Fundamentals of Advanced Accounting 6th Edition by Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik Test Bank

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Fundamentals of Advanced Accounting 6th Edition by Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik Test Bank

Description

File: Chapter 12 Accounting for State and Local Governments, Part II

Multiple Choice:

[QUESTION]
1. For government-wide financial statements, what account is credited when a piece of equipment is leased on a capital lease?
A) Equipment Capital Lease
B) Encumbrances Long Term
C) Encumbrances Lease Obligations
D) Capital Lease Obligation
E) The lease is not recorded.
Answer: D
Learning Objective: 12-01
Difficulty: Easy
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
2. For fund financial statements, what account is credited when a piece of equipment is leased on a capital lease?
A) Equipment Capital Lease.
B) Encumbrances Long Term.
C) Encumbrances Lease Obligations.
D) Capital Lease Obligation.
E) Other Financing Sources Capital Lease.
Answer: E
Learning Objective: 12-01
Difficulty: Easy
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
3. Jones College, a public institution of higher education, must prepare financial statements
A) As if the college was an enterprise fund.
B) Following the same rules as state and local governments.
C) According to GAAP.
D) As if the college was a fiduciary fund.
E) In the same manner as private colleges and universities.
Answer: B
Learning Objective: 12-09
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
4. For the purpose of government-wide financial statements, the cost of cleaning up a government-owned landfill and closing the landfill
A) Is not recognized until the costs are actually incurred.
B) Is accrued and amortized over the expected useful life of the landfill.
C) Is accrued on a pro-rated basis each period based on how full the landfill is.
D) Is accrued in full at the time the costs become estimable.
E) Is treated as an encumbrance at the time it become estimable, and then as an expenditure when it is actually paid.
Answer: C
Learning Objective: 12-02
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
5. A method of depreciation for infrastructure assets that allows the expensing of all maintenance costs each year instead of computing depreciation is called
A) Government-wide depreciation.
B) Proprietary depreciation.
C) GASB depreciation.
D) Modified approach.
E) Alternative depreciation.
Answer: D
Learning Objective: 12-05
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
6. Drye Township has received a donation of a rare painting worth $1,000,000. For Dryes government-wide financial statements, three criteria must be met before Drye can opt not to recognize the painting as an asset. Which of the following is not one of the three criteria?
(1.) The painting is held for public exhibition, education, or research in furtherance of public service, rather than financial gain.
(2.) The painting is scheduled to be sold immediately at auction.
(3.) The painting is protected, kept unencumbered, cared for, and preserved.
A) Item 1 is not one of the three criteria.
B) Item 2 is not one of the three criteria.
C) Item 3 is not one of the three criteria.
D) All three items are required criteria.
E) None of the three items are required criteria.
Answer: B
Learning Objective: 12-04
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
7. GASB Codification Section 2200.106-107 makes which of the following statements regarding Managements Discussion and Analysis?
A) MD&A is required only for Proprietary Fund Financial Statements.
B) MD&A is required for all state and local government financial statements.
C) MD&A is only required for comprehensive annual financial reports.
D) MD&A for state and local government financial statements must include an analysis of potential, untapped revenue sources.
E) MD&A is an optional inclusion for state and local government financial statements.
Answer: B
Learning Objective: 12-06
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
8. Which one of the following is a criterion for identifying a primary government?
A) it has an appointed board of directors.
B) it is fiscally dependent.
C) it is a local government.
D) it has a separately elected governing body.
E) it must prepare financial statements.
Answer: D
Learning Objective: 12-07
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
9. A local governments basic financial statements would include a statement of cash flows for all
A) proprietary fund types.
B) governmental fund types.
C) fund types.
D) fiduciary fund types.
E) A statement of cash flows is not required for any fund types.
Answer: A
Learning Objective: 12-08
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
10. According to the GASB (Governmental Accounting Standards Board), which one of the following is not a criterion for determining whether a government is legally separate?
A) The government can determine its own budget.
B) The government can issue debt.
C) The government has corporate powers including the right to sue and be sued.
D) The government has the power to levy taxes.
E) The government can issue preferred stock.
Answer: E
Learning Objective: 12-07
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
11. Which of the following is not a criterion of a capital lease?
A) The lease transfers ownership of the property to the lessee by the end of the lease term.
B) The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property, net of lessors investment tax credit.
C) The lease contains an option to purchase the leased property at a bargain price.
D) The lease contains an option to renew.
E) The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.
Answer: D
Learning Objective: 12-01
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
12. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund.
What should be recorded in the General Fund on the date the lease is signed?

A) Expenditures Leased Asset 20,000.00
Cash 20,000.00
B) Expenditures Leased Asset 20,000.00
Cash 5,411.41
Other Financing Sources Capital Lease 14,588.59
C) Leased Asset 20,000.00
Cash 20,000.00
D) Expenditures Leased Asset 20,000.00
Other Financing Sources Capital Lease 20,000.00
Expenditures Lease Principal 5,411.41
Cash 5,411.41
E) Other Financing Sources Capital Lease 5,411.41
Cash 5,411.41

Answer: D
Learning Objective: 12-01
Difficulty: Medium
Blooms: Analyze
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
13. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund.
What should be recorded in the General Fund one year from the date the lease is signed?

A) Expenditures Leased Asset 5,411.41
Cash 5,411.41
B) Expenditures Interest 1,604.75
Expenditures Lease Principal 3,806.66
Cash 5,411.41
C) Lease Principal 5,411.41
Other Financing Sources Capital Lease 5,411.41
D) Expenditures Interest 1,604.75
Expenditures Leased Asset 3,806.66
Cash 5,411.41
E) Other Financing Sources Capital Lease 5,411.41
Cash 5,411.41

Answer: B
Learning Objective: 12-01
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: Payment $5,411.41 Interest Expenditure $1,604.75 = Lease Principle $3,806.66

[QUESTION]
14. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund.
What entry should be made for the government-wide financial statements on the date the lease is signed?

A) Equipment 20,000.00
Cash 20,000.00
B) Equipment 20,000.00
Capital Lease Obligation 20,000.00
C) Lease 20,000.00
Cash 20,000.00
D) Equipment 20,000.00
Cash 5,411.41
Capital Lease Obligation 14,588.59
E) Expenditures Leased Asset 20,000.00
Cash 5,411.41
Other Financing Sources Capital Lease 14,588.49

Answer: D
Learning Objective: 12-01
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: Equipment Cost $20,000 Cash Payment $5,411.41= Capital Lease Obligation $14,588.59

[QUESTION]
15. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to be used in City Hall and was purchased from appropriated funds of the General Fund.
What entry should be made for the government-wide financial statements one year from the date the lease is signed?

A) Capital Lease Obligation 5,411.41
Cash 5,411.41
B) Interest Expense 1,604.75
Capital Lease Obligation 3,806.66
Cash 5,411.41
C) Expenditures Interest 1,604.75
Expenditures Lease Asset 3,806.66
Other Financing Sources Capital Lease 5,411.41
D) Expenditures Interest 1,604.75
Expenditures Leased Asset 3,806.66
Cash 5,411.41
E) Equipment 5,411.41
Cash 5,411.41

Answer: B
Learning Objective: 12-01
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: Payment $5,411.41 Interest Expense $1,604.75 = Capital Lease Obligation $3,806.66

[QUESTION]
16. Which of the following is a section of the general purpose external financial statements of a state or local government?
(1) Managements discussion and analysis (MD&A).
(2) Required supplementary information (other than MD&A).
(3.) Basic financial statements and notes to financial statements.
A) 1 and 2.
B) 2 and 3.
C) 1 and 3.
D) 3 only.
E) 1, 2, and 3.
Answer: E
Learning Objective: 12-06
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
17. Which of the following must be presented in the MD&A of a government?
A) A brief discussion of the basic financial statements.
B) Total assets.
C) Total liabilities.
D) Net assets.
E) An organization chart of government officials.
Answer: A
Learning Objective: 12-06
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
18. What are the three broad sections of a state or local governments CAFR?
A) Introductory, financial, and statistical.
B) Financial statements, notes to the financial statements, and component units.
C) Introductory, statistical, and component units.
D) Component units, financial, and statistical.
E) Financial statements, notes to the financial statements, and statistical.
Answer: A
Learning Objective: 12-06
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
19. Which of the following is a financial statement of a proprietary fund?
A) Balance sheet.
B) Statement of Operations.
C) Statement of Changes in Cash Flows.
D) Statement of Net Assets.
E) Statement of Revenues, Expenditures, and Changes in Fund Balance.
Answer: D
Learning Objective: 12-08
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
20. Which criteria must be met to be considered a special purpose government?
(1.) Have a separately elected governing body
(2.) Be legally independent
(3.) Be fiscally independent
A) 1 only.
B) 1 and 2.
C) 2 and 3.
D) 1 and 3.
E) 1, 2, and 3.
Answer: E
Learning Objective: 12-07
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
21. Which statement is false regarding the government-wide Statement of Net Assets?
A) the purpose of the Statement of Net Assets is to report the economic resources of the government as a whole.
B) assets are reported excluding capital assets.
C) capital assets are reported net of depreciation.
D) investments are reported at fair value rather than historical cost.
E) Business-type activities include Enterprise Funds.
Answer: B
Learning Objective: 12-08
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
22. Which item is not included on the government-wide Statement of Activities?
A) revenues.
B) expenses.
C) assets.
D) operating grants.
E) capital contributions.
Answer: C
Learning Objective: 12-08
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
23. Which statement is false regarding the Balance Sheet for Fund Financial Statements?
A) The Balance Sheet for Fund Financial Statements measures only current financial resources of the governmental entity.
B) The Balance Sheet for Fund Financial Statements uses the modified accrual method for timing purposes.
C) Capital Assets are not reported on the Balance Sheet for Fund Financial Statements.
D) The Balance Sheet for Fund Financial Statements measures only long-term financial resources of the governmental entity.
E) Long-term debts are not reported on the Balance Sheet for Fund Financial Statements.
Answer: D
Learning Objective: 12-08
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
24. The city operates a public pool where each person is assessed a $2 entrance fee. Which fund is most appropriate to record these revenues?
A) General Fund.
B) Enterprise Fund.
C) Special Revenue Fund.
D) Internal Service Fund.
E) Capital Projects Fund.
Answer: B
Learning Objective: 12-08
Difficulty: Easy
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
25. Which statement is false regarding the Statement of Revenues, Expenditures, and Changes in Fund Balance when it is included with government-wide financial statements?
A) The Statement of Revenues, Expenditures, and Changes in Fund Balance uses the modified accrual method for timing purposes.
B) The Statement of Revenues, Expenditures, and Changes in Fund Balance presents revenues as either program revenues or general revenues.
C) A presentation reconciles the change in governmental fund balance to the change in net assets for governmental activities.
D) Other financing sources are presented on the Statement of Revenues, Expenditures, and Changes in Fund Balance.
E) All non-major funds are combined and reported together.
Answer: B
Learning Objective: 12-08
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
26. A city starts a solid waste landfill during 2012. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which will not be paid until the facility is closed. At the end of 2012, the facility was 20% full, and at the end of 2013 the facility was 45% full. On government-wide financial statements, which of the following are the appropriate amounts to present in the financial statements for 2013?
A) Both expense and liability will be zero
B) Expense will be $300,000 and liability will be $600,000.
C) Expense will be $600,000 and liability will be $600,000.
D) Expense will be $675,000 and liability will be $600,000.
E) Expense will be $375,000 and liability will be $675,000.
Answer: E
Learning Objective: 12-02
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: $1,500,000 X 20% = $300,000 Expense & Liability for 2012
$1,500,000 X 45% = $675,000 Liability at Year End of 2013
$675,000 Liability at Year-End of 2013 $300,000 Liability at Year-End 2012 = $375,000 Expense for 2013

[QUESTION]
27. A city starts a solid waste landfill during 2012. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which will not be paid until the facility is closed. At the end of 2012, the facility was 20% full, and at the end of 2013 the facility was 45% full. If the landfill is judged to be a governmental fund, what liability is reported on the fund financial statements at the end of 2013?
A) $ 0.
B) $300,000.
C) $375,000.
D) $600,000.
E) $675,000.
Answer: A
Learning Objective: 12-02
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: As a Governmental Fund, No Liability is Recorded, Only Expenditures

[QUESTION]
28. The employees of the City of Raymond earn vacation compensation that totals $1,500 per week. During 2013, $30,000 in vacation time was taken and the remainder is expected to be used during the latter part of next year. In the government-wide financial statements, assuming there was no beginning balance, what liability should be reported at the end of 2013?
A) $ 0.
B) $ 1,500.
C) $30,000.
D) $48,000.
E) $78,000.
Answer: D
Learning Objective: 12-02
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: Beginning Balance $ 0 + Accrued Liability $78,000 Vacation Used $30,000 = Ending Liability Balance $48,000

[QUESTION]
29. The employees of the City of Raymond earn vacation compensation that totals $1,500 per week. During 2013, $30,000 in vacation time was taken and $48,000 is expected to be used during the latter part of next year. On fund financial statements, what liability should be reported at the end of 2013?
A) $ 0.
B) $ 1,500.
C) $30,000.
D) $48,000.
E) $78,000.
Answer: A
Learning Objective: 12-02
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: As a Governmental Fund, No Liability is Recorded in 2013, Expenditures are Recorded as Vacation Time is Taken

[QUESTION]
30. The Town of Conway opened a solid waste landfill in 2001 that is now filled to capacity. The city initially anticipated closure costs of $2 million. These costs were not expected to be incurred until the landfill is closed. What is the final journal entry to record these costs assuming the estimated $2 million closure costs were properly recorded and the landfill is accounted for in an enterprise fund?

A) ExpenseLandfill Closure 2,000,000
Landfill Closure Liability 2,000,000
B) Landfill Closure Liability 2,000,000
ExpenseLandfill Closure 2,000,000
C) ExpenseLandfill Closure 2,000,000
Cash 2,000,000
D) Landfill Closure Liability 2,000,000
Cash 2,000,000
E) Expenditure- Landfill Closure 2,000,000
Cash 2,000,000

Answer: D
Learning Objective: 12-02
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Feedback: Previously Accrued Closure Liability Balance of $2,000,000 is satisfied by $2,000,000 Cash Payment at Closure of Facility

Essay:

[QUESTION]
31. What three criteria must be met to identify a governmental unit as a primary government?
Answer: To be considered a primary government, the unit must meet the following 3 criteria:
(1.) It must have a separately elected governing body.
(2.) It must be legally independent which can be demonstrated by having corporate powers such as the right to sue and be sued in its own name as well as the right to buy, sell, and lease property in its own name.
(3.) It must be fiscally independent of other state and local governments.
Learning Objective: 12-07
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
32. What three criteria must be met before a governmental unit can elect to not capitalize and therefore report a work of art or historical treasure as an asset?
Answer: Before a governmental unit can elect to not record a work of art or a historical treasure as an asset, three criteria must be met:
(1.) It must be held for public exhibition, education, or research in furtherance of public service, rather than financial gain.
(2.) It must be protected, kept unencumbered, cared for, and preserved.
(3.) It must be subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.
Learning Objective: 12-04
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
33. What are the three broad sections of a state or local governments CAFR?
Answer: The introductory section, the financial section, and the statistical section.
Learning Objective: 12-06
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
34. What information is required in the introductory section of a state or local governments CAFR?
Answer: A letter of transmittal from appropriate government officials, an organization chart, and a list of principal officers.
Learning Objective: 12-06
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
35. What information is required in the financial section of a state or local governments CAFR?
Answer: The financial section of a CAFR must include the auditors report, Managements Discussion and Analysis (MD&A), the basic financial statements, and Required Supplementary Information other than MD&A (RSI).
Learning Objective: 12-06
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
36. What is meant by the term fiscally independent?
Answer: Fiscally independent means that the leadership of a governing body is able to determine the activitys budget, levy taxes, set rates or issue debt without having to seek the approval of an outside party.
Learning Objective: 12-07
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
37. What is meant by the term legally independent?
Answer: Legal independence is demonstrated by having corporate powers such as the right to sue and be sued, the right to buy, sell and lease property in its own name.
Learning Objective: 12-07
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
38. How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Answer:
The statement of cash flows for a proprietary fund is very similar to the statement of cash flows for a for-profit business. Two sections are similar including the cash flows from operating activities and cash flows from investing activities. The cash flows from financing activities are reported differently than for profit businesses and are split into two sections when reporting for a Proprietary Fund. These two sections specify the cash flows from noncapital financing and cash flows from capital and related financing activities. The statement of cash flows for a proprietary fund is different from the cash flow statement for a for-profit business in that GASB requires the direct method of presenting cash flows from operating activities, with a reconciliation to net operating income. At this time, GAAP for the cash flow statement for a for-profit business gives the option of presenting cash flows from operating activities using either the direct or the indirect method.
Learning Objective: 12-08
Difficulty: Hard
Blooms: Analyze
AACSB: Reflective thinking
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
39. The City of Wetteville has a fiscal year ending June 30. Examine the following transactions for Wetteville:
(A.) On 6/1/13, Wetteville enters into a 5-year lease on a copying machine. The lease meets the criteria of a capital lease and carries an implied interest rate of 10%. The copier has a present value of $2,300. Wetteville has to put a $300 down payment on the lease at the beginning of the lease with monthly payments thereafter of $42.49.
(B.) On 6/5/13, Wetteville opens a new landfill. The engineers estimate that at the end of 10 years the landfill will be full. Estimated costs to close the landfill are currently at $3,500,000.
(C.) On 6/18/13, Wetteville receives a donation of a vintage railroad steam engine. The engine will be put on display at the local town park. A fee will be charged to actually climb up into the engine. The engine has been valued at $500,000.
(D.) On 6/30/13, Wetteville makes its first payment on the leased copier. The $42.49 payment includes $16.68 interest.
(E.) On 6/30/13, Wetteville estimates that the landfill is 2% filled.
Required:
Prepare the journal entries for the above transactions in the general fund, on the dates mentioned for each lettered item, for the purposes of preparing the fund financial statements.
Answer:
Entries for Fund Financial Statements

A) 6/1 Expenditures Leased Asset 2,300.00
Other Financing Sources Capital Lease 2,300.00
Expenditures Lease Principal 300.00
Cash 300.00

B) 6/5 No entry at date of opening

C) 6/18 No entry, because there is no change in current financial resources

D) 6/30 Expenditure Interest 16.68
Expenditure Principal 25.81
Cash 42.49

E) 6/30 No entry unless cash is being set aside for future use
to cover the future expected cost.

Learning Objective: 12-01, 12-02, 12-04
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
40. The City of Wetteville has a fiscal year ending June 30. Examine the following transactions for Wetteville:
(A.) On 6/1/13, Wetteville enters into a 5-year lease on a copying machine. The lease meets the criteria of a capital lease and carries an implied interest rate of 10%. The copier has a present value of $2,300. Wetteville has to put a $300 down payment on the lease at the beginning of the lease with monthly payments thereafter of $42.49.
(B.) On 6/5/13, Wetteville opens a new landfill. The engineers estimate that at the end of 10 years the landfill will be full. Estimated costs to close the landfill are currently at $3,500,000.
(C.) On 6/18/13, Wetteville receives a donation of a vintage railroad steam engine. The engine will be put on display at the local town park. A fee will be charged to actually climb up into the engine. The engine has been valued at $500,000.
(D.) On 6/30/13, Wetteville makes its first payment on the leased copier. The $42.49 payment includes $16.68 interest.
(E.) On 6/30/13, Wetteville estimates that the landfill is 2% filled.
Required:
Prepare the journal entries for the above transactions, on the dates mentioned for each lettered item, for the purposes of preparing the government-wide financial statements.
Answer:
A) 6/1 Copy Machine Capital Lease 2,300.00
Capital Lease Obligation 2,000.00
Cash 300.00

B) 6/5 No entry at time of opening

C) 6/18 Vintage Steam Engine 500,000.00
Revenue Donation 500,000.00

D) 6/30 Interest Expense 16.68
Capital Lease Obligation 25.81
Cash 42.49

E) 6/30 Expense Landfill Closure 70,000.00
Landfill Closure Liability 70,000.00

Learning Objective: 12-01, 12-02, 12-04
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
41. The parking garage and parking lots owned by the City of Danton reported the following balances for 2013:

Required:
What amount of net revenue (or expense) should be reported by the fund that was used to account for parking operations assuming the preparation of government-wide financial statements?
Answer:
Dantons net revenue coming from the proprietary fund for parking garages and parking lots is determined as follows:

Learning Objective: 12-08
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
42. The City of Nextville operates a motor pool serving all city-owned vehicles. The motor pool bought a new garage by paying $29,000 in cash and signing a note with the local bank for $280,000. Subsequently, the motor pool performed work for the police department at a cost of $17,000, which had not yet been collected. Depreciation on the garage amounted to $20,000. The first $12,000 payment made on the note included $4,800 in interest.
Required:
Prepare the journal entries for these transactions that are necessary to prepare government-wide financial statements.
Answer:
Entries for government-wide financial statements

A) Assets Garage 309,000
Notes Payable 280,000
Cash 29,000
B) (The cash transfer for services performed for the police department is an internal transfer and is not recorded for government-wide financial statements.)

C) Expense Depreciation 20,000
Accumulated Depreciation 20,000

D) Expense Interest 4,800
Notes Payable 7,200
Cash 12,000

Learning Objective: 12-08
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
43. The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building. During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city.
Required:
Prepare the journal entry/entries for the two transactions for the purposes of preparing the fund financial statements.
Answer:
General Fund:
Expenditure Painting 2,000
Cash 2,000

No entry in General Fund for second transaction does not represent a change in current financial resources.
Learning Objective: 12-04
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
44. The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building. During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city and the city has appropriately decided to record this painting as an asset.
Required:
Prepare the journal entry/entries for the two transactions for the purposes of preparing the government-wide financial statements.
Answer:
Government-wide Financial Statements Government Activities:

Painting 2,000
Cash 2,000
Painting 3,000
Revenue Donation 3,000

Learning Objective: 12-04
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
45. The Town of Wakefield opened a solid waste landfill in 2012 that was at 20% capacity on December 31, 2012 and at 50% capacity on December 31, 2013. The city initially anticipated closure costs of $2.3 million but in 2013 revised the estimate of the closure costs to be $2.7 million. None of these costs will be incurred until the landfill is scheduled to be closed.
What is the journal entry that should be recorded on December 31, 2013 for Government-wide Financial Statements?
Answer:
ExpenseLandfill Closure 890,000
Landfill Closure Liability 890,000

Learning Objective: 12-02
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
46. The Town of Wakefield opened a solid waste landfill in 2012 that was at 20% capacity on December 31, 2012 and at 50% capacity on December 31, 2013. The city initially anticipated closure costs of $2.3 million but in 2013 revised the estimate of the closure costs to be $2.7 million. None of these costs will be incurred until the landfill is scheduled to be closed.
Assuming the landfill is recorded within the General fund, what is the journal entry that should be recorded in the Fund Financial Statements on December 31, 2013?
Answer: There is nothing recognized at the end of 2013 because there is not a claim to any current financial resources.
Learning Objective: 12-02
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
.
REFERENCE: 12-01
The Town of Portsmouth has at the beginning of the year a $213,000 Net Asset balance, and a $52,000 Fund Balance.
The following information relates to the activities within the Town of Portsmouth for the year of 2013.

Receipts:
Property Taxes $400,000
Franchise Taxes 100,000
Charges for Public Safety 7,000
Charges for Sanitation 5,000

Payments:
Salaries
General Government $ 54,000
Public Safety 43,000
Sanitation 36,000
Rent
General Government 15,000
Public Safety 12,000
Sanitation 3,500
Maintenance
General Government 4,000
Public Safety 2,000
Sanitation 1,500
Insurance
General Government 1,000
Public Safety 2,500
Sanitation 4,500
Final Payment on Debt Principal 5,000
Payment for Interest on Debt 15,000

Receivables at the end of the year:
Property Taxes (80% estimated to be collectible) $95,000

Payables at year-end: Salaries
General Government $ 4,000
Public Safety 3,000
Sanitation 4,400

Other items at year-end:
Cash $130,900
Building 95,000
Equipment 80,000
Supplies Inventory 9,500
Investments 160,000
Compensated absences balance, expected to be paid in 12 months
9,000

[QUESTION]
REFER TO: 12-01
47. Prepare a Statement of Revenues, Expenditures and Changes in Fund Balances
Answer:
PORTSMOUTH
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
Governmental Funds
For Year Ended December 31, 2013

Revenues: Total Governmental Funds
Property Taxes $400,000
Franchise Taxes 100,000
Public Safety 7,000
Sanitation 5,000
Total Revenues $512,000
Expenditures
Current:
General Government $ 74,000
Public Safety 59,500
Sanitation 45,500
Debt Service:
Principal Payment on Debt 5,000
Interest on Debt 15,000
Total expenditures $199,000
Excess of Revenues over Expenditures $313,000

Net Change in Fund Balance $313,000
Fund Balance (Beginning) 52,000
Fund Balance (Ending) $365,000

Learning Objective: 12-08
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting

[QUESTION]
REFER TO: 12-01
48. Prepare a Statement of Net Assets
Answer:
PORTSMOUTH
STATEMENT OF NET ASSETS
December 31, 2013
Governmental
Activities
Assets
Cash and cash equivalents $ 130,900
Investments 160,000
Receivables (net of $19,000 allowance) 76,000
Inventories 9,500
Capital assets (net) 175,000
Total assets $ 551,400

Liabilities
Salaries payable $ 11,400
Compensated absences liability 9,000
Total Liabilities $ 20,400
Net assets
Invested in capital assets $ 175,000
Unrestricted 356,000
Total net assets $ 531,000

Learning Objective: 12-08
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement

[QUESTION]
REFER TO: 12-01
49. Prepare a Statement of Activities
Answer:
CITY OF PORTSMOUTH
STATEMENT OF ACTIVITIES
For Year Ended December 31, 2013
Program Revenues Net (Expense) Revenue and Changes in Net Assets
Charges for Grants and Governmental
Functions/Programs Expenses Services Contributions Activities Total

Governmental activities:
General Government $ 74,000 $ $ $ ( 74,000) $ ( 74,000)
Public Safety 59,500 7,000 ( 52,500) ( 52,500)
Sanitation 45,500 5,000 ( 40,500) ( 40,500)
Interest on Debt 15,000 ______ _______ ( 15,000) ( 15,000)
Total Governmental

activities $ 194,000 $ 12,000 $ 0 $ (182,000) $ (182,000)

General Revenues:
Property Taxes $ 400,000 $ 400,000 $ 400,000
Franchise Taxes 100,000 100,000 100,000
Total general revenues $ 500,000 $ 500,000 $ 500,000

Change in net assets:
Change During 2013 $ 318,000 $ 318,000 $ 318,000
Net assetsbeginning 213,000 213,000 213,000
Net assetsending $ 531,000 $ 531,000 $ 531,000

Learning Objective: 12-08
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting

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