Chapter 16, 17

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Chapter 16  State and local governments are required to perform accounting in the same ways. – false  Which of the following is not a basic difference between a city government entity and a business enterprise? – city governments are more likely to go bankrupt  According to GASB, primary users of external state and local governmental financial reports include: citizens, legislative and oversight bodies, and ___ and ___. – investors; creditors  A business entity normally prepares a single set of financial statements intended to satisfy all potential decision-makers. How many sets of financial statements are prepared and reported by a state or local governmental unit? – two  Citizens who want to judge the operations of a state or local government are likely to look at which of the following? – fund financial statements  There are purposeful differences between the state and local government accounting and the reporting associated with the financial statements created for a ____-___ entity. – for-profit  In preparing fund financial statements according to the modified accrual accounting, when should expenditures be reported? – expenditures are recognized in modified accrual accounting when current financial resources are reduced  Which of the following is not a primary beneficiary of the financial statements prepared by a state or city government? – stockholders  What is the measuring focus used in the preparation of government-wide financial statements? – all economic resources  Citizens and creditors of a local government want to receive the same financial information. – false  A state or local government prepares ___ separate sets of financial statements. – 2  What are included in the term “current financial resources?” – cash, investments, receivables, and claims to those assets  Fund financial statements provide a picture of which of the following? – current-period activities  How many separate funds are maintained within a state or local government? – the number can vary significantly between state and local governments  In fund financial statements, the timing of recognition is based on ___ ___ ___. – modified accrual accounting  A government has funds that account for activities financed by taxes and other general revenue sources that are carried out primarily for the benefit of citizens. What label is applied to these funds? – governmental funds  Which of the following is used for timing purposes in producing the government-wide financial statements prepared for a state and local government? – accrual accounting  A city has a municipal subway system and all trips cost $3. That amount is set to cover the cost of the trip. In which fund classification is this subway system most likely to be reported? – proprietary funds  Which set of financial statements of a state or local government emphasizes the financial reporting of the overall government as a whole? – government-wide financial statements  A fiduciary is most likely to be used in accounting for monies within a state or local government fund in which of the following cases? – the money is held for others and cannot be used by the government  What was the impact on fund accounting when state and local governments were required to prepare government-wide financial statements? – separate funds were still maintained within most state and local governments for internal purposes  A state or local government is more likely to report a municipal golf course as a governmental fund than it is a fire department. – false

 Which of the following governmental activities is least likely to be reported within the governmental funds? - municipal golf course  The education system of the City of Dylan is recorded and reported in the General Fund unless it is reported in some other fund. – true  Which of the following is least likely to be reported as a proprietary fund? – public library  A government holds $6 million as part of a pension plan that must be paid to school teachers when they retire. In which of the following fund categories will this money be reported? – fiduciary funds  The City of Prospero imposes a special tax to finance the operations of the local community center. The community center is most likely to be recorded and reported in which type of fund? – special revenue fund  Which of the following fund categories is not included within the governmental funds? – proprietary funds  Which of the following is not recorded and reported in a capital projects fund? – money set aside to pay off bonds that were issued to raise money to build a new road  The City of Sampson operates a fire department for public safety. Which fund category is most likely to monitor the current financial resources received and expended by the fire department? – the General Fund  Which of the following is most likely to be reported by a state or local government in a debt service fund? – money from the sale of a building to be applied by the government to pay off the building’s debt when it comes due  A fiduciary fund is most likely to be used in accounting for monies within a state or local government fund in which of the following cases? – the money is held for others and cannot be used by the government  The City of Kryzski receives a cash gift of $500,000 that cannot be spent by the government. However, any subsequently earned income must be spent to care for the local cemetery. Which of the following is true? – Record of the $500,000 is maintained in a permanent fund. Any subsequent income is monitored in a special revenue fund  The City of D’andre records and reports a special revenue fund. Which of the following is the most likely reason for that reporting. – money has been legally restricted for use by the police department  Which of the following is most likely to be reported as something other than an enterprise fund? – a city maintains a print shop to do work for the school system and the fire department  The City of Sanders assigns $1 million for the construction of a new warehouse to be used by the city’s maintenance department. In which fund is this money reported? – capital projects fund  The education system of the City of Dylan is recorded and reported in the General Fund unless it is reported in some other fund. – true  The county of Carver has assigned $250,000 to be held to be used to pay off county bonds that come due in 15 months. In which type of fund is this money reported? – debt service fund  The City of Wallston receives a cash gift of $500,000. That money cannot be spent but any resulting income can be spent at the discretion of government officials. Which of the following is most likely to be true? – the $500,000 is recorded within the permanent funds whereas any income is recorded within the General Fund  A city maintains a vehicle garage that repairs the city’s vehicles for a charge equal to 110 percent of the cost of the service. It is reported as an internal service fund. Why is the garage not reported as an enterprise fund? – an enterprise fund is open to the public but an internal service fund is open to provide service within the government

 Which of the following is not recorded and reported as an internal service fund? – parking deck open for $10 per day to the public  Business-type activities is one of the two classifications within government-wide financial statements. What is included within the business-type activities? – all enterprise funds and some internal service funds  Which of the following is true in connection with a statement of revenues, expenditures, and other changes in fund balance? – this statement is reported for governmental funds in the fund financial statements  A monetary amount is reported by governmental activities in government-wide financial statements. A similar figure is reported for the governmental funds in fund financial statements. However, the balances are different. Which of the following is not a reason those figures might be different? – the methods for calculating the balance are different between the two sets of statements  a government operates a print shop that is properly reported as an internal service fund. How is the reporting for that print shop different from the reporting for a print shop operated by a person in the world of business? – the differences are relatively insignificant  Each separate financial statement within the government-wide financial statements divides all reported activities into two distinct categories. What are those categories? – governmental activities and business-type activities  Which of the following are financial statements reported by the governmental funds to be found within the fund financial statements? – balance sheet and statement of revenues, expenditures, and changes in fund balance  The city council of the City of Bottcher is the government’s highest level of decision-making. The government has a surplus of $3,000. The person in the government in charge of acquisitions decides to set this money aside to be used to buy new books for the public library. How does this government action impact the fund balance accounts of the appropriate fund? – the fund balance-assigned is increased by $3,000  Which of the following statements is true? – governmental activities in government-wide statement measure economic resources. Governmental funds measure current financial resources  Which of the following make up the government-wide financial statements? – statement of net position and statement of activities  The City of Zimmerman reports a fund balance – restricted amount of $29,000. Government officials have set aside the specified amount for a purpose that has been designated by the internal leadership. – false  Which of the following is true in connection with a statement of revenues, expenditures, and other changes in fund balance? – this statement is reported for governmental funds in the fund financial statements  The city council of the City of Lawson is the government’s highest level of decision-making. The government has a surplus of $3,000 and the council votes to set this money aside to be used to buy new books for the public library. How does this government action impact the fund balance accounts of the appropriate fund? – the fund balance-committed is increased by $3,000  The head of the Department of Transportation for the City of Rockville sets aside $56,250 to pay for more workers to keep the streets in clean. This person does not represent the highest level of decision-making authority for this government. Fund financial statements are produced and a fund balance-committed is reported on the balance sheet for this fund. Which of the following is correct? – the fund balance – committed is not reported because this person did not represent the highest level of decision-making authority in the government

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 A citizen gives a city $30,000 that must be used to buy lunches for children who cannot otherwise afford it. Before the money is spent, a balance sheet is prepared for the fund-based financial statements. For this fund, cash of $30,000 is reported. What is reported? - $30,000 in a fund balance-restricted account  A government receives a donation of $50,000 from a local citizen. The amount must be held and invested with all income to be used to buy books for the local library. Subsequently, interest income of $3,000 is collected on this donation. How does the collection of income impact the fund balance accounts of the appropriate fund? – the fund balance-restricted is increased by $3,000  The County of Winslow has $400,000 in cash that is considered unassigned. Jane Seymore decides that $24,000 of this money should be set aside to pay for the continuing education of police officers. Which of the following is not correct in reporting the fund balance for this fund on fund-based financial statements? – a fund balance-assigned of $24,000 is reported if Seymore works in the government unless she is not the highest level of decision-making authority  The town council of the Town of Westwood decides to set $99,000 aside to use for improving the public library. Before the money is spent, fund financial statements are prepared. For that fund, cash is reported. What other balance is reported? - $99,000 is reported as a fund balance – committed but only if the town council represents the highest level of decision-making authority  One possible approach to government financial reporting is to report each event based on the: - fund financial statement model  Which of the following is true in connection with a statement of revenues, expenditures, and other changes in fund balance? – this statement is reported for governmental funds in the fund financial statements  The City of Kingsville reports a fund balance--restricted of $90,000, a fund balance--committed of $60,000, and a fund balance--assigned of $40,000. How much of these financial resources were designated for a particular use by an external party? – 90000  For educational purposes, it is likely clearer to simultaneously examine each event from both a fund financial statement and a government-wide perspective. – true  Which of the following is not a purpose of a governmental budget? – offers a means of supporting criticism for government officials  Which of the following is correct about the recording of encumbrances? – encumbrances are recorded when a purchase commitment or contract is signed and removed when it becomes an obligation  A government receives a donation of $50,000 from a local citizen. The amount must be held and invested with all income to be used to buy books for the local library. How does this donation impact the fund balance accounts of the appropriate fund? – the fund balance-nonspendable is increased by $50,000  The City of Brimington bought a new police car this year at a cost of $80,000 in cash. It has an expected life of 5 years and no expected residual value. In reporting the governmental funds within fund financial statements, which of the following would be reported for this acquisition? – expenditure of $80,000  Through the budget, citizens are made aware of decisions made by government officials as to the allocation of limited financial resources. – true  A city uses the calendar year as its fiscal year. Several small computers are bought on December 18, Year One, and immediately delivered. The invoice will be paid on January 31, Year Two. When is the expenditure recorded? – the expenditure is most likely to be reported in Year One

 Why does a government record encumbrances in the financial accounts of its governmental funds? – encumbrances are recorded for purchase commitments and contracts to help ensure that amounts are not spent greater than has been approved  The City of Burke receives a $500,000 grant from the state government to street lights around a local school. How is the receipt of this grant reported by the city? – as a voluntary nonexchange transaction  The City of Seville spends $400,000 to buy a building and $100,000 to rent another building for two months. In preparing fund financial statements for its governmental funds, how are these two transactions reported? – expenditures of $500,000  The City of Aomame buys a new police car that is delivered near the end of the current fiscal period. Payment is to be made 74 days into the following year. In reporting governmental funds on fund financial statements, when is this expenditure reported? – it depends on the policy of the government  Which of the following is true for encumbrances incurred by a governmental fund? – many governments record encumbrances in the governmental funds at the time a purchase commitment is made  The City of Lincolnshire assesses a tax of 1 percent on all sales transactions. In November of Year One, sales were $1 million. $8,000 of the tax is collected by the city in December of Year One with the other $2,000 collected in January of Year Two. How is the derived tax revenue reported by the city? - $10,000 is reported in November of Year One  The City of Alberidge assesses and collects $2 million in property taxes. In preparing financial statements for the city, how is this amount reported? – as an imposed nonexchange revenue  The City of Brimington bought a new police car this year at a cost of $80,000 in cash. It has an expected life of 5 years and no expected residual value. In reporting the governmental funds within fund financial statements, which of the following would be reported for this acquisition? – expenditure of $80,000  A city uses the calendar year as its fiscal year. Several small computers are bought on December 18, Year One, and immediately delivered. The invoice will be paid on January 31, Year Two. When is the expenditure recorded? – the expenditure is most likely to be reported in Year One  The City of Loving assesses $1 million in property taxes in Year One. Of the total, $500,000 is expected to be collected in Year One, $300,000 in the first 60 days of Year Two, $150,000 also in Year Two but not until 60-75 days into Year Two, and the rest will never be collected. This money can be legally spent as soon as it is received. Which of the following statements is true for government-wide financial statements? - $950,000 is reported as revenue in Year One on government-wide financial statements  The County of Harlan receives a grant from an organization to provide school books for children living in poverty. The grant is approved in February. The county receives the money in May. The money can be expended in August. The amount is actually spent in October. In what month should the grant revenue be recognized? – August  In general, when are derived tax revenues such as sales taxes and income taxes recognized by a state or local government? – they are recognized when the underlying event occurs  The City of Smith recently issued a $7 million 5-year bond with the proceeds to be used for a new road system. How is this bond issuance reported in the fund financial statements? – as another financing source on the statement of revenues, expenditures, and other changes in fund balances  The City of Drexel receives a $100,000 cash grant from the state government to help finance the operation of a health clinic mandated by the state. How is this revenue reported by the city? – as a government-mandated nonexchange transaction

 The City of Ryne assesses $1 million in property taxes in Year One. Of the total, $500,000 is expected to be collected in Year One, $300,000 in the first 60 days of Year Two, $150,000 also in Year Two but not until 60-75 days into Year Two, and the rest will never be collected. This money can be legally spent as soon as it is received. Which of the following statements is true for fund financial statements? - $800,000 is reported as revenue in Year One on fund financial statements  In March, a city council passes a resolution for an election to approve the issue of bonds with the proceeds to be used to construct a new fire station. In May, a grant is received from the state to help in the construction of the fire station. The grant will not be conveyed until the bond has been approved in the election. In July, the election is held and the bond issuance is approved. In October, the bonds are issued. When should the grant revenue be recognized by the city? – in July  The City of Sokolova issues a $2 million 10-year bond near the end of Year One in order to build a new school. In recording its liabilities, how is this bond payable reported by the city? – as a noncurrent liability on the government-wide financial statements although no liability is reported on the fund financial statements  The citizens of the City of Hatley have asked that sidewalks be constructed with a cost of $1 million. The city issues long-term debts for that amount and constructs the sidewalks. A special assessment tax will be charged to the citizens to pay the debts as they come due. How is this reported in the city's fund financial statements? – neither the sidewalk nor the debt are reported on the balance sheet for the governmental funds  The city council of the City of Higher transfers $300,000 from the General Fund to a capital projects fund. What type of transfer is this? – is it an intra-activity transfer  Interactivity transactions occur between ___ funds and ___ funds. – governmental; enterprise  The City of Smith recently issued a $7 million 5-year bond with the proceeds to be used for a new road system. How is this bond issuance reported in the fund financial statements? – as another financing source on the statement of revenues, expenditures, and other changes in fund balances  The City of Armando begins a special assessment project. Money is borrowed and $200,000 is spent to add street lights to a local neighborhood. When the money is spent for this project, what reporting is made? – an asset is reported on government-wide financial statements. An expenditure is reported on fund financial statements  The city council of the City of Lower transfers $300,000 from the General Fund to a capital projects fund. How is this reported in government-wide financial statements? – there is no reported effect on government-wide financial statements  ___ transactions occur between governmental funds and enterprise funds. – interactivity Chapter 17  The hierarchy of generally accepted accounting principles for state and local governments was created to help reporting entities pick the appropriate method for handling accounting problems. Which of the following is true? – Category B can be used if no definitive answer is found in Category A  A city agrees to a tax abatement. What is a tax abatement? – a tax abatement is an agreement whereby a government agrees not to collect a particular tax in exchange for a specified action  The school teachers in the City of Landon are covered by a defined benefit pension plan. Money is set aside each month by the government to cover the eventual costs of the pension. Which of the following is true? – this money is maintained in a fiduciary fund  A government expects to have to pay school teachers $10 million in pension benefits after they retire in 20 years. Of this amount, 40 percent is attributable to periods of time that have already

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passed. To calculate present value, the payments must be multiplied by .30. The government currently holds cash of $1.1 million in a pension trust fund. What is reported as the pension asset or liability for the governmental funds in fund financial statements? – zero  Why is the determination of the interest rate to be used in determining the present value of expected pension plans benefits considered controversial? – the rate established by GASB tends to be relatively high which reduces the present value of the reported obligation  Statements of the Governmental Accounting Standards Board are in the first level of authoritative rules within the hierarchy of US GAAP for state and local governments. What is this first category called? – Category A  Why does a government agree to provide a tax abatement to a business? – the tax abatement is exchanged for a promise from the business that is viewed as beneficial to the government and its citizens  The City of Bill has a pension plan for its fire fighters. Recently, a change was made in the plan to allow vested employees to retire at 52 rather than 55. That caused a $300,000 increase in the pension liability at the current time. The reported liability was increased. How was that increase reflected? – as an increase in pension expense for the current period  Which of the following explains the primary purpose of a pension trust fund? – to accumulate money and then pay out benefits to retired employees  A government expects to have to pay school teachers $20 million in pension benefits after they retire in 20 years. Of this amount, 30 percent is attributable to periods of time that have already passed. To calculate present value, the payments must be multiplied by .20. The government currently holds cash of $1.5 million in a pension trust fund. What is reported as the pension asset or liability for the governmental funds in government-wide financial statements? – 300000 asset  In computing the pension liability for a state or local government, a present value calculation is required. What interest rate is used to determine the present value? – the estimated long-term investment yield rate for the plan’s assets  An entity leases a truck for use for two years. It does not meet any of the criteria that FASB has established for a financing lease. Which of the following is true? – on government-wide financial statements, a state or local government reports it as a financing lease but a business or not-for- profit would not  The County of Bat is in the process of computing its pension expense for the current period. Which of the following is not a component of that expense? – payments made to employees during the current  On December 31, Year One, the City of West Grayson signs a ten-year lease to pay $20,000 per year for a building for its police department. The building has a 20-year life. A payment is made exactly one year later. Which of the following is true for fund financial statements on the day of this payment? – an expenditure of $20,000 is recognized  The City of Mondale owns a warehouse that it leases to a local business for ten years with annual payments of $10,000 that have a present value of $65,000. Which of the following statements is correct on the date that the lease is signed in reporting government-wide financial statements? – a deferred inflow of resources is reported for $65,000  An entity signs a lease for a computer where the first payment will be made next month. The lease is for three years but it does not meet any of the FASB requires for a financing lease. For government-wide financial statements of a state or local government and for financial statements of a business entity, which of the following is true? – on government-wide statements, a liability is reported by both a state or local government and a business for the present value of future payments

 On December 31, Year One, the City of East Wilson signs a ten-year lease to pay $20,000 per year for a building for its police department. The building has a 20-year life. Which of the following is true for fund financial statements on the day of the signing? – another financing source should be recognized at an amount equal to the present value of the payments  A government expects to have to pay school teachers $10 million in pension benefits after they retire in 20 years. Of this amount, 40 percent is attributable to periods of time that have already passed. To calculate present value, the payments must be multiplied by .30. The government currently holds cash of $1.1 million in a pension trust fund. What is reported as the pension asset or liability for the governmental funds in government-wide financial statements? – 100000 liability  On January 1, Year One, the City of MacEvoy owns a warehouse that it leases to a local business for 20 years with annual payments of $20,000 that have a present value of $287,000. Which of the following statements is correct one year later in reporting government-wide financial statements? – leave revenue, interest revenue, and depreciation expense are all reported  Why does a solid-waste landfill create a complicated accounting problem for a state or local government? – closure costs and related expenses can eventually be quite large  In Year One, a government estimates that the current cost of closing its landfill will eventually be $9 million. At that time, the landfill is 20 percent full. In Year Two, the estimated current cost of closing the landfill has risen to $10 million. This will be paid in 8 years. The landfill is now 30 percent full. What expense is reported on government-wide financial statements for Year Two? – 1.2 million  At the end of Year One, a government estimates that the current cost of closing its landfill will eventually be $9 million. Currently, the landfill is 20 percent filled. By the end of Year Two, the estimated current cost of closing the landfill has risen to $10 million. This amount will be paid in 8 years. The landfill is now 30 percent filled. The landfill is reported as an enterprise fund. What liability is reported on fund financial statements at the end of Year Two? – 3.0 million  A state or local government receives a statue worth $27,500 as a donation from a local citizen. It will stand in front of the local post office. The statue does not qualify as an artwork. Which of the following is true for government-wide financial statements? – asset is debited $27,500 and gift revenue is credited $27,500  The City of Annalara operates a solid waste landfill. Why does the accountant need to know whether the city charges for the use of the landfill and, if so, how substantial that charge is? – a user charge, especially if a significant amount, indicates the landfill needs to be maintained as an enterprise fund like a for-profit business  The following assets are held by the City of Bridgewood. Which is not considered to be an infrastructure asset? – data processing computer system used for payroll work  If a landfill is reported as an enterprise fund because a user charge is assessed, the accounting for closure costs will be the same in government-wide financial statements as in fund financial statements. – true  The City of Oldies installs a walking path around the local high school so that citizens can get exercise. It has an expected life of 30 years or more. The city pays $36,000 for the construction. How is this payment reported? – as an expenditure in fund financial statements and as an infrastructure asset for government-wide financial statements  A state or local government spends $27,500 to acquire a statue for the local post office. The statue qualifies as an artwork because it is for public exhibit. It is protected by the government. A policy has been passed specifying that if the statue is ever sold, the money received must be used for a replacement artwork. Which of the following is true for fund financial statements for the governmental funds? – it must be recorded as an expenditure

 The City of Barbara has qualified to apply the modified approach to its infrastructure assets. What does that mean? – depreciation expense does not need to be reported  An accountant is trying to determine if the local highway system qualifies to be referred to as an infrastructure asset. Which of the following is not true? – infrastructure assets have some connection to generating revenues of some type  The Comprehensive Annual Financial Report (CAFR) is not limited to financial statements. It includes an extensive amount of information about the reporting government. – true  At one time in government accounting, the recording of infrastructure items was a(n) ___ practice. It was because, these properties did not generate ___ in any tradition sense. – optional; revenue  A city government receives a large painting by Picasso as a donation. It is placed in city hall where visitors are charged $12 each to view the art work. The city plans to use the money received from admission fees for other activities such as park renovation. Therefore, the city must report the painting as an asset. – true  The Village of New Harmond is located in the County of Waynesboro. Village leaders are trying to determine whether it qualifies as a primary government for reporting purposes or is merely a geographical part of the county. Which of the following is not required to qualify as a primary government? – financial statements must have been created in the past and audited  The City of Harrison constructs a bridge over a local river for a total cost of $1.3 million. In government-wide financial statements, does depreciation expense need to be recorded on this infrastructure asset? – depreciation expense is recorded on infrastructure assets unless the modified approach is applied  What is a component unit? – a component unit is an entity that is legally separate from a primary government but still included in its financial reporting  The City of Winslow is considering its reporting requirements and officials are trying to determine if it qualifies as a primary government. The city has separate legal status and fiscal independence. Which of the following statements is true? – it is not a primary government unless it also has an elected governing board  An agency for homeless citizens is legally separate from the City of Shiyani. Nevertheless, the agency is included within the CAFR of the city as a component unit. In general, why is this inclusion viewed as necessary? – the city and its officials must be financially accountable for the agency  City officials of the City of Fredricton must approve the annual budget for a local art league. Which of the following is true? – the art league will qualify as a component unit of the city but only if there is also a potential financial benefit or financial burden  When is a component unit included with a primary government if the component unit is legally separate from that primary government? – a component unit is included when elected officials of the primary government are financially accountable for the outside organization  The City of Henweigh has a legally separate historical museum. City officials appoint a voting majority of the governing board of the museum but have no other connection with the entity. Which of the following is true? – appointing a voting majority of the board by itself does not qualify the museum as a component unit  Officials for the City of Robert appoint 7 of the 10 board members for a historical society that is a legally separate organization. Which of the following is correct? – that action alone does not qualify the society as a component unit  The Village of New Harmond is located in the County of Waynesboro. Village leaders are trying to determine whether it qualifies as a primary government for reporting purposes or is merely a

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geographical part of the county. Which of the following is not required to qualify as a primary government? – financial statements must have been created in the past and audited  In preparing financial statements for the city of Wilbourne, the park commission qualifies as a discretely-presented component unit. On government-wide financial statements, how will the financial results of the park commission be reported? – discretely-presented component units are shown on the far right side of each statement  The City of Luisberg is trying to determine whether the financial information of a local health care agency should be included with the primary government. The agency is legally separate from the government but works closely with the government. Which of the following is not true? – two sets of criteria must be met before inclusion of the agency as a component unit for the city is required  The Art Society League of Ramford is trying to determine if it is fiscally dependent on the City of Ramford. Officials of the art society can set the rates that are charged and have the right to issue bonded debt. However, the annual budget must be approved by city officials. The art league is fiscally dependent on the city. – true  A children's museum exists as a separate legal entity within the City of Rhom. City officials must approve the budget of the museum. Which of the following is also necessary for the museum to qualify as a component unit within the CAFR of the city? – nothing because approval of the budget alone is sufficient to qualify as a component unit  The City of Dunham operates an art museum located in a local school building. Officials are trying to determine if the art museum qualifies as a component unit. They want to know which of the following qualifies as selecting a voting majority of the governing board. – the museum board has 20 members but five of them are officers of the museum who are not allowed to vote. The city selects 8 of the remainder  The City of Elizabeth has prepared government-wide financial statements. On the far right side of each statement, financial information is provided about the city's Agency for Animal Rescue. What does this placement indicate to the reader of the statements? – the Agency for Animal Rescue is a component unit that is being discretely presented  Why are some legally separate organizations reported as blended component units? – the activities of a blended component unit are so intertwined with the primary government that they need to be reported together  The transit authority that operates within Lakeland County, Minnesota, qualifies as a special- purpose government. Why is that important? – the transit authority will produce its own independent set of financial statements  The City of Allen has a large art museum. The city has computers with an acquisition value of $4.3 million and a net carrying value of $4 million. The museum has computers with an acquisition value of $1.5 million and a net carrying value of $1 million. The city and the museum are brought together through an acquisition. The city government pays significant consideration for the museum. What value will be reported in government-wide financial statements for these computers after the acquisition? – 5.5 million  On government-wide financial statements, any consideration paid in excess of acquisition value is reported initially as a deferred outflow of resources on the statement of ___ ___. – net position  A blended component unit is identified for the City of Fulton. From a reporting perspective, what does that mean? – a blended component unit is reported by the primary government as if it were a fund within the government  The school system of Hancock County produces its own set of financial statements. What is the most likely reason for the school system to prepare separate statements rather than being part

of the CAFR for Hancock County? – the school system likely qualifies as a special purpose government  The measurement focus for government-wide financial statements is on reporting the economic resources controlled by the government. Thus, which of the following is true? – both capital assets and noncurrent liabilities are reported  The City of Hudson has a large museum that qualifies as a special purpose government. The manager of the museum are ready to retire so the museum is combined with the city government. How can officials determine if this action is a merger or an acquisition? – it is a merger if no significant consideration is exchanged. It is an acquisition if significant consideration is exchanged  Which of the following is false concerning government-wide financial statements? – works of art must be depreciated even if they are judged to be inexhaustible  The City of Netjikov has a large library which qualifies as a special purpose government. In hopes of improving operations, the city acquires the library building and all books. This transaction qualifies as an acquisition. Payment is $900,000 although the building has an acquisition value of $500,000 and the library books have an acquisition value of $300,000. In preparing government- wide financial statements, how is the excess $100,000 acquisition price reported after the acquisition takes place? – the excess $100,000 is shown as deferred outflow of resources and then written off to expense over a period of time  The City of New Jones is preparing government-wide financial statements. A governmental activity owes $96,000 to a business-type activity. On a statement of net position, how are these internal balances reported? – governmental activities show the liability. Business-type activities show receivable. They are offset. Nothing is shown for the primary government  The City of Osgood has prepared government-wide financial statements. On the statement of activities, the police department reports program revenues of $94,000. Which of the following is the least likely source of those revenues? – city sales tax  In reporting government-wide financial statements, capital assets are reported although, on fund financial statements, capital assets are not reported. Why are capital assets handled differently? – in government-wide financial statements, the measurement focus is on economic resources rather than on current financial resources  The City of Grayson has a large art museum. The city has computers with an acquisition value of $4.3 million and a net carrying value of $4 million. The museum has computers with an acquisition value of $1.5 million and a net carrying value of $1 million.. The city and the museum are brought together through a merger. What value will be reported in government-wide financial statements for these computers after the merger? – 5 million  The City of Harmon reports a bridge that is 5 years old and was built at a cost of $760,000. Unless the modified approach is applied, the bridge must be reported at cost less accumulated depreciation. – true  In the City of Jimenez, the school system (a governmental activity) owes the city print shop (a business-type activity) $36,000 for the printing of educational materials. In government-wide statement on the statement of net position, which of the following statements is true? – no balance at all appears in the total column  The City of Smithson receives a federal grant to pay a portion of the salaries for several new fire fighters. How is this money reflected on the statement of activities in the government-wide financial statements? – it is reported as a program revenue  Two local government units are brought together to form a single reporting entity. This event may be recorded: - as a merger or acquisition

 In a statement of activities, the public safety works for the City of Umlacho show program revenues of $100,000 and direct operating expenses of $120,000. All general revenues come from a sales tax that has generated $200,000 this past period. Which of the following is correct? – the program revenues and direct operating expenses are netted and combined with all other functions before the general revenues are shown  An internal service fund provides services solely for the school system, part of the government's General Fund. It has $20,000 current financial resources, $60,000 in capital assets, $3,000 in current liabilities and $10,000 in noncurrent liabilities. In reconciling the total fund balance for the governmental funds to the total net position for the governmental activities, what is the impact of this internal service fund? – add $67,000  On fund financial statements, the change in total fund balance for the governmental funds is $700,000. During the current period, a large truck is acquired for $200,000. A Cash down payment of $30,000 is made and a long-term note is signed to cover the remainder. If no other reconciliation items existed, what is the reported change in net position for the governmental activities? – 730000  Which of the following is most likely to be reported as a general revenue on the statement of activities? – sales taxes  The subway system of the City of Wakersville is an enterprise fund. The subway system issued $2 million in bonds for face value to fund general operations. On a statement of cash flows in the fund financial statements, how is this $2 million reported? – as a cash flow from a noncapital financing activity  The University of Hartington is a private school. What body produces the U.S. generally accepted accounting standards that must be followed by this university? – the Financial Accounting Standards Board  To reconcile the total fund balance for the governmental funds to the total net position of the governmental activities, capital assets must be added to the total fund balance for government funds. – true  Depreciation expense is not reported for the governmental funds on fund financial statements. Depreciation expense is reported for the governmental activities on government-wide financial statements. What is the impact of depreciation on the reconciliation between the change in the total fund balances (from the fund financial statements) and the change in net position (from the government-wide financial statements)? – the amount of depreciation expense must be subtracted  In preparing the statement of cash flows for a proprietary fund in the fund financial statements, how is the cash flows from operating activities shown? – the direct method must be used  Accountants for the College of MidSouth are beginning to prepare financial statements for the school. Which accounting principles should be followed? – if it is a public school, GASB rules must be followed. If it is a private school, FASB rules must be followed  To reconcile the total fund balance for the governmental funds to the total net position of the governmental activities, noncurrent liabilities such as bonds payable must be added to the total fund balance for government funds. – false  Large private colleges and universities are likely to have endowments of considerably more size than does public schools. Which of the following is a possible reason for that difference? – public school are more likely to be able to rely on support from federal, state and local governments  The University of New East is a public school. For reporting purposes, how is it classified? – public colleges and universities are reported as special purpose governments  How many separate sections are identified in a statement of cash flows for the proprietary funds in fund financial statements? – four

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 To reconcile the total fund balance for the governmental funds to the total net position of the governmental activities, capital assets must be added to the total fund balance for government funds. – true  Because many public colleges or universities are considered special purpose governments engaged only in business-type activities, which of the following statements is true? – only a single set of financial statements are normally reported  The College of Way West has accumulated an extremely large amount of endowment funds. Which of the following statements is most likely to be true? – the school is more likely to be a private school than a public school  The University of Old Connecticut is a public school and is preparing financial statements. The school produced financial statements as a special-purpose government. What is the advantage of that decision? – the school can produce a single set of financial statements that are similar to those of a for-profit business  The subway system of the City of Wakersville is an enterprise fund. The subway system issued $2 million in bonds for face value to fund general operations. On a statement of cash flows in the fund financial statements, how is this $2 million reported? – as a cash flow from a noncapital financing activity  The College of Ajax is a public school. It publishes only a single set of financial statements based on being a special-purpose government. Why is that viewed as appropriate? – two sets of financial statements would be redundant in this situation

Chapter 16, 17

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