Accounting Chapter 5 2 at The Inception Lease For Equipment The Journal Entry Required The Capital

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A) $0.

B) $12,000.

C) $1,080,000.

D) $1,200,000.

41) At the inception of a lease for equipment the journal entry required in the capital projects

fund will include which of the following?

A) A debit to Equipment.

B) A debit to Lease Expense.

C) A credit to Obligations under Leases.

D) A credit to Other Financing Sources—Lease Agreement.

42) Which of the following is not a requirement that must be met to elect the modified

approach to reporting certain eligible infrastructure assets?

A) The government gets the permission of the Government Accounting Standards

Board.

B) The government documents that the eligible infrastructure assets are being preserved

approximately at (or above) the condition level established and disclosed.

C) The government manages the assets using an asset management system that includes

condition assessments of the assets and summary of results using a measurement scale.

D) The government manages the assets using an asset management system that includes

estimates each year of the annual amount needed to maintain and preserve the eligible assets at

the condition level established and disclosed by the government.

43) When a snowplow is purchased by a government, it should be recorded in the

governmental activities general journal as a(an):

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A) Expenditure.

B) Capital asset.

C) Appropriation.

D) Expense.

44) A general capital asset constructed several years ago by a capital projects fund was sold

for cash by the General Fund. Entries are necessary in the:

A) General Fund only.

B) General Fund and the capital projects fund.

C) General Fund and governmental activities.

D) Governmental activities only.

45) In which of the following would it not be appropriate to record depreciation of capital

assets?

A) Capital projects fund.

B) Internal service fund.

C) Business-type activities.

D) Governmental activities.

46) The Town of Orleans purchased a truck for the parks department. If the operations of the

parks department are financed by general revenues, which of the following is correct concerning

where the capital asset would be recorded?

A) General Fund: No; Governmental Activities: Yes

B) General Fund: No; Governmental Activities: No

C) General Fund: Yes; Governmental Activities: No

D) General Fund: Yes; Governmental Activities: Yes

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47) Which of the following statements regarding capital assets is not true?

A) Proprietary funds routinely account for capital assets used in their operations within

the fund financial statements.

B) Fiduciary funds do not account for property, plant, and equipment within the fund

financial statements.

C) Because governmental funds account only for current financial resources, these funds

do not record capital assets acquired by the funds.

D) General capital assets purchased or constructed with governmental fund resources

are recorded in the governmental activities general ledger at the government-wide level.

48) When a government transfers the rights and obligations of an asset to another legally

separate governmental or private sector entity, the transaction is referred to as:

A) A special assessment arrangement.

B) An infrastructure agreement.

C) A service concession arrangement.

D) A sale-leaseback agreement.

49) Under a service concession arrangement:

A) The transferring government continues to report the transferred asset as a capital

asset and any related contractual obligations as liabilities.

B) The operating government will record the transferring government’s payment or

receivable, a liability for the present value of significant contractual obligations and a

corresponding deferred inflow of resources for the difference between the two.

C) Any deferred inflow of resources is recognized as revenue at the time the

arrangement takes place.

D) All of the given statements are true.

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50) If a city’s General Fund acquires a new copier under a lease agreement:

1.1) The “cost” of the copier is computed as ________.

2.2) A governmental fund should record the cost of the copier as an Expenditure, offset by a

credit to ________.

3.3) In the governmental activities general journal, the lease should be recorded with a debit to

________, offset by a credit to ________.

4.4) The liability should be computed as ________.

5.5) An asset that is leased should be ___________ over the shorter of the lease term or the

useful life of the underlying asset.

51) What is the difference between using the modified approach to accounting for

infrastructure assets and depreciating infrastructure assets?

52) Under the modified approach, what happens if infrastructure assets are not maintained at

or above the established condition level?

53) If bonds are sold at a premium to finance a capital project, what important question arises

concerning the premium? Discuss the proper accounting for a bond premium in the capital

projects fund, the debt service fund, and the government-wide statements assuming that the

premium must be reserved for debt service.

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54) Which expenditures of a capital projects fund should be capitalized to Construction Work

in Progress? Is Construction Work in Progress included in the chart of accounts of a capital

projects fund? If not, where would it be found?

55) What special issues may arise in valuing a government’s assets that generally do not

occur in a for-profit company?

56) Do bond anticipation notes represent current or long-term liabilities? Explain your

answer.

57) General capital assets should be distinguished from capital assets that are specifically

associated with activities financed by proprietary and fiduciary funds, since capital assets

acquired by proprietary and fiduciary funds are accounted for by those funds.

⊚ true

⊚ false

58) GASB standards require that all governmental expenditures for long-lived assets be

accounted for by a capital projects fund.

⊚ true

⊚ false

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59) General capital assets purchased or constructed with governmental fund resources are

recorded in the governmental activities general ledger at the government-wide level.

⊚ true

⊚ false

60) The disposal of a general capital asset, resulting in no gain or loss to the government, is

recorded only in the governmental activities accounts.

⊚ true

⊚ false

61) Historical cost includes acquisition cost less any ancillary costs necessary to put the asset

into use.

⊚ true

⊚ false

62) Depreciation of general capital assets for the period should be reported in the statement of

activities at the government-wide level.

⊚ true

⊚ false

63) The GASB allows governments with a population below 100,000 to choose the modified

approach, whereby they are not required to record depreciation on general capital assets.

⊚ true

⊚ false

64) Acquisition of a general capital asset represents an expenditure in a governmental fund,

but requires capitalization of an asset at the government-wide level.

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⊚ true

⊚ false

65) While the GASB encourages capitalization of all collections or individual works of art or

historical treasures, governments can opt not to capitalize if certain conditions exist.

⊚ true

⊚ false

66) General capital assets acquired under lease agreements should not be recorded in the

governmental activities accounts.

⊚ true

⊚ false

67) One of the required general capital asset disclosures is a schedule of the additions to, and

deductions from, general capital assets during the course of a fiscal year.

⊚ true

⊚ false

68) General capital assets acquired with capital projects fund resources would be recorded in

essentially the same manner as if they had been acquired by the General Fund.

⊚ true

⊚ false

69) Capital projects funds should use the accrual basis of accounting.

⊚ true

⊚ false

70) Capital projects funds generally do not use the Encumbrances control account.

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⊚ true

⊚ false

71) In the capital projects fund general journal, Construction Work in Progress is the account

used to capitalize the accumulated cost of partially-completed general capital assets.

⊚ true

⊚ false

72) Intangible assets are defined by the GASB as capital assets that lack physical substance,

have a useful life of more than one reporting period, and are nonfinancial in nature.

⊚ true

⊚ false

73) Proceeds of debt issued for the construction or acquisition of capital assets are recognized

by the capital projects fund as other financing sources and as a liability in the governmental

activities journal.

⊚ true

⊚ false

74) It is common practice for a portion of contractor payments to be withheld in the capital

projects fund until final inspection and acceptance of the asset under construction has occurred.

⊚ true

⊚ false

75) The recorded premium on tax-supported bonds issued by a capital projects fund should

be amortized at both the government-wide and fund levels.

⊚ true

⊚ false

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76) Interest incurred during construction of general capital assets cannot be capitalized as

part of the cost of those assets.

⊚ true

⊚ false

77) State laws often require that assets no longer needed in a capital projects fund be

transferred to the fund that will service the debt incurred for the project, a debt service fund.

⊚ true

⊚ false

78) Streets, curbs, and sidewalks constructed or acquired through use of capital projects fund

resources should never be reported in the financial statements of a government because they are

for the use of the public, not for use by the government.

⊚ true

⊚ false

79) When a government experiences delays associated with a bond issuance, it is common

practice to obtain temporary financing by use of bond anticipation notes.

⊚ true

⊚ false

80) The acquisition of long-lived assets under a lease agreement does not require any asset

recognition in the accounts of any governmental fund.

⊚ true

⊚ false

81) Water rights purchased by a city would be considered an intangible asset.

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⊚ true

⊚ false

82) Capital projects funds differ from the General Fund and special revenue funds in that the

latter categories have a year-to-year life, whereas capital projects funds have a project-life focus.

⊚ true

⊚ false

83) If general capital assets are donated, revenue related to the donation is recognized in the

governmental fund statement of revenue, expenditures and changes in fund balance.

⊚ true

⊚ false

84) General capital assets financed wholly or partially through collections of special

assessments are recorded in the same manner as any other general capital assets in the

governmental activities category at the government-wide level.

⊚ true

⊚ false

85) If all asset, liability, and fund equity accounts of a capital projects fund were closed

during a certain fiscal year, it is unnecessary to prepare any financial statements for that fund for

that year.

⊚ true

⊚ false

86) Under a service concession arrangement, a government transfers the rights and

obligations of an asset to another legally separate government or private sector entity.

⊚ true

⊚ false

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Answer Key

Test name: chapter 5

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