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Section A provides a list of the results of Allentown’s analysis of its governmental fund balances at its fiscal year end. Section B provides a list of the possible classifications for reporting the items listed in Section A.
_____ 1. At year-end a special revenue fund has a $50,000 fund balance on which there are no constraints. _____ 2. Allentown has a$1,000,000 emergency reserve fund it set aside. According to the town ordinance, funds can only be used from this fund with approval of two-thirds of the governing body, which is the town council. _____ 3. Allentown determined that the General Fund has $22,000 in inventory it should report on its fund financial statements. _____ 4. Allentown issued bonds that sold at a premium. Using the authority allowed her by the town council, the city manager made the decision to set aside the$100,000 premium to pay the principal on the debt when it comes due in a future period. _____ 5. The federal government has provided a grant for emergency housing assistance that can only be used for low-income families. Allentown determined $250,000 of the grant funds remained at yearend. _____ 6. Allentown had a balance in its prepaid insurance account of$464,000 at the end of the fiscal year. _____ 7. At the end of the reporting period, Allentown’s General Fund statement of revenues, expenditures, and changes in fund balances reported a net change in fund balances of $154,238. _____ 8. Allentown’s mayor indicated that he was setting aside$25,000 of funds for the future purchase of land for a town park. _____ 9. The Allentown council passed an ordinance requiring that 5% of the town’s sales tax revenue be set aside for economic development; this year that amount was $24,650. _____ 10. The capital projects fund ended the reporting period with a negative fund balance.
a. Nonspendable b. Restricted c. Committed d. Assigned e. Unassigned
Using the choices provided in Section B, identify under which fund balance classification Allentown should report each of the dollar amounts listed in Section A.
Continuing from equilibrium in the previous problem, now suppose that in the economy of Eastlandia the central bank decides to decrease the money supply.
a. Using the diagram in problem 5, explain what will happen to the interest rate in the short run.
b. What will happen to the interest rate in the long run?
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