Professional Documents
Culture Documents
Multiple Choice
Answer: b
Answer: c
Answer: a
4. A city sells $15 million of general obligation bonds on October 1, 2013. The bonds
mature at the rate of $1 million a year each September 30, starting September 30,
2014. The amount due September 30, 2014 is paid. How much should the city
report as outstanding debt in the Debt Service Fund in its year-end fund level
financial statements on December 31, 2014?
a. $15,000,000
b. $14,000,000
c. $13,750,000
d. $0
Answer: d
5. A city sells $5 million of 6% ten-year general obligation bonds on April 1, 2013. The
first installment of debt principal ($250,000) is due to be paid on September 30,
2013. What entry should the city make on September 30, 2013 in the Debt Service
Fund regarding the bond principal?
a. It should recognize a $250,000 liability for Matured bonds payable.
b. It should reduce the $5 million long-term liability by $250,000.
c. It should do nothing in the Debt Service Fund, but it should reduce Bonds
payable by $500,000 in the Capital Projects Fund
d. It should make no entry anywhere until the principal is actually paid.
Answer: a
6. A city keeps its books on a calendar year basis. On April 1, 2013, the city sold
$500,000 of 6% general obligation bonds, payable in semi-annual installments. The
first installment, due October 31, 2013 covered interest of $15,000 and principal of
$25,000. For the year ended December 31, 2013, how much should the Debt
Service Fund report as expenditures?
a. $15,000
b. $40,000
c. $15,000, plus an accrual for three months' interest
d. $40,000, plus an accrual for three months' interest and principal
Answer: b
Answer: c
8. A state issues long-term debt to finance a major construction project. The first
installment of debt service requires payment of principal of $75,000 and interest of
$100,000. Which of the following statements is true on the day that payment for
principal and interest is legally due?
a. expenditures of $175,000 should be recognized in the debt service fund.
b. expenditures of $75,000 should be recognized in the capital projects fund
and expenditures of $100,000 should be recognized in the debt service fund.
c. expenditures of $100,000 should be recognized in the debt service fund and
bonds payable should be reduced by $75,000 in the debt service fund.
d. expenditures of $175,000 should be recognized in the debt service fund and
bonds payable should be reduced by $75,000 in the capital projects fund.
Answer: a
Answer: d
Answer: c
11. Accrued interest on the following type of debt is reported in a governmental fund:
a. short-term tax anticipation notes payable
b. serial bonds
c. general obligation bonds
d. long-term bank notes
Answer: a
12. Which of the following groups of accounts best describes the types of assets and
liabilities likely to be found in Capital Projects Funds?
a. cash, investments, construction contract payable, matured bonds payable
b. cash, buildings, equipment, construction contracts payable
c. cash, investments, construction contracts payable, vouchers payable, long-
term debt payable
d. cash, investments, retainage payable, vouchers payable
Answer: d
13. A city accounts for its capital acquisitions using encumbrances. When the city enters
into a contract to acquire equipment, what journal entry should it make?
a. debit expenditures - capital outlay; credit vouchers payable
b. debit encumbrances; credit budgetary fund balance reserved for encumbrances
c. debit equipment; credit vouchers payable
d. debit encumbrances; credit appropriations - equipment
Answer: b
14, 15, and 16. The following set of facts applies to questions 14, 15, and 16: A state constructs an
office building. The construction is financed with: (1) a transfer of $1 million from the General
Fund; (2) a grant of $2 million from the federal government; (3) bond proceeds of $7 million; and
(4) earnings of $100,000 from temporary investment of bond proceeds. All transactions occur in
one year.
14. Based on the preceding set of facts, how much should be reported as Revenues in
the Capital Projects Fund?
a. $100,000
b. $2,100,000
c. $3,100,000
d. $8,100,000
Answer: b
15. Based on the preceding set of facts, how much should be reported as Other
financing sources in the Capital Projects Fund?
a. $1,000,000
b. $3,000,000
c. $8,000,000
d. $10,000,000
Answer: c
16. Based on the preceding set of facts, what should be reported in the financial
statements of the General Fund for the year?
a. other financing uses of $1 million
b. expenditures of $1 million
c. other financing sources of $2 million and other financing uses of $1 million
d. revenues of $2 million and other financing sources of $7 million
Answer: a
17. A city issues $5 million of long-term general obligation bonds to construct a new fire
house. How and where should that transaction be recorded?
a. as an other financing source in the debt service fund
b. as a liability in the capital projects fund
c. as a liability in the debt service fund
d. as an other financing source in the capital projects fund
Answer: d
18. What does the account, retainage payable, represent in the financial statements of a
Capital Projects Fund?
a. a long-term liability
b. an amount owed to other governments because capital grant provisions were not met
c. an amount held back by a government when paying a contractor
d. an amount that can be reported in the General Fund, but not a Capital Projects Fund
Answer: c
19. A city acquired two vehicles in a particular year: (1) a sedan for $20,000 that was
paid for through the General Fund and (2) a sanitation truck for $125,000 that was
paid for through the Capital Projects Fund. How should the assets be reported in the
city's fund-level financial statements?
a. $145,000 should be reported as assets in the general fund
b. $20,000 should be reported as assets in the general fund and $125,000
should be reported as assets in the capital projects fund
c. $145,000 should be reported as assets in the capital projects fund
d. neither acquisition should be reported as assets in the fund-level financial
statements
Answer: d
20. Which of the following fund types is most likely to have the shortest "life"?
a. internal service
b. capital projects
c. enterprise
d. special revenue
Answer: b
21. A city constructs a new building by issuing debt in the amount of $3 million. How
should the city report the debt proceeds in its Capital Projects Fund statement of
revenues, expenditures, and changes in fund balance?
a. as a revenue
b. as an other financing source
c. as a liability captioned general long-term obligations
d. as a liability captioned due to the debt service fund
Answer: b
22. Depending on the restrictions placed on resources used to acquire a police car, the
acquisition of the car could be reported in which of the following funds?
a. general fund
b. special revenue fund
c. capital projects fund
d. all of the above
e. none of the above
Answer: d
23. How should a fixed asset acquired through a capital lease agreement be recorded in
a General Fund?
a. at the present value of the future lease payments, by debiting expenditures
and crediting other financing sources - capital leases
b. at the total amount of the future lease payments, by debiting expenditures
and crediting other financing sources - capital leases
c. at the present value of the future lease payments, by debiting expenditures
and crediting capital leases payable.
d. no entry is needed until payments are actually made on the capital lease
agreement.
Answer: a
24. A city acquires equipment on January 1, 2013 by means of a capital lease agreement.
The agreement calls for paying the leasing company $300,000 in three $100,000
annual payments, starting December 31, 2013. The present value of the three lease
payments, using a 6% interest rate, is $267,300. The city will make the lease
payments from the General Fund. What journal entry should the city make on
January 1, 2013 in the Fund?
a. debit expenditures - capital outlay; credit other financing sources, for
$300,000
b. debit expenditures - capital outlay; credit other financing sources, for
$267,300
c. debit capital assets; credit capital leases payable, for $300,000
d. debit expenditures - capital outlay; credit capital leases payable, for
$267,300
Answer: b
25. A Debt Service Fund accumulates resources to retire debt that is due in a lump sum
in the year 2014. The Fund held marketable securities that cost $900,000 when
purchased during 2006 and 2007. The securities had fair market values of $875,000
on January 1, 2013, and $930,000 on December 31, 2013. The average fair market
value during the year was $895,000. At what amount should the Fund report the
securities in its balance sheet on December 31, 2013?
a. $875,000
b. $895,000
c. $900,000
d. $930,000
Answer: d
26. The operations of a debt service fund generally are controlled by which of the
following mechanisms?
a. bond indentures
b. encumbrance accounting
c. legislative oversight and review
d. break-even analysis
Answer: a
27. Capital assets that were financed through governmental fund activities will appear in
which financial statement?
a. government-wide statement of net assets
b. capital projects fund balance sheet
c. debt service fund balance sheet
d. enterprise fund balance sheet
Answer: a
28. Retainage payable will most likely appear in which financial statement?
a. government-wide statement of net assets
b. capital projects fund balance sheet
c. debt service fund balance sheet
d. special revenue fund balance sheet
Answer: b
29. The largest dollar amount of resources flowing into a capital projects fund normally will
come from
a. dedicated property taxes
b. user charges
c. bond proceeds
d. interest on investments
Answer: c
30. The largest dollar amount of resources flowing into a general obligation debt service
fund normally will come from
a. tax revenues and interfund transfers
b. interest on investments and user charges
c. fiscal agent fees and fines
d. liquidation of encumbrances
Answer: a
31. What type of fund is most likely used to account for the spending of income earned
by a Permanent Fund?
a. agency fund
b. private-purpose trust fund
c. enterprise fund
d. special revenue fund
Answer: d
Answer: c
33. How should marketable securities be valued when reported in a Permanent Fund’s
balance sheet?
a. at the cost to the donor of the investments
b. at the fair value of the investments on the date received by the government
c. at the fair value of the investments as of the balance sheet date
d. at the amount paid to acquire the securities
Answer: c
34. A capital project is completed, but $500,000 remains in a capital projects fund. How
should the government use the $500,000 remaining in the capital projects fund?
a. the government should retain the remaining funds in the capital projects fund
for a potential future capital project
b. the government should consult provisions of relevant grant and bond issues,
which may provide guidance regarding its use
c. the first-in, first out basis
d. residual amounts in a capital projects fund after completion of a project must
be transferred to a debt service fund
Answer: b
Answer: b
Problems
A county's Debt Service and Capital Projects Funds had the following resource
inflows during 2013. State whether each of the inflows should be reported as
revenues or as other financing sources in the fund-level statements of revenues,
expenditures and changes in fund balances.
a. Property taxes levied specifically for the Debt Service Fund
b. Cash received from General Fund to finance debt service payments
c. Cash received from General Fund to finance part of the cost of new police
headquarters
d. Grant from state to finance part of cost of new police headquarters
e. Proceeds of bonds issued to finance part of the cost of new police
headquarters
f. Interest earned on investment of resources being accumulated to finance
construction
g. Increase in fair market value of investments being accumulated to finance
construction
h. Bond premium received by Debt Service Fund from Capital Projects fund
Answer:
a. Revenues
b. Other financing sources
c. Other financing sources
d. Revenues
e. Other financing sources
f. Revenues
g. Revenues
h. Other financing sources
37. (Basic journal entries for acquisition of capital assets through issuance of debt)
Answer:
a. CPF
Cash 900,000
Other financing source – long-term debt issued 900,000
b. CPF
Expenditures - building 750,000
Vouchers payable 750,000
c. CPF
Vouchers payable 750,000
Cash 750,000
d. GF
Transfer out to Debt Service Fund 55,000
Cash 55,000
DSF
Cash 55,000
Transfer in from General Fund 55,000
e. DSF
Expenditures - bond principal 25,000
Expenditures - interest 30,000
Matured bonds payable 25,000
Matured interest payable 30,000
f. DSF
Matured bonds payable 25,000
Matured interest payable 30,000
Cash 55,000
Prepare journal entries in the Capital Projects Fund to record the following
transactions related to the construction of a building by the Village of Navajo Falls.
(Note that only Capital Projects Fund journal entries are required.) The Village
adopts a formal budget and uses encumbrance accounting.
a. The Village Council adopts a capital budget at the beginning of the year. To
finance construction of the building, the Village will transfer $3 million from
its General Fund and apply for a state grant of $1 million. It appropriates $4
million for construction.
b. The General Fund transfers $3 million to the Capital Projects Fund for the
new project.
Answer:
a. Estimated other financing sources 3,000,000
Estimated revenues 1,000,000
Appropriations 4,000,000
b. Cash 3,000,000
Transfer in from General Fund 3,000,000
c. Cash 1,000,000
Advance on construction grant 1,000,000
d. Encumbrances 3,400,000
Budgetary fund balance reserved for encumbrances 3,400,000
g. Encumbrances 200,000
Budgetary fund balance reserved for encumbrances 200,000
The Shannon Township Debt Service Fund accumulates resources to pay its $2
million general obligation debt. The debt is payable in equal annual installments of
principal over 10 years with 5% interest on the unpaid principal. Prepare journal
entries to record the following transactions in the Debt Service Fund.
Answer:
a. Property taxes receivable 500,000
Revenues - property taxes 500,000
b. Cash 500,000
Property taxes receivable 500,000
c. Investments 150,000
Cash 150,000
f. Cash 153,000
Investments 150,000
Revenues – interest earned on investments 3,000
A town enters into a lease-purchase agreement with Trucks, Inc. to acquire four
garbage trucks. The agreement provides that the town pay $100,000 at the end of
each year for four years. Upon full payment, the trucks become town property. The
agreement is based on an interest rate of 7%. (The present value of an annuity of $1
for 4 periods at 7% is 3.3872.) The lease agreement is accounted for in the General
Fund.
Required:
Prepare journal entries for the General Fund to record (a) the lease agreement and
the lease payment (b) at the end of the first year and (c) at the end of the second
year.
Answer:
(a) Record lease agreement
Expenditures - capital outlay 338,720
Other financing sources - capital leases 338,720
Note - The present value of the lease is $100,000 x 3.3872 or $338,720. Interest for the first year is
$338,720 x .07 = $23,711; and payment on principal is the difference between the $100,000 cash
payment and the interest of $23,711. After the payment, the "outstanding debt" is the difference
between the original debt of $338,720 and payment of $76,289, or $262,431. Therefore, the second
year's interest is $262,431 x .07= $18,370, and the payment on principal is $81,630. (This problem
could be varied by asking the student to prepare a schedule showing the principal and interest
payments for the life of the lease.)
Prepare journal entries to record the following transactions of a state, identifying the
funds affected by each transaction. Record journal entries for all funds affected. The
state prepares a budget for the Capital Projects Fund and uses encumbrance
accounting in that fund.
a. The state records its capital budget. It appropriates $10 million for highway
construction, which will be financed entirely with the issuance of bonds.
b. The state sells 20-year 6% bonds having a face value of $10 million. The
bonds are sold at a discount, so the state realizes a total of $9,900,000.
Equal installments of principal will be paid every six months, together with
interest on the unpaid balance.
c. The state awards two contracts, one for highway construction ($6,500,000)
and one for construction supervision ($350,000). Both contracts provide for
progress payments. The highway construction contract provides for 10%
retainage pending completion of the project. There is no retainage on the
construction supervision contract.
d. The construction contractor submits an invoice for $1,500,000. The invoice
is approved and a voucher is prepared, less the 10% retainage.
e. The construction supervisor submits an invoice for $100,000, and a voucher
is prepared.
f. Both of the invoices in transactions d. and e. are paid.
g. The state transfers $800,000 from the General Fund to the Debt Service
Fund in anticipation of the payment of debt service on the bonds.
h. The first semi-annual debt service on the 20-year bonds becomes due and
payable (see transaction b).
i. The debt service is paid.
Answer:
a. CPF
Estimated other financing sources 10,000,000
Appropriations 10,000,000
b. CPF
Cash 9,900,000
Other financing use – bond issue discount 100,000
Other financing source - long-term debt issued 10,000,000
c. CPF
Encumbrances – capital project 6,850,000
Budgetary fund balance reserved for encumbrances 6,850,000
d. CPF
Budgetary fund balance reserved for encumbrances 1,500,000
Encumbrances – capital project 1,500,000
f. CPF
Construction contracts payable 1,350,000
Vouchers payable 100,000
Cash 1,450,000
g. GF
Transfer out to Debt Service Fund 800,000
Cash 800,000
DSF
Cash 800,000
Transfer in from General Fund 800,000
h. DSF
Expenditures - bond principal 250,000
Expenditures - interest 300,000
Matured bonds payable 250,000
Matured interest payable 300,000
i. DSF
Matured bonds payable 250,000
Matured interest payable 300,000
Cash 550,000
42. (Preparing entries to close a Capital Projects Fund) [see p. 195… uses “close” not
“abolish”]
You are the Finance Director of the Town of Blue Mountain. Presented below is the
trial balance for a Capital Projects Fund of the Town at October 31, 2013. The
Town Engineer has advised you that the project accounted for within this fund, a
new system of bicycle trails, is complete and formal acceptance by the Town is
pending. The Town Council has directed you to abolish this fund and transfer any
remaining net assets to the Town’s Debt Service Fund. Prepare the entries necessary
to settle the remaining liabilities of the fund, close the accounts, and transfer the
remaining net assets to the Debt Service Fund.
.
Town of Blue Mountain
Capital Projects Fund
Preclosing Trial Balance
October 31, 2013
Debits Credits
Cash $ 70,160
Vouchers payable $ 24,450
Retainage percentage 42,750
Restricted fund balance 117,285
Revenues - interest 50,175
Expenditures - capital outlay 197,000
Transfer in from General Fund 32,500
$ 267,160 $ 267,160
Answer:
Vouchers payable 24,450
Retainage payable 42,750
Cash 67,200