Test bank Advanced Accounting 10e by Beams Chapter 20

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(1)To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 20 Test Bank ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS PROPRIETARY AND FIDUCIARY FUNDS Multiple Choice Questions LO1 1. What basis of accounting is used by proprietary funds? a. b. c. d. LO1 2. Enterprise funds are accounted for in a manner similar to a. b. c. d. LO1 3. internal service funds. construction project funds. agency funds. private-purpose trust funds. Payments in lieu of taxes from an enterprise fund should be reported as a(n) a. b. c. d. LO1 4. Modified accrual accounting. Accrual accounting. Cash basis accounting. Fair value accounting. operating expense. operating transfer out. nonoperating expense. nonoperating transfer out. The enterprise fund accounting equation is a. assets = liabilities. b. current assets + noncurrent assets + liabilities = fund balance. c. current assets + noncurrent assets + liabilities = net assets. d. current assets + noncurrent assets - liabilities = net assets. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-1

(2) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 5. Depreciation of a proprietary fund’s fixed assets is I. reported in the governmental-wide financial statements. II.recorded in the proprietary fund. a. b. c. d. LO1 6. Which of the following funds is not included in government-wide financial statements? a. b. c. d. LO2 7. operating activities. noncapital financing activities. capital and related financing activities. investing activities. Major categories of the enterprise fund cash flow statement include all of the following except cash flows from a. b. c. d. LO2 9. Internal service funds. Enterprise funds. Fiduciary funds. Permanent funds. In a proprietary fund statement of cash flows, cash paid to other funds, except for interfund services used, should be classified as a cash outflow from a. b. c. d. LO2 8. I. only. II. only. I. and II. Neither I nor II. investing activities. restricted and unrestricted fund balances. noncapital financing activities. capital and related financing activities. GASB’s cash flow statement reporting a. b. c. d. requires the direct method. requires the indirect method. permits either the direct or indirect method. requires reconciliation between the direct and indirect method. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-2

(3) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 10. The agency fund accounting equation is a. assets = liabilities. b. current assets + noncurrent assets + liabilities = fund balance. c. current assets + noncurrent assets + liabilities = net assets. d. current assets + noncurrent assets - liabilities = net assets. LO3 11. Which of the following does not appear on the statement of cash flows as an operating activity? a. b. c. d. LO3 12. Which of the following is not a fiduciary fund? a. b. c. d. LO3 13. A permanent fund. A proprietary fund. A trust fund. An agency fund. What basis of accounting is used by fiduciary funds? a. b. c. d. LO3 14. Receipts from interfund reimbursements. Payments for taxes and in lieu of taxes. Payments for interest. Fines for late service payments. Modified accrual accounting. Accrual accounting. Cash basis accounting. Present value accounting. Prudent City collects state sales taxes quarterly from local businesses and then gives the state revenue department the money at the end of the year. The sales taxes would go in Prudent City’s a. b. c. d. special revenue fund. general fund. agency fund. enterprise fund. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-3

(4) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO3 15. In reference to agency funds, which of the following statements is correct? a. Agency funds are fiduciary funds used to account for resources that governments hold in a custodial capacity. b. Agency funds can arise from the normal and recurring operations of other funds. c. Agency funds can be used when the governmental entity undertakes necessary administrative duties, such as determining the eligibility of potential recipients. d. All of the above are correct. LO3 16. Private-purpose trust funds are accounted for in the same manner as a. b. c. d. LO3 17. permanent funds. proprietary funds. special revenue funds. fiduciary funds. In reference to trust funds, which of the following statements is correct? a. Investment trust funds are fiduciary funds used to account for multigovernmental external investment pools sponsored by a governmental agency. b. Private-purpose trust funds are fiduciary funds used to account for resources that are held for the benefit of parties outside of the governmental agency. c. Pension trust funds are fiduciary funds used when a government acts as trustee for a defined pension plan for a governmental entity. d. All of the above are correct. LO4 18. The two required financial statements for defined benefit pension plans are a statement of a. plan net assets and a schedule of funding progress. b. plan net assets and a statement of changes in plan net assets. c. changes in plan net assets and a schedule of employer contributions. d. revenues, expenses, and changes in net assets and a statement of cash flows. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-4

(5) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO4 19. A pension trust fund statement of changes in plan net assets would include all of the following except a. b. c. d. LO4 20. employer contributions. employee contributions. benefit payments. cash surrender value. In reference to governmental accounting for public employee retirement systems (PERS), which of the following statements is correct? a. PERS are subject to ERISA regulations. b. Governments often turn to FASB for guidance in their efforts to comply with pension regulations. c. GASB pension standards require governments to present a schedule of funding progress for defined benefit pension plans. d. All of the above are correct. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-5

(6) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise 1 Prepare journal entries to record the following transactions in the enterprise fund for a state university. 1. Tuition and fees assessed total $8,000,000 of which 80% was collected by year-end; scholarships were granted for $300,000 and $200,000 was estimated to be uncollectible. 2. Revenues collected from sales and services to the university bookstore were $1,200,000. 3. Salaries and wages were $3,000,000, of which $200,000 was for employees of the university bookstore. 4. Unrestricted cash was used to pay the long-term mortgage on the university's buildings: $1,500,000 for interest and $500,000 for mortgage principal. 5. Restricted contributions of $800,000 for a specific academic program were received. 6. Expenditures of $445,000 for the restricted program were incurred and paid. 7. Equipment of $55,000 was purchased and paid for with unrestricted cash. LO1 Exercise 2 Spencer College assessed $1,350,000 in student tuition for the fall semester. The college estimates bad debts will be 2% of the gross assessed tuition. Spencer is located in Montana where a scholarship program provides for tuition waivers totaling $120,000. Estimated uncollectible tuition is $13,500. Determine the amount of revenue to be reported in the Spencer enterprise fund. LO1 Exercise 3 Record the following transactions in the Porter Hospital enterprise fund: 1. 2. 3. 4. 5. Gross patient services revenues: $10,000,000. Included in the above revenues are: charity services, $200,000; contractual adjustments, $700,000; and estimated uncollectible amounts, $350,000. Purchased equipment by issuing a 5-year note for $80,000. Received cash donations restricted for a capital building addition program, $2,200,000. Incurred and paid $180,000 of contractor billings for the capital building program. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-6

(7) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise 4 Journalize the following utility transactions in the Brown County enterprise fund: 1. Billings to external customers $1,600,000, billings to Brown County governmental funds $130,000. 2. Collected refundable deposits from new utility customers $10,000. 3. Collected 95% of all billings by fiscal year-end. 4. Refunded $4,000 in deposits to former utility customers. 5. Unbilled services to outside customers at year-end $14,000. LO1 Exercise 5 Prepare journal entries in an Internal Service Fund of Prat County to record each of the following transactions. 1. Purchased equipment on September 1 by paying $25,000 down and borrowing $100,000 on a 6%, 2-year note. 2. Billed General Fund departments $620,000 for services provided to those departments. Billings to the Enterprise Fund totaled $165,000. All billings were collected by year-end except for $100,000 charged to the General Fund. 3. Accrued year-end (December 31) adjustments for interest expense and depreciation. The useful life of the equipment is 5 years with no salvage value. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-7

(8) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO1 Exercise 6 Journalize the following utility transactions in the Starkey County enterprise fund: 1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1 (an interest payment date). The bond proceeds are to be used for new plant construction and the issue will mature in 20 years. 2. Depreciation for the year-ended December 31 included $300,000 for buildings and $190,000 for equipment. 3. The utility paid $600,000 in construction costs for the new plant. 4. Interest on the revenue bonds was accrued at year-end. LO1 Exercise 7 Prepare journal entries to record the following grant-related transactions of an enterprise fund. 1. 2. 3. 4. Received an operating grant in cash from the state, $2,500,000. Incurred and paid qualifying expenses on the grant program, $1,600,000. Received a federal grant to finance construction of a plant, $4,500,000 (cash received in advance). Incurred and paid construction cost on the plant, $3,000,000. LO2 Exercise 8 Based upon the provided 2006 annual cash flow information, prepare a cash flow statement for the Blue Valley Aquatic Center enterprise fund. Green fees received Membership fees received League outing fees received Interest revenue received Cash received from short-term note payable Payments to employees Payments to suppliers Cash paid in lieu of taxes to the general fund Payments for capital improvements Interest paid on short-term loan Cash balance on January 1, 2006 $500,000 30,000 120,000 2,000 75,000 350,000 198,000 60,000 85,000 3,000 15,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-8

(9) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com LO2 Exercise 9 The four cash flow activities required in a government proprietary fund's statement of cash flows are listed below and assigned a letter code. A) Cash flows from operating activities B) Cash flows from noncapital financing activities C) Cash flows from capital and related financing activities D) Cash flows from investing activities Required: Use the correct letter code to indicate where each of the following ten items should be reported in the statement of cash flows. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. An enterprise fund fixed asset was sold for cash. The proceeds from the sale of the fixed asset were transferred to the general fund. Paid principal, $100, 000, and interest, $250,000, on a mortgage. Cash proceeds from sale of investments, $90,000. Investments were purchased with the proceeds of debt issued to finance construction of specialized equipment that is almost completed. Cash paid for new equipment, $22,000. Cash received from the general fund to cover part of the cost of plant expansion, $1,000,000. Cash received from another fund as a 6-month loan for the sole purpose of financing purchase of equipment, $90,000. Cash proceeds from issuing bonds for an enterprise fund construction project. Cash paid to employees for salaries. Cash received from interest earned on investments. LO2 Exercise 10 Based upon the provided 2006 annual cash flow information, prepare a cash flow statement for the Downtown University Motor Pool internal service fund. Cash received from customers Cash received general fund (noncapital loan) Interest revenue received Cash received from short-term note payable Payments to employees Payments to suppliers Cash paid in lieu of taxes to the general fund Payments for capital improvements Interest paid on short-term loan Principal paid on capital debt Interest paid on capital debt Cash balance on January 1, 2006 $850,000 20,000 1,000 40,000 450,000 250,000 65,000 75,000 2,000 50,000 10,000 12,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-9

(10) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS Multiple Choice Questions 1. b 2. a 3. d 4. d 5. c 6. a 7. b 8. b 9. a 10. a 11. a 12. b 13. b 14. c 15. a 16. d 17. d 18. a 19. d 20. c I wrote a replacement question. I wrote a replacement question. I wrote a replacement question. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-10

(11) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 1 1. Tuition and fees receivable ............. Tuition revenue .................... Scholarships expense .................... Bad debts expense ...................... Tuition and fees receivable ......... Allowance for uncollectible accounts 8,000,000 8,000,000 300,000 200,000 300,000 200,000 Cash ................................. Tuition and fees receivable ......... 6,400,000 Cash ................................. Auxiliary enterprises revenue ....... 1,200,000 Educational and general expenses Auxiliary enterprises expense ........... Cash ................................ 2,800,000 200,000 Interest expense ........................ Mortgage payable ........................ Cash ................................ 1,500,000 500,000 Restricted cash ......................... Deferred contribution revenue ...... 800,000 Educational expense ................... Restricted cash ..................... 445,000 Deferred contribution revenue ........... Contribution revenue ................ 445,000 Equipment .............................. Cash ................................ 55,000 6,400,000 2. 1,200,000 3. 3,000,000 4. 2,000,000 5. 800,000 6. 445,000 445,000 7. 55,000 Exercise 2 The full amount of tuition charges is recognized. The tuition waivers and the uncollectible accounts should be reported as expenses. Therefore, the revenue of the enterprise fund is $1,350,000. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-11

(12) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 3 1. Accounts receivable/Cash ............... Patient service revenue ............. 10,000,000 10,000,000 2. Charity service adjustments ............ Contract adjustments ................... Bad debt expense ....................... Accounts receivable ................. Allowance for uncollectible accounts 200,000 700,000 350,000 Equipment ............................... Notes payable ....................... 80,000 900,000 350,000 3. 80,000 4. Restricted cash ......................... Deferred contribution revenue ....... 2,200,000 2,200,000 5. Construction in progress ................ Deferred contribution revenue ....... Restricted cash ......................... Contribution revenue ................ 180,000 180,000 180,000 180,000 Exercise 4 1. Accounts receivable ..................... Due from other funds .................... Service revenue ..................... 1,600,000 130,000 1,730,000 2. Restricted cash ......................... Customer deposits ................... 10,000 10,000 3. Cash ................................. Accounts receivable ................. Due from other funds ................ 1,643,500 Customer deposits ....................... Restricted cash ..................... 4,000 Accounts receivable ..................... Service revenue ..................... 14,000 1,520,000 123,500 4. 4,000 5. ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-12 14,000

(13) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise 5 1. 2. 3. Equipment ............................. Cash ............................. Notes payable .................... 125,000 Due from general fund .................. Due from enterprise fund .............. Service revenues ................. 620,000 165,000 Cash .................................. Due from general fund ............ Due from enterprise fund ......... 685,000 Interest expense ....................... Interest payable ................. ($100,000 X .06 X 4/12 = $2,000) 2,000 Depreciation expense .................. Accumulated depreciation-equip. .. ($125,000 / 5 years) X 4/12 = $8,333 8,333 25,000 100,000 785,000 520,000 165,000 2,000 8,333 Exercise 6 1. 2. 3. 4. Restricted cash Discount on revenue bonds ............. Bonds payable ..................... 3,920,000 80,000 Depreciation expense ................... Accumulated depreciation-building Accumulated depreciation-equipment 490,000 Construction in progress ............... Restricted cash ................... 600,000 Interest expense ....................... Discount on revenue bonds ........ Interest payable ................. 132,000 4,000,000 300,000 190,000 600,000 2,000 130,000 (Interest payable = $4,000,000 x 6.5% x 1/2 = $130,000) (Discount amortization = $80,000/20 x 1/2 = $2,000) Exercise 7 1. Restricted cash ..................... Deferred grant revenues .......... 2,500,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-13 2,500,000

(14) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 2. 3. 4. Expenses ............................ Restricted cash .................. 1,600,000 Deferred grant revenues ............. Nonoperating revenues--grants .... 1,600,000 Restricted cash ..................... Deferred contributed capital ..... 4,500,000 Construction in progress ............ Restricted cash .................. 3,000,000 Deferred contributed capital ........ Contributed capital ................. 3,000,000 1,600,000 1,600,000 4,500,000 3,000,000 3,000,000 Exercise 8 Red River Municipal Golf Course Fund Statement of Cash Flows For the Year Ended December 31, 2006 Cash Flows from Operating Activities: Cash received from customers Cash paid for operating expenses Net cash provided Cash Flows from Noncapital Financing Activities: Cash received from short-term note Cash paid for interest Operating transfer out - other funds Net cash provided Cash Flows from Capital and Related Financing activities: Cash paid on capital improvements Net cash used Cash Flows from Investing Activities: Interest received Net cash provided Net increase in unrestricted cash Cash balance, January 1, 2006 Cash balance, December 31, 2006 $ 650,000 (548,000) $ 102,000 75,000 ( 3,000) (60,000) 12,000 (85,000) ( 85,000) 2,000 2,000 31,000 15,000 $ 46,000 Exercise 9 1. 2. 3. C B C ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-14

(15) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 4. 5. 6. 7. 8. 9. 10. D C C C C A D Exercise 10 Downtown University Motor Pool Fund Statement of Cash Flows For the Year Ended December 31, 2006 Cash Flows from Operating Activities: Cash received from customers Cash paid for operating expenses Net cash provided Cash Flows from Noncapital Financing Activities: Cash received from short-term note Cash received from general fund Noncapital loan Cash paid for interest Operating transfer out - other funds Net cash used Cash Flows from Capital and Related Financing activities: Principal paid on capital debt Interest paid on capital debt Cash paid on capital improvements Net cash used Cash Flows from Investing Activities: Interest received Net cash provided Net increase in unrestricted cash Cash balance, January 1, 2006 Cash balance, December 31, 2006 $ 850,000 (700,000) $ 150,000 40,000 20,000 ( 2,000) (65,000) ( 7,000) (50,000) (10,000) (75,000) (135,000) 1,000 1,000 9,000 12,000 $ 21,000 ©2009 Pearson Education, Inc. publishing as Prentice Hall 20-15

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