G&P ch 7

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FALSE

Internal service funds of one government may not provide goods or services, on a cost-reimbursement
basis, to other governments.

FALSE

Revenues of internal service funds should be recognized only when they are expected to be available
in time to pay current liabilities of the fund.

FALSE

Internal service funds should account for operating expenditures on the accrual basis.

TRUE

Internal service funds account within the fund for any long-term liabilities to be serviced from revenue
derived from fund operations.

FALSE

Internal service funds should not account for depreciation of capital assets used in their operations,
since this would, in effect, charge the government twice for the same assets.

FALSE

Internal service funds are intended to operate on taxes or other financing sources authorized by the
legally enacted revenue budget for each year; therefore, they are classified as governmental funds.

FALSE

The net assets of an internal service fund consist of contributed equity and reserves for assets that will
not be converted into cash in the normal operation of the fund.

TRUE

In the information for the Supplies Fund that follows, the account "Interfund Loan from Electric
Utility Fund" should be credited for $320,000 because this amount was borrowed from and will have
to be repaid by the Supplies Fund.

TRUE

In the information for the Supplies Fund that follows, the account "Interfund Transfer In from General
Fund" should be credited for $89,200 because this amount was transferred from the General Fund to
the Supplies Fund in a nonexchange transfer that will not have to be repaid.

FALSE

The Encumbrances account should be used by an internal service fund in the same manner as by the
General Fund.

TRUE

Proprietary funds are accounted for in a manner similar to investor-owned businesses; among other
features, the accrual basis of accounting is used and all of the capital assets used in fund operations are
accounted for by the using fund.

FALSE

If an internal service fund is created to improve the management of resources devoted to the supply
function, the supplies fund should use periodic inventory accounting instead of perpetual physical
inventory accounting.

FALSE

Capital assets acquired under a capital lease for use by an internal service fund should be recorded in
the General Fund in order to report all leased assets in one financial statement.

TRUE

A statement of revenues, expenses, and changes in net assets for an internal service fund is similar in
many respects to an income statement prepared for an investor-owned business.

FALSE

A statement of cash flows is not prepared for an internal service fund.

FALSE

An internal service fund can be liquidated only if there is a ready and willing buyer for the fund's
assets.

TRUE

Public utilities owned and operated by governments are the most common examples of enterprise
funds.

TRUE

Enterprise funds are used by state and local governments to account for services that are provided to
the general public on a user-charge basis, with prices set to recover the costs of operations, activities
financed with debt secured solely by revenues from fees of the activity, activities required by law or
regulations to recover operating costs from user charges, or any activity that the governing body of the
government has decided should be accounted for on a "business basis."

TRUE

The liability for utility revenue bonds should be reported in business-type activities on the
government-wide statements, as well as in the enterprise fund.

FALSE

Budgets for enterprise funds should be recorded in the accounts in the same manner as budgets for a
General Fund or a special revenue fund.

TRUE

Unbilled customer accounts receivable should be reflected in the balance sheet of a governmentally
owned utility even though the exact amount of service to be billed is unknown until the customers'
meters can be read.

FALSE

General obligation bonds used to increase the capacity of a water treatment plant (part of a water
utility enterprise fund), but for which the debt service (including repayment of principal) will be paid
from general government revenues should be reported as a long-term liability in the water utility fund
balance sheet.

FALSE

Matured interest and principal on enterprise fund revenue bonds should be recorded in a debt service
fund until paid.

TRUE

The liability for long-term debt issued to provide financing for an enterprise fund and to be serviced
from revenues of the enterprise fund should be reported in the financial statements of the enterprise
fund, even though the debt also is backed by the general obligation credit of the government.

TRUE

Utility enterprise funds that report to regulatory agencies may capitalize both actual interest paid on
debt incurred for construction of plant assets and an imputed amount on their own funds so used.

FALSE

In the context of regulatory utility plant accounting, original cost and historical cost have the same
meaning.

TRUE

The amount of expense and liability to be reported each period for the closure and postclosure costs
of a municipal solid waste landfill (MSWLF) is proportional to the amount of landfill capacity used
during the period.

TRUE

The balance sheet format recommended for financial statements submitted to the NARUC and FERC
for utilities subject to regulatory reporting requirements displays Utility Plant before Current and
Accrued Assets and Long-Term Debt before Current and Accrued Liabilities.

TRUE

To facilitate the combination of utility financial statements with the statements of other enterprise
funds, GAAP permits utilities to follow the customary format used by nonutility business
organizations.

TRUE

Premiums or discounts on bonds payable issued by enterprise funds should be accounted for in the
same manner as those of a comparable business entity.

TRUE

Plant and equipment utilized by a governmentally owned utility should be depreciated in the same
manner as if it belonged to an investor-owned utility.

Restricted net assets

Which of the following may properly be reported as a component of net assets in the proprietary fund
statement of net assets?
A. Retained earnings.
B. Designated equity.
C. Restricted net assets.
D. Contributed capital

Investment trust fund.

Which of the following funds of a government uses the same basis of accounting as a proprietary
fund?
A. Permanent trust.
B. Investment trust fund.
C. Special revenue.
D. Capital projects.

The reporting government provides services primarily to other departments of the same
government

Internal service funds should be used only if
A. The reporting government is the predominant participant in the activity.
B. The reporting government provides services primarily to external participants.
C. The reporting government provides services primarily to other departments of the same
government.
D.
The reporting government provides services to other departments at a charge that covers the full
cost of operations.

Internal service fund

In which of the following funds is it appropriate to record depreciation of capital assets?
A. Internal service fund.
B. Permanent fund.
C. General fund.
D. Capital projects fund.

The customers who primarily benefit from the fund's service

Which of the following is a difference between enterprise funds and internal service funds?
A. The use of cost accounting by enterprise funds but not internal service funds.
B. The customers who primarily benefit from the fund's service.
C. The number of basic financial statements required.
D.
The measurement focus on economic resources for enterprise funds and current financial resources
for internal service funds.

Should be recorded in the enterprise fund as an expense

Depreciation on capital assets used by an enterprise fund of a government
A. Should not be recorded for infrastructure assets.
B. Should be recorded in the General Fund as an expenditure.
C. Should be recorded in the governmental activities accounts.
D. Should be recorded in the enterprise fund as an expense

Proprietary but not governmental funds

The comprehensive annual financial report (CAFR) of a government should contain a statement of
revenues, expenses, and changes in net assets for
A. Both proprietary and governmental funds.
B. Proprietary but not governmental funds.
C. Governmental but not proprietary funds.
D. Proprietary and fiduciary funds

Municipal golf course

Which of the following activities or services would most likely not be accounted for by an internal
service fund?
A. Electronic data processing.
B. Central purchasing, warehousing, and issuing of supplies.
C. Municipal golf course.
D. Risk management.

The difference between assets and liabilities of proprietary funds is called "fund balance."

Which of the following is not true regarding proprietary funds?
A. The difference between assets and liabilities of proprietary funds is called "fund balance."
B. Proprietary funds record long-term debt directly in the fund accounts.
C. Proprietary funds record capital assets directly in the fund accounts.
D. Proprietary funds present a statement of cash flows

Modified; Accrual basis: No; accrual basis: Yes

Which of the following is (are) an appropriate basis of accounting for an internal service fund?
A. Modified accrual basis: Yes; accrual basis: No:
B. Modified; Accrual basis: No; accrual basis: Yes
C. Modified accrual basis: Yes; accrual basis: Yes
D. Modified accrual basis: No; accrual basis: No

Internal service

Which of the following funds of a government would account for depreciation in the accounts of the
fund?
A. General.
B. Internal service.
C. Capital projects.
D. Special revenue.

An internal service fund normally does not use budgetary accounts.

An internal service fund normally uses which of the following budgetary accounts?
A. Estimated Revenues.
B. Appropriations.
C. Encumbrances.
D. An internal service fund normally does not use budgetary accounts

Statement of revenues, expenditures, and changes in fund balance.

Under GASB standards, an internal service fund should prepare all of the following financial
statements except for a
A. Statement of revenues, expenditures, and changes in fund balance.
B. Statement of revenues, expenses, and changes in net assets.
C. Statement of net assets.
D. Statement of cash flows.

GASB standards do not address appropriate fees. Each government determines its own operating and
pricing policies, which may include subsidizing the cost of operating an internal service fund.

In order to conform to GASB standards, goods and services provided by internal service funds to other
departments of the government must be priced to
A. Cover variable costs only.
B. Cover full costs (both fixed and variable).
C. Cover full costs, plus an additional charge to cover inflation and anticipated needs for expansion.
D.
GASB standards do not address appropriate fees. Each government determines its own operating and
pricing policies, which may include subsidizing the cost of operating an internal service fund.

Interfund Transfer In

To establish a new internal service fund with a transfer of funds (not to be repaid), which account
would be credited in the internal service fund?
A. Cash.
B. Interfund Transfer In.
C. Interfund Transfer Out.
D. Estimated Revenues.

It is probable that a loss has been incurred and the amount can be reasonably estimated

GASB accounting and financial reporting standards for risk financing activities provide that an
internal service fund should recognize claims expense and a related liability when a claim has been
asserted and
A. A municipal court has awarded a judgment to a claimant fund (e.g., the General Fund).
B. It is reasonably possible that a loss has been incurred and the amount can be reasonably estimated.
C. It is probable that a loss has been incurred and the amount can be reasonably estimated.
D. A loss has been incurred, but the amount cannot be reasonably estimated.

Transfer the fund's assets to a not-for-profit organization that provides charitable services in the
community

Which of the following is not a typical means of dissolving an internal service fund that a city no
longer needs or wants?
A. Conversion of the fund's noncash assets to cash and distribution of the cash to another fund or
funds.
B. Transfer the fund's assets to another fund that will continue the same or similar operating activities.
C.
Distribute the fund's assets in kind to another fund or funds that will not continue the same or
similar operating activities.
D.
Transfer the fund's assets to a not-for-profit organization that provides charitable services in the
community.

Utility Plant Acquisition Adjustments

Which of the following account balances would only be reported if a city-owned utility followed
regulatory accounting principles?
A. Depreciation expense.
B. Pumping expense.
C. Restricted Assets—Cash.
D. Utility Plant Acquisition Adjustments.

Enterprise

Customers' meter deposits, which cannot be spent for normal operating purposes, would be classified
as restricted cash in the balance sheet of which fund type?
A. Internal service.
B. Private-purpose trust fund.
C. Enterprise.
D. Special revenue.

The computer department.

Which of the following organizations or units would least likely be accounted for by an enterprise
fund?
A. A hospital.
B. An airport.
C. The computer department.
D. A sports stadium.

Fund Balance: No; Net Assets—Unrestricted: Yes

Which of the following accounts would appropriately be included in the net assets section of an
enterprise fund balance sheet?
A. Fund Balance: No; Net Assets—Unrestricted: Yes
B. Fund Balance: Yes; Net Assets—Unrestricted: No
C. Fund Balance: No; Net Assets—Unrestricted: No
D. Fund Balance: Yes: Net Assets—Unrestricted: Yes

Accrue revenue and a receivable for the number of days from the last billing date for each customer
until December 31.

The water utility fund of the City of Pikesville uses cycle billing procedures. Under these procedures,
the City of Pikesville will likely do which of the following on December 31, the end of its fiscal
year
A. Read meters and bill all customers on December 31.
B.
Accrue revenue and a receivable for the number of days from the last billing date for each customer
until December 31.
C. Ignore water consumed by customers from their last billing date until December 31.
D. Call the unbilled customers and request that they read their own meters.

AFUDC may include the total amount of borrowing during construction

Which of the following is not a true statement about the Allowance for Funds Used During
Construction (AFUDC)?
A. AFUDC may have either a debt component or an equity component.
B.
The amount credited to AFUDC may exceed the amount of interest paid during the period on bonds
issued for construction.
C. AFUDC may be credited for an imputed amount of interest on the utility's own funds used for
construction.
D. AFUDC may include the total amount of borrowing during construction.

Material enterprise fund tax revenues

Which of the following items is not required to be included in the segment information that must be
reported for a municipality's enterprise funds?
A. Material enterprise fund capital assets.
B. Material enterprise fund operating income or loss.
C. Material enterprise fund tax revenues.
D. Material intergovernmental operating subsidies to an enterprise fund.

A portion of the estimated total current costs for closure and postclosure of the MSWLF, as
reevaluated at the end of the fiscal year, equal to the ratio of landfill used during the year to its total
capacity.

A municipal solid waste landfill (MSWLF) accounted for by an enterprise fund should recognize an
expense and liability for the year in the amount of
A.
The estimated total current costs for closure and postclosure of the MSWLF determined at the time
the landfill is placed into initial operation divided by the estimated number of years the landfill will
be operated.
B
.
The estimated total current costs for closure and postclosure of the MSWLF as reevaluated at the end
of each fiscal year divided by the remaining estimated number of years the landfill will be operated.
C.
A portion of the estimated total current costs for closure and postclosure of the MSWLF, determined
at the time the landfill is placed into initial operation, equal to the ratio of landfill used during the
year to its total capacity.
D.
A portion of the estimated total current costs for closure and postclosure of the MSWLF, as
reevaluated at the end of the fiscal year, equal to the ratio of landfill used during the year to its total
capacity.

The difference between the amount paid for utility plant and the amount originally paid by the utility
that first placed the plant into public service, less accumulated depreciation.

Under utility regulatory accounting principles (RAP), the account "Utility Plant Acquisition
Adjustment" reflects
A
.
The difference between the amount paid for utility plant and the amount originally paid by the utility
that first placed the plant into public service, less accumulated depreciation.
B.
The difference between the fair market value of the utility plant and the amount paid for it, less
accumulated depreciation.
C. The difference between the amount paid for the utility plant less its current replacement cost.
D.
The difference between the amount paid for the utility plant less the fair market value of its tangible
plant assets.

An enterprise fund and disclosed in the notes to the financial statements

The liability for general obligation bonds issued for the benefit of a governmentally owned electric
utility and serviced by its earnings should be recorded in
A. An enterprise fund.
B. An enterprise fund and disclosed in the notes to the financial statements.
C. An enterprise fund and the business-like activities accounts.
D. The governmental activities accounts.

Include billed receivables and an accrual for unbilled receivables as of the balance sheet date.

Sales revenues of a utility for a certain fiscal period
A. Are equivalent to total debits to Customer Accounts Receivable for that period.
B.
Include receivables billed during a fiscal period, plus receivables billed early in the next year if
meters were read before year-end.
C. Should be reported on the cash basis for the sake of conservatism.
D. Include billed receivables and an accrual for unbilled receivables as of the balance sheet date.

Eligible infrastructure assets

For which of the following assets can the "modified approach" be elected in lieu of depreciation?
A. Eligible infrastructure assets.
B. All general capital assets.
C. Buildings and equipment.
D. All capital assets.

Furniture and fixtures

The Gotham City Golf Course, an enterprise fund, purchased new furniture for use in the golf pro's
office. The debit for the entry to record the event should be to
A. Expenditures.
B. Purchases.
C. Furniture and fixtures.
D. General capital assets.

Expenditures.

Which of the following accounts would least likely be found in the general ledger of an internal
service fund?
A. Cash.
B. Expenditures.
C. Billings to Departments.
D. Machinery and equipment.

Incurrence of interest expense.

Which of the following would be reflected in the operating statement of a proprietary fund?
A. Incurrence of interest expense.
B. Repayment of the principal of debt.
C. Issuance of debt.
D. Purchase of a capital asset.

Usually as part of governmental activities, unless the internal service fund predominantly serves
one or more enterprise funds

How should financial information for internal service funds be reported in the government-wide
financial statements?
A. As part of governmental activities.
B. As part of business-type activities.
C. Amounts allocated proportionately between governmental and business-type activities.
D.
Usually as part of governmental activities, unless the internal service fund predominantly serves
one or more enterprise funds.

What are the transactions or events of the period that have increased or decreased the fund's total
economic resources

Primarily, the operating statement of a proprietary fund should provide information useful in
answering which of the following questions?
A.
What are the transactions or events of the period that have increased or decreased the resources
available for spending in the near future?
B. Have current financial resources increased or decreased during the period?
C. Have cash balances increased or decreased as a result of transactions and events of the period?
D.
What are the transactions or events of the period that have increased or decreased the fund's total
economic resources?

original cost

in utility accounting the cost to the first owner who dedicated a plant to service the public

regulatory accounting principles

accounting principles prescribed by the federal or state regulatory commisions for investor owned and some governmental owned utilities

revenue bonds

bonds whose principal and interest are payable exclusively from earnings of a public enterprise

customer advances for construction

amounts required to be deposited by a customer for construction projects undertaken by a utility at the request of a customer

utility plant acquisition adjustment

the account that captures the premium paid on a utility plant purchased by the government

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