15. Assume that a Debt Service Fund does not have nonspendable fund balance. Further assume
that after restricted and committed levels of fund balance have properly identified, the
remaining balance is a deficit. This deficit fund balance should
A. Be reported as negative assigned fund balance.
B. Be reported as a negative unassigned fund balance.
C. Be reported as a negative nonspendable fund balance.
D. Be netted against the positive committed fund balance.
16. A special tax has been levied by the city council in a formal vote. This new revenue source
has been set aside for debt service purposes. This revenue source would most likely impact
A. Restricted fund balance.
B. Committed fund balance.
C. Assigned fund balance.
D. Unassigned fund balance.
17. The residual fund balance classification for a Debt Service Fund is
A. Unassigned.
B. Restricted.
C. Assigned
D. Committed.
18. A Debt Service Fund retires bond principal during the year that is not related to a defeasance.
The entry necessary to reflect the principal retirement would be
A. Debit bonds payable and credit cash.
B. Debit other financing use and credit cash.
C. Debit expenditures and credit cash.
D. Debit other financing source and credit cash.
19. Which of the following would not be a likely financial resource for a Debt Service Fund?
A. Property taxes.
B. Sales tax.
C. Transfers from the General Fund.
D. Proceeds from the sale of capital assets.
20. If cash from the General Fund is transferred to a Debt Service Fund, the entry in the Debt
Service Fund would
A. Debit cash and credit revenues.
B. Debit cash and credit other financing sources.
C. Debit cash and credit accounts receivable.
D. Debit cash and credit fund balance.
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21. If a special tax is levied to finance debt service for a particular debt issue, the entry to record
the levy in the Debt Service Fund would be
A. Debit Taxes Receivable and credit to Revenues.
B. Debit Taxes Receivable and credit to Other Financing Sources.
C. Debit Prepaid Assets and credit to Revenues.
D. Tax levies may not be reported in a Debt Service Fund.
22. In the fiscal year ended September 30, 20X9, debt service payments were made in January
and July from the Debt Service Fund in the total amount of $25,000 ($10,000 principal,
$15,000 interest). The sole financial resource for the debt service payments are the proceeds
of a special debt service tax levy. The taxes are paid in increments of about $27,000 and are
due in June of each year. For the fiscal year ended September 30, 20X9, assuming $24,000 of
taxes had been collected for this fiscal year, the expenditures reported in the Debt Service
Fund would be
A. $10,000.
B. $15,000.
C. $24,000.
D. $25,000.
24. ?
A. A balance sheet.
B. A statement of cash flows.
C. A budget-to-actual statement.
D. A statement of revenues, expenditures, and changes in fund.
25. If General Fund cash is transferred to a Debt Service Fund to provide resources to refund
outstanding debt, the Debt Service Fund statement of revenues, expenditures, and changes in
fund balance would report
A. An other financing source when the cash is received.
B. An other financing use when the cash is used to refund the outstanding debt.
C. A revenue.
D. A special item for the difference in the amount received and the amount paid.
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26. A government has $3,000,000 of 6%, 10-year general obligation bonds outstanding. The
bonds were issued on November 1, 20X8 to finance construction of a general capital asset.
Interest is payable semiannually on October 31 and April 30. What amount of debt service
expenditures should the government report for the year ended December 31, 20X8?
A. $0.
B. $30,000.
C. $90,000.
D. $180,000.
27. A government has $3,000,000 of 6%, 10-year general obligation bonds outstanding. The
bonds were issued on July 2, 20X7 to finance construction of a general capital asset. Interest
is payable semiannually on January 1 and July 1. What is the minimum amount of interest
expenditures that the government would be permitted to report on the bonds for 20X7?
A. $0
B. $30,000
C. $90,000
D. $180,000
28. A government has $3,000,000 of 6%, 10-year general obligation bonds outstanding. The
bonds were issued on July 2, 20X7 to finance construction of a general capital asset. Interest
is payable semiannually on January 1 and July 1. What is the maximum amount of interest
expenditures that the government would be permitted to report on the bonds for 20X7?
A. $0.
B. $30,000.
C. $90,000.
D. $180,000.
29. A government has $1,000,000 of 6%, 10-year general obligation bonds outstanding. The
bonds were issued on August 15, 20X6 to finance construction of a general capital asset.
Interest is payable semiannually on February 15 and August 15. What is the maximum
amount of interest expenditures that the government would be permitted to report on the
bonds for 20X6?
A. $0.
B. $22,500.
C. $30,000.
D. $60,000.
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30. A government has $1,000,000 of 6%, 10-year general obligation bonds outstanding. The
bonds were issued on November 1, 20X7 to finance construction of a general capital asset.
Interest is payable semiannually on November 1 and May 1. The bonds also require an
annual principal payment of $100,000 on May 1. What amount of debt service expenditures
should the government report for the year ended December 31, 20X8?
A. $60,000.
B. $90,000.
C. $160,000.
D. $190,000.
31. A government retired $5,000,000 of outstanding general obligation bonds when due. The
government used $3,000,000 of proceeds from new bonds issued to provide resources for
retiring the old bonds. The other $2,000,000 had been accumulated from tax and interest
revenues over the years that the old bonds were outstanding. The government should report
this transaction in its Debt Service Fund as
A. Other financing uses of $5,000,000.
B. Expenditures of $5,000,000.
C. Other financing uses of $3,000,000 and expenditures of $2,000,000.
D. Other financing uses of $2,000,000 and expenditures of $3,000,000.
32. A Debt Service Fund received an annual payment from the General Fund to finance
upcoming debt service payments. The amount received from the General Fund should be
reported in the Debt Service Fund statement of revenues, expenditures, and changes in fund
balance as
A. Other financing sources.
B. Revenues.
C. Proceeds from interfund loans.
D. Special item.
33. A Debt Service Fund received a $100,000 payment from the General Fund to finance
upcoming debt service payments. During the year, Debt Service Fund payments of $50,000
interest and $60,000 principal were made as they become due. The Debt Service Fund
statement of revenues, expenditures, and changes in fund balance should report
A. An excess of revenues over expenditures of $50,000.
B. An excess of expenditures over revenues of $10,000.
C. An excess of expenditures over revenues of $50,000.
D. An excess of expenditures over revenues of $110,000.
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34. Debt Service Fund expenditures would include all of the following except
A. Fiscal agent fees.
B. Repayment of refunded bonds using resources transferred from the General Fund.
C. Principal retirement payments.
D. Discounts on refunding bonds.
35. Assume that a county with a June 30 fiscal year end levied $900,000 in special assessments
20X1. The levy is to be paid by the property owners over a 10 year period beginning in
January 20X2. The amount of revenue recognized by the county in the Debt Service Fund as
of June 30 20X1 would be
A. $900,000.
B. $90,000.
C. $0.
D. Tax and special assessment revenues are never recognized in a Debt Service Fund.
36. A Debt Service Fund should be used to account for debt service on special assessment
indebtedness
A. Always.
B. Unless the government is not obligated in any manner on the debt.
C. If the government is obligated in some manner for the debt.
D. Never. A Special Assessment Fund should be used.
37. Which of the following is not usually a requirement of a Debt Service Fund (DSF) for a term
bond issue?
A. The DSF should be used to accumulate the necessary funds to pay the term bonds when
they come due.
B. The DSF makes period interest payment on the debt during its life.
C. The DSF will have funded reserves as required by the debt covenant.
D. A DSF that services a term bond issue has no requirements that distinguish it from a DSF
that services serial bonds.
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38. In the year that a governmental entity enters into a legal advance refunding, which of the
following note disclosures would not be required?
A. The present value of the net debt service savings or cost of advance refunding
transaction.
B. The amount of defeased debt that is still outstanding.
C. The difference between total of the remaining debt service requirements of the old
defeased issue and the total debt service requirements of the new issue, adjusted for any
additional cash received or paid.
D. General description of the transaction.
39. The City of Newport issued $1,500,000 of general obligation refunding bonds at a 2%
premium. Bond issuance costs of $15,000 were incurred. The proceeds, net of the premium
and bond issue costs, are being used to refund the outstanding bonds. Debt Service Fund
Expenditures will be debited for
A. $15,000.
B. $30,000.
C. $1,455,000.
D. $1,470,000.
40. The Village of Bakersville issued $700,000 of refunding bonds at a 1% premium. Bond
issuance costs were $10,000; $695,000 is to be used to retire the existing bonds. Other
financing uses will be debited for
A. $7,000.
B. $10,000.
C. $683,000.
D. $695,000.
41. Apex County advance refunded $3,000,000 of outstanding bonds. $2,500,000 was financed
with net refunding bond proceeds and the remaining $500,000 was transferred from the
General Fund. The county incurred $35,000 of bond issuance costs when issuing the
refunding bonds. Which of the following statements about the reporting of these transactions
in the Debt Service Fund is not true? The Debt Service Fund financial statements would
report
A. $2,500,000 of other financing uses.
B. Expenditures of $535,000.
C. Transfers in of $500,000.
D. Net other financing sources of $500,000.
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42. A government defeased in substance $5,000,000 of outstanding general obligation bonds
several years prior to their maturity. The government paid $6,000,000 into an irrevocable
trust to accomplish the defeasance in substance. The payment included $3,000,000 of
proceeds from new bonds issued that were to provide resources for the bond defeasance. The
other $3,000,000 had been accumulated over previous years from taxes and interest earnings
in the Debt Service Fund. The government should report the payment into the irrevocable
trust from its Debt Service Fund as
A. Other financing uses of $6,000,000.
B. Expenditures of $6,000,000.
C. Other financing uses of $3,000,000 and expenditures of $3,000,000.
D. Other financing uses of $5,000,000 and expenditures of $1,000,000.
43. A government paid $6,000,000 into an irrevocable trust to be used to service $5,000,000 of
outstanding general obligation bonds, but the transaction does not meet the defeasance in
substance criteria. The payment included $3,000,000 of proceeds from a new bond issue that
was issued to provide resources for the old bond. The other $3,000,000 had been
accumulated over previous years from taxes and interest earnings in the Debt Service Fund.
The government should report this transaction in its Debt Service Fund as
A. Other financing uses of $6,000,000.
B. Expenditures of $6,000,000.
C. Other financing uses of $3,000,000 and expenditures of $3,000,000.
D. No expenditures or other financing uses should be reported.
1. Which of the following methods of capital asset valuation is not considered an acceptable
alternative under generally accepted accounting principles for a donated capital asset?
A. Original cost
B. Estimate cost
C. Fair market value
D. Book value to donor.
2. Assume that the city foreclosed on a piece of property with a fair market value of $5,000. It
has an assessed value for taxes of $4,000. The outstanding amount of taxes and penalties due
on the property totals $3,500. Normally, the city would value the foreclosed property at
A. $0.
B. $3,500.
C. $4,000.
D. $5,000.
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3. Which of the following comments best describes the accounting and financial reporting
guidelines for works of art and historical treasures?
A. Governments should capitalize works of art and historical treasures but should not
depreciate them unless they are considered exhaustible.
B. Works of art and historical treasures may be capitalized, but they should never be
depreciated under any circumstances.
C. Works of art and historical treasures that must be held for public exhibition, must be
protected, and the proceeds of any sales must be used to acquire more collections are
always capitalized and depreciated.
D. Works of art should only be valued historical cost at the time of receipt.
4. Which of the following capital assets would not be considered a general capital asset?
A. Land at the local municipal park
B. A highway bridge maintained by a city government
C. Infrastructure associated with the local water system
D. Public safety vehicles
5. The parks and recreation department, which is accounted for within the General Fund,
purchased a new athletic field mower at a cost of $25,000. The mower has an estimated
2 in the amount of
A. $0.
B. $5,000.
C. $10,000.
D. $25,000.
6. A government entered into a general government capital lease in the prior year. During the
current year, a lease payment of $50,000, which includes implicit interest of $12,000, was
made from the General Fund. What effect does the $50,000 payment have on the General
Capital Assets and General Long-Term Liabilities accounts?
A. Increases net investment in capital assets by $38,000.
B. Increases capital assets $50,000.
C. Increases capital assets by $38,000.
D. Decrease capital lease liability by $50,000.
7. A county government sold two of its emergency vehicles for a total of $35,000. The vehicles
had a collective net book value of $46,000 (total original cost = $150,000; accumulated
depreciation = $104,000). The entry that would be made in the General Fund at the time of
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Debit Credit
A
.
Cash
Capital Contribution
$35,000
$35,000
B. Cash
Other Financing Sources – Sale of Capital Assets
$35,000
$35,000
Loss on Sale of Capital Assets
Capital Assets — Vehicles
11,000
$150,000
.
Loss on Sale of Capital Assets
Other Financing Sources – Sale of Capital Assets
11,000
$46,000
8. Assume that a governmental entity acquires a new garbage truck. The garbage truck costs
$189,000. The vendor allowed a $30,000 allowance with the trade-in of the entity’s old
garbage truck, which had a net book value of $42,000. The government financed the balance
with a short-term bank note. The new garbage truck would be recorded in the General Capital
Assets account at
A. $147,000.
B. $159,000.
C. $189,000.
D. $201,000.
9. New municipal building office equipment costs $400,000 and is being financed with a capital
lease. If the government makes a $40,000 down payment, which of the following best
describes the external financial reporting effects?
A. The General Fund statements will report expenditures of $400,000 and other financing
sources of $360,000. The General Long-Term Liabilities accounts will report a liability of
$360,000 and the General Capital Assets accounts will report an asset of $400,000.
B. The General Fund statements will report expenditures of $40,000 and other financing
sources of $360,000. The General Long-Term Liabilities accounts will report a liability of
$400,000 and the General Capital Assets accounts will report an asset of $360,000.
C. The General Fund statements will report expenditures of $360,000 and other financing
sources of $400,000. The General Long-Term Liabilities accounts will report a liability of
$360,000 and the General Capital Assets accounts will report an asset of $360,000.
D. The General Fund statements will report expenditures and other financing sources of
$40,000. The General Long-Term Liabilities accounts will report a liability of $360,000
and the General Capital Assets accounts will report an asset of $360,000.
10. A city recently ordered a new fire truck. The base cost of the truck is $250,000. In addition,
the city will be paying $1,000 in delivery charges and $5,000 for necessary calibrations once
it is delivered; and the city will also have the necessary logos added at a cost $2,500. The
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A. $0.
B. $251,000.
C. $256,000.
D. $258,500.
11. A local citizen donated land with a fair market value of $500,000 to the county government.
The donor had paid $550,000 for the land five years ago. The county incurred $150,000 in
development costs to convert the land into a public park. The county should capitalize the
new public park in the General Capital Assets accounts in the amount of
A. $500,000.
B. $550,000.
C. $650,000.
D. $700,000.
12. A local government purchased land to be used for a new city hall to be built within the next
five years. The purchase price was for the land’s fair value, $1,500,000. The government
financed the required $150,000 down payment by securing a short-term note with a local
lending institution. The remaining $1,350,000 was financed by issuing certificates of
participation. Costs incurred in issuing the certificates of participation totaled $60,000. The
land should be capitalized in the General Capital Assets account in the amount of
A. $1,350,000.
B. $1,410,000.
C. $1,500,000.
D. $1,560,000.
13. A bridge construction project, accounted for in a Capital Projects Fund, is in Year 2 of an
2, $1,530,000 of costs were incurred. What entry would be necessary in the General Capital
Assets accounts for Year 2?
Debit Credit
A
.
Capital Outlay
Cash
$1,530,000
$1,530,000
B. Construction in progress
Cash
$1,530,000
$1,530,000
C. Construction in progress
Net investment in capital assets
$1,530,000
$1,530,000
D
.
Construction in progress
Net investment in capital assets
$1,830,000
$1,830,000
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