Test bank Chapter 8 12th ed PDF

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Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Chapter 8 Government-Wide Statements, Capital Assets, Long-Term Debt True/False Questions 1. Government-wide statements are prepared using the modified accrual basis; therefore, governmental fund-basis statements need to be adjusted from their original accrual basis. Answer: False 2. Government-wide statements are prepared using the accrual basis; therefore, enterprise fundbasis statements need to be adjusted from their original modified accrual basis. Answer: False 3. The government-wide statements do not include a government-wide Statement of Cash Flows. Answer: True 4. The difference between assets and liabilities in the government-wide statements is called fund balance. Answer: False 5. The difference between assets and liabilities in the government-wide statements is called Net Position. Answer: True 6. GASB requires a reconciliation from proprietary fund financial statements to the government-wide statements business-activities columns from modified accrual accounting to accrual accounting. Answer: False 7. GASB requires a reconciliation from governmental fund financial statements to the government-wide statements governmental-activities columns from modified accrual accounting to accrual accounting. Answer: True 8. Balances from enterprise fund statements, Statement of Net Position and Statement of Revenues, Expenses, and Changes in Fund Net Position, are reported in the business-type activities sections of government-wide statements. 1

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Answer: True 9. When preparing the government-wide statements, worksheet entries are booked to provide the trial balance amounts used to prepare the financial statements. Answer: False 10. Using the worksheet approach, general (governmental) long term assets and long term debt have a balance of zero until the worksheet entries are made. Answer: True 11. Government-wide financial statements are prepared using the modified accrual basis of accounting. Answer: False 12. Enterprise funds are reported in the business-type activities column of the government-wide statements. Answer: True 13. When preparing the government-wide statements, worksheet entries are made to add the balances of the fiduciary funds Answer: False 14. When preparing the government-wide statements, a worksheet entry is required to eliminate the current period expenditures for capital outlay and record those expenditures as capital assets Answer: True 15. When preparing the government-wide statements, an entry is required to record depreciation expense on general capital assets Answer: True 16. GASB Statement No. 34 states that general capital assets should not be reported as assets in governmental funds but should be reported in the governmental activities column of the government-wide Statement of Net Position. Answer: True 2

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 17. In addition to the fund basis statement, GASB Statement 34 requires government-wide statements that are prepared using the accrual basis and the current financial resources measurement focus. Answer: False 18. Fiduciary activities never appear in the government-wide statements. Answer: True 19. Capital assets acquired through proprietary funds are reported in both the Statement of Net Position of those funds and the government-wide Statement of Net Position. Answer: True 20. GASB requires that general fixed assets acquired through General, special revenue or capital projects funds be included in the government-wide financial statements. Answer: True 21. GASB specifically requires interest during construction in governments’ funds to be capitalized in the government-wide statements. Answer: False 22. When preparing government-wide statements, depreciation expense must be eliminated. Answer: False 23. When converting from governmental fund financial statements to the governmental activities column of the government-wide statements, the proceeds from the sale of capital assets which were listed as an “other financing source” are eliminated and the gain or loss is recorded when preparing the government-wide statements. Answer: True 24.Assume a government reported $300,000 in capital outlay expenditures in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. Secondly, assume accumulated depreciation of capital assets amounted to $250,000, in the governmental activities column in the Statement of Activities. Those adjustments would cause a decrease of $50,000 when preparing the reconciliation between the change in governmental fund balances to the change in net position of governmental activities in the Statement of Activities. Answer: False 3

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 25.Assume a government reported Other Financing Sources - Proceeds of Bonds in the amount of $1,000,000 in the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. When preparing the reconciliation from the changes in fund balances in that statement to the changes in net position in the governmental funds column in the Statement of Activities, an increase of $1,000,000 would be entered. Answer: False 26.When converting from the enterprise funds Statement of Net Position to the governmentwide Statement of Net Position (government-wide statements), it is not necessary to add fixed assets and to deduct long-term debt. Answer: True 27.Few adjustments to internal service funds are necessary when converting from proprietary funds statements to the government-wide statements as internal service funds are generally reported as business-type activities in the government-wide statements. Answer: False 28.When converting from fund financial statements to government-wide statements, it is necessary to eliminate transfers that are between the categories of governmental activities and business-type activities. Answer: False 29.An example of a program revenue in the government-wide Statement of Activities would be parks and recreation fees. Answer: True 30.GASB requires that infrastructure be depreciated on the government-wide statements unless the government chooses to use the modified approach which expenses amounts expended to increase the life of infrastructure. Answer: True 31. An asset may be considered impaired if either the decline in the service utility is unexpected or the amount of the decline in service utility is large. Answer: False 32.GASB requires that “collections” be capitalized and depreciated. Answer: False 4

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 33.When using the modified approach to record infrastructure, expenditures to widen a 2-lane road to 4-lanes would be charged to an expense, in lieu of depreciation. Answer: False 34.General long-term debt, to be paid out of resources of the government's taxing power, is reported in both the governmental fund Balance Sheet and the government-wide Statement of Net Position. Answer: False 35. The Statement of Net Position and Statement of Activities and Statement of Cash Flows are the only three statements for the government-wide financial statements. Answer: False 36. Debt margin is the difference between the amount of debt limit outstanding and the amount of indebtedness allowed by law. Answer: True 37. Internal Service Funds are most commonly included in the business-type activities category of the government-wide statements. Answer: False 38. Internal Service Funds are most commonly incorporated into the governmental activities category of the government-wide statements. Answer: True 39. Governments may choose either to depreciate infrastructure assets or use the modified approach. Answer: True 40. Internal service funds provide services to governmental departments; therefore they are incorporated into the business-type activities category of the government-wide statements. Answer: False 41. Debt limit is the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any time. Answer: True 5

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 42. GASB standards require a reconciliation from fund financial statements to government-wide financial statements. Answer: True 43. When using the modified approach to account for infrastructures, expenditures to extend the life of the infrastructure assets are not capitalized. Answer: True 44. When using the modified approach to account for infrastructures, expenditures to extend the life of the infrastructure assets are expensed. Answer: True 45. Governments must capitalize infrastructure assets in the government-wide statements Answer: True 46. Governments have the option to capitalize infrastructure assets in the governmental funds’ fund-basis financial statements. Answer: False

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Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Multiple Choice Questions 47. Which of the following is false regarding government-wide financial statements? A) Government-wide financial statements are prepared using the accrual method of accounting B) General capital assets are required to be reported on the government-wide balance sheet. C) GASB requires a reconciliation from fund financial statements to government-wide financial statements. D) Worksheet entries are required to change the enterprise fund financial statements to the accrual basis of accounting. Answer: D 48. With respect to government-wide statement, which of the following statements is correct? A) GASB requires a reconciliation from proprietary fund financial statements to the government-wide statements business-activities columns from modified accrual accounting to accrual accounting. B) General capital assets should not be reported as assets in governmental funds but should be reported in the governmental activities column of the government-wide Statement of Net Position. C) In addition to the fund basis statement, GASB Statement 34 requires governmentwide statements that are prepared on the modified accrual basis using the economic resources measurement focus. D) Fiduciary activities are reported in the government-wide statements in a separate column. Answer: B 49. Which of the following funds would not be included in the government-wide financial statements A) Capital Project Fund. B) Private Purpose Trust Fund. C) Enterprise Fund. D) Permanent Fund. Answer: B 50. Which of the following would be included in the Equity section of the Statement of Net Position? A) Retained Earnings. B) Unassigned Fund Balance. C) Net investment in capital assets. D) Nonspendable fund balance. 7

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Answer: C 51. In addition to a Statement of Net Position, which of the following are government-wide statements? A) Statement of Revenues, Expenses, and Changes in Fund Net Position. B) Statement of Cash Flows. C) Both A and B. D) Neither A nor B. Answer: D 52. Which of the following is not a reconciliation required by GASB? A) From governmental fund balance sheet to the Government-wide Statement of Net Position. B) From governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-wide Statement of Activities. C) From enterprise fund balance sheet to the Government-wide Statement of Net Assets. D) None of the above, all these reconciliations are required. Answer: C 53.Which of the following is true regarding revenue recognition for sales taxes, when reporting in the government-wide statements? A) Assets are recognized when the underlying exchange (retail sale) has occurred or when resources are received, whichever occurs first. B) Revenues are recognized when the underlying exchange (retail sale) has occurred. C) Neither of the above is true. D) Both of the above are true. Answer: D 54.Which of the following is true regarding revenue recognition for property taxes, when reporting in the government-wide statements? A) Assets are recognized when an enforceable legal claim has arisen or when resources are received, whichever is first. B) Revenues are recognized when measurable and available; that is, when collected during the current period or no more than 60 days after the end of the current period. C) Both of the above are true. D) Neither of the above is true. Answer: A

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Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 55. When converting from fund basis reporting to government-wide reporting, which of the following would require an adjustment? A) Property taxes expected to be collected 61-90 days after the end of the fiscal year. B) A state grant received as reimbursement for a summer jobs program. C) Sales tax collected for sales from the current year. D) Receipt of advance funding on a grant. Answer: A 56. Which of the following items are added to government-wide financial statements through worksheet journal entries? A) General Capital Assets. B) General Long Term Debt. C) Internal Service Funds servicing governmental departments. D) All of the above. Answer: D 57. Governmental fund-basis statements are prepared using the________, and must be converted to the ________ to be incorporated in the government-wide statements. A) Accrual basis, modified accrual basis. B) Accrual basis, tax basis. C) Cash basis, accrual basis. D) Modified accrual basis, accrual basis. Answer: D 58. The governmental funds follow __________ where the government-wide statements follow ___________. A) Modified accrual accounting, accrual accounting. B) Accrual accounting, modified accrual accounting. C) Accrual accounting, accrual accounting. D) None of the above. Answer: A 59. The reconciliations required to be presented on the face of the governmental fund financial statements or in separate schedule immediately after the fund financial statements include: A) Reconciliation from the governmental fund Balance Sheet to the Statement of Net Position. B) Reconciliation from the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities. C) Both A & B. D) No reconciliations are required to be submitted. 9

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Answer: C 60. When preparing government-wide financial statements, the modified accrual basis governmental funds are adjusted for all of the following events except? A) Change in current assets and current liabilities from year to year B) Long-term debt related events C) Internal service fund activities D) Interfund activities Answer: A 61. When preparing government-wide financial statements, the modified accrual basis governmental funds are adjusted for which of the following events? A) B) C) D)

Capital asset related events Long-term debt related events Internal service fund activities All of the above

Answer: D 62. Which of the following would not be an adjustment for long-term debt when preparing government-wide financial statements? A) Changing Other Financing Sources - Proceeds of Bonds to Bonds Payable B) Changing Expenditures – Bonds Principle to Bonds Payable C) Recording the cash received from a debt issue D) Amortizing bond premiums Answer: C 63. Which of the following statements is not correct with respect to the preparation of government-wide statements? A) A worksheet entry is required to record depreciation expense on capital assets of governmental activities B) Enterprise funds are reported in the business-type activities column of the government-wide statements. C) Worksheet entries must be made to eliminate operating profits earned by enterprise funds. D) A worksheet entry is required to eliminate the charge to expenditures for capital outlay and record those expenditures as capital assets Answer: C 64. A local government purchased a building and recorded the event by debiting Expenditures – Capital Outlay and crediting Cash. What would be the worksheet entry to prepare the government-wide statements? 10

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt A) Debit to Capital Assets and credit to Expenditures – Capital Outlay B) Debit to Capital Assets and credit to Cash C) Debit to Capital Assets and credit to Accumulated Depreciation-Capital Assets and Expenditures – Capital Outlay D) Debit to Capital Assets for the book value of the asset and credit to Expenditures – Capital Outlay Answer: A 65. A local government recorded the sale of a capital asset at a gain by recording a debit to cash and credit to proceeds of sale of capital asset. What is the worksheet entry when preparing the government-wide statements? A) Debit to Proceeds of sale of capital asset and credit to Gain on sale of capital asset B) Debit to Cash and credit to capital asset (net) and credit to Gain on sale of capital asset C) Debit to Proceeds of sale of capital asset and credit to capital asset (net) and Gain on sale of capital asset D) None of the above Answer: C 66. A local government issued bonds and recorded the event by debiting Cash and crediting Other Financing Source - Proceeds of Bonds and Other Financing Source - Premium on Bonds. What is the worksheet entry when preparing the government-wide statements? A) Debit Other Financing Sources – Proceeds of Bonds and Other Financing Sources – Premium on bonds and Credit Bonds Payable and Premium on Bonds B) Debit Cash and Credit Bonds Payable and Premium on bonds C) Debit Other Financing Sources – Proceeds of Bonds and Credit Bonds payable and Premium on Bonds D) No adjustment is necessary Answer: A 67. A local government recorded the payment of bond principal by debiting Expenditure: bond principal and crediting Cash. What is the worksheet entry when preparing the governmentwide statements? A) Debit Bonds Payable and credit Cash B) Debit Cash and credit Expenditure: Bond Principal C) Debit Bonds Payable and credit Expenditure: Bond Principal D) None of the above Answer: C

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Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt 68.In its Statement of Net Position, a government reported:  

assets of $100 million, including $30 million in capital assets (net), and liabilities of $40 million, including long-term debt of $15 million, all related to capital asset acquisition.

The government also reported $10 million of net assets were restricted for payment of debt service. The government's Unrestricted Net Position would be reported as: A) B) C) D)

$15 million. $25 million. $30 million. $35 million.

Answer: D 69.A governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $30 million, including capital outlay expenditures of $9 million. Capital assets for that government cost $90 million, including land of $10 million. Depreciable assets are amortized over 20 years, on average. The reconciliation from governmental changes in fund balances to governmental activities changes in would reflect a(an): A) Decrease of $1 million. B) Increase of $l million. C) Increase of $5 million. D) Decrease of $4 million. Answer: C 70.The City of Charlotte reported property tax revenues in 2015 in the amount of $10 million. The deferred inflow - property taxes reported in the General Fund’s balance sheet was $ 300,000 on December 31, 2014 and was $ 375,000 on December 31, 2015. During 2015, $9,000,000 was collected. What amount should the city report for Property Tax Revenue in its year ended December 31, 2015 government-wide Statement of Activities? A) $ 9,075,000 B) $ 9,975,000 C) $ 10,075,000 D) $ 10,375,000 Answer: C 71. A government's Statement of Revenues, Expenditures, and Changes in Fund Balances reflected proceeds of bonds in the amount of $1,000,000. That statement also reflected expenditures for debt service in the amount of $3,000,000, including $2,600,000 for principal payments. Assuming no other changes, the effect, when moving from the change in fund balances in the governmental funds Statement of Revenues, Expenditures, and Changes in 12

Chapter 8 Government-Wide Statements: Capital Assets; Long-Term Debt Fund Balances to the change in Net Positio...