Chapter Six Test Bank Multiple Choice Questions

1. Which of the following is not a typical governmental fund liability (and thus not an
expenditure that is recognized when the liability is incurred)?
a. Accounts payable.
b. Debt service.
c. alaries payable.
d. !ouchers payable.
e. All of the above are typical governmental fund liabilities.
". Which of the following governmental fund expenditures would not be considered a
current operating expenditure?
a. Capital outlay.
b. #ent.
c. $ffice supplies.
d. alaries and wages.
e. %mployee benefits.
f. All of the above expenditures would be classified as current operating
expenditures in a governmental fund.
&. %xpenditures in a governmental fund are recognized when due except for
a. interest on general long'term debt.
b. general long'term debt principal retirement.
c. capital outlay.
d. rent.
e. items a and b only.
f. items c and d only.
(. Assume that $nyx )ounty*s annual re+uired contribution for their $,%- plan was
determined to be .&/0111. 2he county0 however0 chose to only fund .110111 of that
amount for the current year. 2he 3eneral 4und0 which is the only fund with employees0
would recognize expenditures in the current year of
a. .&/0111
b. ."/0111
c. $!"!!!
d. .(/0111
e. .1
f. 5one of the above.
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/. A city*s annual re+uired contribution for the $,%- plan offered to their 3eneral 4und
employees is .1(0111. 2he city does not choose to ma;e the annual re+uired contribution
but instead will continue to pay postretirement benefits as they come due. 2he current
year*s benefit payments total ."0/11. 2he 3eneral 4und would recognize an expenditure
of
a. .1
b. $#"$!!
c. .1(0111
d. .1:0/11
e. 5one of the above.
:. 2he 3eneral 4und borrowed .110111 on a six'month note0 with /.1< interest0 on April 1.
As of the =une &1 fiscal year end0 the 3eneral 4und would report accrued interest payable
in the amount of
a. .1
b. $#$
c. ."/1
d. ./11
>. A city government purchased a new fire truc; in ?ear 1 for .">10111. 2he city incurred
an additional . &10111 in transportation and calibration costs to ready it for use. 8t has an
estimated useful life of "1 years0 though it is being financed over a 1/ year period. 2he
amount of depreciation that will be reported each year in the 3eneral 4und will be
a. $!
b. .1&0/11
c. .1/0111
d. .1@0111
e. ."10111
@. 2he village of -ear )ree; uses 3eneral 4und resources to pay debt service payments for
its sole outstanding general obligation bonds0 which were issued to finance the new
!illage 9all. Which of the following statements is false?
a. 3AA, requires the village to use a Aebt ervice 4und to account for the payment
of principal and interest on the long'term debt.
b. 3AA, permits but does not re+uire the village to use a Aebt ervice 4und to
account for the payment of principal and interest on the long'term debt.
c. 2he 3eneral 4und would record an expenditure for both the principal and interest
portions of the debt service payment.
d. 2he 3eneral 4und would record an expenditure for only the interest portion of the
debt service payment.
e. Both items a and d are false.
f. -oth items b and c are false.
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7. 3overnment A ma;es pension contributions on behalf of its employees to both a defined
benefit plan and a defined contribution plan. Assume that the employer contributions for
the fiscal year totaled .//0111 for the defined benefit plan and .&/0111 for the defined
contribution plan. 2he 3eneral 4und will report
a. total expenditures of $%!"!!!.
b. expenditures of .//0111 and transfers out of .&/0111.
c. transfers out of .710111.
d. transfers out of .//0111 and expenditures of .&/0111.
e. 5one of the above.
11. Assume that a government purchases .@/0111 of inventory for the 3eneral 4und during
the year. 2he 3eneral 4und began the year with an inventory balance of .1/0111 and
ended the year with a balance of .&/0111. 2he 3eneral 4und uses the consumption
method of inventory accounting and a perpetual inventory system. 2he 3eneral 4und
should report
a. no expenditures for the year as the 3eneral 4und uses a perpetual inventory
system.
b. expenditures of .@/0111 for the year.
c. expenditures of $&$"!!! for the year.
d. transfers out of .@/0111 for the year.
e. transfers out of .:/0111 for the year.
11. 8f a government uses a perpetual inventory system for its 3eneral 4und and there is an
inventory overage at the end of the year0 the inventory asset account should
a. be increased and the expenditure account decreased.
b. be decreased and the expenditure account increased.
c. remain the same. 2he expenditure account will be decreased0 offset by an
allowance for inventory overage account.
d. remain the same. 2he expenditure account will be increased0 offset by an
allowance for inventory overage account.
1". A county uses the consumption method in accounting for insurance premium
prepayments. At the beginning of the fiscal year0 the county paid a ."(0111 insurance
premium to cover the current year and the subse+uent fiscal year. At the end of the
current year0 the county will report in its 3eneral 4und
a. expenditures of ."(0111.
b. expenditures of $#"!!! and a $#"!!! prepaid asset.
c. a ."(0111 prepaid asset.
d. transfers out of ."(0111.
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1&. 8n the year a city enters into a capital lease to finance a new sanitation truc;0 the 3eneral
4und will report
a. an increase in capital assets.
b. a decrease in fund balance e+ual to the cost of the new sanitation truc;.
c. an other financing source.
d. a decrease in fund balance e+ual to the amount of any down payment re+uired.
e. -oth items a and b.
f. Both items c and d.
1(. As payments are being made for debt service payments related to a capital lease0 a
3eneral 4und will report
a. an increase in capital assets e+ual to the amount of principal retired.
b. expenditures for interest only.
c. expenditures for principal reduction only.
d. expenditures for the full amount of the debt service payment.
e. an other financing use.
1/. )arter )ounty entered into capital lease to finance an %mergency'711
telecommunications system. 2he capitalizable cost of the e+uipment was .1@/0111. 2he
county made a re+uired down payment of ."/0111. 2he first debt service payment will
not be due until the next fiscal year. 2he entry to record the inception of this lease in the
3eneral 4und would be
dr cr
a. %xpenditures .1@/0111
Bease ,ayable .1:10111
)ash "/0111
b. 'xpenditures $($"!!!
)ther *inancin+ Source $&!"!!!
Cash #$"!!!
c. %xpenditures .1:10111
)apital Asset "/0111
Bease ,ayable .1:10111
)ash "/0111
d. )apital Asset .1@/0111
Bease ,ayable .1:10111
)ash "/0111
e. )apital Asset .1@/0111
$ther 4inancing ource .1:10111
)ash "/0111
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1:. 5athan 2ownship financed emergency repairs on the 2ownship 9all by borrowing on a
."1101110 : month short'term note. 2he interest rate on the note was :< and it was
issued " months prior to the end of the fiscal year. Which of the following statements
accurately reflects how the 3eneral 4und will be affected in the year the financing was
ac+uired?
a. 2he 3eneral 4und will report an other financing source of ."110111.
b. 2he 3eneral 4und will report a 5ote ,ayable of ."110111.
c. 2he 3eneral 4und will report interest expenditures of ."0111.
d. -oth items a and c.
e. Both items b and c.
1>. A court Cudgment was rendered against a county in which they were ordered to pay
./110111 in e+ual installments over a five'year period to the plaintiff. 2he county*s
3eneral 4und will
a. report a fund liability of ./110111 in ?ear 1.
b. report expenditures of ./110111 in ?ear 1.
c. report expenditures of $!!"!!! in ,ear .
d. report expenditures of .1110111 in ?ear 1 and a fund liability of .(110111.
e. report an other financing use of .1110111 in ?ear 1.
1@. Assume that 3eneral 4und employees accrued .1"/0111 of compensated absences
liability during the year. )ompensated absences liability0 which is considered to be a
long'term liability0 decreased .&10111 from the beginning of the year to the end of the
year. 2he fund also actually paid .//10111 in salaries and wages during the year. At the
end of the fiscal year0 salaries and wages payable was . 1"0111. 2he 3eneral 4und would
report salaries and wages expenditures of
a. $$&#"!!!
b. .:@>0111
c. .:/>0111
d. .//10111
e. .:>/0111
17. A county with a fiscal year end of Aecember &1 ma;e debt service payments each year
from governmental fund resources. $ne debt service payment is for .&10111 (.110111
principal reduction0 .170111 interest) and is paid on =une &1 and Aec. &1. 2he other is for
."10111 (.1(0111 principal reduction0 . :0111 interest) and is paid on Darch &1 and
eptember &1. What will the governmental fund report as expenditures for the month of
December?
a. .1
b. .170111
c. .""0111
d. $-!"!!!
e. .(10111
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"1. 8f a governmental fund is using the consumption method of accounting for inventory and
follows a perpetual inventory system0 which of the following is true?
a. An asset account is A%-82%A when inventory is purchased.
b. An expenditure account is A%-82%A inventory is consumed.
c. An asset account is never A%-82%A or )#%A82%A.
d. An expenditure account is A%-82%A when inventory is purchased.
e. Both items a and b are true.
f. -oth items c and d are true.
"1. A 3eneral 4und transfers funds to a Aebt ervice 4und in late Aecember. 2he Aebt
ervice 4und will ma;e the re+uired debt service payment in early =anuary. 4or the
month of Aecember0 fund balance will
a. decrease for the 3eneral 4und and increase for the Aebt ervice 4und.
b. decrease for the 3eneral 4und and remain the same for the Aebt ervice 4und.
c. decrease for both the 3eneral 4und and the Aebt ervice 4und.
d. 'ither item a or b" dependin+ on the +overnment.s debt service expenditure
accountin+ policy.
e. 5one of the above.
"". 8nterest expenditures of a governmental fund should include
a. interest paid during the year.
b. interest paid during the year plus any interest that matured but was not paid during
the year.
c. interest paid durin+ the year" any interest that matured but /as not paid
durin+ the year and accrued interest on short0term debt recorded as a
fund liability.
d. interest paid during the year0 any interest that matured but was not paid during the
year and accrued interest on all general long'term liabilities.
"&. A county accounts for its debt service payments in the 3eneral 4und. 2he amount of
unmatured0 unpaid interest on general long'term liabilities at the beginning of the year
was .1""0111. 2he ending balance was .1:/0111. 2he 3eneral 4und also made
principal payments of .:110111 and interest payments of .1/10111 during the year. 2he
3eneral 4und should report expenditures for debt service for the year of
a. .1/10111
b. .>""0111
c. $1$!"!!!
d. .>7&0111
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"(. A city entered into a general government capital lease for e+uipment on =uly 10 "1E>.
2he capitalizable cost of the e+uipment was .(110111. A down payment of .(10111 was
made. 2he next lease payment of .1110111 is due =uly 10 "1E@. 2he implicit rate of
interest on the lease agreement is 11<. 2he amount of expenditures that the city should
report in its 3eneral 4und statement of revenues0 expenditures0 and changes in fund
balance for the year ended Aecember &10 "1E> is
a. .(10111
b. ./@0111
c. $2!!"!!!
d. .(1@0111
"/. A government entered into a general government capital lease for e+uipment during the
year. 2he capitalizable cost of the e+uipment was .(110111. A down payment of
.(10111 was made. 2he 3eneral 4und should report in its statement of revenues0
expenditures0 and changes in fund balance an
a. other financing use of .(110111.
b. expenditure of .&:10111.
c. other financing source of .(110111.
d. other financin+ source of $-&!"!!!.
":. 2he purchases method of accounting is permitted for
a. materials and supplies0 but not for prepaid insurance.
b. prepaid insurance0 but not for materials and supplies.
c. neither prepaid insurance nor materials and supplies.
d. both prepaid insurance and materials and supplies.
">. Assignment of budgeted expenditure authority to differing time periods within a year''
such as months or +uarters''is a budgetary control mechanism referred to as
a. allocations.
b. allotments.
c. appropriations.
d. apportionments.
"@. 2he minimum acceptable expenditure classifications for governmental fund financial
reporting purposes are
a. department.
b. pro+ram or function.
c. program or function0 and department.
d. program or function0 and activity.
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"7. A government has claims and Cudgments outstanding at the beginning of "1E/ of
.101110111. 2hese claims and Cudgments are expected to result in awards against the
government of .@110111. .>/0111 of these claims are due and payable from 3eneral
4und net assets at Aecember &10 "1E(. At the end of "1E/0 the government has claims
and Cudgments outstanding of ."01110111. 2hese claims and Cudgments are expected to
result in awards against the government of .10"110111. 5one of these claims are due and
payable from 3eneral 4und net assets at Aecember &10 "1E/. 2he government paid
claims and Cudgments of .(110111 during "1E/. 3eneral 4und expenditures for claims
and Cudgments for "1E/ should be reported at what amount?
a. $-#$"!!!
b. .(110111
c. .>"/0111
d. .@110111
&1. A government has a liability for accrued compensated absences at the beginning of "1E/
of ./110111. 2his liability did not mature in "1E(. At the end of "1E/0 the government
has a liability for accrued compensated absences (not due and payable) of .:110111. 8n
addition0 the government had .110111 of matured compensated absences to be paid in
early "1E: from existing fund assets 2he government paid compensated absences of
.(110111 during "1E/. 2he 3eneral 4und expenditures for compensated absences for
"1E/ should be reported at what amount?
a. .(110111
b. $2!"!!!
c. ./110111
d. ./110111
&1. 8n which of the following situations is a government re+uired to report a fund balance
reserve in its balance sheet?
a. 3hen the +overnment uses the purchases method to account for inventories
b. When the government uses the consumption method to account for inventories
c. When the government uses purchases method to account for prepaid insurance.
d. All of the above
&". A county uses the consumption method to account for 3eneral 4und materials and
supplies. 2he beginning inventory of materials and supplies was .1""0111. 2he ending
inventory was .1/10111. 2he beginning balance of reserve for encumbrances (for
supplies ordered but not received at the beginning of the year) was ./10111F the ending
balance was ."10111. upplies purchased during the year totaled .>/10111. 2he county
3eneral 4und should report expenditures for materials and supplies for the year of
a. $1##"!!!
b. .>/10111
c. .>/"0111
d. .>@10111
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&&. 2he 3eneral 4und reported a beginning balance of inventory of materials and supplies of
.1""0111. 2he ending balance was .1/10111. upplies purchased during the year totaled
.:110111. 2he county uses the consumption method. 2he 3eneral 4und should report
expenditures for materials and supplies for the year of
a. .(/10111
b. $$1#"!!!
c. .:110111
d. .:"@0111
&(. 2he 3eneral 4und reported a beginning balance of inventory of materials and supplies of
.1""0111. 2he ending balance was .1/10111. upplies received during the year
(purchases) totaled .:110111. 2he county uses the purchases method. 2he 3eneral 4und
should report expenditures for materials and supplies for the year of
a. .(/10111
b. ./>"0111
c. $&!!"!!!
d. .:"@0111
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