Introduction to Fund Accounting Verified Test Bank Ch17

Package Title: Test Bank Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 17

Question Type: Multiple Choice

1) Governmental units include all of the following EXCEPT:

a) counties.

b) school districts.

c) industrial development districts.

d) voluntary health and welfare organizations.

Question Title: Test Bank (Multiple Choice) Question 01

Difficulty: Easy

Learning Objective: 1 Distinguish between a nonbusiness organization and a profit-oriented enterprise.

Section Reference: 17.1

2) Which type of fund entities are used to account for the activities of nonbusiness organizations that are similar to those of business enterprises?

a) Expendable fund entities

b) Proprietary fund entities

c) Budgetary fund entities

d) Restricted fund entities

Question Title: Test Bank (Multiple Choice) Question 02

Difficulty: Easy

Learning Objective: 2 Explain the role of fund accounting.

Section Reference: 17.4

3) When budgeted expenditures are enacted into law, they are referred to as:

a) estimated expenditures.

b) encumbrances.

c) appropriations.

d) expenditures.

Question Title: Test Bank (Multiple Choice) Question 03

Difficulty: Easy

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

4) The term used to describe the application of accounting to expendable fund entities is the:

a) accrual method.

b) cash method.

c) modified cash method.

d) modified accrual method.

Question Title: Test Bank (Multiple Choice) Question 04

Difficulty: Easy

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

5) The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to:

a) Appropriations.

b) Expenditures.

c) Encumbrances.

d) both Appropriations and Encumbrances.

Question Title: Test Bank (Multiple Choice) Question 05

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.5

6) The entry to record the receipt of office equipment previously encumbered includes a debit to:

a) Office Equipment.

b) Encumbrances.

c) Reserve for Encumbrances.

d) both Office Equipment and Reserve for Encumbrances.

Question Title: Test Bank (Multiple Choice) Question 06

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities., 8 Understand the role of a general fund.

Section Reference: 17.4, 17.5

7) In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory" account is used under:

a) the consumption method.

b) the purchase method.

c) both the consumption and purchase methods.

d) none of these.

Question Title: Test Bank (Multiple Choice) Question 07

Difficulty: Medium

Learning Objective: 9 Contrast the consumption and the purchases methods of accounting for inventories (and other prepaid items).

Section Reference: 17.6

8) The two basic statements prepared for expendable fund entities are a balance sheet and a(n):

a) income statement.

b) statement of revenue.

c) statement of expenditures and encumbrances.

d) none of these.

Question Title: Test Bank (Multiple Choice) Question 08

Difficulty: Medium

Learning Objective: 2 Explain the role of fund accounting., 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

9) If a credit was made to the fund balance in the process of recording a budget for a governmental unit, it can be assumed that:

a) estimated expenses exceed actual revenues.

b) actual expenses exceed estimated expenses.

c) estimated revenues exceed appropriations.

d) appropriations exceed estimated revenues.

Question Title: Test Bank (Multiple Choice) Question 09

Difficulty: Easy

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

10) The "reserve for encumbrances—prior year" account represents amounts recorded by a governmental unit for:

a) anticipated expenditures in the next year.

b) expenditures for which purchase orders were made in the prior year but disbursement will be in the current year.

c) excess expenditures in the prior year that will be offset against the current-year budgeted amounts.

d) unanticipated expenditures of the prior year that become evident in the current year.

Question Title: Test Bank (Multiple Choice) Question 10

Difficulty: Medium

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.5

11) Which of the following requires the use of the encumbrance system?

a) Capital projects fund

b) Debt service fund

c) Internal service fund

d) Enterprise fund

Question Title: Test Bank (Multiple Choice) Question 11

Difficulty: Easy

Learning Objective: 5 Understand the classification of expenditures and other resource outflows for fund accounting., 6 Describe the critical events in the use of financial resources of an expendable fund., 7 Explain how capital expenditures are recorded in an expendable fund.

Section Reference: 17.4

12) The following related entries were recorded in sequence in the general fund of a municipality:

The sequence of entries indicates that:

a) an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was cancelled and a liability for the item was acknowledged.

b) an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350 for which a liability was acknowledged upon receipt.

c) encumbrances were anticipated but later failed to materialize and were reversed. A liability of $15,350 was incurred.

d) the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged.

Question Title: Test Bank (Multiple Choice) Question 12

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities., 4 Understand the classification of revenues and other resource inflows for fund accounting., 5 Understand the classification of expenditures and other resource outflows for fund accounting., 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4

13) The reserve for encumbrances account is properly considered to be a:

a) current liability if payable within a year; otherwise, long-term debt.

b) fixed liability.

c) floating debt.

d) reservation of the fund's equity.

Question Title: Test Bank (Multiple Choice) Question 13

Difficulty: Easy

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities., 4 Understand the classification of revenues and other resource inflows for fund accounting., 5 Understand the classification of expenditures and other resource outflows for fund accounting., 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4

14) Customers' meter deposits which cannot be spent for normal operating purposes would be classified as restricted cash in the balance sheet of which fund?

a) Internal Service

b) Trust

c) Agency

d) Enterprise

Question Title: Test Bank (Multiple Choice) Question 14

Difficulty: Medium

Learning Objective: 2 Explain the role of fund accounting., 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4, 17.5

15) What journal entry should be made at the end of the fiscal year to close out encumbrances for which goods and services have not been received?

a) Debit reserve for encumbrance and credit encumbrances.

b) Debit reserve for encumbrances and credit fund balance.

c) Debit fund balance and credit encumbrances.

d) Debit encumbrances and credit reserve for encumbrances.

Question Title: Test Bank (Multiple Choice) Question 15

Difficulty: Medium

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

16) The GASB has the responsibility for establishing financial accounting standards for all of the following entities EXCEPT:

a) state and local government entities.

b) veterans hospitals.

c) school districts.

d) civic organizations.

Question Title: Test Bank (Multiple Choice) Question 16

Difficulty: Easy

Learning Objective: 1 Distinguish between a nonbusiness organization and a profit-oriented enterprise.

Section Reference: 17.3

17) The expendable fund entity’s measurement focus is on:

a) the flow of current financial resources.

b) the flow of economic resources.

c) the flow of revenue, expenses, and net income.

d) none of these.

Question Title: Test Bank (Multiple Choice) Question 17

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

18) Under GASB Statement No. 34, a government-wide financial statement should include a:

a) statement of revenues & and expenses.

b) statement of activities.

c) statement of financial position.

d) notes to the financial statements.

Question Title: Test Bank (Multiple Choice) Question 18

Difficulty: Easy

Learning Objective: 2 Explain the role of fund accounting., 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities., 5 Understand the classification of expenditures and other resource outflows for fund accounting., 7 Explain how capital expenditures are recorded in an expendable fund.

Section Reference: 17.4

19) In accounting for expendable fund entities, revenue is ordinarily not recognized until:

a) it can be objectively measured and it is available to finance expenditures of the current period.

b) a transaction has taken place and the earnings process is complete.

c) it has been received in cash.

d) none of these.

Question Title: Test Bank (Multiple Choice) Question 19

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

20) The Expenditures account of a governmental unit is debited when:

a) the budget is recorded.

b) supplies are ordered.

c) supplies encumbered are received.

d) the supplies invoice is paid.

Question Title: Test Bank (Multiple Choice) Question 20

Difficulty: Easy

Learning Objective: 2 Explain the role of fund accounting., 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

Question Type: Essay

21) Fund entities may be classified as expendable fund entities, fiduciary fund entities, and proprietary fund entities. Distinguish among expendable, fiduciary, and proprietary fund entities.

Question Title: Test Bank (Essay) Question 21

Difficulty: Medium

Learning Objective: 3 Distinguish among the concepts of revenues, expenses, and expenditures as used in profit-oriented entities and as used for expendable fund entities.

Section Reference: 17.4

22) Expendable fund entities prepare closing entries at the end of each period just as business enterprises do. Describe the necessary closing entries for expendable funds.

• Revenues are closed against estimated revenues with the difference recorded in unreserved fund balance.
• Appropriations are closed against expenditures and encumbrances. Any difference is recorded in the unreserved fund balance.
• Expenditures made for prior years’ encumbrances are closed against the reserve for encumbrances for that specific year.
• Transfers to and from other funds are closed against unreserved fund balance.

Question Title: Test Bank (Essay) Question 22

Difficulty: Medium

Learning Objective: 5 Understand the classification of expenditures and other resource outflows for fund accounting., 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

23) During 2017, the City of Party Beach was involved in the following transactions:

1. A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of $1,550,000 was approved by the city council.

2. Statements of property tax assessments totaling $1,100,000 were mailed to property owners. Experience indicates that 2% of assessed taxes will be uncollectible.

3. Equipment costing $85,000 was purchased, and old equipment was sold for $15,000 at the end of its estimated useful life.

4. The city manager signed a contract to purchase a machine costing $25,000.

5. The city received a statement from the state indicating that the city's portion of the state sales tax is $50,000.

6. The machine ordered in (4) above is delivered and accepted. The invoice in the amount of $26,000 was approved for payment.

Required:

Prepare the journal entries needed to account for the preceding transactions.

1. Estimated Revenue 1,500,000

Unreserved Fund Balance 50,000

Appropriations 1,550,000

2. Property Tax Receivable 1,100,000

Estimated Uncollectible Prop. Taxes 22,000

Revenue 1,078,000

3. Expenditures 85,000

Cash 85,000

Cash 15,000

Revenue 15,000

4. Encumbrances 25,000

Reserve for Encumbrances 25,000

5. Due from State 50,000

Revenue 50,000

6. Reserve for Encumbrances 25,000

Encumbrances 25,000

Expenditures 26,000

Vouchers Payable 26,000

Question Title: Test Bank (Problem) Question 17-1

Difficulty: Medium

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

24) On December 31, 2017, the following account balances, among others, were included in the preclosing trial balance of the General Fund of the City of Springfield.

Estimated Revenue $2,960,000

Expenditures 1,950,000

Encumbrances 530,000

Expenditures—2016 300,000

Reserve for Encumbrances (1) 830,000

Appropriations 2,850,000

Revenue 3,220,000

Reserve for Supplies Inventory (2) 600,000

Supplies Inventory 600,000

Unreserved Fund Balance 300,000

(1) The balance in this account was $270,000 on January 1, 2017. Purchase orders outstanding on December 2017 total $530,000.

(2) Supplies on hand on December 31, 2017, amount to $380,000.

Required:

1. What was the balance in the Unreserved Fund Balance account on December 31, 2016? What was the total Fund Balance on December 31, 2016?

2. Prepare the necessary adjusting and closing entries for the year ended December 31, 2017. Springfield uses the purchase method to account for supplies.

1. Unreserved fund balance per trial balance $ 300,000

Add: Appropriations 2,850,000

Less: Estimated Revenues (2,960,000)

Unreserved fund balance as of December 31, 2016 $ 190,000

Unreserved fund balance as of December 31, 2016 $ 190,000

Reserve for encumbrances – 12/31/10 270,000

Reserve for supplies inventory 600,000

Total fund balance – 12/31/10 $1,060,000

2. Adjusting and Closing Entries

Revenue 3,220,000

Estimated Revenue 2,960,000

Unreserved Fund Balance 260,000

Reserve for Supplies Inventory 220,000

Supplies Inventory 220,000

Unreserved Fund Balance 30,000

Reserve for Encumbrances 270,000

Expenditures – 2016 300,000

Appropriations 2,850,000

Expenditures 1,950,000

Encumbrances 530,000

Unreserved Fund Balance 370,000

Question Title: Test Bank (Problem) Question 17-2

Difficulty: Medium

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

25) The trial balance for the General Fund of the City of Logan as of December 31, 2016, is presented below:

CITY OF LOGAN

The General Fund

Adjusted Trial Balance

December 31, 2016

Debit Credit

Cash $216,000

Property Tax Receivable 31,000

Estimated Uncollectible Taxes $ 80,000

Due from Trust Fund 41,000

Vouchers Payable 55,000

Reserve for Encumbrances 20,000

Unreserved Fund Balance 205,000

$288,000 $288,000

Transactions for the year ended December 31, 2017 are summarized as follows:

1. The City Council adopted a budget for the year with estimated revenue of $720,000 and appropriations of $710,000.

2. Property taxes in the amount of $495,000 were levied for the current year. It is estimated that $20,000 of the taxes levied will prove to be uncollectible.

3. Proceeds from the sale of equipment in the amount of $32,000 were received by the General Fund. The equipment was purchased four years ago with resources of the General Fund at a cost of $200,000. On the date it was purchased, it was estimated that the equipment had a useful life of six years.

4. Licenses and fees in the amount of $90,000 were collected.

5. The total amount of encumbrances against fund resources for the year was $595,000.

6. Vouchers in the amount of $445,000 were authorized for payment. This was $11,000 less than the amount originally encumbered for these purchases.

7. An invoice in the amount of $19,000 was received for goods ordered in 2016. The invoice was approved for payment.

8. Property taxes in the amount of $425,000 were collected.

9. Vouchers in the amount of $385,000 were paid.

10. Forty-one thousand dollars was transferred to the General Fund from the Trust Fund.

11. The City Council authorized the write-off of $15,000 in uncollected property taxes.

Required:

1. Prepare entries, in general journal form, to record the transactions for the year ended December 31, 2017.

2. Prepare the necessary closing entries for the year ending December 31, 2017.

1. Journal Entries

1. Estimated Revenue 720,000

Appropriations 710,000

Unreserved Fund Balance 10,000

2. Property Tax Receivable 495,000

Estimated Uncollectible Taxes 20,000

Revenue 475,000

3. Cash 32,000

Revenue 32,000

4. Cash 90,000

Revenue 90,000

5. Encumbrances 595,000

Reserve for Encumbrances 595,000

6. Expenditures 445,000

Vouchers Payable 445,000

Reserve for Encumbrances 456,000

Encumbrances 456,000

7. Expenditures – 2016 19,000

Vouchers Payable 19,000

8. Cash 425,000

Property Tax Receivable 425,000

9. Vouchers Payable 385,000

Cash 385,000

10. Cash 41,000

Due from Trust Fund 41,000

11. Estimated Uncollectible Taxes 15,000

Property Tax Receivable 15,000

2. Closing Entries

1. Revenue 597,000

Unreserved Fund Balance 123,000

Estimated Revenue 720,000

2. Reserve for Encumbrances – 2016 20,000

Expenditures – 2016 19,000

Unreserved Fund Balance 1,000

3. Appropriations 710,000

Expenditures 445,000

Encumbrances 139,000

Unreserved Fund Balance 126,000

Question Title: Test Bank (Problem) Question 17-3

Difficulty: Hard

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

26) The following information regarding the fiscal year ended June 30, 2017, was drawn from the accounts and records of the Johnson County general fund:

Revenues and other asset inflows:

Property taxes $6,000,000

Licenses and permits 750,000

State grants 150,000

Collection of interfund advance to other fund 80,000

Proceeds from sale of equipment 40,000

Expenditures and other asset outflows:

General government $2,250,000

Public safety 1,130,000

Judicial system 600,000

Health 900,000

Equipment purchases 370,000

Payment to debt service fund to cover future debt

service on general government bonds 570,000

Total fund balance, July 1, 2016 $1,200,000

Required:

Prepare a statement of revenues, expenditures, and changes in fund balance for the Johnson County general fund for the year ended June 30, 2017.

Johnson County

General Fund

Statement of Revenues, Expenditures, and Changes in Fund Balance

For the Year Ended June 30, 2017

Revenues:

Property taxes $6,000,000

Licenses and permits 750,000

State grants 150,000

Total revenues $6,900,000

Expenditures:

General government 2,250,000

Public safety 1,130,000

Judicial system 600,000

Health 900,000

Equipment purchases 370,000

Total expenditures 5,250,000

Excess of revenues over expenditures 1,650,000

Other financing sources (uses):

Operating transfers out-debt service fund (570,000)

Special items:

Proceeds from sale of equipment 40,000

Net change in fund balance 1,120,000

Fund Balance-beginning 1,200,000

Fund Balance-ending $2,320,000

Question Title: Test Bank (Problem) Question 17-4

Difficulty: Medium

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

27) The unadjusted trial balance for the general fund of the City of Hog’s Breath at June 30, 2017, is as follows:

Debits

Cash $170,000

Due from agency fund 25,000

Encumbrances 120,000

Estimated revenues 800,000

Expenditures 610,000

Property taxes receivable 110,000

Credits

Allowance for uncollectible taxes 8,000

Appropriations 790,000

Unreserved fund balance 30,000

Reserve for encumbrances 60,000

Revenues 840,000

Vouchers payable 107,000

Supplies on hand at June 30, 2017, totaled $8,000. The $120,000 encumbrance relates to equipment ordered but not received by fiscal year-end.

Required:

Prepare a balance sheet for the general fund of the City of Hog’s Breath at June 30, 2017.

City of Hog’s Breath

General Fund

Balance Sheet

June 30, 2017

Assets:

Cash $170,000

Property taxes receivable (net of

estimated uncollectible taxes of $8,000) 102,000

Due from other funds 25,000

Supplies 8,000

Total assets $ 305,000

Liabilities and Fund Balance:

Vouchers payable 107,000

Fund balance unreserved 130,000

Reserve for encumbrances 60,000

Reserve for inventory 8,000

Total fund balance 198,000

Total liabilities and fund balance $305,000

Computation of Unreserved Fund Balance:

Pre-closing balance $ 30,000

Add:

Revenues 840,000

Appropriations 790,000

Deduct:

Expenditures <610,000>

Encumbrances <120,000>

Estimated revenues < 800,000>

Post-closing balance $130,000

Question Title: Test Bank (Problem) Question 17-5

Difficulty: Hard

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5

28) At the beginning of 2017, the City of Mauer reported an Unreserved Fund Balance of $890,000 and a supplies inventory balance of $280,000. During the year, Mauer purchased $360,000 in supplies and used $350,000 worth. The city will report a reserve for supplies inventory.

Required:

a. Prepare the journal entries needed to account for the supplies under the consumption method.

b. Prepare the necessary journal entries under the purchases method.

c. What would the December 31, 2017, balance in the Unreserved Fund Balance be under the consumption method, assuming that the only transactions of the fund are those involving the supplies?

Expenditures 360,000

Cash 360,000

Inventory 8,000

Expenditures 8,000

Unreserved Fund Balance 8,000

Reserve for Supplies Inventory 8,000

B. Expenditures 360,000

Cash 360,000

Inventory 8,000

Reserve for Supplies Inventory 8,000

C. 1/1 Balance $890,000

Use of Supplies (350,000)

Setting up of Reserve (8,000)

12/31 Unreserved Fund Balance $532,000

Question Title: Test Bank (Problem) Question 17-6

Difficulty: Medium

Learning Objective: 9 Contrast the consumption and the purchases methods of accounting for inventories (and other prepaid items).

Section Reference: 17.6

29) The following account balances, among others, were included in the preclosing trial balance of the General Fund of the City of Baxter on December 31, 2017.

Appropriations $2,350,000

Cash 180,000

Due from Other Funds 170,000

Due to Other Funds 70,000

Encumbrances 250,000

Estimated Revenue 2,480,000

Expenditures 2,010,000

Expenditures – 2016 200,000

Reserve for Encumbrances 250,000

Reserve for Encumbrances – 2016 210,000

Revenue 2,400,000

Taxes Receivable 400,000

Transfers from Other Funds 250,000

Transfers to Other Funds 350,000

Unreserved Fund Balance 280,000

Vouchers Payable 270,000

Required:

a. Prepare the necessary closing entries on December 31, 2017.

b. Calculate the amount of both the unreserved fund balance and the total fund balance in the balance sheet (1) on December 31, 2016, and (2) on December 31, 2017.

Closing Entries

1. Unreserved Fund Balance 80,000

Revenue 2,400,000

Estimated Revenue 2,480,000

2. Reserve for Encumbrances – 2016 210,000

Expenditures – 2016 200,000

Unreserved Fund Balance 10,000

3. Appropriations 2,350,000

Expenditures 2,010,000

Encumbrances 250,000

Unreserved Fund Balance 90,000

4. Transfers from Other Funds 250,000

Unreserved Fund Balance 100,000

Transfers to Other Funds 350,000

B. Budget entry on January 1, 2017

Estimated Revenues 2,480,000

Appropriations 2,350,000

Unreserved Fund Balance 130,000

Unreserved fund balance per 12/31/11 14 preclosing trial balance $ 280,000

Less credit to unreserved fund balance on 1/1/1114 from budget entry <130,000>

Unreserved fund balance on 12/31/10 13 150,000

Reserve for encumbrances 12/31/10 13 210,000

Total fund balance per balance sheet 12/31/10 13 $ 360,000

Unreserved fund balance per 12/31/1114 pre-closing trial balance $280,000

Closing entries ($10,000 + $90,000 - $80,000 - $100,000) (80,000)

Unreserved fund balance 12/31/11 14 200,000

Reserve for encumbrances 12/31/11 14 250,000

Total fund balance per balance sheet 12/31/11 14 $450,000

Question Title: Test Bank (Problem) Question 17-7

Difficulty: Hard

Learning Objective: 6 Describe the critical events in the use of financial resources of an expendable fund.

Section Reference: 17.4, 17.5