Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Chapter 07 Accounting for the Business-Type Activities of State and Local Governments   True / False Questions   1

Chapter 07 Accounting for the Business-Type Activities of State and Local Governments   True / False Questions   1

Accounting

Chapter 07

Accounting for the Business-Type Activities of State and Local Governments

 


True / False Questions
 

1.

For proprietary funds, governments generally present a statement of net position in a format that displays assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position.  
 
True    False

 

2.

A statement of cash flows is prepared for enterprise funds but not for internal service funds.
 
True    False

 

3.

Revenues of internal service funds should be recognized only when they are expected to be available in time to pay current liabilities of the fund. 
 
True    False

 

4.

Internal service funds account for operating expenditures on the accrual basis. 
 
True    False

 

5.

Internal service funds should not account for depreciation of capital assets used in their operations, since this would, in effect, charge the government twice for the same assets. 

 
True    False

 

6.

The net position of an internal service fund is classified as nonspendable, restricted, committed, assigned, and unassigned.  

 
True    False

 

7.

Internal service funds are intended to operate on taxes or other financing sources authorized by the legally enacted revenue budget for each year; therefore, they are classified as governmental funds. 
 
True    False

 

8.

 Internal service funds utilize encumbrance accounting.


True    False

 

9.

A statement of revenues, expenses, and changes in fund net position for an internal service fund is similar in many respects to an income statement prepared for a commercial business.  
 
True    False

 

10.

Equipment acquired under a capital lease for use by an internal service fund will be reported as a capital asset in both the fund and government-wide financial statements.

 
True    False

 

11.

A motor pool is a common example of an internal service fund.

 
True    False

 

12.

An employee pension fund is a common example of an internal service fund.
 
True    False

 

13.

Proprietary funds follow the current financial resources measurement focus and use the accrual basis of accounting. 

 
True    False

 

14.

Public utilities owned and operated by governments are common examples of enterprise funds.  
 
True    False

 

15.

If a business-type activity is subsidized by a government’s General Fund rather than fully covering its costs of providing services with fees or charges, that activity need not be reported in an enterprise fund.
 
True    False

 

16.

 Interest and principal on enterprise fund revenue bonds should be recorded in a debt service fund until paid.  
 
True    False

 

17.

The liability for utility revenue bonds should be reported in business-type activities on the government-wide statements, as well as in the enterprise fund. 
 
True    False

 

18.

Proprietary funds report using three net position categories: net investment in capital assets; restricted; and unrestricted.
 
True    False

 

19.

 Enterprise funds may capitalize interest paid on debt incurred for construction of plant assets. 


True    False

 

20.

Premiums or discounts on bonds payable issued by enterprise funds should be accounted for in the same manner as those of a comparable business entity. 
 
True    False

 

21.

GASB requires the statement of cash flows for proprietary funds to be prepared using the direct method of presentation.
 
True    False

 

22.

Unlike the General Fund and other major governmental funds for which a budget is legally adopted, proprietary funds are not required by GASB standards to record budgets in their accounting systems, nor are they required to present a budgetary comparison schedule.
 
True    False

 

23.

Enterprise funds are reported as a part of the Governmental Activities column of the government-wide financial statements when they provide services to governmental funds.

 

True    False

 

24.

GASB standards require that interfund receivables and payables between governmental and business-type activities be presented as internal balances.
 
True    False

 

25.

If enterprise funds are the predominant participants in an internal service fund, the government should report the internal service fund's residual assets, deferred inflows and outflows of resources, and liabilities within the business-type activities column in the statement of net position.
 
True    False

 

26.

Consistent with accounting in capital projects funds, interest capitalization for self-constructed assets of proprietary funds is prohibited.
 
True    False

 

27.

In the context of regulatory utility plant accounting, original cost and historical cost have the same meaning. 
 
True    False

 

28.

The amount of expense and liability to be reported each period for the closure and postclosure costs of a municipal solid waste landfill (MSWLF) is proportional to the amount of landfill capacity used during the period. 
 
True    False

 

29.

To facilitate the combination of utility financial statements with the statements of other enterprise funds, GAAP permits utilities to follow the customary format used by nonutility business organizations. 


True    False

 

30.

The balance sheet format recommended for financial statements submitted to the NARUC and FERC for utilities subject to regulatory reporting requirements displays Utility Plant before Current and Accrued Assets and Long-Term Debt before Current and Accrued Liabilities. 
 
True    False

 

 

 


 

 

 

Multiple Choice Questions


 

31.       Which of the following may properly be reported as a component of net position in the proprietary fund statement of net position?  

 

A.        Retained earnings.

B.        Designated equity.

C.        Restricted net position.

D.        Contributed capital.

 

             

32.       Which of the following properly portrays the components of net position for proprietary funds? 

 

A.        Net investment in capital assets, Reserved, Unreserved.

B.        Designated, Undesignated, Restricted, Unrestricted.

C.        Net investment in capital assets, Restricted, Unrestricted.

D.        Contributed capital, Net investment in capital assets, Reserved, Unreserved.

           

 

33.       Which of the following funds of a government uses the same basis of accounting as a proprietary fund? 

 

A.        Permanent fund.

B.        Investment trust fund.

C.        Special fund.

D.        Capital fund.

           

 

34.       Internal service funds should be used only if:

 

A.        The reporting government funds the activity with general obligation debt.

B.        The reporting government provides services primarily to external participants.

C.        The reporting government provides services primarily to other departments of the same government.

D.        The reporting government provides services below full cost.

 

35.       In which of the following funds is it appropriate to record depreciation of capital assets?

 

A.        Internal service fund.

B.        Permanent fund.

C.        General fund.

D.        Capital projects fund.

 

 36.      Which of the following is a difference between enterprise funds and internal service funds? 

 

A.        The use of cost accounting by enterprise funds but not internal service funds.

B.        The customers who primarily benefit from the fund's service.

C.        The number of basic financial statements required.

D.        The measurement focus on economic resources for enterprise funds and current financial resources for internal service funds.

 

 

37.       The comprehensive annual financial report (CAFR) of a government should contain a statement of revenues, expenses, and changes in fund net position for: 

 

A.        Both proprietary and governmental funds.

B.        Proprietary but not governmental funds.

C.        Governmental but not proprietary funds.

D.        Proprietary and fiduciary funds.

           

 

38.       Which of the following activities or services would most likely not be accounted for by an internal service fund? 

 

A.        Electronic data processing.

B.        Central purchasing, warehousing, and issuing of supplies.

C.        Municipal swimming pool.

D.        Risk management.

 

 

39.       When a supplies internal service fund records a billing to the General Fund, the journal entry in the internal service fund will include: 

 

A.        A debit to Due from General Fund.

B.        A debit to Due to General Fund.

C.        A debit to Billings to Department.

D.        A debit to Inventory of Supplies.

 

 

40.       When a supplies internal service fund records a billing to the General Fund, the journal entry in the General Fund will include:

 

A.        A debit to Cost of Supplies Issued.

B.        A credit to Interfund Loans Payable.

C.        A debit to Expenditures.

D.        A credit to Billings to Department.

           

 

41.       Which of the following is not true regarding proprietary funds?  

 

A.        The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources of proprietary funds is called "net assets."

B.        Proprietary funds record long-term debt directly in the fund accounts.

C.        Proprietary funds record capital assets directly in the fund accounts.

D.        Proprietary funds present a statement of cash flows.

 

 

42.       Under GASB standards, an internal service fund should prepare all of the following financial statements except a:

 

A.        Statement of revenues, expenditures, and changes in fund balance.

B.        Statement of revenues, expenses, and changes in net position.

C.        Statement of net position.

D.        Statement of cash flows.

 

           

43.       Which of the following illustrates the appropriate basis of accounting for enterprise and internal service funds?

 

                            Enterprise Funds             Internal Service Funds

A.                        Modified Accrual               Modified Accrual

B.                        Modified Accrual                        Accrual

C.                                Accrual                        Modified Accrual

D.                                Accrual                                 Accrual

 

 

44.       An internal service fund normally uses which of the following budgetary accounts?

 

A.        Estimated Revenues.

B.        Appropriations.

C.        Encumbrances.

D.        An internal service fund normally does not use budgetary accounts.

           

 

45.       Goods and services provided by internal service funds to other departments of the government are typically priced to:

 

A.        Cover variable costs only.

B.        Cover full costs (both fixed and variable).

C.        Cover full costs, plus an additional charge to capital maintenance and anticipated expansion needs.

D.        Cover full costs, plus an additional charge to ensure a reasonable profit.

 

 

46. Which of the following should be accounted for in an internal service fund?

 

Light poles to be paid for in installments by

affected property owners                                                        $350,000

 

Van used to transport supplies to all city

departments on a cost reimbursement basis                                65,000

 

Equipment used for supplying electric power

to residents                                                                              1,250,000

 

A.   $    65,000.

B.   $   415,000.

C.   $1,250,000.

D.   $1,315,000.

 

           

47. Which of the following should be accounted for in an enterprise fund?

 

Light poles to be paid for in installments by

affected property owners                                                        $350,000

 

Van used to transport supplies to all city

departments on a cost reimbursement basis                                65,000

 

Equipment used for supplying electric power

to residents                                                                              1,250,000

 

A.   $    65,000.

B.   $   415,000.

C.   $1,250,000.

D.   $1,315,000.

 

 

48.       When a new internal service fund is established with a transfer of funds (not to be repaid), which account would be credited in the internal service fund? 

 

A.        Cash.

B.        Interfund Transfer In.

C.        Interfund Transfer Out.

D.        Estimated Revenues.

 

 

 

 

49.       The City of Crescent Hill operates a central motor pool as an internal service fund for the benefit of the city’s other funds and departments. In the current year, this fund billed the Parks Department $30,000 for vehicle rentals. What account should the internal service fund use to record these billings?  

 

A.        Interfund Transfers In.

B.        Interfund Exchanges.

C.        Billings to Departments.

D.        Cost of Providing Rentals to Other Funds and Units.

 

             

50.       The City of Crescent Hill operates a central motor pool as an internal service fund for the benefit of the city’s other funds and departments. In the current year, this fund billed the Parks Department $30,000 for vehicle rentals. If the Parks Department is a governmental fund, which account should the Parks Department use to record these billings?  

 

A.        Interfund Transfers In.

B.        Interfund Exchanges.

C.        Expenditures.

D.        Cost of Rentals from Other Funds and Units.

 

 

51.       When utility customers are billed during the year, the enterprise fund journal entry will include: 

 

A.        A debit to Sales of Water.

B.        A debit to Cash - Restricted.

C.        A debit to Customer Accounts Receivable.

D.        All of the above.

 

 

52.       When a new utility customer submits a deposit, the enterprise fund journal entry will include: 

 

A.        A credit to Customer Deposits.

B.        A debit to Customer Deposits.

C.        A debit to Sales of Water.

D.        A credit to Sales of Water.

 

 

 

 

53.       Customers' meter deposits, which cannot be spent for normal operating purposes, would be classified as restricted cash in the balance sheet of which fund type? 

 

A.        Internal service fund.

B.        Private-purpose trust fund.

C.        Enterprise. fund

D.        Special revenue fund.

 

 

54.       Which of the following organizations or units would least likely be accounted for by an enterprise fund?

 

A.        A golf course.

B.        An airport.

C.        The computer department.

D.        A sports stadium.

 

 

55.       Which of the following accounts would appropriately be included on an enterprise fund balance sheet?  

 

A.        Fund Balance: No; Net Position—Unrestricted: Yes.

B.        Fund Balance: Yes; Net Position—Unrestricted: No.

C.        Fund Balance: No; Net Position—Unrestricted: No.

D.        Fund Balance: Yes; Net Position—Unrestricted: Yes.

 

 

56.       The following cash transactions were among those reported by Genesee County's Wastewater Enterprise Fund for the year:

 

Proceeds from sale of revenue bonds for construction           $5,000,000

Interest income                                                                            300,000

Capital contributed by developers                                            1,000,000

 

In the Wastewater Enterprise Fund's statement of cash flows for the year ended December 31, what amount should be reported as cash flows from capital and related financing activities?

 

A.        $5,000,000.

B.        $5,300,000.

C.        $6,000,000.

D.        $6,300,000.

 

 

 

 

57.       The following cash transactions were among those reported by Genesee County's Wastewater Enterprise Fund for the year:

 

Proceeds from sale of revenue bonds for construction           $5,000,000

Interest income                                                                            300,000

Capital contributed by developers                                            1,000,000

 

In the Wastewater Enterprise Fund's statement of cash flows for the year ended December 31, what amount should be reported as cash flows from investing activities?

 

A.        $   300,000.

B.        $1,300,000.

C.        $5,300,000.

D.        $6,300,000.

 

 

58.       The liability for general obligation bonds issued for the benefit of a governmentally owned electric utility and serviced by its earnings should be recorded in:

 

A.        An enterprise fund.

B.        An enterprise fund and disclosed in the notes to the financial statements.

C.        An enterprise fund and the business-like activities accounts.

D.        The governmental activities accounts.

 

 

59.       The Central City Golf Course, an enterprise fund, purchased a new stove for use in the course’s snack shop. The debit for the entry to record the purchase should be to: 

 

A.        Expenditures.

B.        Purchases.

C.        Equipment.

D.        General capital assets.

 

 

60.       Which of the following would be reflected in the operating statement of a proprietary fund?

 

A.        Accrual of interest expense.

B.        Repayment of the principal of debt.

C.        Issuance of debt.

D.        Purchase of a capital asset.

 

 

 

 

61.       How should financial information for internal service funds be reported in the government-wide financial statements?

 

A.        As part of governmental activities.

B.        As part of business-type activities.

C.        Amounts allocated proportionately between governmental and business-type activities.

D.        Usually as part of governmental activities, unless the internal service fund predominantly serves one or more enterprise funds.

 

 

62.       Which of the following account balances would only be reported if a city-owned utility followed regulatory accounting principles?

 

A.        Depreciation expense.

B.        Pumping expense.

C.        Restricted Assets—Cash.

D.        Utility Plant Acquisition Adjustments.

 

 

63.       Which of the following is not a true statement about the Allowance for Funds Used During Construction (AFUDC)? 

 

A.        AFUDC may have either a debt component or an equity component.

B.        The amount credited to AFUDC may exceed the amount of interest paid during the period on bonds issued for construction.

C.        AFUDC may be credited for an imputed amount of interest on the utility's own funds used for construction.

D.        AFUDC may include the total amount of borrowing during construction.

 

 

64.       Which of the following items is not required to be included in the segment information that must be reported for a municipality's enterprise funds?

 

A.        Enterprise fund capital assets.

B.        Enterprise fund operating income or loss.

C.        Enterprise fund tax revenues.

D.        Intergovernmental operating subsidies to an enterprise fund.

 

 

 

 

65.       Under utility regulatory accounting principles (RAP), the account "Utility Plant Acquisition Adjustment" reflects:

 

A.        The difference between the amount paid for utility plant and the amount originally paid by the utility that first placed the plant into public service, less accumulated depreciation.

B.        The difference between the fair market value of the utility plant and the amount paid for it, less accumulated depreciation.

C.        The difference between the amount paid for the utility plant less its current replacement cost.

D.        The difference between the amount paid for the utility plant less the fair market value of its tangible plant assets.

 

 

 

 

 

 

Short Answer Questions

 

66. The following are key terms in Chapter 7 that relate accounting for the business-type activities of state and local governments:

 

A.  Allowance for Funds Used during Construction

B.  Revenue bonds

C.  Utility plant acquisition adjustment

D.  Regulatory accounting principles

E.  Original cost

F.  Historical cost

G.  General obligation bonds

 

For each of the following definitions, indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

 

_____ 1.  In utility accounting, the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds so used

_____ 2.  Accounting principles prescribed by federal or state regulatory commissions for investor-owned and some governmentally owned utilities.

_____ 3.  Bonds whose principal and interest are payable exclusively from earnings of a public enterprise. 

_____ 4.  Bonds which carry the pledge of the government entity’s full faith and credit, although the intent may be to service them from proprietary revenues rather than general taxes.

_____ 5.  The account that captures the premium paid on a utility plant purchased by a government.

 

 


Essay Questions
 

67.  Explain the reporting requirements for internal service funds and enterprise funds. Internal service funds and enterprise funds are both proprietary funds, so why do their reporting requirements differ?    

 

 

68.  How does the statement of cash flows under GASB standards differ from the statement of cash flows under FASB standards?

 

 

69.       Legislators often believe an internal service fund function will not be subjected to annual legislative budget review and the legislature will “lose control” of the fund. Do you agree with this line of reasoning? Why or why not? 

 

 

70.       "Enterprise funds should not be permitted to accumulate unrestricted net position, since to do so would indicate overpricing of its services." Do you agree? Why or why not? 

 

71.       In some local government financial reports you will find activities such as solid waste disposal and sewage disposal accounted for as a part of the General Fund. In other reports apparently identical activities are accounted for as enterprise funds. When is a government required to establish an enterprise fund?

 

 

72.       Explain the difference between operating revenues/expenses and nonoperating revenues/expenses. Why does the GASB require that operating revenues/expenses be reported separately on proprietary statements of revenues, expenses, and changes in fund net position?

 

 

73.       Explain how capitalization of interest costs differs for enterprise funds as opposed to governmental funds. 

 

 

74.       What are the alternative methods of dissolving an internal service fund?

 

 

 

 

           

 

 

Problems

 

75.  During the fiscal year ended September 30, 2017, the following transactions (summarized) occurred in the Berthoud Information Technology Internal Service Fund:

 

1. Employees were paid $290,000 wages in cash.

2. Utility bills received from the Town of Fredericksburg’s Utility Fund during the year amounted to $23,500.

3. Office expenses paid in cash during the year amounted to $10,500.

4. Service supplies purchased on account during the year totaled $157,500.

5. Parts and supplies used during the year totaled $152,300 (at cost).

6. Charges to departments during the fiscal year were as follows:

General Fund        $308,700

Street Fund             279,300

7. Payments to the Utility Fund totaled $21,800.

8. Annual depreciation totaled $30,000 for machinery and equipment.

 

Option 1

Low Cost Option
Download this past answer in few clicks

5.87 USD

PURCHASE SOLUTION

Already member?


Option 2

Custom new solution created by our subject matter experts

GET A QUOTE