17. The Public Utilities Enterprise Fund was ordered by the court to pay environmental damages of
$500,000. The fund is to pay $100,000 immediately and the remaining $400,000 in equal installments
for next four years. In the year of the judgment, the Enterprise Fund would report
A. $500,000 in expenses.
B. $500,000 in liabilities.
C. $100,000 in expenses.
D. Nothing. All amounts would be recorded in General Long-term Liabilities accounts.
18. The Water Enterprise Fund customers are billed on a monthly basis. As of the end of the fiscal year,
water valued at $3,956,000 was sold. The accounts receivable for the fund was $256,000 at the
beginning of the year and was $326,000 at the end of the year. Given these facts, the revenue in the
Water Enterprise Fund should be
A. $3,956,000.
B. $3,886,000.
C. $3,700,000.
D. $3,630,000.
19. An Enterprise Fund incurs $35,000 in interest during the current year related to its outstanding bonds.
The $35,000 will be reported as
A. Operating expenses.
B. Non-operating expenses.
C. Other financing uses.
D. Capitalized interest because all interest must be capitalized in an Enterprise fund.
20. An Enterprise fund receives a $100,000 capital grant and uses the funds to partially finance the
purchase of a $175,000 capital asset. The Enterprise Fund will report
A. Revenues of $100,000 and expenses of $175,000.
B. Non-operating revenues of $100,000 and capital assets of $175,000.
C. Capital contributions of $100,000 and expenses of $175,000.
D. Capital contributions of $100,000 and capital assets of $175,000.
21. The Utility Enterprise Fund is in Year 2 of a three year construction project that is projected to cost
$3,000,000. The fund incurred $300,000 of costs in Year 1 and $1,800,000 in Year 2. The fund will
report
A. Expenses of $300,000 in Year 1 and $1,800,000 in Year 2.
B. Total construction in progress in Year 2 of $1,800,000.
C. Total construction in progress in Year 2 of $2,100,000.
D. Expenditures of $300,000 in Year 1 and $1,800,000 in Year 2.
22. An Enterprise Fund made a debt service payment of $75,000 ($45,000 principal, $30,000 interest).
91
Copyright © 2013 Pearson Education, Inc.
C. $75,000 of expense.
D. a liability reduction of $75,000.
23. Which of the following is not a required financial statement of an Enterprise Fund?
A. Statement of net position.
B. Statement of revenues, expenses and changes in net position.
C. Statement of revenues, expenses and changes in net position—budget to actual (GAAP basis).
D. Statement of cash flows.
24. Which of the following would be included in determining operating income of an Enterprise Fund?
A. Transfers.
B. Depreciation expense.
C. Interest expense.
D. Capital contributions.
25. A government received a grant from another government. The $8,000,000 grant is restricted to use for
construction of a facility for one of the grantee government’s enterprise activities. The grant is for half
the cost of the facility. The grantor will reimburse half of the costs as they are incurred. At the end of
the first fiscal year, $3,000,000 has been spent on the project. $1,500,000 has been collected from the
grantor. How should the grantee’s Enterprise Fund statement of cash flows report the cash inflows?
A. Operating activities.
B. Noncapital financing activities.
C. Capital and related financing activities.
D. Investing activities.
26. The City of Alnwick received a grant from Blount County. The $8,000,000 grant is restricted to use
for construction of a facility for a city enterprise activity. The grant is for half the cost of the facility.
The grantor will reimburse half of the costs as they are incurred. At the end of the first fiscal year,
$3,000,000 has been spent on the project. $1,500,000 has been collected from the grantor. How
should the grant be reported in the statement of revenues, expenses, and changes in net position?
A. Capital contribution of $1,500,000.
B. Operating revenues of $1,500,000.
C. Nonoperating revenues of $1,500,000.
D. Special item of $1,500,000.
27. Payments in lieu of taxes that are not payments for services from a government‘s Enterprise Fund to
its General Fund should be reported by the Enterprise Fund as
A. Operating expenses.
B. Nonoperating expenses.
C. Transfers out.
D. Special item.
28. Which of the following statements is true about transfers into an Enterprise Fund?
A. They are always reported as capital and related financing activities in the statement of cash flows.
92
Copyright © 2013 Pearson Education, Inc.
B. They are always reported immediately after operating income in the statement of revenues,
expenses, and changes in net position.
C. They do not affect changes in net position of the proprietary fund.
D. They are always reported as noncapital financing activities in the statement of cash flows.
29. A government borrowed $20 million by issuing general obligation bonds to finance construction of a
new airport terminal for its Airport Enterprise Fund. The bonds were issued at par, and the
government intends to service the bonds from Enterprise Fund revenues. The proceeds of the bonds
should be reported as
A. An other financing source in the Enterprise Fund statement of revenues, expenses, and changes in
net position.
B. Capital and related financing activities in the Enterprise Fund statement of cash flows.
C. Revenues in the Enterprise Fund statement of revenues, expenses, and changes in net position
equity.
D. Only in the General Long-Term Liabilities account.
30. Which of the following is not a cash flow classification used in a Proprietary Fund statement of cash
flows?
A. Cash flows from operating activities.
B. Cash flows from financing activities.
C. Cash flows from investing activities.
D. Cash flow from noncapital financing activities.
31. Cash received from a transfer from the General Fund to subsidize operations of an Enterprise Fund is
reported in which section of a statement of cash flows?
A. Cash flows from operating activities.
B. Cash flows from noncapital financing activities.
C. Cash flows from capital and related financing activities.
D. Cash flows from investing activities.
32. A Proprietary Fund statement of cash flows reports cash flows from operating activities
A. Using the direct method.
B. Using the indirect method.
C. Equal to net income plus depreciation and plus/minus changes in appropriate current asset and
current liability accounts.
D. Using either the direct or the indirect method of presentation.
33. Where should a cash grant received to support the operations of an Enterprise Fund be reported on
that fund’s statement of revenues, expenses, and changes in fund net position?
A. Operating revenues.
B. Nonoperating revenues.
C. Reduction to operating expenses.
D. Capital contributions.
93
34. A city’s Enterprise Fund received $3,000,000 cash in the form of a capital grant during the fiscal year
ended June 30, 20X3. The Enterprise Fund incurred and paid construction costs from that grant in the
amount of $1,200,000. What amount should be reported on the Enterprise Fund Statement of Net
Position as net investment in capital assets?
A. $0
B. $1,200,000
C. $1,800,000
D. $3,000,000
35. A city’s Enterprise Fund received $3,000,000 cash in the form of a capital grant during the fiscal year
ended June 30, 20X3. The Enterprise Fund incurred and paid construction costs from that grant in the
amount of $1,200,000. What amount should be reported on the Enterprise Fund Statement of Net
Position as restricted for capital outlay?
A. $0
B. $1,200,000
C. $1,800,000
D. $3,000,000
36. A government borrowed $20 million by issuing general obligation bonds to finance construction of a
new airport terminal for its Airport Enterprise Fund. The bonds were issued at par, and the
government intends to service the bonds from Enterprise Fund revenues. At year-end, none of the
bond proceeds have been spent. The bonds payable would be included in which component of net
position of an Enterprise Fund?
A. Unrestricted net position.
B. Restricted net position.
C. Net investment in capital assets.
D. Temporarily restricted net position.
37. Which of the following would not be reported as a component of net position of an Enterprise Fund?
A. Unrestricted net position.
B. Restricted net position.
C. Net Investment in capital assets.
D. Permanently restricted net position.
38. A long-term liability for compensated absences would typically be included in which component of
net position of an Enterprise Fund?
A. Unrestricted net position.
B. Restricted net position.
C. Net investment in capital assets.
D. Net position would not be affected.
94
39. Which of the following equity classifications would not apply to an Enterprise Fund?
A. Retained earnings.
B. Net investment in capital assets.
C. Unrestricted net position.
D. Restricted net position.
40. Inventory in an Enterprise Fund will most likely affect which equity classification?
A. Nonspendable net position.
B. Net investment in capital assets.
C. Restricted net position.
D. Unrestricted net position.
41. On January 1, an Enterprise Fund issues $1,000,000 of 6%, ten-year tax-exempt bonds to finance the
construction of a new water treatment plant. During the year the Enterprise Fund earned $40,000 of
interest income on the bond proceeds and incurred $600,000 of construction costs. What amount of
interest cost should be capitalized for the year?
A. $0.
B. $20,000.
C. $36,000.
D. $60,000.
1. An Internal Service Fund is considered to be
A. A governmental fund.
B. A proprietary fund.
C. A fiduciary fund.
D. Either a governmental fund or a proprietary fund, depending on the nature of the activity
accounted for within the fund.
2. The use of an Internal Service Fund is mandated by generally accepted accounting principles
for which of the following activities?
A. Risk financing activities.
B. Government motor pool.
C. Centralized warehouse.
D. GAAP does not require the use of an Internal Service Fund.
3. A government plans to create an Internal Service Fund to account for its new central
warehouse. The General Fund loans the Internal Service Fund $100,000, which is going to
pay back the loan interest-free in five years. The entry in the Internal Service Fund to record
95
Copyright © 2013 Pearson Education, Inc.
Debit Credit
A
.
Cash
Revenue
$100,000
$100,000
B. Cash
Capital Contribution
$100,000
$100,000
C. Cash
Transfer from General Fund
$100,000
$100,000
D
.
Cash
Advance from General Fund
$100,000
$100,000
4. Nathan Township’s General Fund transfers three vehicles to the Internal Service Fund. The
vehicles, which have a useful life of five years, are transferred at the end of their fourth year.
Net Investment in Capital Assets
15,000
B. Vehicles
Capital Contributions
$75,000
15,000
C. Vehicles
Capital Contributions
$15,000
$15,000
D
Vehicles
Transfer from General Fund
$75,000
15,000
5. A Motor Pool Internal Service Fund purchased ten new vehicles for their fleet inventory. The
fund entered into a capital lease. The capitalizable cost totaled $300,000 and there was a
$50,000 down payment. The entry to record the transaction in the Internal Service Fund
96
Copyright © 2013 Pearson Education, Inc.
Debit Credit
.
Expenditures
Cash
50,000
50,000
B. Vehicles
Cash
$300,000
50,000
C. Vehicles
Cash
$300,000
50,000
.
Expenditures
Cash
50,000
50,000
6. The Central Warehouse Internal Service Fund purchased $15,000 of inventory on account,
which was unpaid as of the month end. Which of the following statements regarding the
accounting for the transaction is false?
A. Expenses in the Internal Service Fund will increase.
B. Capital assets recorded in the Internal Service Fund remain unchanged.
C. The transaction will increase total assets.
D. The transaction will increase total liabilities.
7. Caraway County has a Self-Insurance Internal Service Fund. If the fund purchases $100,000
of investments during the month, the
A. Fund’s total assets will increase by $100,000.
B. Fund’s total assets will decrease by $100,000.
C. Fund’s total assets will remain the same.
D. Fund’s expenditures will increase by $100,000.
8. An Internal Service Fund had investments with an original cost of $100,000. As of the end of
the fiscal year, the fair market value on these investments was $85,000. The Internal Service
Fund would
A. Report expenses of $15,000.
B. Report a reduction of revenue of $15,000.
C. Not adjust the value of the investments reported on the balance sheet.
D. Report a loss on investments of $15,000.
9. The General Fund paid $4,000 to the Internal Service Fund for services rendered. Which of
the following statements accurately reflects the reporting effects of the transaction?
97
Copyright © 2013 Pearson Education, Inc.
B. The Internal Service Fund will report capital contributions of $4,000.
C. The Internal Service will report a transfer in of $4,000.
D. The Internal Service Fund will record a direct adjustment to unrestricted net position.
10. Which of the following would most likely be accounted for in an Internal Service Fund?
A. A government’s water and sewer department if it provides water and sewer services to
government departments as well as to residents and businesses in the community.
B. A government’s central printing shop that provides a very minimal amount of services to
a few outside customers.
C. The Payroll and Benefits Department of the government.
D. A consolidated supplies facility where most of the customers are other governments.
11. A municipality’s Central Garage Internal Service Fund had total billings for $8,000 for the
month. Of the 40 vehicles serviced, 20 were police vehicles, 10 were water department
vehicles, and 10 were wastewater department vehicles. What would the journal entry be to
account for this transaction?
Debit Credit
A
.
Accounts Receivable
Transfer from Other Funds
$8,000
$8,000
B. Accounts Receivable
Charges for Services Revenue
$8,000
$8,000
Due from Wastewater Fund
Charges for Services Revenue
2,000
$8,000
Due from Wastewater Fund
Transfer from Other Funds
2,000
$8,000
12. The General Fund contributes $40,000 to an Internal Service Fund to subsidize the purchase
of a capital asset. The contribution is not considered to be an interfund loan. The Internal
Service Fund will report this contribution as a
A. Transfer in.
B. Capital contribution.
C. Nonoperating revenue.
D. Direct equity adjustment to restricted net position.
13. Inventory in an Internal Service Fund would most likely be reflected in which of the
following equity classifications?
98
Copyright © 2013 Pearson Education, Inc.
B. Net investment in capital assets.
C. Restricted net position.
D. Unrestricted net position.
14. Interest revenue earned by an Internal Service Fund will be reported on the statement of
revenues, expenses, and changes in net position as
A. Operating revenue.
B. Non-operating revenue.
C. An other financing source.
D. A capital contribution.
15. Which of the following statements accurately describes why the statement of revenues,
expenses and changes in net position for an Internal Service Fund differs slightly from one
for an Enterprise Fund?
A. Internal Service Funds do not report operating revenue.
B. Internal Service Funds report other financing sources and uses.
C. Internal Service Funds do not report depreciation expense.
D. The statement of revenues, expenses and changes in net position is formatted the same
for Enterprise Funds and Internal Service Funds.
16. Internal Service Funds report a statement of net position and a General Fund reports a
balance sheet. Which of the following would potentially appear on both the statement of net
position and the balance sheet?
A. Inventory.
B. Capital assets.
C. Bonds payable.
D. Temporarily restricted net position.
17. Internal Service Funds may report each of the following equity classifications except
A. Net investment in capital assets.
B. Restricted net position.
C. Nonspendable fund balance.
D. Unrestricted net position.
18. Assume that an Internal Service Fund purchases land on which to construct a new
warehousing facility. The fund paid cash for 30% of the purchase price and financed the
reminder with a loan from a local lending institution. The Internal Service Fund will
A. Increase Net Investment in Capital Assets.
B. Report capital outlay expenditures.
C. Depreciate the cost of the land over its useful life.
99
Copyright © 2013 Pearson Education, Inc.
D. Record the land in the General Capital Assets accounts.
19. Cash paid to purchase capital assets is reported as a cash outflow in which section of an
Internal Service Fund statement of cash flows?
A. Cash flows from operating activities.
B. Cash flows from noncapital financing activities.
C. Cash flows from capital and related financing activities.
D. Cash flows from investing activities.
20. An Internal Service Fund billed other departments $1,200,000 for services provided during
the year. Expenses of $700,000 for salaries, $250,000 for supplies and materials used,
$100,000 for depreciation, and $100,000 for interest expenses were incurred. The fund
received a $42,000 transfer from the General Fund during the year. The Internal Service Fund
should report operating income for the year of
A. $50,000.
B. $92,000.
C. $150,000.
D. $192,000.
21. The General Fund transfers cash to provide working capital for a new Internal Service Fund.
The Internal Service Fund would report this transaction in the statement of cash flows as
A. Cash flows from operating activities.
B. Cash flows from noncapital financing activities.
C. Cash flows from capital and related financing activities.
D. Cash flows from investing activities.
22. The General Fund transfers cash to provide working capital for a new Internal Service Fund.
The Internal Service Fund would report this transaction in the operating statement as
A. Revenues.
B. Other financing sources.
C. Nonoperating revenues.
D. Transfer in.
23. The required statements for an Internal Service Fund include a Statement of
A. Activities.
B. Revenues, Expenditures, and Changes in Fund Balance.
C. Revenues, Expenditures, and Changes in Net Position.
D. Revenues, Expenses, and Changes in Net Position.
100