Chapter 4 – Exercise 4-1, answer # 1 through 10
1. Under the modified accrual basis of accounting, revenues cannot be recognized
a. Until cash has been collected
b. Unless they will be collected within sixty days of year-end
c. Until they are subject to accrual
d. Until they are measurable and available
2. ‘‘Available'' (as in ‘‘measurable and available'') means
a. Available to finance expenditures of the current period
b. Subject to accrual
c. Collectible
d. Available for appropriation
3. Property taxes are an example of
a. An imposed exchange transaction
b. An imposed nonexchange transaction
c. A derived transaction
d. A government-mandated nonexchange transaction
4. To be considered ‘‘available,'' property taxes must have been collected either during the
government's fiscal year or within
a. The time it takes for the government to liquidate its obligations from the prior year
b. Thirty days of year-end
c. Sixty days of year-end
d. The following fiscal year
5. For its fiscal year ending September 30, 2007, Twin City levied $500 million in property
taxes. It collected taxes applicable to fiscal 2007 as follows (in millions):
June 1, 2006, through September 30, 2006
$ 20
October 1, 2006, through September 30, 2007
440
October 1, 2007, through November 30, 2007
15
December 2007
4
The city estimates that $10 million of the outstanding balance will be uncollectible. For the fiscal
year ending September 30, 2007, how much should Twin City recognize in property tax revenue
(in millions) in its general fund?
a. $440
b. $460
c. $475
d. $490
6. Assume the same facts as in the previous example. How much should Twin City recognize in
property tax revenue (in millions) in its government-wide statement of activities?
a. $440
b. $460
c. $475
d. $490
7. Central City was awarded two state grants during its fiscal year ending September 30, 2007: a
$2 million block grant that can be used to cover any operating expenses incurred during fiscal
2008, and a $1 million grant that can be used any time to acquire equipment for its police
department. For the year ending September 30, 2007, Central City should recognize in grant
revenue in its funds statements (in millions)
a. $0
b. $1
c. $2
d. $3
8. Assume the same facts as in the previous example. How much should the city recognize in
grant revenue in its government-wide statements?
a. $0
b. $1
c. $2
d. $3
9. Assuming that a government will collect its sales taxes in sufficient time to satisfy the
‘‘available'' criterion, it would ordinarily recognize revenue from sales taxes in its governmental
fund statements
a. When the underlying sales transaction takes place
b. On the date the merchant must remit the taxes to the government
c. On the date the merchant must file a tax return
d. When the taxes are received by the government
10. Assuming that a government will collect its sales taxes in sufficient time to satisfy the
‘‘available'' criterion, it would ordinarily recognize revenue from sales taxes in its governmentwide statements
a. When the underlying sales transaction takes place
b. On the date the merchant must remit the taxes to the government
c. On the date the merchant must file a tax return
d. When the taxes are received by the government
c.
Chapter 4 – Exercise 4-7, answer # 1 and 2
4-7
The recognition of revenue from fines does not necessarily reflect the amount ‘‘earned'' by
merely issuing tickets.
In August 2008, the last month of its fiscal year, GoldwaitheTownship issued $88,000 worth of
tickets for parking and traffic violations. Of these, the township collected $45,000. It expects to
collect an additional $20,000 within sixty days of the close of the fiscal year and to collect
$3,000 subsequent to that. It will have to write off the balance. The tickets are due; the protest
period expires on
September 15.
1. How much revenue should the township recognize from the tickets issued in August
2008? Explain.
2. How might your answer change with respect to the township's government-wide statements?
FROM ANSWER KEY:
EX 4-7
1.
Fines can be recognized when the government has an enforceable legal claim (in this
example on September 15) or when cash is collected. Thus
Cash
Revenue from fines
To recognize cash collected from parking fines
$45,000
$45,000
2.
There would be no difference in the government-wide statements. The maximum revenue
that can be recognized is the amount collected, since the protest period has not yet expired
d. Chapter 5 – Questions for Review and Discussion # 1 and 2
1. What is the distinction between expenditures and expenses as the terms are used in
governmental accounting?
FROM ANSWER KEY:
Expenditures are decreases in net financial resources whereas expenses are reductions in overall
net assets. Expenditures are governmental fund equivalents of expenses. In effect, expenditures
are expenses that are determined on the modified rather than the full accrual basis of accounting.
2. A government expects to pay its electric bill relating to its current fiscal year sometime in
the following year. An official of the government requests your advice as to whether the
anticipated payment should be charged as an expenditure of the current or the following
year. How would you respond?
FROM ANSWER KEY:
Expenditures should be recognized on an accrual basis unless they qualify as one of the
exceptions specifically set forth by the GASB. Utility costs are not such an exception and should
thereby be recognized as an expenditure in the period in which the utility services are used.