14. The city’s new tax collector foreclosed on a piece of land. The fair market value of the land at
the time of foreclosure was $9,000. The taxpayer had acquired the property at a cost of
$11,000. The past due taxes on the property totaled $4,000. The city plans to retain the land
for its use. The land should be recorded in the General Capital Assets accounts in the amount
of
A. $0.
B. $4,000.
C. $9,000.
D. $11,000.
15. A government has a general government capital project underway. In the first year of the
project, the government paid $75,000 for land to be used as a building site; signed a contract
with a contractor for $8,000,000; was billed $4,500,000 by the contractor for work completed
during the year; and paid the contractor $4,050,000. At the end of the first year, what amount
of assets should be included in General Capital Assets accounts as a result of this activity?
A. $75,000.
B. $4,125,000.
C. $4,575,000.
D. $8,075,000.
16. A government entered into a general government capital lease at mid-year. The capitalizable
cost of the leased asset was $200,000, including a $30,000 down payment at the inception of
the lease. The implicit rate of interest in the lease agreement is 6% and annual payments of
$50,000 are due each year during the lease term beginning one year from the inception of the
lease. What accounting entities are most likely affected by this transaction?
A. General Fund, Debt Service Fund and General Capital Assets and General Long-Term
Liabilities accounts.
B. Capital Projects Fund and General Long-Term Liabilities accounts.
C. General Capital Assets and General Long-Term Liabilities accounts.
D. General Fund, and General Capital Assets and General Long-Term Liabilities accounts.
17. A city receives a donation of land from one of its citizens to be used as a park. How should
the donation be recognized by the government?
A. In the General Fund as a Special Item-Donation and in the General Capital Assets
accounts.
B. In the General Fund an Other Financing Source-Donation and in the General Capital
Assets accounts.
C. Only in the General Fund as Revenues-Other.
D. Only in the General Capital Assets accounts.
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18. If a government forecloses on property because of unpaid taxes in the General Fund, which
of the following funds and/or accounts would most likely be affected by the transaction?
A. General Fund only.
B. General Capital Assets accounts only.
C. General Fund and General Capital Assets accounts.
D. General Capital Assets and General Long-Term Liabilities accounts.
19. A capital contribution to be used by the entity could be reported in each of the following
funds except a/an
A. General Fund.
B. Enterprise Fund.
C. Internal Service Fund.
D. Private-Purpose Trust Fund.
20. Which of the following statements is true concerning intragovernmental transfers of capital
assets?
A. If a proprietary fund is donating a capital asset to a general government department, the
proprietary fund will debit capital contribution for the net book value of the donated
capital asset.
B. If a proprietary fund donates a capital asset to a general government department, it will be
reported as a nonoperating expense in the proprietary fund but as a transfer between
activities at the government-wide level.
C. If a general government department donates a capital asset to an enterprise fund, the
general fund will debit transfer out for the net book value of the donated asset.
D. If a general government department donates a capital asset to an enterprise fund, the
general fund will debit capital contribution for the original cost of the capital asset.
21. Jamestown has decided to enter into a capital lease for the purchase of its new recycling
truck. The capitalizable cost of the capital asset is $175,000 and Jamestown made a $30,000
down payment at the inception of the lease agreement. The estimated useful life of the truck
is ten years with $0 salvage value. Which of the following statements is false?
A. General Fund fund balance will be reduced by $175,000.
B. Other financing sources of $145,000 will be reported in Year 1.
C. Expenditures of $175,000 will be reported in Year 1.
D. Depreciation expense on the truck will be $17,500 per year.
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22. The Town of Nowhere purchased a new telecommunications system for the police
department. The town entered into a capital lease to finance the system. In the year of
acquisition, entries will be necessary in
A. The General Fund, Debt Service Fund, and General Capital Assets accounts.
B. The Debt Service Fund, the General Capital Assets accounts, and the General Long-Term
Liabilities accounts.
C. The General Capital Assets accounts and the General Long-Term Liabilities accounts.
D. The General Fund, the General Capital Assets accounts, and the General Long-Term
Liabilities accounts.
23. A local industry donated one of its properties to the local school district. The school district
plans to convert it to needed classroom space. In the year of the donation, the transaction will
affect
A. The government-wide statements only.
B. The General Fund and General Capital Assets accounts.
C. The General Fund, the General Capital Assets accounts, and the government-wide
financial statements.
D. The General Capital Assets accounts and the government-wide financial statements.
24. A fire destroyed one of Government A’s fire stations, which had a net book value of
$635,000. The government received an insurance settlement of $400,000 in the same fiscal
year the fire had occurred. Which of the following best describes the external financial
reporting in the year of the fire?
A. A special item in the amount of $635,000 should be reported in
government-wide financial statements only.
B. A loss of $235,000 should be reported in the government-wide
financial statements only.
C. A loss of $235,000 should be reported in both the General Fund
and the government-wide financial statements.
D. A special item of $235,000 should be reported in the government-
wide financial statements only.
25. A local town received a donation of $300,000. The donor stipulated that the money be
invested with the investment earnings being used to provide funding for the town’s recreation
programs while the principal is to remain intact. The town should record the $300,000 as
A. an other financing source in the General Fund.
B. an other financing source in a Permanent Fund.
C. a revenue in a Permanent Fund.
D. a Capital Contribution in a Permanent Fund.
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26. Assume that inspection services were performed by the General Fund department on a capital
project that is being accounting for in a Capital Project Fund. The inspection is being charged
to the project. The entry to record this transaction in the Capital Project Fund would be
A. Debit expenditures and credit due to General Fund.
B. Debit capital asset and credit due to General Fund.
C. Debit other financing uses and credit due to General Fund.
D. Debit expenditures and credit revenues.
27. Heimbaugh County recently lost a lawsuit that it had been defending in court for two years
relating to an incident involving one of the county’s police officers. The county had always
deemed a loss to be improbable. However, a judgment was ultimately rendered against the
county and, immediately prior to the current fiscal year end, the county was ordered to pay a
total of $300,000. $75,000 is due immediately and must be paid within two months (which
would be in the next fiscal year) and the remaining is to be paid in installments of $75,000
for an additional three years. How will the external financial statements of the county be
affected in the year the court case was settled?
A. The General Fund statements should report both expenditures and a claims and
judgments liability of $300,000.
B. The General Long-Term Liabilities accounts should report a $300,000 liability.
C. The General Fund statements should report expenditures and a current liability of
$75,000 and the General Long-Term Liabilities accounts should report a liability of
$225,000.
D. The General Fund statements should report a prior period adjustment for $75,000 and
General Long-Term Liabilities liability of $225,000.
28. Land was donated to a government for use in a general government activity. The land should
be reported in
A. The General Fund at its fair value when donated.
B. The General Capital Assets accounts at the cost incurred by the donor to acquire the land
originally.
C. The General Capital Assets accounts at the fair value of the land on the date it was
donated to the government.
D. The Capital Projects Fund since it is not a depreciable asset.
29. A government may elect not to report depreciation expense on which type of capital assets?
A. Capital assets with original useful lives in excess of 25 years.
B. Infrastructure capital assets.
C. Capital assets acquired by the General Fund.
D. Donated capital assets.
30. Accumulated depreciation is not reported on which of the following financial statements?
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B. General Fund balance sheet.
C. Enterprise Fund statement of net position.
D. Private-Purpose Trust Fund statement of fiduciary fund net position.
31. If a government issues bonds with a face value of $5,000,000 at a 2% discount and incurs
$55,000 of issuance costs, the General Long-Term Liabilities accounts will report a liability
of
A. $4,845,000.
B. $4,900,000.
C. $5,000,000.
D. $5,100,000.
32. Cash payments for compensated absences were $685,000 for the year. The current portion of
the compensated absences liability decreased by $62,000 during the year, but the noncurrent
portion of the liability increased by $32,000. How will the General Long-Term Liabilities
accounts be affected?
A. Increase of $32,000.
B. Decrease of $30,000.
C. Decrease of $655,000.
D. Net decrease of $685,000.
33. Which of the following accounts would not be included in a government’s General Capital
Assets accounts?
A. Infrastructure.
B. Accumulated depreciation.
C. Unrestricted net position.
D. Net investment in capital assets.
34. Which of the following accounts would not be included in a government’s General Capital
Assets accounts?
A. Assets acquired under capital leases.
B. Internal Service Fund equipment.
C. Infrastructure.
D. Accumulated depreciation.
35. A government has the following debt:
Capital lease liabilities (General Fund department leases)–$3,200,000.
Unfunded pension contributions (long-term) associated with general government
employees–$1,000,000.
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What amount of debt should be reported in the General Long-Term Liabilities accounts?
A. $1,000,000.
B. $3,200,000.
C. $4,200,000.
D. $9,200,000.
36. A government has the following general government capital assets:
Streets and roads–$17,000
Buildings–$20,000
Equipment–$4,000
Assets acquired under capital leases–$1,000
What is the minimum amount of general capital assets the government may report under
GAAP?
A. $42,000
B. $41,000
C. $25,000
D. $24,000
37. A government establishes a Permanent Fund to account for a donation. The earnings from the
donation are to be used to purchase books for the library. How should the donation be
reported in the Permanent Fund statement of revenues, expenditures and changes in fund
balance?
A. Special Item.
B. Revenue.
C. Other financing source.
D. Capital contribution.
38. A general government department of a county government donated a capital asset with an
original cost of $40,000 and accumulated depreciation of $15,000 to one of the county’s
proprietary funds. The proprietary fund would record the transaction as a
A. Debit to capital assets of $40,000 and a credit to revenue.
B. Debit to capital assets of $40,000 and a credit to capital contribution.
C. Debit to capital assets of $25,000 and a credit to revenue.
D. Debit to capital assets of $25,000 and a credit to capital contribution.
39. An enterprise fund in Bobby County donated a vehicle that had an original cost of $50,000 to
one of the County’s general government departments. The net book value of the vehicle as of
the date of donation was $15,000. The enterprise fund would record the transaction as a
A. Debits to transfer out of $15,000 and to accumulated depreciation of $35,000, and credit
to capital assets of $50,000
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C. Debits to nonoperating expense of $15,000 and to accumulated depreciation of $35,000,
and credit to capital assets of $50,000
D. Debit to capital contribution of $15,000 and credit to capital assets of $15,000
40. A government received insurance proceeds of $35,000 in the General Fund for water and
smoke damage that occurred at City Hall. What journal entry best describes the accounting
treatment in the General Fund for the receipt of these funds?
A. Debit cash and credit revenues.
B. Debit cash and credit other financing sources.
C. Debit cash and credit expenditures.
D. Debit cash and credit other financing uses.
41. The Village of Wisteria Lane purchased 10 new police cruisers on January 1 at a total cost of
$240,000. An additional $60,000 is being spent to paint the village’s name and logo and
vehicle number on the vehicles and add necessary lighting and other equipment. The cruisers
will have an anticipated useful life of six years with no salvage value. As of the end of the
first fiscal year (December 31), the depreciation expense in the government-wide statement
of activities should be
A. $0.
B. $40,000.
C. $50,000.
D. $60,000.
42. If the governing body contributes $65,000 from the General Fund to a Debt Service Fund, the
General Fund statements should report
A. A debt service expenditure of $65,000.
B. An other financing use of $65,000.
C. A capital contribution of $65,000.
D. A reimbursement of $65,000.
1. The use of an Enterprise Fund is required by generally accepted accounting principles in each of the
following situations except
A. When user fees are charged for the majority of the activity’s operations.
B. When an activity is financed with debt that is secured solely by the pledge of revenues.
C. When laws and regulations require that the activity’s costs be recovered with fees and charges.
D. When pricing policies of the activity establish fees and charges are designed for cost recovery.
2. Which of the following conditions is not a requirement that an activity which provides services for a
user fee be reported in an Enterprise Fund?
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B. Laws or regulations require the activity to recover its costs, including capital costs.
C. Pricing policies require the activity to recover its costs, including capital costs.
D. The main source of revenue for the activity is charges to external users.
3. Which of the following statements is false concerning interest capitalization?
A. Generally accepted accounting principles require the capitalization of certain types of interest in
Enterprise Funds.
B. Interest cost should not be capitalized for asset acquisitions financed by restricted gifts or grants.
C. Interest capitalization is computed differently for tax-exempt versus taxable debt.
D. Interest capitalization is not allowed in Enterprise Funds.
4. When accounting for inventory in an Enterprise Fund, which of the following methods should be used
for external financial reporting?
A. Acquisition method.
B. Allocation method.
C. Consumption method.
D. Purchases method.
5. A city Enterprise Fund received an operating grant during the fiscal year. The Enterprise Fund will
report this grant on the statement of revenues, expenses, and changes in net position as
A. Operating revenues.
B. Non-operating revenues.
C. Other financing sources.
D. Other financing uses.
6. The city, which has a December 31 year end, was awarded a $400,000 federal grant for a system
hardware upgrade to meet FCC requirements. The grant was awarded and distributed to the fund in
June 20X7. However, the capital project is not expected to be completed until June 20X8. As of
December 31, 20X7, the Cable Enterprise Fund should
A. Report nonoperating revenues of $400,000.
B. Report nonoperating revenues of $200,000.
C. Report a capital contribution of $400,000.
D. Report a capital contribution of $200,000.
7. A government defeased in substance $10 million of old Enterprise Fund bonds by paying $12 million
into a qualifying trust for that purpose. The refunded bonds had an unamortized premium of $200,000
and bond issue costs of $50,000. No borrowed resources were used to accomplish the defeasance.
What amount of deferred interest expense adjustment should the government report?
A. $0.
B. $1,850,000 debit.
C. $1,800,000 debit.
D. $1,850,000 credit.
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into a qualifying trust for that purpose. The refunded bonds had an unamortized premium of $200,000
and bond issue costs of $50,000. Resources to finance the defeasance of the old bonds were provided
by issuing $12,000,000 of new bonds issued at par. What amount of deferred interest expense
adjustment should the government report?
A. $0.
B. $1,850,000 debit.
C. $1,800,000 debit.
D. $1,850,000 credit.
9. Refunding bonds were issued by an Enterprise Fund with a face value of $15,000,000 at a 1%
discount. Issuance costs were $225,000. The entry to record the issuance of the refunding bonds
would be
Debit Credit
Other Financing Uses – Discount
Other Financing Sources – Bonds
150,000
$15,000,000
Expenditures
Other Financing Sources – Bonds
225,000
$14,850,000
Unamortized Deferred Charges/Discount
Bond Payable
375,000
$15,000,000
Unamortized Discount
Bonds Payable
150,000
$15,000,000
10. A city’s Enterprise Fund issued revenue bonds with a face value of $10,000,000. The bonds were
issued with a 2% premium and the issuance costs totaled $150,000. When the bonds are issued, the
Enterprise Fund will report total other financing sources in the amount of
A. $0.
B. $9,850,000.
C. $10,000,000.
D. $10,200,000.
11. An Enterprise Fund is donating a capital asset with a net book value of $25,000 to a general
government department. The entry that should be recorded for the Enterprise Fund would be
A. A debit to nonoperating expense and a credit to capital assets.
B. A debit to transfer out and a credit to capital assets.
C. A debit to capital contribution and a credit to capital assets.
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D. A debit to other financing use and a credit to capital assets.
12. A general government department donates a capital asset with an original cost of $50,000 to an
Enterprise Fund. The net book value as of the date of donation is $17,500. The entry that should be
recorded by the Enterprise Fund would be
A. A debit to capital assets of $17,500 and a credit to transfer in of $17,500.
B. A debit to capital assets of $50,000 and credits to accumulated depreciation of $32,500 and
transfer in of $17,500.
C. A debit to capital assets of $17,500 and a credit to capital contribution of $17,500.
D. A debit to capital assets of $50,000 and credits to accumulated depreciation of $32,500 and
capital contribution of $17,500.
13. A developer agreed to pay for water and wastewater infrastructure associated with one of his
development projects. Once the work is completed and the new lines are connected, they will become
part of the city’s Enterprise Fund capital assets. The entry that should be recorded by the Enterprise
Fund when the project is complete would be
A. A debit to capital assets and a credit to net investment in capital assets.
B. A debit to capital assets and a credit to capital contribution.
C. A debit to capital assets and a credit to transfer in.
D. A debit to capital assets and a credit to nonoperating revenues.
14. A city’s Enterprise Fund sold land, which rarely occurs in the government. The land was originally
purchased at $35,000 and sold for $235,000. The Enterprise fund would record the sale as a
A. Debit to cash for $235,000 and credit to non-operating revenues for $235,000.
B. Debit to cash for $235,000 and credit to operating revenues for $235,000.
C. Debit to cash for $235,000, a credit to capital assets (land) for $35,000, and a credit to non-
operating revenues for $200,000.
D. Debit to cash for $235,000, a credit to capital assets (land) for $35,000, and credit to special item
for $200,000.
15. An Enterprise Fund contributed $85,000 to the General Fund for operations. The money is not
intended to be a loan. Which of the following statements is true?
A. The Enterprise Fund will report capital contributions of $85,000.
B. The Enterprise Fund will report other financing uses of $85,000.
C. The Enterprise Fund will report advances of $85,000.
D. The Enterprise Fund will report transfers out of $85,000.
16. An Enterprise Fund entered into a capital lease for the purchase of equipment. The capitalizable cost
of the asset was $300,000 and fund made a $30,000 down payment. In the year of inception the
Enterprise Fund would report
A. Expenses of $30,000.
B. Capital assets of $300,000.
C. Long-term liabilities of $300,000.
D. An other financing use of $270,000 and expenses of $30,000.
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