The only choice that would correctly be part of these entries is Choice C—a credit to Revenues in the amount of $40,500 ($45,000 less 10% of $45,000). See illustrative journal entries 12 and 13a in Chapter 4.

Front 11

On December 31, the end of the Town of Salem's current fiscal year, uncollected property taxes of $900,000 became delinquent. The related estimated uncollectible account balance on these taxes was $90,000. On the same date, penalties on the delinquent taxes were assessed in the amount of $45,000. The town estimated that 10 percent of the penalties would not be collected. The journal entry to record this transaction in the governmental activities general journal will include a:

A) Debit to Estimated Uncollectible Delinquent Taxes for $90,000.
B) Debit to Estimated Uncollectible Current Taxes for $90,000.
C) Credit to Deferred Revenues for $900,000.
D) Credit to Revenues for $45,000.

Back 11

B) Debit to Estimated Uncollectible Current Taxes for $90,000.

As illustrated in journal entry 12, the contra-receivable account Estimated Uncollectible Current Taxes must be reclassified to delinquent status by debiting this account and crediting Estimated Uncollectible Delinquent Taxes. The other choices all reflect incorrect entries.

Front 12

Late in its fiscal year, a federal agency approved Stryker Village's application for a $500,000 operating grant to provide recreational activities for at-risk youth. The program will begin in the following fiscal year. The grant provides for reimbursement of expenditures for services to eligible recipients rendered during the following fiscal year. On the notification date, the village's journal entry in the General Fund should include a:

A) Debit to Due from Federal Government.
B) Credit to Deferred Revenues.
C) Both A and B are correct.
D) None of the above. No entry should be made until all eligibility requirements have been met.

Back 12

D) None of the above. No entry should be made until all eligibility requirements have been met.

This transaction is an illustration of what GASB standards refers to as a voluntary nonexchange transaction. For these transactions, unless cash is received in advance, which is not the case here, no journal entry is made until all eligibility requirements have been made, or Choice D.

Front 13

Which of the following is a correct statement regarding interim financial reporting for state and local governments?

A) Interim financial reporting to bondholders and other creditors is required on a quarterly basis.
B) Interim financial reporting is not required to parties outside the government.
C) Interim financial information, such as actual and budgeted revenues and expenditures for the year to date, should be prepared for use by internal managers on a quarterly, monthly, weekly, or other periodic basis, as needed.
D) Both B and C are correct.

Back 13

D) Both B and C are correct.

As explained on pages 129 and 130, state and local governments are not required to report interim financial information to external parties. However, because of the critical role of budgetary compliance in the government setting, interim reporting of actual vs. budgeted revenues and expenditures on the periodic basis needed is essential for use by internal managers and perhaps the governing body. Thus, choice D is the most correct response.

Front 14

The governing body of the Town of Warren approved additional appropriations of $2,000 to cover unexpected overtime costs of the police department. Approval of the additional appropriations will require a:

A) Debit to Encumbrances.
B) Debit to Appropriations.
C) Debit to Budgetary Fund Balance.
D) Debit to Supplemental Appropriations.

Back 14

C) Debit to Budgetary Fund Balance.

The journal entry to record this budget amendment will require a debit to Budgetary Fund Balance and a credit to Appropriations. Therefore, C is the only correct choice.

Front 15

The General Fund recorded a liability to the city owned electric utility (an enterprise fund of the city) for electric power used during the prior month. The journal entry for the General Fund will include:

A) A debit to Expenditures.
B) A debit to Interfund Transfers Out.
C) A debit to Encumbrances.
D) None of the above

Back 15

A) A debit to Expenditures

Interfund transfers are reported as either other financing sources or other financing uses, depending on whether the transfer is in or out. In this case, Choice A is correct.

Front 16

The General Fund received $200,000 in lieu of taxes from the city owned water utility, an enterprise fund. This amount approximates the value of services provided to the utility by departments accounted for by the General Fund. This is an example of a (an):

A) Interfund transfer.
B) Interfund loan.
C) Internal exchange transaction for interfund services provided and used.
D) Reimbursement.

Back 16

C) Internal exchange transaction for interfund services provided and used.

A payment in lieu of taxes from a government's own utility is an example of what is described in the text as an internal exchange transaction. As mentioned on page 135, the GASB simply refers to these transactions as interfund services provided and used. The key point is that an expenditure/expense and revenue are recognized as if one of the parties to the transaction were external to the government.

Front 17

On July 1, the first day of its fiscal year, Claret City levied a $1,000,000 property tax which is payable in full on December 1 of the same year. On September 15, the city decided to borrow $100,000 in 90-day, 5 percent tax anticipation notes to cover operating expenditures until the tax revenues are collected. The journal entry in the General Fund on September 15 to record the issuance of tax anticipation notes will include:

A) A credit to Other Financing Sources—Proceeds of Tax Anticipation Notes.
B) A credit to Tax Anticipation Notes Payable.
C) A credit to Tax Anticipation Revenue.
D) Either B or C is acceptable if consistently applied.

Back 17

B) A credit to Tax Anticipation Notes Payable.

Tax anticipation notes are a current liability of the General Fund. Thus, it is appropriate to record them as such, as in Choice B.

Front 18

The Revenues account of a state or local government is debited when:

A) Property taxes are recorded.
B) Property taxes are collected.
C) The budget is recorded at the beginning of the year.
D) The account is closed at the end of the year.

Back 18

D) The account is closed at the end of the year.

The Revenues account is credited as revenues are recognized during the year. Except for special cases, such as removing an erroneous entry from the Revenues account or correcting an overstatement of revenue, the only time the account would be debited would be when it is closed to Fund Balance at fiscal year-end. Thus, choice D is the only correct choice among those available.

Front 19

During January 2011 General Fund supplies ordered in the previous fiscal year and encumbered at an estimated amount of $1,000 were received at an actual cost of $1,100. The entry to record this transaction will require a debit to:

A) Expenditures—2011 in the amount of $1,100.
B) Expenditures—2011 in the amount of $100.
C) Expenditures—2010 in the amount of $1,000.
D) Both B and C are correct.

Back 19

D) Both B and C are correct.

Expenditures should be charged to the appropriations of the fiscal year to which they apply. So, in this case, the encumbrance of $1,000 had been made against the FY 2010 appropriation and a reserve for encumbrances in this amount was carried over from 2010. Thus, the expenditure should be coded as 2010 so that the $1,000 will not be charged against the 2011 appropriation for purposes of actual vs. budget comparisons in 2011. On the other hand, the excess of the actual cost over what had been estimated, $100 in this case, had not been provided for in the carryover reserve for encumbrances and should be charged to the 2011 appropriation, by debiting Expenditures—2011 for $100.

Front 20

When should assets or revenues be recognized for a gov grants, entitlements, or donations?

Back 20

When all eligibility requirements have been met.

If GF - also must be available.

Front 21

When should assets or revenues be recognized for property taxes, fines or forfeits?

Back 21

When it is legally enforceable, when resources are required to be used or permitted to be used (when levied)

If GF - also must be available.

Front 22

When should assets or revenues be recognized for sales taxes, motor fuel taxes, other derived taxes?

Back 22

When underlying exchange has occurred (or received).

If GF - also must be available.