Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) For proprietary funds, governments generally present a statement of net position in a format that
displays assets, plus deferred outflows of resources, less liabilities, less deferred inflows of
resources, equals net position.
2) A statement of cash flows is prepared for enterprise funds but not for internal service funds.
3) 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.
4) Internal service funds account for operating expenses on the accrual basis of accounting.
5) 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.
6) The net position of an internal service fund is classified as nonspendable, restricted, committed,
assigned, and unassigned.
7) 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.
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8) Internal service funds utilize encumbrance accounting.
9) A statement of revenues, expenses, and changes in fund net position for an internal service fund
is similar in many respects to an income statement prepared for a commercial business.
10) Equipment acquired under a lease for use by an internal service fund will be reported as a
capital asset in both the fund and government-wide financial statements.
11) A motor pool is a common example of an internal service fund.
12) An employee pension fund is a common example of an internal service fund.
13) Proprietary funds follow the current financial resources measurement focus and use the accrual
basis of accounting.
14) Public utilities owned and operated by governments are common examples of enterprise funds.
15) If a business-type activity is subsidized by a government’s General Fund rather than fully
covering its costs of providing services with fees or charges, that activity need not be reported in an
enterprise fund.
16) Interest and principal on enterprise fund revenue bonds should be recorded in a debt service
fund until paid.
17) 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.
18) Proprietary funds report using three net position categories: net investment in capital assets;
restricted; and unrestricted.
19) Enterprise funds may capitalize interest paid on debt incurred for construction of plant assets.
20) 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.
21) GASB requires the statement of cash flows for proprietary funds to be prepared using the
direct method of presentation.
22) Unlike the General Fund and other major governmental funds for which a budget is legally
adopted, proprietary funds are not required by GASB standards to record budgets in their
accounting systems, nor are they required to present a budgetary comparison schedule.
23) Enterprise funds are reported as a part of the Governmental Activities column of the
government-wide financial statements when they provide services to governmental funds.
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24) GASB standards require that interfund receivables and payables between governmental and
business-type activities be presented as internal balances.
25) If enterprise funds are the predominant participants in an internal service fund, the government
should report the internal service fund’s residual assets, deferred inflows and outflows of
resources, and liabilities within the business-type activities column in the statement of net position.
26) Consistent with accounting in capital projects funds, interest capitalization for self–constructed
assets of proprietary funds is prohibited.
27) In the context of regulatory utility plant accounting, original cost and historical cost have the
same meaning.
28) 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.
29) Under regulatory reporting, Utility Plant in Service is stated at original cost.
30) All segments within an enterprise fund are subject to segment disclosure requirements.
31) Which of the following may properly be reported as a component of net position in the
proprietary fund statement of net position?
A) Retained earnings.
B) Designated equity.
C) Restricted net position.
D) Contributed capital.
32) Which of the following properly portrays the components of net position for proprietary
funds?
A) Net investment in capital assets, Reserved, Unreserved.
B) Designated, Undesignated, Restricted, Unrestricted.
C) Net investment in capital assets, Restricted, Unrestricted.
D) Contributed capital, Net investment in capital assets, Reserved, Unreserved.
33) Which of the following funds of a government uses the same basis of accounting as a
proprietary fund?
A) Permanent fund.
B) Investment trust fund.
C) Special revenue fund.
D) Capital projects fund.
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34) Internal service funds should be used only if:
A) The reporting government funds the activity with general obligation debt.
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 below full cost.
35) 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.
36) 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 fund financial statements required.
D) The measurement focus on economic resources for enterprise funds and current financial
resources for internal service funds.