61) How should financial information for internal service funds be reported in the
government-wide financial statements?
A) As part of governmental activities.
B) As part of business-type activities.
C) Amounts allocated proportionately between governmental and business-type activities.
D) Usually as part of governmental activities, unless the internal service fund predominantly
serves one or more enterprise funds.
62) Which of the following account balances would only be reported if a city-owned utility
followed regulatory accounting principles?
A) Depreciation expense.
B) Pumping expense.
C) Restricted Assets—Cash.
D) Utility Plant Acquisition Adjustments.
63) Which of the following is not a true statement about the Allowance for Funds Used During
Construction (AFUDC)?
A) AFUDC may have either a debt component or an equity component.
B) The amount credited to AFUDC may exceed the amount of interest paid during the period on
bonds issued for construction.
C) AFUDC may be credited for an imputed amount of interest on the utility’s own funds used for
construction.
D) AFUDC may include the total amount of borrowing during construction.
64) Which of the following items is not required to be included in the segment information that
must be reported for a municipality’s enterprise funds?
A) Enterprise fund capital assets.
B) Enterprise fund operating income or loss.
C) Enterprise fund tax revenues.
D) Intergovernmental operating subsidies to an enterprise fund.
65) Under utility regulatory accounting principles (RAP), the account “Utility Plant Acquisition
Adjustment” reflects:
A) The difference between the amount paid for utility plant and the amount originally paid by the
utility that first placed the plant into public service, less accumulated depreciation.
B) The difference between the fair market value of the utility plant and the amount paid for it, less
accumulated depreciation.
C) The difference between the amount paid for the utility plant less its current replacement cost.
D) The difference between the amount paid for the utility plant less the fair market value of its
tangible plant assets.
66) Select the key term that relate to accounting for the business-type activities of state and local
governments from the list that best matches with the following definition.
A. Allowance for Funds Used during Construction
B. Revenue bonds
C. Utility plant acquisition adjustment
D. Regulatory accounting principles
E. Original cost
F. Historical cost
G. General obligation bonds
________ 1. In utility accounting, the net cost for the period of construction of borrowed funds
used for construction purposes and a reasonable rate on other funds so used.
________ 2. Accounting principles prescribed by federal or state regulatory commissions for
investor-owned and some governmentally owned utilities.
________ 3. Bonds whose principal and interest are payable exclusively from earnings of a public
enterprise.
________ 4. Bonds which carry the pledge of the government entity’s full faith and credit,
although the intent may be to service them from proprietary revenues rather than general taxes.
________ 5. The account that captures the premium paid on a utility plant purchased by a
government.
67) Explain the reporting requirements for internal service funds and enterprise funds. Internal
service funds and enterprise funds are both proprietary funds, so why do their reporting
requirements differ?
68) How does the statement of cash flows under GASB standards differ from the statement of cash
flows under FASB standards?
69) Legislators often believe an internal service fund function will not be subjected to annual
legislative budget review and the legislature will “lose control” of the fund. Do you agree with this
line of reasoning? Why or why not?