Module 4 Quiz Prep
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QUIZ 4 PREP
Chapter 7:
1.
Which of the following would be least likely to be classified as a city's general capital assets?
a.
Roads and bridges
b.
Electric utility lines
c.
Computers used by the police department
d.
Computers used by the department that collects the city's sale tax, which is dedicated to
debt service on general obligation bonds
2.
A city should not report on its general fund balance sheet an office building constructed over
100 years ago because
a.
the building would likely be fully depreciated.
b.
it would be too difficult to determine the historical cost of the building as measured in
current dollars.
c.
the measurement focus of the general fund is on current financial resources and the
building is not a current financial resource.
d.
the building would be considered an infrastructure asset, and infrastructure assets are
excluded from governmental funds.
3.
Which of the following costs should not be capitalized and reported on a city's government
wide
‐
statement of net position?
a.
Payments to a city artist to design a new city logo
b.
Computer software that the city purchased from outsiders
c.
Paintings purchased for display in the city's art museum
d.
Legal fees incurred in acquiring land to be used for a city park
4.
Which of the following collectibles need not be capitalized and reported on a city's government
‐
wide statement of net position?
a.
A statue donated to the city, which it intends to sell and use the proceeds from the sale
to fund a children's art center
b.
A series of books that the city intends to place in its library's general circulation
collection
c.
An abstract painting that the city purchased to decorate the mayor's office
d.
An early twentieth
century impressionist painting that the city's art museum
‐
purchased for its permanent collection
5.
Per GASB Statement No. 34, roads and bridges should be capitalized and reported as assets on
a.
both a government
wide statement net of assets and a general fund balance sheet.
‐
b.
neither a government
wide statement of net position nor a general fund balance sheet.
‐
c.
a government
wide statement of net position but not a general fund balance sheet.
‐
d.
a general fund balance sheet but not a government
wide statement of net position.
‐
6.
Which of the following conditions does a government not have to satisfy to use the modified
approach to reporting infrastructure assets?
a.
It must assess the condition of its infrastructure at least once every three years.
b.
It must estimate the annual amount necessary to preserve the assets at a specified
condition level.
c.
It must document that the assets are, in fact, being preserved at or above the specified
condition level.
d.
It must use the modified approach for all its infrastructure assets.
7.
Per the modified approach, a government need not
a.
capitalize infrastructure assets.
b.
depreciate infrastructure assets
c.
report in its fund statements expenditures to acquire or construct infrastructure assets.
d.
record maintenance costs as expenditures
8.
A government constructed a bridge 20 years ago at a cost of $30 million. The replacement cost
of the bridge today would be $90 million. The bridge has a useful life of 60 years. In its
government
wide statements the government should record the bridge at a value, net of
‐
accumulated depreciation, of
a.
$20 million.
b.
$60 million.
c.
$90 million.
d.
$0.
9.
Per GASB Statement No. 34, deferred maintenance costs
a.
must be estimated and reported in notes to the financial statements.
b.
must be reported in the government
wide statement of net position but not in fund
‐
statements.
c.
must be estimated and reported in the management's discussion and analysis.
d.
need not be explicitly measured or reported when capital assets are depreciated.
10.
A city would probably not have to recognize an impairment loss on its hospital building if
a.
It were severely damaged in a fire
b.
It will likely be used to serve far fewer patients than expected when acquired
c.
Its market value declines significantly
d.
It will be transformed into a warehouse
1.
A government repaves a section of highway every four years at a cost of $2 million to preserve it
at a specific condition level. How much should it report in depreciation charges under the
modified approach to accounting for infrastructure? The standard approach?
Modified Approach
Standard Approach
a.
0
0
b.
500,000
500,000
c.
500,000
0
d.
0
500,000
2.
States typically maintain investment pools for their towns and counties primarily to
a.
provide the participants with the benefits of increased portfolio size.
b.
ensure that the participants maximize their investment returns.
c.
enable the participants to engage in arbitrage.
d.
spread the risk of losses among the participants.
3.
A government owns shares of common stock in a publicly owned company, the stock of which is
widely traded. Such an investment would be categorized as
a.
a Level 1 investment.
b.
a Level 2 investment.
c.
a Level 3 investment.
d.
an investment that fits into none of the three categories.
4.
A government acquires as an investment a 30
year U.S. Treasury bond having a face value of
‐
$10,000. At the end of year 20, with 10 years remaining until maturity, the bond had a fair value
of $10,200. Taking into account the discount at which the government initially purchased the
bond, its amortized cost was $9,760. Assuming that it held the bond in a governmental fund, the
government should report the bond at a value of
a.
$0.
b.
$9,760.
c.
$10,000.
d.
$10,200.
5.
Derivatives are
a.
variable interest rate bonds, the interest rate on which is derived from (based on) the
prime rate of interest.
b.
shares of common stock, the value of which is derived from the market value of the
underlying assets (typically investments in subsidiaries) of the issuing corporation.
c.
investments, the value of which is derived from some underlying asset or reference
rate.
d.
investment pools, the value of which is derived from the pools' investments.
6.
Which of the following statements is true with respect to derivatives?
a.
They are highly speculative instruments and therefore are suitable only for governments
that are willing to accept a high degree of investment risk.
b.
Their market values are typically less volatile than those of the underlying assets.
c.
GASB standards require that governments explain in their annual reports the reasons
why they invested in derivatives.
d.
They need not be reported on governments' financial statements; they need only be
disclosed in notes to the financial statements.
7.
The risk that a company will go bankrupt and thereby be unable to repay a bond that a
government holds as an investment as required is known as
a.
credit risk.
b.
market value risk.
c.
interest rate risk.
d.
counterparty risk.
8.
Investments would generally be considered subject to the least custodial risk if they are
a.
registered in the government's name but in the possession of a broker–dealer.
b.
registered in the government's name and in the physical possession of the government
itself.
c.
registered in the broker–dealer's name and in the possession of the broker–dealer.
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d.
registered in the broker–dealer's name but in the possession of the government itself.
9.
A city needs to determine whether it should sell its downtown administrative facility and move
to an outlying location. The value of the facility that is most relevant to this decision is
a.
historical cost.
b.
fair value.
c.
historical cost less accumulated depreciation.
d.
assessed value.
10.
Which of the following costs should not be included in the cost of a highway that a county
constructed itself?
a.
Insurance premiums paid while the project was under construction
b.
Interest incurred on debt used to finance the project while it was under construction
c.
Overhead costs of the construction department
d.
Fees paid to consultants to determine the highway's optimum route
Chapter 8:
1.
Which of the following is true with respect to bankruptcy?
a.
Per the federal bankruptcy code, a municipality can be declared bankrupt but not
insolvent.
b.
Many major cities have avoided bankruptcy by being placed under the control of
financial control boards by their state governments.
c.
The concept of bankruptcy does not apply to governments because they have the
authority to increase taxes and reduce services.
d.
Municipalities that are declared bankrupt by a court are brought under the control of
independent trustees whose primary objective is to ensure that obligations to
bondholders are satisfied in full.
2.
A government issues $1 million in 30
year, 6 percent coupon bonds at a discount of $27,092. The
‐
bonds were sold to yield 6.2 percent. At what amount would the bonds be reported (net) in the
government
wide statement of net position and governmental fund balance sheet immediately
‐
upon issuance?
Government-Wide
Fund
a.
1,000,000
1,000,000
b.
972,908
972,908
c.
972,908
0
d.
972,908
1,000,000
3.
The government issues the bonds described in question 2. It makes its first semiannual interest
payment of $30,000. How much interest expense/expenditure would it likely have to report in its
government
wide and governmental fund statements?
‐
Government-Wide
Fund
a.
30,000
30,000
b.
30,160
30,160
c.
30,160
0
d.
30,160
30,000
4.
The government makes subsequent interest payments. Reported interest expense/expenditure
in the government
wide and governmental fund statements will:
‐
Government-Wide
Fund
a.
Increase
Remain the same
b.
Increase
Increase
c.
Remain the same
Remain the same
d.
Decrease
Remain the same
5.
Suppose a government issues $1 million in bonds at a premium of $50,000. It temporarily invests
the proceeds of $1,050,000 in U.S. Treasury bonds having a face value of $1 million (i.e., at a
premium of $50,000). At what value would the government report the bonds payable and the
investment in bonds in its government
wide statements subsequent to the date of the
‐
transactions?
Bond Payable
Investment in Bonds
a.
Amortized cost
Market value
b.
Market value
Market value
c.
Amortized cost
Amortized cost
d.
Market value
Amortized cost
6.
Which of the following is true of demand bonds?
a.
They give the issuer the right to call the bonds at a preestablished price.
b.
They give the issuer the right to demand that the bondholders purchase additional
bonds at a preestablished price.
c.
They give the bondholder the right to demand repayment prior to maturity.
d.
They give the bondholder the right of first refusal with respect to any additional bonds
sold by the issuer.
7.
Demand bonds should be reported as governmental fund liabilities
a.
if the government has not entered into a take
out agreement.
‐
b.
if prevailing interest rates are higher than the interest rate on the bonds.
c.
if prevailing interest rates are lower than the interest rate on the bonds.
d.
if the government, by the time it issues its financial statements, has neither refinanced
the bonds nor entered into an agreement to do so.
8.
A city issues bond anticipation notes on October 21, 2020. It refunds the notes with 30
year
‐
bonds in January 2021. In its financial statements for the fiscal year ending December 31, 2020,
which are issued in April 2021, it should report the bond anticipation notes as obligations
a.
in both its government
wide statement of net position and a governmental fund balance
‐
sheet.
b.
in its government
wide statement of net position but not its governmental fund
‐
balance sheet.
c.
in its governmental fund balance sheet but not its government
wide statement of net
‐
position.
d.
in neither its governmental fund balance sheet nor its government
wide statement of
‐
net position.
9.
A city issues revenue anticipation notes on October 21, 2020. It repays the notes in January
2021. In its financial statements for the fiscal year ending December 31, 2020, which are issued
in April 2021, it should report the revenue anticipation notes as obligations
a.
in both the government
wide statement of net position and a governmental fund
‐
balance sheet.
b.
in the government
wide statement of net position but not a governmental fund
‐
balance sheet.
c.
in a governmental fund balance sheet but not the government
wide statement of net
‐
position.
d.
in neither a governmental fund balance sheet nor the government
wide statement of
‐
net position.
10.
In which of the following lease arrangements would a county government lessor not recognize a
lease receivable as a noncurrent asset: It signs
a.
a 10
year lease for one foor of a five
story office building.
‐
‐
b.
a two
year lease with another government for an automobile; lease payments will be
‐
determined in part by number of miles driven.
c.
a five
year lease on construction equipment with a town within its jurisdiction that
‐
includes a nonappropriation clause.
d.
a three
year lease on a copy machine that gives the lessee the option to terminate the
‐
lease at the end of either the first or second year of the contract
.
1.
A town signs a 10
year lease by which it acquires equipment with a market value of $1 million.
‐
The lease incorporates an implicit interest rate of 8 percent per year. Accordingly, annual lease
payments are $149,029. When the town makes its second annual lease payment, it would report
in its government
wide statements
‐
a.
interest expense of $80,000.
b.
rent expense of $149,029.
c.
interest expense of $74,478.
d.
rent expense of $100,000.
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2.
State courts that have held that financing leases do not qualify as long
term debt subject to debt
‐
limitations commonly base their decision on the inclusion in the lease agreement of a
a.
nonsubstitution clause.
b.
nonappropriation clause.
c.
nonparticipation clause.
d.
forward funding clause.
3.
Revenue bonds, compared with general obligation bonds, generally
a.
are paid out of property or sales tax revenues.
b.
bear lower interest rates.
c.
are subject to the same debt limitations.
d.
are not backed by the full faith and credit of the issuing government.
4.
A town is located within both a school district and a county. The assessed property valuations
and bonded debts of the three governments are as follows (in millions):
Assessed Valuation
Bonded Debt
Town
800
40
School District
1,600
90
County
2,400
18
The combined direct and overlapping debt of the town is
a.
$40 million
b.
$51 million
c.
$91 million
d.
$148 million
5.
Clifford City has issued $10 million of revenue bonds to help finance a factory for Travis, Inc., a
private manufacturing company. The city owns the factory and leases it to the company. The
bonds are payable exclusively from the lease payments. In the event the company defaults on its
lease payments, the bondholders have claims only on the factory. The city has no obligation for
the bonds other than to transmit to the bondholders the lease payments that it receives from
the company. In its annual financial statements the city should report the bonds
a.
on its government
wide statement of net position but not in any fund statements.
‐
b.
only in notes.
c.
only as required supplementary information.
d.
both on its government
wide statement of net position and in its proprietary funds
‐
balance sheet.
6.
Which of the following is not a common reason for issuing revenue bonds rather than general
obligation bonds?
a.
To obtain lower interest rates
b.
To incorporate debt service costs into user fees
c.
To avoid debt limitations or voter approvals
d.
To shift a portion of the burden of paying for the project to parties who reside outside
the issuer's jurisdiction but nevertheless benefit from the project
7.
On December 1, 2021, a city issued $20 million in BANs and $6 million in RANs. By April 15,
2022, the date the city issued its financial statements for the fiscal year ending December 31,
2021, the city had neither converted the BANs into long
term bonds nor entered into a
‐
refinancing agreement to do so. However, the city repaid the RANs on February 28, 2022. The
amount the city should report as an obligation of its general fund in its December 31, 2021,
financial statements is
a.
$0
b.
$6 million
c.
$20 million
d.
$26 million
8.
A state authority (which is an independently legal entity) issues bonds back with a moral
obligation of the state. This debt
a.
is probably backed by the full faith and credit of the state
b.
is probably subject to the same debt limitations as if it had been issued by the state itself
c.
probably bears a lower interest rate than if there were no moral obligation associated
with it
d.
imposes greater pressure on the agency to repay the debt than if there were no moral
obligation associated with it
9.
Certificates of participation have the most in common with
a.
revenue bonds.
b.
pension annuities.
c.
participating preferred stock
d.
short
term leases.
‐
10.
A city issues the following bonds:
Revenue bonds to fund improvements to the town
owned electric utility $50 million
‐
Conduit bonds issued to assist a fast
food franchisee to construct a restaurant for $7 million
‐
The amount that the city should report as an obligation in its government
wide statement of net
‐
position and its proprietary funds balance sheet is
Government-Wide
Proprietary Fund
a.
$57 million
$57 million
b.
$57 million
0
c.
$50 million
$50 million
d.
0
0
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Budgetary account.
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- 10 Part 1 of 2 Required information [The following information applies to the questions displayed below.] The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31. 8. During the year, the internal service fund billed the city's general government function $15,700 for duplicating services and it billed the city's utility fund $8,100 for services. 9. The city council decided to build a city hall at an estimated cost of $5,000,000. To finance the construction, 6 percent bonds were sold at the face value of $5,000,000. A contract for $4,500,000 has been signed for the project; however, no expenditures have been incurred as of December 31. 10. The general government function issued a purchase order for $32,000 for computer equipment. When the equipment was received, a voucher for $31,900 was approved for payment and payment was made. Required a. For each transaction number, identify all of the fund and/or government-wide…arrow_forward5arrow_forwardQuestion 1 The City of Denton uses encumbrance accounting to control expenditures. It charges the cost of outstanding purchase commitments to expenditures in the year they are received, not in the year they are ordered. If the City had $7,000 of purchase commitments outstanding at the end of Year 1 and received those goods during Year 2 at a cost of $7,800, what would be the impact on total Fund Balance for Year 2? a. Total Fund Balance at the end of Year 2 would be $7,800 less than at the end of Year 1. b. Total Fund Balance at the end of Year 2 would be $800 less than at the end of Year 1. c. Total Fund Balance at the end of Year 2 would be $800 greater than at the end of Year 1. d. Total Fund Balance at the end of Year 2 would be same as it was at the end of Year 1. Question 2 To close Encumbrances at the end of the year which of the following entries should be made? a. Debit Encumbrances; Credit Fund Balance. b. Debit Reserve for Encumbrances; Credit…arrow_forward
- Please answer question 1 [Para. 5-a-1]arrow_forward8 Part 1 of 2 Skipped Required information [The following information applies to the questions displayed below.] The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31. 8. During the year, the internal service fund billed the city's general government function $19,200 for duplicating services and it billed the city's utility fund $11,600 for services. 9. The city council decided to build a city hall at an estimated cost of $5,070,000. To finance the construction, 5 percent bonds were sold at the face value of $5,070,000. A contract for $4,570,000 has been signed for the project; however, no expenditures have been incurred as of December 31. 10. The general government function issued a purchase order for $35,500 for computer equipment. When the equipment was received, a voucher for $32,600 was approved for payment and payment was made. 2. Required a. For each transaction number, identify all of the fund and/or…arrow_forward5–3 General Capital Assets. Make all necessary entries in the appropriate governmentalfund general journal and the government-wide governmental activities generaljournal for each of the following transactions entered into by the City of Fordache.1. The city received a donation of land that is to be used by Parks and Recre-ation for a park. At the time of the donation, the land had a fair value of$5,200,000 and was recorded on the donor’s books at a historical cost of$4,500,000.2. The Public Works Department sold machinery with a historical cost of$35,100 and accumulated depreciation of $28,700 for $6,400. The machin-ery had originally been purchased with special revenue funds.3. A car was leased for the mayor’s use. Since the term of the lease exceeded75 percent of the useful life of the car, the lease was capitalized. The firstpayment was $550 and the present value of the remaining lease paymentswas $30,000.4. During the current year, a capital projects fund completed a new public…arrow_forward
- Exercise 5-18 (Algo) General Capital Assets (LO 5-2, 5-4] Prepare journal entries for each of the following transactions entered into by the City of Loveland. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest whole dollar.) Fund / Governmental Activties Transaction General Journal Debit Credit 1. The city received a donation of land that is to be used by Parks and Recreation to develop a public park. At the time of the donation, the land had an acquisition value of $4,300,000 and was recorded on the donor's books at a historical cost of $3,600,000. 1 General Fund Governmental Activities 2. The Public Works Department sold machinery with a historical cost of $34,200 and accumulated depreciation of $28,250 for $5,525. The machinery had originally been purchased with special revenue funds. 2 General Fund Governmental Activities 3. A car was leased for the mayor's use. The first payment…arrow_forward5–3 General Capital Assets. Make all necessary entries in the appropriate governmental fund general journal and the government-wide governmental activities general journal for each of the following transactions entered into by the City of Fordache. 1. The city received a donation of land that is to be used by Parks and Recreation for a park. At the time of the donation, the land had a fair value of $5,200,000 and was recorded on the donor’s books at a historical cost of $4,500,000. 2. The Public Works Department sold machinery with a historical cost of $35,100 and accumulated depreciation of $28,700 for $6,400. The machinery had originally been purchased with special revenue funds. 3. A car was leased for the mayor’s use. Since the term of the lease exceeded 75 percent of the useful life of the car, the lease was capitalized. The first payment was $550 and the present value of the remaining lease payments was $30,000. 4. During the current year, a capital projects fund…arrow_forwardIdentification of activities with particular governmental-type funds Using only the governmental-type funds, indicate which would be used to record each of the following transactions and events. GF General Fund SRF Special Revenue Fund DSF Debt Service Fund CPF Capital Projects Fund PF Permanent Fund 1.The city paid a contractor who had completed a report on the potential for improving police deployment as a way to reduce the crime rate. 2. The city retired some of its outstanding bonds, using money accumulated for that purpose. 3. The city received a grant from the state to build an addition to the city hall. 4. A federal grant was received to help pay for the cost of constructing the new city hall.arrow_forward
- Ch5 5 Four new computers, for which the cost exceeded the city’s capitalization threshold, were purchased for use in the city clerk’s office using General Fund resources. Which of the following entries would be required to completely record this transaction? Multiple Choice General Journal Debit CreditGeneral Fund: Expenditures 8,000 Vouchers Payable 8,000 General Journal Debit CreditGovernmental Activities: Expenses 8,000 Vouchers Payable 8,000 General Journal Debit CreditGeneral Fund: Expenditures 8,000 Vouchers Payable 8,000 Governmental Activities: Expenses 8,000 Vouchers Payable 8,000 General Journal Debit CreditGeneral Fund: Expenditures 8,000 Vouchers Payable 8,000 Governmental Activities: Equipment 8,000 Vouchers Payable 8,000arrow_forwardPlease answer question 5 [Para. 5-a-5]. I included all supporting information.arrow_forwardNonearrow_forward
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