Exam 2 Review

Regarding transfers between funds, in governmental accounting the transfers in and transfers out for a governmental entity must always equal. True or false?

true

The economic resources measurement focus and accrual basis of accounting would be most appropriate for which fund as used in the fund financial statements?

Internal Service Fund

Fund accounting is used by governmental units with resources that must be segregated for the purpose of carrying on specific activities or attaining specific objectives. True or false?

true

Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund?

a) enterprise funds

b) internal service funds

c) private purpose trust fund

d) permanent fund

Permanent fund

Bond issuance costs (such as underwriter fees and bond counsel costs) for a municipality that issues bonds for general government purposes are treated as ____________.

expenditures

If the maximum personal income tax rate at the Federal level is 30% and corporate bonds with an AA rating are yielding 10%, a comparably rated municipal bond would likely be trading around ________

7%

The term ______________ is commonly used in finance to describe promises made by a borrower in addition to the promise to pay back the money. These promises could include to maintain certain financial rations or prohibitions on certain spending decisions. Violating these promises can be quite serious for the borrower as this may result in a default by the borrower.

bond covenant

In government finance, the term used to refer to a tax that is levied on a specific group of taxpayers to pay for infrastructure improvements that benefit that specific group of taxpayers is called _______________.

Special assessment

When determining when to recognize revenue in a governmental fund, “available” means __________________.

It was collected within the accounting period or shortly thereafter. The city has leeway to determine what length of time qualifies but 60 days is the general benchmark.

When accounting for supplies or for prepaids, a local government can elect to use the consumption method or the purchases method in its governmental funds financial statements, but in the Government Wide financial statements they must use the consumption method. True or false?

true

The word ____________ is commonly used to describe the practice of issuing tax free municipal bonds at one rate (say 3%) and investing the proceeds in comparably rated taxable investments yielding a higher rate (say 5%). The Federal government limits the ability of local governments to do this and requires that local governments rebate such gains and profits to the US Treasury.

Arbitrage

GASB requires that governments recognize revenue in their governmental funds financial statements when they are _________________.

measurable and available

Income taxes for state and local governments are effectively accounted for on the cash basis because they are difficult to measure within the period or even several months after the fiscal period. true or false?

true

Regarding tax abatements, what are the requirements for state and local governments?

Tax revenues are report net of abatements and the details of the abatements must be disclosed thoroughly in the notes to the financial statements.

Which of the following is NOT a proper categorization of a fund balance in government?

a) retained

b) committed

c) assigned

d) restricted

retained

Which governing body provides authoritative guidance to non-profit entities regarding financial reporting?

FASB

Governmental funds include which of the following:

a) fiduciary fund

b) internal service fund

c) capital project fund

d) trust fund

capital project fund

Which of the following financial statements are prepared using the modified accrual basis of accounting and thus do not report long term assets?

a) Internal service funds

b) Governmental funds FS

c) Enterprise funds FS

d) Government Wide FS

Governmental Funds FS

Which of the following is NOT an accounting characteristic or focus of proprietary funds?

a) the focus is on economic resources management

b) accrual accounting is used

c) fixed assets and debt are reported on the statement of net position

d) budgetary amounts are reported in internal service funds

budgetary amounts are reported in internal service funds

Which of the following bases of accounting are required to be used in government-wide financial statements?

Accrual basis for both governmental activities and business-type activities

A city’s water department which is accounted for in an enterprise fund, will recognize revenue from the sale of water _________________.

When it meets the criteria under the five step method

Regarding non-profits, which of the following is NOT a categorization of fund balance?

a) restricted

b) unrestricted

c) committed

d) none of the above

committed

Which funds must be displayed individually in the fund financial statements?

Major funds (governmental and proprietary) are reflected individually while non-major funds are grouped together

The modified accrual basis of accounting should be used for which of the following funds for purposes of fund financial statements?

capital projects fund

Which of the following fund types should account for fixed assets in a manner similar to a “for profit” organization?

enterprise fund

A city issues $10 million of bonds at a premium of $.2 million. It incurs $.6 million of bond issuance costs, thus netting $9.6 million. What is/are debit entry (entries)?

Debit Cash for $9.6 million and debit expenditures for $.6 million

In terms of revenue recognition in the general fund, “available” means collected within the fiscal period. Tax revenue collected after the fiscal period (or reporting year) will be recognized as revenue in the following year. true or false?

false

A GO bond carries slightly less risk to the investor than a revenue bond, therefore the interest rate demanded by a bond buyer would be slightly less on the GO bond than the revenue bond. True or false?

true

The general rule for contingent liabilities for both corporations and governments (on their government-wide financial statements) is that the contingent liability should be reflected on the balance sheet if it is _____________________.

probable and measurable

Which of the following complies with GAAP regarding supplies and should be used on the government-wide financial statements?

consumption method

Regarding tax abatements, they are typically used as an economic development tool. true or false?

true

Non-profits file financial information along with information about their purpose and information about their officers with the IRS. This information is available to the public and is found on the entity’s __________________.

Form 990

GASB has authority over the methodology used by governments when preparing their budgets. true or false?

false

A 401(k) plan in which the participants can decide how much to contribute and also decide where they would like the money invested is referred to as a _________.

Defined Contribution Plan

Which of the following sets of financial statements do NOT include a statement of cash flows?

a) enterprise funds financial statements

b) governmental funds financial statements

c) business financial statements

d) not for profit financial statements

governmental funds financial statements

A local government that issues tax free bonds is required to calculate any arbitrage earnings on unspent bond proceeds and remit these earnings to the US Treasury. This must be done at a minimum ________________.

every five years

For governmental fund types, which item is considered the primary measurement focus?

current available financial resources

In which of the following fund types of a city government are revenues and expenditures recognized on the same basis of accounting as the general fund?

a) fiduciary funds

b) internal service funds

c) enterprise funds

d) debt service funds

debt service funds

Sig City used the following funds for financial reporting purposes:

general fund

internal service fund

airport enterprise fund

pension trust fund

capital projects fund

special revenue fund

debt service fund

How many of Sig’s funds use the accrual basis of accounting?

3

Interperiod equity refers to a condition whereby ______________

current year revenues are sufficient to pay for current year services provided

A neighborhood wants the city to install curbs and gutters and sidewalks for aesthetic purposes. The city agrees to do it and pays for the project by issuing bonds. The bonds will be repaid by assessing a tax on properties in that neighborhood. Properties outside of the neighborhood will not pay the tax. This is known as _______________________

a special assessment

The city of Cobb has two trust funds for the benefit of the city’s library, trust fund A and trust fund B. Only the earnings from trust fund A can be expended but both the principal and interest from trust fund B can be expended. How should the city of Cobb report each trust fund?

trust fund A: permanent

trust fund B: Special revenue

What are the Big 3 consulting firms?

McKinsey & Company

Boston Consulting Group

Bain & Company

A city orders a bulldozer by sending a purchase order to the bulldozer company in the amount of $800,000. It is expected to take 6 months for the dozer to be built to specifications and delivered to the city. When the city issues the purchase order, it would likely record ________________ to reflect that this $800,000 commitment has been made and to ensure the money is available when the truck is delivered.

an encumbrance

Under GASB Statement 54, what is the hierarchy classification of fund balances?

nonspendable, restricted, committed, assigned, unassigned

Which of the following became effective about 10 years ago and requires that governmental entities that participate in a multi-employer pension plan must report on their balance sheet their proportionate share of the unfunded liability of the multi-employer plan?

GASB 68

Which of the following should be considered part of one of the primary user groups of the external financial reports of a state government?

Advocate groups within the state