Exam #___________
Name: ___________________________________________
Exam 2
Acct 430-530
Fall 2010
INSTRUCTIONS:
{Not following instructions could cost you up to 10 points.}
Put your name on answer sheet and exam. Put your name and student ID number on answer sheet in both human
and machine-readable formats. (For the ID number, do not put in a hyphen -- the last two columns will be blank.)
If you tear the test apart, please be sure it is in order before stapling back together. Do not staple answer sheet to the
exam
MATCHING and MULTIPLE CHOICE: Darken your selected answer on the separate answer sheet. You should
also clearly circle or otherwise mark your answer on the exam itself since the answer sheet will not be returned.
There is no penalty for guessing.
SHORT PROBLEMS: Show any necessary computations if you want to be eligible for partial credit. Present your
work in a neat, well-organized manner. Answer all parts of the problem.
SHORT ANSWER (ESSAY): Write legibly and use complete sentences. If I can’t read it, I can’t give you credit
for your thoughts! Abbreviations are acceptable as long as they are obvious, i.e., SRF, CPF, etc. In particular, I need
to be able to tell if you meant expense or expenditure! I don’t think there will be time, but you may answer a second
essay questions for extra credit (maximum 10 points).
1-30.
MULTIPLE CHOICE (100 points total)
(Scored: number correct divided by 24 * 100) . Number
correct is limited to maximum of 24 but you get 1 point
extra credit for each correct answer beyond 24 – so 6 free
misses
31.___________
31-34. Problems (30 points each for 90 points total)
Everyone must do #31. Then pick two problems
from the remaining three. (If all 3 are attempted, I
will count the 2 best scores)
35.
Short answer essay questions (10 points)
PICK ONE
33.___________
34.___________
35. ___________
36. ___________
Total points earned (max = 200)
__________ points _________%
After Exam 2 - Course Grade
Total Points = __________/700 = _________%
CAFR (10%) = ___________%
Homework percentage =
32.___________
___________%
Exam 2 – Acct 430/530 – Fall 2010
This page left blank for scratch paper
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Exam 2 – Acct 430/530 – Fall 2010
Page 3
MULTIPLE CHOICE QUESTIONS
a)
b)
c)
d)
In which fund type would a governmental entity’s capital projects fund be found?
Governmental fund type.
Proprietary fund type.
Fiduciary fund type.
Governmental activities.
a)
b)
c)
d)
Sue City has outstanding $5 million in general obligation term bonds used to finance the
construction of the new City Library. Sue City has a June 30 fiscal year-end. Interest at 6% is
payable each January 1 and July 1. The principal of the bonds is due 10 years in the future. The
City budgeted the July 1, 2006 interest payment in the budget for the fiscal year ended June 30,
2006. On June 30, cash was transferred from the General Fund to the Debt Service Fund to make
the required payment. The maximum amount of interest payable that may be included on the
balance sheet of the debt service fund of Sue City at June 30 would be
$ -0$150,000.
$300,000.
$3,000,00.
a)
b)
c)
d)
Cascade County issued $1 million of 6% term bonds at 101. These bonds will be used to finance
the construction of highways. The entry in the debt service fund to record the receipt of cash
should be
Debit Cash $10,000; Credit Revenue, $10,000.
Debit Cash $10,000; Other Financing Sources—Transfer, $10,000.
Debit Cash $1,010,000; Credit Bonds Payable $1,000,000 and Premium on Bonds $10,000.
Debit Cash $1,010, 000; Credit Other Finances Sources—Transfer $1,010,000.
a)
b)
c)
d)
Harbor City issued 6% tax-exempt bonds and used the proceeds to acquire federal government
securities yielding 7%. After paying the interest on the tax-exempt bonds, the City cleared 1%.
This is an example of
An illegal act.
Arbitrage.
Poor fiscal management.
Debt refunding.
a)
b)
c)
d)
e)
Characteristics of capital projects include:
Involves long-lived assets
Usually requires long-range planning and extensive financing
Usually has a year-to-year focus
All of the above
A & B only
a)
b)
c)
d)
General fixed assets are excluded from governmental funds because
The measurement focus of governmental funds is on financial resources.
They are not used to used generate revenues.
The basis of accounting is accrual.
None of the above.
1.
2.
3.
4.
5.
6.
Exam 2 – Acct 430/530 – Fall 2010
7.
Page 4
a)
b)
c)
d)
The City of Shiloh sold a used police car. The police car had a historical cost of $17,000, a fair
value of $12,000, and was sold for $5,000. Assuming that the City maintains its books and
records in a manner to facilitate the preparation of the fund financial statements, what is the
appropriate entry in the General Fund to record this sale?
Debit Cash $5,000; Credit Revenue $5,000.
Debit Cash $5,000 and Loss on Sale $7,000; Credit Automotive Equipment $12,000.
Debit Cash $5,000; Credit Other Financing Sources—Sale of Asset $5,000.
Debit Cash $5,000; Credit Automotive Equipment $5,000.
a)
b)
c)
d)
Which of the following costs will NOT be included in the cost of fixed assets on the governmentwide financial statements?
Interest on self-constructed items.
Purchase price (invoice amount).
Engineering costs.
Cost of demolishing existing structures that cannot be used.
a)
b)
c)
d)
For a government that elects to capitalize its works of art and similar assets, the appropriate entry
when receiving a contribution of a work of art in the government-wide financial statements is
No entry is required for contributed assets.
Debit Asset; Credit Revenues.
Debit Asset; Credit Equity.
Debit Expenditures; Credit Revenues.
a)
b)
c)
d)
For governmental entities, a capital asset is considered impaired
When its service capacity has declined significantly and unexpectedly.
When it is reported in a governmental fund.
When it no longer generates cash flows.
When it no longer generates the cash flows expected of it.
a)
b)
c)
d)
Governments must disclose information about investment risks in which of the following
categories?
Credit risk.
Custodial credit risk.
Foreign currency risk.
All of the above.
a)
b)
c)
d)
To seek protection under the federal Bankruptcy Code, a governmental entity must
Be unable to provide the level of services it has provided in the recent past.
Be unable to pay its debt in its current year.
Have budgeted expenditures in excess of revenues.
Both (b) and (c).
a)
b)
c)
d)
Which of the following is likely to be used by a bond rating agency to rate the general obligations
bonds of a governmental entity?
A review of the Basic Financial Statements.
Consideration of economic statistics such as unemployment rates.
Consideration of legal debt margin.
All of the above.
8.
9.
10.
11.
12.
13.
Exam 2 – Acct 430/530 – Fall 2010
14.
a)
b)
c)
d)
15.
a)
b)
c)
d)
16.
Page 5
New City entered into a capital lease agreement for several new dump trucks to be used in
general government activities. Assuming the City maintains its books and records in a manner
that facilitates the preparation of the fund financial statements, acquisition of these dump trucks
would require entries in which of the following funds and/or schedules?
General Fund only.
General Fund AND Schedule of Changes in Long-Term Debt Obligations.
General Fund AND Schedule of General Fixed Assets.
General Fund, Schedule of General Fixed Assets AND Schedule of General Long-Term Debt
Obligations.
A state created a Housing Authority to provide financing for low-income housing. The Authority
issues bonds and uses the proceeds for that purpose. Currently the Authority has outstanding
$200 million in bonds backed by the State’s promise to cover debt service shortages should they
arise. The State Constitution specifically limits the State to no more than $2 million in general
obligation debt. How can the state officials defend the $200 million in debt outstanding?
The debt is not general obligation debt.
The State is only morally obligated for the debt.
The debt is the debt of the Authority, not the State.
All of the above.
d)
In a bond covenant, a city agreed to create and maintain a $2 million reserve. These funds can be
used
Only to make the final year’s interest and principal payments on the bonds.
Only to make the interest and principal payments on the bonds in a year in which the city is
unable to make the required debt service payments from other resources.
To make either the final year’s interest and principal payments on the bonds or in the event that
the city is unable to make the interest and principal payments on the bonds.
By the city as it chooses since it legally belongs to the city.
a)
b)
c)
d)
Which of the following is a valid reason for governmental entities to engage in business-type
activities?
The entity does not want control over the activity.
The activity competes with general government activities.
The entity does not want to subsidize the activity.
The entity can provide the services more cheaply or efficiently than can a private firm.
a)
b)
c)
17.
18.
a)
b)
c)
d)
The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the
Central Motor Pool Internal Service Fund. At the date of issue, the appropriate entry in the
Internal Service Fund is a $ 2 million debit to cash and a $2 million credit to
Bonds Payable.
Capital Contribution (Revenues).
Capital Contributed (Revenues) AND show $2 million as an addition to the Schedule of Changes
in Long-term Obligations.
No entry in the proprietary fund. Show $2 million as an addition to the Schedule of Changes in
Long-term Obligations.
Exam 2 – Acct 430/530 – Fall 2010
19.
a)
b)
c)
d)
20.
a)
b)
c)
d)
21.
Page 6
When a governmental enterprise fund has restricted assets on its balance sheet, which of the
following is a true statement?
The total of the restricted assets in the asset section will be equal to the “Restricted Net Assets”
amount in the equity section.
The total of the restricted assets less related liabilities will be equal to the “Restricted Net Assets”
amount in the equity section.
The total of the restricted assets will be offset by a liability of an equal amount.
None of the above statements is true.
Washington County has designated the General Fund as the single fund to account for its selfinsurance activities. What is the maximum amount that can be charged to expenditure in the
General Fund related to the self-insurance activities?
The amount of “premium” charged to the other funds.
The amount of actual claims expenditures.
The actuarially determined amount necessary to cover claims, expenditures, and catastrophic
losses.
The amount transferred from other funds and activities to the general fund for self-insurance
purposes.
a)
b)
c)
d)
Cash flows from Capital and Related Financing Activities include which of the following as cash
outflows
Grants to other governments for operating activities.
Grants to other governments for capital asset acquisitions.
Payments for services performed by other funds.
Purchases of capital assets.
a)
b)
c)
d)
Cash flows from Investing Activities include which of the following as cash inflows
Cash collection of receivable for sale of services.
Grants for operating activities.
Interest and dividends received.
Purchases of investments.
a)
b)
c)
d)
In previous years, Center City had received a $400,000 gift of cash and investments. The donor
had specified that the earnings from the gift must be used to beautify city-owned parks and the
principal must be re-invested. During the current year, the earnings from this gift were $24,000.
The earnings from this gift should generally be considered revenue to which of the following
funds?
Special revenue fund.
Private-purpose trust fund.
Agency fund.
Permanent fund.
a)
b)
c)
d)
Which of the following is NOT a fiduciary fund?
Pension trust fund.
Investment trust fund.
Permanent fund.
Private purpose trust fund.
22.
23.
24.
Exam 2 – Acct 430/530 – Fall 2010
25.
Page 7
a)
b)
c)
c)
During the year, a state-owned university received a $5 million gift. The donor specified that the
principal of the gift must be held intact for 3 years, but the earnings from the gift can be used to
support technology improvements in the College of Business. At the end of the 3 years, the
donor together with the University President and the College Dean will decide how the $5 million
gift can be used. The University will report the gift in what type of fund?
Permanent fund.
Private-purpose trust fund.
Special revenue fund
Plant fund.
a)
b)
c)
d)
During the fiscal year ended December 31, 2006, the Highland City General Fund contributed
$48 million to a defined benefit pension plan for its employees. On February 27, 2007, Highland
made an additional $2 million contribution related to the 2006 pension contribution requirements.
The actuarially determined contribution requirement for 2006 is $52 million. The amount of
pension expenditure recognized by Highland City General Fund for 2006 should be:
$0
$ 48 million
$ 50 million
$ 52 million
a)
b)
c)
d)
In which of the following funds would Net Pension Obligation be most likely to appear?
General fund.
Enterprise fund.
Private-purpose trust fund.
Agency fund.
26.
27.
28.
Which of the following is a necessary characteristic of a component unit?
a) It is fiscally dependent on a primary government.
b) The primary government provides services that are used by both organizations.
c) The primary government can impose its will on the unit or the unit has the potential to provide a
financial benefit to or impose a financial burden on the primary government.
d) The primary government appoints a voting majority of the component unit’s governing body or a
voting majority of the unit's governing body is composed of officials of the primary government.
29.
a)
b)
c)
d)
Which of the following statements is not a required part of the basic financial statements of the
City of Highland Hills?
Government-wide Statement of Net Assets.
Statement of Revenues, Expenditures, and Changes in Fund Balances for all governmental funds.
Statement of Revenues, Expenses, and Changes in Net Assets for all fiduciary funds.
Statement of Cash Flows for all proprietary funds.
a)
b)
c)
d)
Government-wide financial statements include which of the following?
Balance Sheet and Income Statement.
Balance Sheet, Income Statement, and Statement of Cash Flows.
Statement of Net Assets and Statement of Activities.
Statement of Net Assets, Statement of Activities, and Statement of Cash Flows.
30.
Exam 2 – Acct 430/530 – Fall 2010
Page 8
Problems
31.
THIS PROBLEM IS MANDATORY.
[You may skip one of the following: Problem 32, 33 or 34.]
A City received voter approval to issue $10 million of semi-annual bonds at 5% per annum to construct a
city office building. The estimated total cost of construction is $15 million. The City hopes to raise the
balance needed through private donations. The City has a June 30 fiscal year-end.
REQUIRED: Assuming that the City maintains its books and records in a manner that facilitates the
preparation of the fund financial statements, prepare journal entries to record the following transactions.
Indicate in which fund the entry is being made. If no transaction is necessary, explain why. Optional: You
may include encumbrances for up to 5 points extra credit.
FUND
Account Title
a. On July 1 the City issued $10 million of 5% serial bonds
at face to fund construction of the new office buildings.
The bonds pay interest on January 1 and July 1. The first
principal payments are due five years hence.
b. On July 15 the City signed a $15 million contract with a
local construction company for construction of the
buildings.
c. On September 1 a local benefactor donated $5 million
cash for the office buildings.
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
Problem 31 (continued)
FUND
Account Title
d. On October 1, the contractor requested a progress
payment of $2 million for the earthwork and
foundation work on the new buildings. The City paid
the contractor.
e. On January 1, the City transferred from the general
fund the amount necessary to make the first interest
payment. The City made the first interest payment
on the bonds.
f. On June 1 the contractor requested, and received, a
progress payment of $10 million.
Page 9
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
32.
Page 10
Rutherford City entered into the following transactions during the current year.
REQUIRED: Assuming that the City maintains its books and records in a manner that facilitates the
preparation of its fund financial statements, prepare entries to record the following transactions. Indicate
the fund in which the entry is being made. If no entry is required, write “No Entry Required” and a brief
explanation. Note any impact on the schedules of general capital assets or long-term debt.
FUND
Account Title
a) The City issues $5 million of tax anticipation
notes, backed by property taxes that will be recorded
in the General Fund.
b) The City issues $2 million of 90-day bond
anticipation notes that it expects to roll over into
long-term bonds.
c) The City repays the $5 million in (a) plus $.125
million in interest.
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
Problem 32 (continued)
FUND
Account Title
d) The City successfully issues $20 million in longterm bonds and repays the notes in (b).
e) The City received a gift of land from a citizen.
The land is to be used to build a city park. The land
had been in Mrs. Marshall’s family since it was
homesteaded. It has a fair value when contributed of
$2 million.
f) During the year, the City spent $12 million to build
a third lane on both sides of the major north-south
highway through town.
Page 11
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
Page 12
33. State University maintains accounts for each of its student groups. The monies collected by the
Accounting Fraternity are deposited with the University. As the Fraternity authorizes disbursements
of its funds, the University disburses the monies. During the year, the Fraternity engaged in the
following transactions. Prepare the appropriate entries on the books of the University. Be sure to
indicate in which fund the entries would be recorded.
FUND
Account Title
a) The Fraternity deposited $400 in student dues.
b) The Fraternity authorized payment to Delta
Airlines for an airline ticket for a member to fly to
the National meeting, $350, and to the National
Accounting Fraternity, $100 for registration.
c) The Fraternity received a contribution from a
major accounting firm to be used by the Fraternity to
offset the cost of attending the national meeting,
$500.
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
33 (continued)
FUND
Account Title
d) The Fraternity operated a book exchange on a
consignment basis and collected revenues of
$10,000. It authorized the University to write $9,000
of checks to the students whose books they had sold.
The Fraternity was pleased with the $1,000 profit.
e) The Fraternity received a reimbursement from
their National Office to offset their costs of attending
the National meeting, $150.
Page 13
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
34.
Page 14
Greene County operates a solid waste landfill that is accounted for as an enterprise fund. At the
end of 2008, the Landfill Enterprise Fund had a Liability for landfill closure care costs of
$50,000. The County estimated the total costs associated with closing and monitoring the landfill
as listed below. Be sure to show all of your work.
2009
2010
Capacity used in total
Estimated total capacity
Costs:
Equipment to be installed
Final cover
Monitoring and maintaining
30,000
600,000
58,000
580,000
$2.5 million
$ .5 million
$4.0 million
$3.0 million
$1.0 million
$4.0 million
(a) Total current cost of postclosure care for 2009 = $______________ for 2010 = $______________
(b) Calculate current period expenses for year-ends 2009 and 2010.
(c) Prepare the required journal entries at year-ends 2009 and 2010 to recognize the current period
expenses.
Item c
Account Title
2009 Entry
Debit
Credit
2010 Entry
Debit
Credit
Exam 2 – Acct 430/530 – Fall 2010
Page 15
Essay
Pick one of the two essay question to answer. Check the box to show me which one you picked.
 35.
 36.
GASB Statement 34 allows a major exception for reporting depreciation expense on certain
capital assets. What is this exception? What is the notion behind the exception?
Because of the rising cost of commercial insurance, many governments have elected to be “selfinsured.” Explain what being “self-insured” means for a government.
Exam 2 – Acct 430/530 – Fall 2010
Page 16
Solutions
Multiple choice answers:
1. A
2. B
3. B
11. D
12. B
13. D
21. D
22. C
23. D
4. B
14. D
24. C
5. E
15. D
25. A
6. A
16. C
26. C
Problem 31.
(a) CAPITAL PROJECTS FUND
Cash (restricted)
Other Financing Source—Bond Proceeds
7. C
17. D
27. B
8. A
18. A
28. D
9. B
19. B
29. C
$10 million
$10 million
(b) [No Entry Required—Students may encumber if they so desire]
(c) CAPITAL PROJECTS FUND
Cash
Contributions revenue
(d) CAPITAL PROJECTS FUND
Expenditures- construction
Cash
[If encumbered, reverse the encumbrance]
(e) DEBT SERVICE FUND
Cash
Other Financing Sources—Transfer from GF
Expenditure - Interest
Cash
GENERAL FUND
Other Financing Uses—Transfer to DSF
Cash
(f) CAPITAL PROJECTS FUND
Expenditures - construction
Cash
[If encumbered, reverse the encumbrance]
Problem 32
a) GENERAL FUND
Cash
Tax Anticipation Notes Payable
$ 5 million
$ 5 million
$ 2 million
$ 2 million
$ .25 million
$ .25 million
$ .25 million
$ .25 million
$ .25 million
$ .25 million
$10 million
$10 million
$5 million
b) CAPITAL PROJECTS FUND
Cash
Other Financing Sources—Proceeds of BANs
$5 million
[$2 million should be shown as an addition to Schedule of Changes in Long-term
Obligations]
10. A
20. B
30. C
Exam 2 – Acct 430/530 – Fall 2010
Page 17
c) GENERAL FUND
Tax Anticipation Notes Payable
Debt service expenditure—interest
Cash
[no entry in schedule of general LT debt]
$5 million
$0.125 million
$5.125 million
d) CAPITAL PROJECTS FUND
Cash
$20 million
Other Financing Sources—Bond Proceeds
$20 million
[$20 million should be shown as an addition to Schedule of Changes in Long-term
Obligations]
Other Financing Uses—Repay BANs
$2 million
Cash
$2 million
[$2 million should be shown as a retirement in the Schedule of Changes in Long-term
Obligations]
e) CAPITAL PROJECTS FUND OR GENERAL FUND
Expenditure - Land
$2 million
Revenue
$2 million
[$2 million should be added to schedule of general capital assets]
f) CAPITAL PROJECTS FUND (MAYBE A SPECIAL REVENUE FUND OR GENERAL FUND)
Expenditure - Infrastructure Assets
$12 million
Cash
$12 million
[$12 million should be added to schedule of general capital assets since this is an improvement in the
existing infrastructure]
Problem 32
All journal entries are recorded in an agency fund.
a)
b)
c)
d)
e)
Cash
Due to Fraternity
$
400
Due to Fraternity
Cash or Accounts Payable
$
Cash
Due to Fraternity
$
Cash
Due to Fraternity
$ 10,000
Due to Fraternity
Cash or Accounts Payable
$ 9,000
Cash
Due to Fraternity
$
$
400
$
450
$
500
450
500
$ 10,000
$ 9,000
150
$
150
Exam 2 – Acct 430/530 – Fall 2010
Page 18
Problem 34.
(a)
Estimated Total Current Cost of Closure and Postclosure Care
Equipment
Final cover
Monitoring
Total
(b)
For 2009:
$2.5 million
.5 million
4.0 million
$7.0 million
For 2010:
$3.0 million
1.0 million
4.0 million
$8.0 million
Current Period Expense
For 2009:
$ 30,000 = 5% x $7 million = $350,000 less $50,000 previously recognized = $300,000.
$600,000
For 2010:
$ 58,000 = 10% x $8 million = $800,000 less $350,000 previously recognized = $450,000.
$580,000
(c)
Journal Entries
2009
Landfill closure expense
Liability for landfill closure costs
2010
Landfill closure expense
Liability for landfill closure costs
$300,000
$300,000
$450,000
$450,000
Essay 35
If a government satisfies certain conditions, mainly that it preserves its infrastructure at a specified
condition level, then it need not charge depreciation expense for those assets. The notion behind this
exception is that if assets are maintained at a specified condition level, then they become more like
inexhaustible assets, which are not depreciated. Only the cost of maintaining the assets is required to be
reported as an expense.
Essay 36
Being self-insured means being without insurance. The concept of insurance is spreading the risk among
a number of entities or individuals. Some governmental entities are sufficiently large to be able to spread
the risk among their various funds and activities. By simply providing a mechanism for setting aside an
amount each year (probably comparable to the total premiums that would have been paid to a commercial
insurance company), they can enjoy the benefits of insurance and save the ‘profits’ that would have been
part of a billing from a commercial insurance carrier. To work correctly, the government does need to
actually set aside money to cover possible future losses.