Chapter 3 Modified Accrual Accounting: Including the Role of Fund Balances and Budgetary Authority Multiple Choice Exercise 1: For each of the following, select the letter corresponding with the best answer. 1. Which of the following in the acquisition of goods and services occurs first? a. Expenditure b. Encumbrance c. Appropriation d. Cash payment 2. Which of the following is true regarding the term expenditures: a. Expenditures are decreases in fund financial resources other than through interfund transfers. b. Expenditures may be for current, capital outlay, or debt service purposes. c. Expenditures are generally recognized when goods and services are received. d. All of the above. 3. Which of the following is the most constrained category of spendable funds? a. Constricted. b. Assigned. c. Committed. d. Unassigned. e. Reserved. 4. Which of the following is true regarding governmental budgetary reporting? a. Governments must prepare budget-actual statements for all funds. b. The budget-actual statement for the general and special revenue funds must be one of the basic financial statements. c. The budget-actual schedule(or statement) must provide information on the original as well as the revised budget. d. All of the above. 5. Which of the following would be an example of expenditure reporting by character? a. Public safety b. Salaries c. Current d. Fire protection 6. The Board of Commissioners of the City of Belvedire’s adopted budget for the current fiscal year, indicated estimated revenues of $1,000,000 and appropriations of $970,000. When the budget is formally integrated into the accounting records, what is the required journal entry? Debits Credits a. Memorandum entry only b. Estimated Revenue Control 1,000,000 Appropriations Control 970,000 Budgetary Fund Balance 30,000 c. Appropriations Control 1,000,000 Estimated Revenue Control 970,000 Budgetary Fund Balance 30,000 d. Revenues Receivable 1,000,000 Estimated Expenditures 970,000 General Fund Balance 30,000 7. When a purchase order is issued for the General Fund, which of the following entries would be prepared, assuming the purchase order amount is $500? a. b. c. d. Encumbrances Control Budgetary Fund Balance Reserved for Encumbrances Expenditures Control Vouchers Payable Memorandum entry only Budgetary Fund Balance Reserved for Encumbrances Encumbrances Control Debits 500 Credits 500 500 500 500 500 8. Assume the following facts for the City of Evanston Police Department for the month of July, the first month of the fiscal year: The appropriation for the year was passed, amounting to $10,000,000. Purchase orders and contracts were issued in the amount of $300,000. Of the purchase orders already mentions, $250,000 were filed with invoices amounting to $260,000. Salaries, not encumbered, amounted to $500,000. What is the available balance at the end of the fiscal year: a. $9,200,000 b. $9,240,000 c. $9,190,000 d. $9,210,000 9. Which of the following refers to an actual cost rather than an estimate? a. Expenditure b. Appropriation c. Budget d. Encumbrance 10. The Encumbrances Control account would be decreased when: a. Purchase orders are issued. b. Goods, related to purchase orders are received. c. Payment is made for goods received. d. Budget revisions are made, decreasing Appropriations. Exercise 2: For each of the following, select the letter corresponding with the best answer: 1. The fire department of a certain city received an appropriation in the amount of $13,000,000 for the fiscal year. During the month of ended July, the following transactions occurred: (a) purchase orders were issued in the amount of $600,000; (b) purchase orders related to (a) above, were filled in the amount of $585,000; the related invoice amount was $587,000; invoices were paid in the amount of $540,000; (c) salaries were accrued in the amount of $630,000. The balance available for the fire department after the completion of these transactions is a. $11,770,000 b. $11,768,000 c. $11,830,000 d. $11,783,000 2. Debt issue proceeds received by governmental fund would be recorded as: a. A revenue. b. Another financial source. c. A liability. d. None of the above. 3. An example of an expenditure classified by object would be: a. Police Department b. Public Safety c. Current d. Salaries 4. A certain government passed its budget for the fiscal year. Estimated Revenues amounted to $12,000,000; Appropriations amounted to $11,300,000; Estimated Other Financing Sources amounted to $600,000; and Estimated Other Financing Uses amounted to $700,000. In the budgetary entry, Budgetary Fund Balance would be: a. Debited for $600,000. b. Debited for $800,000. c. Credited for $600,000. d. Credited for $800,000. 5. When goods, which had previously been encumbered, are received, and the invoice amount is different from the purchase order amount: a. Budgetary Fund Balance-Reserved for Encumbrances would be credited for the purchase order amount. b. Encumbrances Control would be debited for the purchase order amount. c. Encumbrances Control would be credited for the invoice amount. d. Budgetary Fund Balance-Reserved for Encumbrances would be debited for the purchase order amount. 6. Which of the following is true regarding the Budgetary Comparison Schedule: a. Columns are required for the original budget, the revised budget, and the actual amount. b. The Budgetary Comparison Schedule is presented as a part of Required Supplementary Information. c. The Budgetary Comparison Schedule may be presented as one of the basic financial statements. d. All of the above. 7. Which of the following is true regarding the Budgetary Comparison Schedule? a. A variance column may be presented but is not required. b. The Schedule is required for the General Fund and all major special revenue funds that have a legally adopted annual budget. c. The actual amounts presented must be on the budgetary basis, even if the budgetary basis is different that GAAP. d. All of the above. 8. If Budgetary Fund Balance is debited in the process of recording a budget in the General Fund, it can be assumed that: a. Estimated Revenues and Other Financing Sources exceeded Appropriations and Other Financing Uses. b. Estimated Revenues and Other Financing Sources exceeded actual Revenues and Other Financing Sources. c. Appropriations and Estimated Other Financing Uses exceeded Estimated Revenues and Other Financing Sources. d. Revenues and Other Financing Sources exceeded Estimated Revenues and Estimated Other Financing Sources. 9. Under accrual accounting, property tax revenue, net of estimated uncollectibles is recognized: a. For no more than is collected during the fiscal year. b. For no more than is collected during the fiscal year plus the amount collected during the first 60 days of the next fiscal year. c. Immediately upon the levy, regardless of the date. d. In the year for which the tax is levied. 10. Under modified accrual accounting, an expenditure is recognized: a. When an appropriation is enacted. b. When a purchase order is issued. c. When goods or services are received. d. When payment is made for the goods or services.