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True/False Questions 1. Capital projects funds of a governmental entity record the receipt and payment of cash for all the entity's plant assets other than those financed by the general fund. Answer: False 2. Proceeds from the issuance of general obligation bonds of a governmental entity are recorded in a debt service fund. Answer: False 3. Special assessment bonds may be issued by a governmental entity to finance construction projects prior to the collection of special assessments receivable from benefited property owners. Answer: True 4. Bonds issued to finance a plant asset construction project of a governmental entity are recorded as a liability in a capital projects fund. Answer: False 5. The purpose of debt service funds is to account for the accumulation of resources for the payment of principal and interest on all long-term debt of a governmental entity. Answer: False 6. All plant assets of a governmental entity are recorded in a voluntarily maintained general capital assets account group. Answer: False 7. Typically, a Special Assessments Receivable ledger account is included in the accounting records of a governmental entity's special revenue fund. Answer: True 8. The Unreserved and Undesignated Fund Balance ledger account of a capital projects fund is credited for interest revenue on that fund's investments. Answer: False

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9. An Investment in General Capital Assets ledger account is debited in the journal entry to record depreciation of plant assets accounted for in a governmental entity's voluntarily maintained general capital assets account group. Answer: True 10. A note to the financial statements of a governmental entity must be used to disclose changes in the entity's general capital assets during a fiscal year. Answer: True 11. Special assessment bonds for which a governmental entity is obligated in some manner are disclosed only in a note to the governmental entity's financial statements. Answer: False Multiple Choice Questions 12. Which of the following accounting units of a governmental entity might voluntarily use encumbrance accounting? A) Capital projects fund B) Debt service fund C) General capital assets account group D) General long-term debt account group E) All of the foregoing Answer: A 13. Part of the proceeds of a governmental entity's general obligation bonds was used to pay for the cost of a new city hall as soon as construction was completed. The remainder of the proceeds was transferred to repay the bonds. Journal entries to record these transactions are needed in: A) The general fund and the voluntarily maintained general long-term debt account group B) The general fund, the general long-term debt account group, and a debt service fund C) A trust fund, a debt service fund, and the voluntarily maintained general capital assets account group D) The general long-term debt account group, a debt service fund, the general capital assets account group, and a capital projects fund Answer: D
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14. In a governmental entity's capital projects fund, proceeds of general obligation bonds issued to finance the project are credited to: A) Appropriations B) Unreserved and Undesignated Fund Balance C) Bonds Payable D) Some other ledger account or accounts Answer: D Rationale: (Other Financing Sources) 15. Interest on general obligation bonds payable is recorded in a debt service fund: A) At the end of the fiscal year if the interest due date does not coincide with the end of the fiscal year B) When bonds are issued C) When legally payable D) When paid Answer: C 16. Cash obtained by a governmental entity from property tax revenues was transferred for the eventual payment of principal and interest on general obligation bonds. The bonds had been issued when land had been acquired several years ago for a city park. When the cash was transferred, a journal entry was not recorded in the: A) Debt service fund B) General capital assets account group (voluntarily maintained) C) General long-term debt account group (voluntarily maintained) D) General fund Answer: B Use the following information to answer questions 17 and 18: The following events relate to the City of Willow's debt service funds, which occurred during the fiscal year ended December 31, 2003: Debt principal matured Unmatured (accured) interest on outstanding debt, Jan. 1, 2006 Interest on matured debt Unmatured (accured) interest on outstanding debt, Dec. 31, 2006 Interest revenue from investments Cash transferred from general fund for payment of debt principal Cash tranferred from general fund for payment of matured interest All principal and interest amounts payable in 2006 were paid on time.
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$2,000,000 50,000 900,000 100,000 600,000 1,000,000 900,000

Chapter 18 Governmental Entities: Other Governmental Funds and Account Groups

17. The total amount of expenditures that Willow's debt service funds recognize for the year ended December 31, 2006, is: A) $900,000 B) $950,000 C) $2,900,000 D) $2,950,000 E) Some other amount Answer: C Rationale: ($2,000,000 + $900,000 = $2,900,000) 18. The total amount of revenues that Willow's debt service funds recognize for the year ended December 31, 2006, is: A) $600,000 B) $1,600,000 C) $1,900,000 D) $2,500,000 E) Some other amount Answer: A 19. Queen Village issued the following bonds during the fiscal year ended June 30, 2006: Revenue bonds to be repaid from admission fees collected by the Queen Village Zoo Enterprise Fund General obligation bonds issued for the Queen Village Water and Sewer Enterprise Fund, which will service the debt $200,000 300,000

The amount of these bonds to be accounted for in Queen Village's voluntarily maintained General Long-Term Debt Account Group is: A) $0 B) $200,000 C) $300,000 D) $500,000 Answer: A

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Questions 20 and 21 deal with the following: On December 31, 2006, Dingle Township paid a contractor $2,000,000 for the total cost of a new fire station built in 2006 on township-owned land. Financing was by means of $1,500,000 general obligation bonds that were issued at face amount on December 31, 2006, and $500,000 transferred from the General Fund on that date. 20. The amounts to be reported in Dingle Township's financial statements for the Capital Project Fund are: A) Revenues, $1,500,000; Expenditures, $1,500,000 B) Revenues, $1,500,000; Other financing sources, $500,000; Expenditures, $2,000,000 C) Revenues, $2,000,000; Expenditures, $2,000,000 D) Other financing sources, $2,000,000; Expenditures, $2,000,000 Answer: D 21. To be reported in Dingle Township's financial statements for the General Fund is (are): A) Expenditures, $500,000 B) Other financing uses, $500,000 C) Revenues, $1,500,000; Expenditures, $2,000,000 D) Revenues, $1,500,000; Other financing uses, $2,000,000 Answer: B 22. Fred Bosin donated land and a building to Palma City in 2006. Bosin's cost of the land and building was $100,000. Accumulated depreciation of the building on the date of the gift amounted to $60,000. Current fair value of the land and building on the date of the gift was $300,000. In a journal entry for the voluntarily maintained general capital assets account group, the total amount to be recorded for the donated plant assets is: A) $300,000 B) $100,000 C) $40,000 D) $0 Answer: A

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23. A special revenue fund of a governmental entity is an example of a(n): A) Governmental fund B) Proprietary fund C) Internal service fund D) Fiduciary fund Answer: A 24. Which of the following funds of a governmental entity might voluntarily use a general capital assets account group to account for plant assets with which the fund is associated? A) Internal service B) Enterprise C) Special revenue D) Trust E) None of the foregoing Answer: C 25. Which of the following is not a governmental fund? A) Special revenue fund B) Internal service fund C) Capital projects fund D) Debt service fund Answer: B 26. The appropriate journal entry (explanation and amount omitted) for a capital projects fund's entering into a contract with an architect is: A) Expenditures Vouchers Payable B) Architect's Fee Expense Contracts Payable C) Appropriations Payable to Architect D) None of the foregoing Answer: D Rationale: (Debit Encumbrances, Credit Fund Balance Reserved for Encumbrances)

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Problems 27. Among the activities of Wilburtown for the fiscal year beginning July 1, 2005, and ending June 30, 2006, were the following; Wilburton uses encumbrance accounting: July 1 5 Aug. 1 Approved the following annual budget for the special revenue fund as follows: Appropriations, $600,000; estimated revenues, $640,000. Executed a contract for the construction of a new town hall at a total cost of $5,000,000. Authorized a special assessment of $400,000 on residents of the town for construction of sidewalks. The special assessment was to be payable in five annual installments beginning September 1, 2006, with interest at 7% a year on the unpaid installments. Acquired from proceeds of general tax revenues equipment costing $20,000 (the related purchase order was for $19,600). The equipment was to be used by the general government of Wilburtown.

Sept. 1

Prepare journal entries (omit explanations) for the foregoing activities of Wilburtown assuming use of encumbrance accounting. Identify by initials the funds or voluntarily maintained account groups (for example, GF, SRF, CPF, GCAAG) in which the journal entries are recorded. Answer: 2005 SRF July 1

Estimated Revenues Appropriations Budgetary Fund Balance Encumbrances Fund Balance Reserved for Encumbrances Special Assessments Receivable Current Special Assessments Receivable Deferred Revenues Deferred Revenues Expenditures Vouchers Payable Fund Balance Reserved for Encumbrances

640,000 600,000 40,000 5,000,000 5,000,000 80,000 320,000 80,000 320,000 20,000 20,000 19,600
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CPF

July 5

SRF

Aug. 1

GF

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Encumbrances 19,600

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GCAAG Sept. 1 Machinery and Equipment Investment in General Capital Assets from General Fund Revenues 20,000 20,000

28. Indicate for each of the ledger accounts listed below, by a check mark in the appropriate column or columns, the funds of a governmental entity in which each account generally is used:
General Fund Special Revenue Fund Debt Service Fund Capital Projects Fund Enterprise Fund

Ledger Accounts Encumbrances (and Fund Balance Reserved for Encumbrances) used voluntarily Appropriations General Obligation Bonds Payable Estimated Revenues Machinery and Equipment Answer:

Ledger Accounts Encumbrances (and Fund Balance Reserved for Encumbrances) used voluntarily Appropriations General Obligation Bonds Payable Estimated Revenues Machinery and Equipment

General Fund

Special Revenue Fund

Debt Service Fund

Capital Projects Fund

Enterprise Fund

X X X

X X X X

X X

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29. St. Charles Township had the following transactions and events, among others, during the fiscal year ended June 30, 2006 (the township uses account groups): (1) On June 30, 2006, the township paid the first serial maturity of $80,000 on 6% general obligation bonds that had been issued at face amount of $400,000 on June 30, 2005, to mature serially June 30, 2006 through 2010. Accrued interest on the bonds also was paid on June 30, 2006. There was no fiscal agent. (2) Special Revenue Fund expenditures on July 26, 2005, included $11,100 applicable to purchase orders of $10,900 issued in the fiscal year ended June 30, 2005. The township uses encumbrance accounting. (3) On June 28, 2006, the State Revenue Department informed St. Charles Township that its share of a state-collected, locally shared tax was $340,000. Prepare journal entries for the foregoing transactions and events of St. Charles Township for the year ended June 30, 2006. Omit explanations, but identify by initials the fund or account group (GF, DSF, GCAAG, etc.) in which each journal entry is recorded. Answer: (1) DSF 2006 June 30 Expenditures Matured Bonds Payable Matured Interest Payable ($400,000 x 0.06) 30 Matured Bonds Payable Matured Interest Payable Cash GLTDAG 2006 June 30 Bonds Payable Amount Available in Debt Service Fund (2) SRF 2005 July 26 Fund Balance Reserved for Encumbrances Unreserved and Undesignated Fund Balance Vouchers Payable GF 2006 June 28 Receivable from State Government

104,000 80,000 24,000 80,000 24,000 104,000 80,000 80,000

10,900 200 11,100 340,000

(3)

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Other Financing Sources 340,000

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30. During your audit of the financial statements of Larrabee County on June 30, 2006, you discovered the following errors: (1) The Accounts Receivable ledger account of the General Fund included $6,900 receivable from the county's Enterprise Fund for the Enterprise Fund's disposal of excess supplies on the General Fund's behalf. A Payable to General Fund ledger account with a balance of $6,900 was included in the accounting records of the Enterprise Fund. (2) During the year ended June 30, 2006, obsolete equipment with a carrying amount (residual value) of $18,700 was disposed of for $4,800. In addition, new equipment was acquired for $120,000. Both transactions were recorded only in the General Fund in the General Property ledger account, which had a debit balance of $115,200 on June 30, 2006. All items of equipment had been acquired from general fund revenues. (3) During the year ended June 30, 2006, land with a current fair value of $650,000 was donated to Larrabee County for use as an industrial park. No journal entry had been prepared for the donation of the land. Prepare journal entries on June 30, 2006, to correct the foregoing errors in all affected funds and voluntarily maintained account groups of Larrabee County. Omit explanations, but identify by initials (GF, DSF, GCAAG, etc.) the fund or account group in which each journal entry is recorded. Answer: (1) GF (2) GF Receivable from Enterprise Fund Accounts Receivable Expenditures General Property Revenues 6,900 6,900 120,000 115,200 4,800 18,700 18,700 120,000 120,000 650,000 650,000

GCAAG Investment in General Capital Assets from General Fund Revenues Machinery and Equipment GCAAG Machinery and Equipment Investment in General Capital Assets from General Fund Revenues (3) GCAAG Land Investment in General Capital Assets from Donations

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31. The following journal entries were included in the accounting records of the Farmville Township General Fund for the fiscal year ending June 30, 2006: 2006 Mar. 3 Expenditures Vouchers Payable To record acquisition of new fire truck. 20,000 20,000

Mar. 31 Other Financing Uses 88,000 Cash To record transfer to Debt Service Fund for maturing principal and interest on general obligation serial bonds. Apr. 5 Cash Unreserved and Undesignated Fund Balance To record unexpended cash received from Capital Projects Fund after completion of library addition. 120,000

88,000

120,000

Prepare related journal entries (omit explanations) in other funds or voluntarily maintained account groups of Farmville Township. Identify the funds or account groups in headings for the entries. Answer: FARMVILLE TOWNSHIP GENERAL CAPITAL ASSETS ACCOUNT GROUP Journal Entry 2006 Mar. 3 Machinery and Equipment 20,000 Investment in General Capital Assets from General Fund Revenues 20,000 FARMVILLE TOWNSHIP DEBT SERVICE FUND Journal Entry 2006 Mar. 31 Cash Other Financing Sources 88,000 88,000

FARMVILLE TOWNSHIP CAPITAL PROJECTS FUND Journal Entry 2006 Apr. 5 Unreserved and Undesignated Fund Balance Cash 120,000 120,000

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Case 32. In a classroom discussion of accounting standards for the voluntarily maintained general capital assets account group of a governmental entity, student Raul questioned the logic of recording depreciation on plant assets accounted for in that accounting unit. Said Raul: "The general capital assets account group is not a fund; therefore, it has no need to make memorandum journal entries for depreciation." Do you agree with student Raul? Explain. Answer: Student Raul's argument is sound if one bases it solely on the fact that the general capital assets account group is not a fund. However, taking that argument to the extreme, one might allege that there is no need for general capital assets account group itself, its not being a fund. However, there is need for a governmental entity to have a record, including subsidiary ledger accounts, for its plant assets not recorded in a proprietary-type fund or in a nonexpendable private-purpose trust fund. Under that premise, to assist entity management in decisions on plant asset repairs, replacements, and retirements, depreciation accounting for plant assets in a voluntarily maintained general capital assets account group may be justified.

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