Chapter 5
Accounting for Other Governmental Fund Types:
Capital Projects, Debt Service, and Permanent
Multiple Choice
Exercise 1: For each of the following, select the letter corresponding with the best answer.
1. Which of the following fund types use modified accrued accounting?
a. Capital projects.
b. Debt service.
c. Permanent.
d. All of the above.
2. Financing for the renovation of Fir City’s municipal park, begun and completed during
the fiscal year came from the following sources:
Grant from State Government
$400,000
Proceeds from General Obligation Bond Issue
500,000
Transfer from Fir’s General Fund
100,000
In its fiscal Statement of Revenue, Expenditures, and Changes in Fund Balances, how
should Fir City report these amounts (choose one of the following options)?
Revenues
Other Financing Sources
a.
$1,000,000
$
0
b.
900,000
100,000
c.
400,000
600,000
d.
0
1,000,000
3. On the last day of the year, Pine Village signed a 10-year lease and took possession of a
building for its administrative offices. The lease meets the criteria of a capital lease.
What effect will the transaction have on the total assets reported in the following
statements?
General Fund
Government-wide Statements
(Balance Sheet)
(Statement of Net Assets)
a. Increase
Increase
b. No effect
Increase
c. Increase
No effect
d. No effect
No effect
4. During the first year of a capital lease, Pine Village made its monthly rent payments (due
the first day of each month) in a timely manner. What effect will the payments have on
the total liabilities reported in the following statements?
Debt Service Fund
Government-wide Statements
(Balance Sheet)
(Statement of Net Assets)
a. Decrease
Decrease
b. Decrease
No effect
c. No effect
Decrease
d. No effect
No effect
5. Seaview City is legally obligated to maintain a debt service fund. On July 1, 2015, the
City issued 10-year 5 percent term bonds in the amount of $20,000,000 at an issue price
of 101. Interest is payable on January 1 and July 1. What amount of bond premium
should be amortized in Seaview’s debt service fund in the year ended December 31,
2015?
a. $1,000,000
b. $ 200,000
c. $ 100,000
d. $ 0
Items 6-9 are based on the following information: The City of X, which has a calendar
fiscal year, issued $1,000,000 in 6 percent general obligation bonds on October 1, 2015,
at 101. Interest is payable on April 1 and October 1, and the first of 10 equal annual
principal payments is due October 1, 2016. All payments are to be funded by General
Fund transfers.
6. What would be amount of debt service expenditures for the year ended December 31,
2015?
a. $0
b. $ 30,000
c. $ 60,000
d. $160,000
7. What would be the proper accounting for the $10,000 bond premium?
a. The bond premium would normally be recorded as revenue in a capital projects fund.
b. The bond premium would normally be amortized over the life of the bond issue.
c. The bond premium would normally be recorded as another financing source in a
capital projects fund.
d. None of the above.
8. What would be the amount of the debt service expenditures for the year ended December
31, 2016?
a. $0
b. $ 60,000
c. $130,000
d. $160,000
9. What would be the amount of the debt service expenditures for the year ended December
31, 2017?
a. $160,000
b. $157,000
c. $154,000
d. $ 54,000
10. What would be an example of a permanent fund?
a. A cemetery perpetual care fund.
b. A gift given, to the invested permanently, with the proceeds to benefit retired
firefighters.
c. A pension trust fund.
d. All of the above.
Exercise 2: For each of the following, select the letter corresponding with the best answer.
1. Which of the following activities would use a debt service fund to account for the
accumulation of resources for and the payment of interest and principal on long-term debt?
FIDUCIARY FUNDS
PROPRIETARY FUNDS
a.
Yes
No
b.
No
Yes
c.
Yes
Yes
d.
No
No
2. Interest and principal on the City of Buena Vista’s serial bonds are paid by a debt service
fund using cash provided by the City’s General Fund. In the debt service fund’s
statements, how will the cash receipts and disbursements be reported?
CASH RECEIPTS
CASH DISBURSEMENTS
a.
Transfers in
Expenditures
b.
Transfers in
Transfers out
c.
Revenues
Expenditures
d.
Revenues
Transfers out
Items 3-7 are based on the following information. During the fiscal year ending December 31,
2015, the City of X issued 6 percent general obligation bonds in the amount of $2,000,000 at par
and used $1,990,000 of the proceeds to construct a police station. The remaining $10,000 was
transferred to a debt service fund. The bonds were dated November 1, 2015, and paid interest on
May 1 and November 1. The first of 20 equal annual principal payments was due on November
1, 2016.
3. How would the $2,000,000 bond sale be recorded?
a. As a liability of the debt service fund.
b. As a revenue in a capital projects fund.
c. As another financing source in a debt service fund.
d. As another financing source in a capital projects fund.
4. The amount of capital outlay expenditures to be reported by a capital projects fund would
be?
a. $2,000,000
b. $1,990,000
c. $2,010,000
d. $0
5. How would the government account for the $10,000 unused funds?
a. As a revenue in a debt service fund and as an expenditure in a capital projects fund.
b. As an asset in a capital projects fund and as a liability in a debt service fund.
c. As another financing source in a capital projects fund and as another financing use in a
debt service fund.
d. As another financing source in a debt service fund and as another financing use in a
capital projects fund.
6. What would be the amount recorded as expenditures by a debt service fund in the year
ended December 31, 2015?
a. $0
b. $20,000
c. $53,000
d. $60,000
7. What would be the amount of recorded as expenditures by a debt service fund in the year
ended December 31, 2016?
a. $0
b. $120,000
c. $220,000
d. $320,000
8. The general rule for modified accrual accounting is to recognize liabilities for obligations
that will require current financial resources to settle. Which of the following is a exception
to that rule?
UNMATURED PRINCIPAL ON
ACCRUED INTEREST ON
GENERAL LONG-TERM DEBT
GENERAL LONG-TERM DEBT
a.
Yes
NO
b.
No
Yes
c.
Yes
Yes
d.
No
No
9. When a government acquires a general fixed asset through a capital lease, the acquisition
should be reflected in the governmental fund-basis financial statements as:
a. An expenditure, but not another financing source.
b. Another financing source, but not an expenditure.
c. Both an expenditure and another financing source.
d. Neither an expenditure nor another financing source.
10. Which of the following is true regarding permanent funds?
a. Permanent funds must use modified accrual accounting.
b. Permanent funds must include resources that cannot be expended.
c. The income from permanent funds must benefit the government and/or its citizens.
d. All of the above are true.