ACCT350, Test 1, Mid-term, Chapters 1-5
Name _______________________________________
PART-2, OPEN-BOOK TAKE-HOME TEST. Answers must be submitted via email or hardcopy no later than noon
on Wednesday, April 27. If you want to download this part of the exam, a link in Word format is available on the
webpage. You may use any non-human resource to answer the questions (notes, textbook, internet, etc.).
I. TRUE OR FALSE. Indicate the appropriate letter for each question below.
1.
T
F
Only 9 of the top 20 employers in Walla Walla County are government/not-for-profit entities.
2.
T
F
According to the Tax Foundation, the total 2016 tax bill paid by Americans is about 31% of their total
income (ignoring budget deficits), which is more than their cost of food, clothing, and housing
combined.
3.
T
F
According to the IRS, people in the bottom 50 percentile of adjusted gross income in 2013 (paid about
3% of the total federal individual income tax.
4.
T
F
According to the Heritage Foundation’s analysis of IRS and Census Bureau data, about 44% of US
residents paid no federal income tax in 2013, up from 13% in 1969; furthermore, about 34% of tax
filers paid no tax in 2013 but still got money back (negative tax), up from 19% in 1997.
5.
T
F
Property taxes in Walla Walla County are due semiannually on June 30 and December 31, and
foreclosure will begin on properties with taxes delinquent two years or more.
6.
T
F
In 2016, more than half the property taxes paid by Bruce Toews will go toward public education.
7.
T
F
In Walla Walla County (as in most other counties), in order to find the county-assessed value of your
neighbor’s house, you must go to County Court House and fill out a formal request form.
8.
T
F
The Government Financial Officers Association recommends that capital expenditures of $5,000 or
less should be capitalized.
9.
T
F
Government museums are required to capitalize works of art and historical collections as assets on
their balance sheets.
10. T
F
The City of Seattle does not use reverse repurchase agreements due to their risk.
11. T
F
In order to attract good talent, governments should resist capping the number of days that can be
accumulated in an employee’s vacation or sick-pay bank.
12. T
F
The principal and interest on revenue bonds should be paid with general tax monies.
13. T
F
Encumbrances and estimated revenues have a debit balance, while appropriations have a credit
balance.
14. T
F
The costs recorded by the City of Walla Walla for its landfill/dump should not only include the
current operating costs but also the post-closure and environmental costs (e.g. for cleanup and
restoration).
15. T
F
Examples of service-type special assessments include fees for streetlights and sidewalks.
II. SHORT PROBLEM.
Review the transactions in the first year of operations for Lucky City, as shown in A-F below. Based on this
information, indicate whether each statement below is true or false. An optional worksheet has been provided which
may be helpful.
1.
2.
3.
4.
5.
6.
7.
A.
B.
C.
D.
E.
F.
Billed customers or levied taxes, $10
Collected billings or taxes, $8
Purchased equipment on account, $5
Made $4 partial payment for equipment purchased
Borrowed cash by issuing long-term bonds, $7
Paid $3 principal and $1 interest on bonds
T
T
T
T
T
T
T
F
F
F
F
F
F
F
Under the full accrual method, total assets at the end of the year should be $14.
Under the modified accrual method, total assets at the end of the year should be $7.
Under the full accrual method, total liabilities at the end of the year should be $1.
Under the modified accrual method, total liabilities at the end of the year should be $1.
Under the full accrual method, total income for the year should be $10.
Under the modified accrual method, total expenditures for the year should be $9.
Under the full accrual method, total expenses should be $1 for the year.
Optional Worksheet:
MODIFIED ACCRUAL
Cur. Assets = Cur. Liab + Fd. Bal.
FULL ACCRUAL
Assets = Liab + Net Assets
TRANSACTIONS
1. Billed customers / levied taxes, $10
2. Collected billings / taxes, $8
3. Purchased equipment on account, $5
4. Made $4 partial payment for equipment
6. Borrowed cash by issuing bonds, $7
7. Paid $3 prin. and $1 interest on bonds
TOTAL
7
7
-5+5
7
7
-5+5
4
4
4
4
-3
-3
-3
-3
8
8
8
8
-4
-4
-4
-3
-1
4
8
6
2
5
1
III. MULTIPLE CHOICE. Indicate the one, best answer for each question below
1. Which of the following is NOT true? The GASB sets standards for governments and governmental not-for-profit
organizations if they have one or more of the following characteristics
a. popular election of officers
c.
a direct relationship between resources received
and goods and services provided
b. power to directly issue tax-exempt debt
d.
power to enact and enforce a tax levy
2. A fund is a
a. schedule of fixed assets
b. self-balancing set of accounts
c.
d.
statement of net assets
controlled disbursement account
3. Under the modified accrual basis of accounting, a police car that is purchased would be
a. capitalized and depreciated
c.
capitalized but not depreciated
b. charged completely to expenditures
d.
recorded as a nonexchange transaction
4. Governmental activities are primarily supported by
a. taxes and other nonexchange transactions
c.
b. exchange transactions and charges for services d.
billings for services and fees
intergovernmental revenues
5. Budgetary accounting is primarily used to provide accountability and control in the
a. proprietary funds
c. fiduciary funds
b. trust funds
d. governmental funds
6. The City of College Place estimates revenues of $17,000,000 for the year. The city also plans to sell a tract of public land
for $1,500,000 during the year. The city Council authorizes general government spending of $16,800,000 and also
approves the city water utility budget that estimates water sales at $2,000,000 and expenses of $1,900,000. The entry to
record the budget of the General fund will
a. debit Estimated Revenues for $18,500,000
c.
debit Estimated Revenues for $19,000,000
b. debit Estimated Other Financing Sources for $1,500,000 d.
debit Estimated Revenues for $20,500,000
7. Surplus equipment is sold for $10,000 that originally cost $80,000 thirty years ago. The $10,000 will be recorded in the
General fund as
a. Revenue
c. Loss on Sale of Equipment
b. Gain on Sale of Equipment
d. Other Financing Source - Sale of Equipment
8. If a city has an outstanding Encumbrance at fiscal year-end and wishes to indicate funds are committed and cannot be
appropriated in the next fiscal year, it should record a
a. credit to Budgetary Fund Balance
c. debit to Fund Balance Reserved for Encumbrances
b. credit to Fund Balance Reserved for
d. debit to Reserved Fund Balance
Encumbrances
9. Bruce Toews, a CPA, pays a license fee to WA State of $260 every year. The state license fee is an example of a(n)
a. exchange-like transaction
c. exchange transaction
b. nonexchange transaction
d. governmental activity
10.
11.
A derived tax revenue is recognized when
a. an enforceable legal claim has arisen
b. resources are required to be used
c.
d.
all eligibility requirements have been met
the underlying exchange has occurred
Property taxes are recognized as available in the current fiscal year if they will be received within
a. the fiscal year
c. 60 days after fiscal year end
b. 30 days after fiscal year end
d. 90 days after fiscal year end
12.
A property tax levy of $10,000,000 was 90% collected on the date that it became delinquent. The original estimate of
uncollectible was 5% and is revised to 2% on the remaining $1,000,000 delinquent property taxes to be collected. The
entry to adjust the amount of estimated uncollectible taxes on the delinquent date will require a
a. debit to Property Tax Revenue of $480,000
c. credit to Allowance for Uncollectible Property
Taxes Delinquent for $500,000
b. credit to Allowance for Uncollectible Property d. credit to Allowance for Uncollectible Property
Taxes Current for $480,000
Taxes Delinquent for $20,000
13.
A citizen donates a painting to a public city museum that does not capitalize their collections. The city museum will
record this donation to the collection as a
a. credit to Revenue from Donations
c. no entry is required
b. credit to Other Financing Sources
d. credit to Expense
14.
Expenses are
a. recorded in governmental funds using the
modified accrual method of accounting
b. recorded in proprietary funds when paid
c.
d.
recorded in proprietary funds using the accrual
method of accounting
never recorded in fiduciary funds
15.
The General fund transfers $500,000 to the Debt Service fund for principal and interest payments on long-term debt.
This General fund would record
a. a debit to Due from Debt Service fund
c. a credit to Nonreciprocal Interfund Transfers
b. a debit to Other Financing Uses - Operating Transfers Out d. a debit to Nonreciprocal Interfund Transfers
16.
Repurchase agreement transactions should be reported under what method of accounting?
a. fair value
c. historical cost
b. amortized cost
d. collateralized cost
17.
With what account would the General fund record a short-term loan to an Enterprise fund?
a. Tax Anticipation Notes Payable
c. Due to Other Funds
b. Due from Other Funds
d. Advance to Other Funds
18.
Inexhaustible capital assets (e.g. land) are
a. depreciated over the anticipated useful life c.
b. recorded as infrastructure
d.
19.
depreciated under the modified approach
not depreciated
What type of bonds are issued with an equal amount of principal due each year?
a. Serial
c.
Term
b. Refunding
d.
Demand
20. The current financial (working capital) resources measurement focus is used with the
a. cash basis of accounting
c. accrual basis of accounting
b. modified accrual basis of accounting
d. fair value basis of accounting
21. If the purchase method of recording inventory is used and there is a large amount of inventory on hand at fiscal year end,
the inventory would
a. be recorded as a liability
c. be recorded as a prepaid expense
b. not require an entry
d. be recorded as an asset with an offsetting reserve of fund balance
IV. TAX FREEDOM DAY PROBLEM
Jack and Jill Johnson live in the City of Walla Walla. Jack is an employee at WWU and his 2016 taxable income is
$60,000. Jill is a self-employed psychiatrist and her 2016 taxable income is $130,000. They file a joint federal tax
return as a married couple.
A. The total 2016 Federal income tax for the Johnsons is $__________________
B. The total 2016 Washington state income tax for the Johnsons is $________________
C. The total 2016 Social Security tax for the Johnsons is $___________________ (this includes the SS portion
of the “self-employment” tax)
D. The total 2016 Medicare tax for the Johnsons is $_______________________ (this includes the MC
portion of the “self-employment” tax)
E. The Johnsons own a home in Walla Walla (levy code 1) valued by the county assessor at $350,000.
The total 2016 property tax for the Johnsons is $_________________
F.
The Johnsons do not smoke, but their cars do. They drove 2000 miles every month (all in WA State)
during 2016 at an average of 20 miles/gallon.
The total 2016 fuel tax for the Johnsons is $___________________
G. During 2016, the Johnsons purchased $52,000 of personal goods from Walla Wall City stores, $12,000 of
which was for food. (Assume that all non-food items are taxable).
The total 2016 sales tax paid for the Johnsons is $_______________
H. During 2016, the Johnsons purchased $10,000 of electronic equipment from a Nevada
online retailer. The Johnsons filed a Wash. use tax return and the total use tax paid in 2016 is $_________
I.
Based on the information above, calculate Tax Freedom Day 2016 for the Johnsons. Ignore any potential
taxes the Johnson’s might pay that are not listed above. Also, ignore the effect of leap years (i.e. assume
February has 28 days).
Tax Freedom Day for the Johnsons in 2016 occurs on (month/day)________________________________
V. SHORT ANSWER: Metropolitan City is unsure whether it needs to include the Metropolitan City Convention
Center as a component unit in its annual financial report. The Convention Center has the corporate powers of the right to
sue and be sued, and it can buy and sell property in its name. The Metropolitan City Council appoints 6 of the 10
members of the Center’s governing board and the other 4 are elected by the citizens of Metropolitan City. Any members
of the Center’s governing board can be replaced at will by City Council, which also has the power to overrule any
decision made by the Center’s board. The Center’s board appoints the management of the Convention Center. The
Center can issue tax-exempt bonds, levy taxes with voter approval, and establish an annual budget. The Center adopts an
annual budget and established fees for use of the convention center. Metropolitan City provided $100,000 in funding to
the Metropolitan City Convention Center in the current fiscal year. In an emergency, Metropolitan City has the power to
use or access the Convention Center’s resources. In the event of default, Metropolitan City would be responsible for
Center’s deficits and debt.
Should Metropolitan City include the Metropolitan City Convention Center as a component unit in its financial
statements, or should the City’s financial statements exclude those of the Center?
Indicate “include” or “exclude” and provide a rationale.
VI. SHORT PROBLEM. Sunrise City is trying to determine which funds should be classified as major funds to be
disclosed separately in the financial statements. The following data are obtained from the general ledger. Amounts are
in thousands (000). Based on assets only, indicate which fund(s), if any, should be classified as major funds by placing a
“Y” or “N” in the bottom row under each fund.
Assets
Major fund: Y or N?
General
9,000
Special
Revenue
4,000
Debt
Service
6,000
Capital
Projects
11,000
Water
Utility
50,000
Electric
Utility
25,000
Central
Motor Pool
5,000
VII. SHORT ANSWERS. Use the space below to answer the question completely but concisely.
Please use a word processor.
1.
2.
3.
4.
5.
6.
7.
Bernie Sanders believes that America should emulate countries like Denmark, Sweden, and Norway where
education is free (K to college) and healthcare is provided by the government. To pay for this, he proposes that
tax rates should be much more progressive (i.e. more redistribution of wealth). In a paragraph, discuss the
merits of Bernie Sander’s view on tax rates. You will be not be graded for your opinion, only for providing
clear rationale for your answer.
(A) Has the federal government violated the concept of interperiod equity? Provide some facts/figures to
support your answer. (B) How does the responsibility of state governments for interperiod equity differ from
that of the federal government?
Suppose you need to get across town but you have no wheels, so your options are a cab or bus. How does a forprofit taxicab business in Walla Walla differ from a not-for-profit, city-owned bus-system (e.g. Valley Transit)?
At a minimum, discuss purpose, ownership, decision-making, pricing, and customer service/convenience.
Distinguish governmental not-for-profit organizations from non-governmental not-for-profit organizations by
describing the differences, at a principle level, between Western Washington University (WWU#1) and Walla
Walla University (WWU#2)?
What are the two biggest adjustments necessary to convert financial statements from the modified accrual to the
full accrual basis for gov’t-wide financial statements?
Here’s a deep question to ponder on paper: How do you think a government accounting process/system in the
U.S. differs from that in a non-democratic country (e.g. Cuba, China, Zimbabwe)? In other words, how are
democratic principles manifested in the accounting system, in terms of due process, disclosure, account
structure, spending authority, etc?
The failure of Orange County constituted one of the largest municipal bankruptcies in U.S. history. (A) What
did Robert Citron do that caused the bankruptcy? (B) List at least three provisions in a government investment
policy that, if followed, could have prevented the bankruptcy.