Introduction to Governmental and Not-for-Profit Accounting 7th Edition Test Bank

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Introduction to Governmental and Not-for-Profit Accounting 7th Edition Test Bank
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Chapter 3: Budgetary Considerations in Governmental Accounting
Multiple Choice
1.When the chief executive of a governmental unit submits a “balanced budget” to the
legislative body, it usually means that:
a.the budget is balanced on the full accrual basis of accounting
b.the budget is balanced in accordance with generally accepted accounting principles
c.proposed expenditures do not exceed estimated monies available for the year
d. proposed expenditures do not exceed estimated tax revenues to be raised during
the year
Answer: c
2.Which statement most accurately describes the use of cash forecasts in government?
a.cash forecasts are not needed because legislatively-approved budgets are sufficient
to manage the use of governmental resources
b.cash forecasts are needed to plan for borrowing and investing because the timing of
cash inflows does not necessarily match the timing of cash outflows
c.cash forecasts are not needed because they do not require the approval of legislative
bodies
d.cash forecasts are needed because they provide the details necessary to support
certain approaches to budgeting like performance budgeting
Answer: b
3.Which of the following approaches to budgeting is most likely to contain the details of
salaries (such as number of personnel within each position) as well as the details of
each type of expenditure other than salaries (such as supplies and travel)?
a. object-of-expenditure approach
b. performance approach
c. planning-programming-budgeting approach
d. zero-based budgeting approach
Answer: a
4.Which type of budget is concerned with day-to-day spending and financing activities?
a.general budget
b.operating budget
c.capital budget
d.balanced budget
Answer: b
5.Which of the following approaches to budgeting requires each activity to be justified
each year?
a.object-of-expenditure approach
b.performance approach
c.planning-programming-budgeting approach
d.zero-based budgeting approach
Answer: d
6.Which of the following is expected to occur first in the budget process?
a.determine the property tax (millage) rate
b.hold public hearings on the budget
c.prepare revenue estimates
d.prepare departmental expenditure requests
Answer: c
7.Which of the following activities occurs closest to the completion of the budgetary
process?
a.preparing revenue estimates
b.holding public budget hearings
c.preparing the capital outlay request summary
d.revising the budget calendar
Answer: b
8.Which of the following factors is the most important consideration in estimating sales
tax collections for the year?
a.the projected volume of sales subject to the sales tax
b.the projected elementary school enrollment
c.the projected number of housing starts
d.the amount expected to be budgeted on the highway maintenance program
Answer: a
9.When preparing a fund budget for the next fiscal year, which of the following are
important to consider when projecting the amount of resources that will be available for
spending in the next year?
a.the projected fund expenditures for next year
b.the probable fund balance at the end of the current year
c.the projected transfers out of the fund for the next year
d.the projected fund revenues to be realized for the next year
e.both b and d
Answer: e
10.If a City Manager is looking at the cash forecast, he or she is most likely concerned
about which of the following issues?
a.anticipated police overtime pay resulting from the 4th of July parade next summer
b.the expected cost of bridge repairs in the coming five years
c.anticipated short-term borrowing to cover the end of month payroll
d.the total amount to be spent for Fire Department operations in the current year
Answer: c
11.Which of the following classifications will not appear in the annual budget for a
General Fund?
a.depreciation
b.capital outlay
c.debt service
d.current operating
Answer: a
12.The document that lists the steps of the budget process is the
a.budget request
b.budget summary
c.budget calendar
d.budget worksheet
Answer: c
13.For a typical city government, the budget has an important influence on the
determination of the annual
a.income tax rate
b.hotel/motel tax rate
c.sales tax rate
d.property tax rate
Answer: d
14.The largest revenue source in a city government’s General Fund normally is
a.fines and forfeits
b.property taxes
c.interest on investments
d.charges for building inspections
Answer: b
15.Which of the following is an estimated amount?
a.encumbrance
b.appropriation
c.expenditure
d.tax levy
Answer: a
16.If the balance in the Estimated revenues account exceeds the balance in the
Appropriations account
a.the Budgetary fund balance account will have a credit balance
b.expenditures will be less than revenues
c.revenues will be less than expenditures
d.the Budgetary fund balance account will have a debit balance
Answer: a
17.A property tax millage rate is calculated by:
a.dividing the required tax levy by the total assessed value of property
b.multiplying the required tax levy by the total assessed value of property
c.dividing the required tax levy by the net assessed value of property
d.multiplying the required tax levy by the net assessed value of property
Answer: c
18.The Governmental Accounting Standards Board requires governments to include
budgetary comparison schedules or statements for which of the following funds?
a.All governmental funds
b. All funds
c.General fund, major special revenue funds, and major capital projects funds
d.General Fund and major special revenue funds
e.none of the above
Answer: d
19. If actual revenues are less than estimated revenues and expenditures are less than
appropriations (by the same amount), at the end of the fiscal year
a.the actual change in fund balance will equal the budgeted change in fund balance
b.the actual change in fund balance will exceed the budgeted change in fund balance
c.the actual change in fund balance will be less than the budgeted change in fund
balance
d.actual fund balance will remain unchanged
Answer: a
20.The City of Kent has estimated that it will spend $4,500,000 and have revenues of
$4,800,000 next year. At the beginning of its new fiscal year, it will need to:
a.debit estimated expenditures for $4,500,000
b.debit estimated revenues for $4,800,000
c.debit budgetary fund balance for $300,000
d.debit appropriations for $4,500,000
e.none of the above.
Answer: b
21.The City of Kent’s police department needs a new police car. A police car is ordered
at an estimated cost of $34,000 and the appropriate budgetary control journal entry is
made. When the car is received, the actual cost is $35,000. Which of the following is a
part of the budgetary entry that should be made when the police car is received?
a.debit encumbrances for $34,000
b.credit encumbrances for $34,000
c.debit encumbrances for $35,000
d.credit encumbrances for $35,000
Answer: b
22.Which of the following classifications represents the lowest legal level of budgetary
control?
a.function/program
b.department
c.object
d.activity
Answer: c
23.Which of the following classifications represents the highest legal level of budgetary
control?
a.fund
b.department
c.object
d.activity
Answer: a
24.The legal level of budgetary control is best described as
a.the maximum amount that can be spent without incurring an unfavorable variance
b.the classification or subclassification at which expenditures cannot exceed
appropriations
c.the status of the budget officer within the hierarchy of top government officials
d.the sum of favorable budget variances minus the sum of unfavorable budget
variances
Answer: b
25.Which of the following is not a “character” classification?
a.activity
b.current operating
c.capital outlay
d.debt service
Answer: a
26.The term “line item” refers to which of the following budget/expenditure
classifications?
a.function/program
b.object
c.organizational unit
d.fund
Answer: b
27.Which of the following sequences correctly portrays expenditure account coding from
the highest to lowest level of summarization?
a.program, department, activity, object
b.department, object, activity, program
c.activity, department, object, program
d.object, activity, department, program
Answer: a
Problems
28.(Determination of property tax rate)
The City of Weston is preparing its budget for calendar year 2013. After estimating
revenues from all other sources, the City calculates that it must raise $7,000,000 from
property taxes. You are given the following information regarding the tax rate:
Property taxes to be collected$7,000,000
Estimated uncollectible property taxes $70,707
Total assessed value of property at beginning of 2013 $65,000,000
Expected reduction in assessed value from appeals$200,000
Assessed value of City property, not subject to tax$1,400,000
Adjustments to assessed values for senior citizen exemptions$1,000,000
Required:
a.Compute the gross amount of property taxes required to be levied.
b.Compute the tax rate per $100 of net assessed valuation.
c.Determine the amount of property tax that a home owner whose property is assessed
at $35,000 will have to pay.
Answer:
a.Required property tax levy:
$7,000,000 + 70,707 = $7,070,707
b.Tax rate per $100 of net assessed valuation:
Total assessed value at start of 2009$65,000,000
Less: Reduction due to appeals$ 200,000
City property, not taxable1,400,000Senior citizen exemptions1,000,000
2,600,000
Net assessed value of property$62,400,000
Required property tax levy / Net assessed value of property =
$ 7,070,707 / $ 62,400,000= .1133
Tax rate per $100 of net assessed valuation = $11.33
c.Tax rate on property assessed at $35,000 = $35,000 X .1133 =$3,965.50
29. (Recording the budget and a budget revision)
The council of the Town of Tulia approved the 2013 budget as follows:
Budgeted 2013 revenues from:
Property taxes $5,000,000
Sales taxes $1,000,000
Appropriations for 2013:
Salaries $4,600,000
Materials $1,200,000
Equipment $100,000
During 2013, the town’s mayor presented the council with a budget revision to increase
the amount of appropriation for salaries by $10,000. The council approved this budget
revision.
Required:
a.Prepare the general journal entry necessary to initially record the budget.
b.Prepare the general journal entry necessary to record the budget revision.
Answer:
a.Estimated revenues—property taxes5,000,000
Estimated revenues—sales taxes1,000,000
Appropriations—salaries4,600,000
Appropriations—materials1,200,000
Appropriations—equipment100,000
Budgetary fund balance100,000
b.Budgetary fund balance10,000
Appropriations—salaries10,000
30. (Encumbrance journal entries)
The Town of Suarez had the following transactions.
Placed a purchase order in the amount of $12,000 for supplies.
Placed a purchase order with a car dealer to replace the town’s only police car. The
expected cost of the car is $32,000.
The police car was delivered to town officials with an invoice of $32,500. The invoice
was approved and paid.
Unfortunately, some of the supplies ordered (in #1) were backordered and could not be
shipped. However, supplies that were expected to cost $8,000 were received along
with an invoice of $7,900. The invoice was paid when received.
The remaining supplies that were ordered (in #1) were received. The invoice in the
amount of $4,000 was paid.
Required:
Prepare the general journal entries necessary to record the budget and operating
transactions 1- 5.
Answer:
1.Encumbrances—supplies12,000
Budgetary fund balance reserved for encumbrances12,000
2.Encumbrances—police car32,000
Budgetary fund balance reserved for encumbrances32,000
3.Budgetary fund balance reserved for encumbrances32,000
Encumbrances—police car32,000
Expenditures—police car32,500
Cash32,500
4.Budgetary fund balance reserved for encumbrances8,000
Encumbrances—supplies8,000
Expenditures—supplies7,900
Cash7,900
5.Budgetary fund balance reserved for encumbrances4,000
Encumbrances—supplies4,000
Expenditures—supplies4,000
Cash4,000
31. (Recording budgetary entries and operating general journal entries and posting
detail to subsidiary ledgers)
The Town of Roscoe Ridge is a small residential community. The Town has two
revenue sources, property taxes and charges for service; and two programs,
administration and public safety. The Town’s fiscal year 2013 is as follows:
Town of Roscoe Ridge
General Fund
Operating Budget
Fiscal Year 2013
Estimated Revenues
Property taxes $1,900,000
Charges for services360,000 $2,260,000
Appropriations
Administration $ 320,000
Public safety 1,800,000 2,120,000
Budgeted Increase in Fund Balance $ 140,000
Operating transactions during the year consist of the following:
1.Placed orders for materials and supplies for:
Administration316,000
Public safety1,440,000
2.Collected revenues of:
Property taxes1,900,000
Charges for services287,500
3.Received items on order for:
Administration200,000
Public safety730,000
4.Paid cash for items received for:
Administration201,000
Public safety730,000
5.Received items on order for:
Administration116,000
Public safety–
6.Paid cash for items received for:
Administration114,000
Public safety–
7.Collected revenues of:
Property taxes–
Charges for services81,000
Required:
1.Prepare the general journal entries necessary to record the budget and operating
transactions 1- 7.
2.Post the details of the budgetary entry and the operating entries to the revenues
subsidiary ledger and the appropriations subsidiary ledger, as applicable. Subsidiary
ledgers are set up for your use.
Town of Roscoe Ridge
General Fund / Revenues Ledger
Fiscal Year 2013
Source: Property Taxes
Entry no.ItemEstimated RevenueActual RevenueDifference
Dr
Cr
Dr (Cr)
Source: Charges for services
Entry no.ItemEstimated RevenueActual RevenueDifference
Dr
Cr
Dr (Cr)
General Fund / Appropriations Ledger
Fiscal Year 2013
Function: Administration
Entry no.ItemAppropriationEncumbrances ExpendituresAvailable
Cr
Dr
Cr
Dr
Dr
Cr
Appropriation
Cr
Function: Public Safety
Entry no.ItemAppropriationEncumbrances ExpendituresAvailable
Cr
Dr
Dr
Cr
Dr
Cr
Appropriation
Cr
Answers:
Requirement 1
B.Estimated revenues—property taxes1,900,000
Estimated revenues—charges for services360,000
Appropriations—administration320,000
Appropriations—public safety1,800,000
Budgetary fund balance140,000
1.Encumbrances—Administration316,000
Encumbrances—Public safety1,440,000
Budgetary fund balance reserved for encumbrances1,756,000
2.Cash2,187,500
Revenues—property taxes1,900,000
Revenues—Charges for services287,500
3.Budgetary fund balance reserved for encumbrances930,000
Encumbrances—Administration200,000
Encumbrances—Public safety730,000
4.Expenditures—Administration201,000
Expenditures—Public safety730,000
Cash931,000
5.Budgetary fund balance reserved for encumbrances116,000
Encumbrances—Administration116,000
6.Expenditures—Administration114,000
Cash114,000
7.Cash81,000
Revenues—Charges for services81,000
Requirement 2
Town of Roscoe Ridge
General Fund / Revenues Ledger
Fiscal Year 2013
Source: Property Taxes
Entry no.Item
Estimated RevenueActual RevenueDifference
B
Budget
Dr
1,900,000
2
Cash receipt
Cr
Dr (Cr)
1,900,000
1,900,000
0
Source: Charges for services
Entry no.Item
Estimated RevenueActual RevenueDifference
B
Budget
Dr
360,000
2
7
Cr
Dr (Cr)
360,000
Cash receipts
287,500
72,500
Cash Receipts
81,000
(8,500)
General Fund / Appropriations Ledger
Fiscal Year 2013
Function: Administration
Entry no.Item
AppropriationEncumbrances ExpendituresAvailable
Cr
Dr
Cr
Dr
Appropriation
Dr
B
Budget
1
Order materials
3
Receive materials
4
Record expenditure
5
Receive materials
6
Record expenditure
Cr
Cr
320,000
320,000
316,000
4,000
200,000
204,000
3,000
201,000
116,000
119,000
114,0005,000
Function: Public Safety
Entry no.Item
AppropriationEncumbrances ExpendituresAvailable
Cr
Dr
Cr
Dr
B
Budget
1
Order materials
3
Receive materials
4
Record expenditure
Dr
Cr
1,800,000
1,440,000
Appropriation
Cr
1,800,000
360,000
730,000
1,090,000
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