3’2
Select the best answer.
1. Internal service funds are reported as
a. business-type activities in government-wide
statements and governmental funds in fund
statements
b. proprietary funds in fund statements and
governmental activities in government-wide
statements
c. business-type activities in government-wide
statements and proprietary funds in fund
statements
d. governmental funds in fund statements and
governmental activities in government-wide
statements
2. In which of the following statements would depreciation
not be reported?
a. internal service fund statement of revenues,
expenses, and changes in fund net assets
b. government-wide statement of activities
c. capital projects fund statement of revenues,
expenditures, and changes in fund balance
d. enterprise fund statement of revenues, expenses,
and changes in fund net assets
3. Which of the following is “required supplementary
information”?
a. explanation of accounting principles used in
preparing the financial statements
b. schedule of changes in capital assets
c. budgetary comparison
d. ten-year trend of assessed property values
4. Which of the following is not required to be
incorporated into the budgetary comparison?
a. expenditures per the originally adopted
budget
b. expenditures per the amended budget
c. actual expenditures
d. variance between the actual expenditures
and those per the amended budget
5. The management’s discussion and analysis
(MD&A) is most likely to include information
on
a. service efforts and accomplishments
b. market values of government-owned capital
assets
c. the condition of infrastructure assets
d. financial performance during the period
covered by the financial statements
6. Which of the following is not one of the three
main categories of funds?
a. governmental funds
b. permanent funds
c. proprietary funds
d. fiduciary funds
7. “Major” funds include
a. all governmental funds plus proprietary
funds that have fund balances greater than
10 percent of those of all proprietary funds
combined
b. the general fund, special revenue funds, capital
projects funds, and debt service funds
c. the general fund plus all funds that have assets
greater that 50 percent of those of the
general fund
d. the general fund plus other funds in which
total assets, revenues, or expenditures/
expenses of the fund are at least 10 percent
of the corresponding total for the relevant
fund category (governmental or enterprise)
and also at least 5 percent of the corresponding
total for all governmental and enterprise
funds combined
8. The assets and liabilities of nonmajor governmental
funds would be
a. aggregated and reported in the governmental
funds balance sheet in a single column
b. excluded from the government-wide statement
of net assets
c. shown only in notes to the financial statements
d. reported as required supplementary information
9. Which of the following would not be reported
on a government-wide statement of activities?
a. a transfer of cash from the general fund to a
debt service fund
b. costs incurred by the recreation department
for electricity purchased from the cityowned
electric utility
c. depreciation on traffic lights
d. interest on bonds issued by the electric utility
department
10. Which of the following is not required to be included
in a government’s basic financial statements
or required supplementary information?
a. a reconciliation between proprietary fund
financial statements and the business-type
activities column of the government-wide
financial statements
b. a reconciliation between governmental fund
financial statements and the governmental
activities column of the government-wide
financial statements
c. a reconciliation between revenues reported
on the basis of GAAP and those reported on
a budgetary basis
d. a comparison between actual expenditures
and expenditures per the amended budget
3’3
Even at this early stage of the course it is possible to reconstruct
journal entries from a balance sheet.
The Sherill Utility District was recently established.
Here is its balance sheet, after one year.
Sherill Utility District
Balance Sheet as of End of Year 1
(in millions)
Capital
Gen- Proj- Debt
eral ects Service
Fund Fund Fund Totals
Assets:
Cash $30 $ 30
Investments $90 $20 110
Total Assets $30 $90 $20 $140
Liabilities and
Fund Balances:
Fund Balances $30 $90 $20 $140
Note the following additional information:
a. The general fund received all of its revenue,
$150 million, from taxes (all collected). It had
operating expenditures, excluding transfers to
other funds, of $100 million (all paid for).
b. The general fund transferred $20 million to
the debt service fund. Of this, $15 million
was to repay the principal on bonds outstanding;
$5 million was for interest.
c. The district issued $130 million in bonds to
finance construction of plant and equipment.
Of this, it expended $40 million.
1. Prepare journal entries to summarize these activities
in the appropriate funds. You need not
make closing entries. Do not be concerned as to
the specific titles of accounts to be debited or
credited (e.g., whether a transfer from one fund
to another should be called a “transfer,” an “expense”
or an “expenditure,” or whether proceeds
from bonds should be called “bond
proceeds” or “revenues.”)
2. Comment on how the district’s governmentwide
(full accrual) statement of net assets would
differ from the balance sheet presented.
3’4
Fund Fund
The transactions of the authority are accounted for
in the following governmental fund types:
‘ General fund”To account for all revenues and
expenditures not required to be accounted for in
other funds.
‘ Capital projects fund”To account for financial
1. Recast the balance sheets of the two funds into a
single consolidated balance sheet. Show separately,
however, the restricted and the unrestricted
portions of the consolidated fund
balance account (not each individual asset and
liability). Be sure to eliminate interfund
payables and receivables.
2. Which presentation, the unconsolidated or the
consolidated, provides more complete information?
Explain. Which presentation might be
seen as misleading? Why? What, if any, advantages
do you see to the presentation that is less
complete and more misleading?
3’5
Consolidated balances are not substitutes for individual
fund balance sheets.
The combined governmental fund balance sheet of
the town of Paris is presented on next page.
Per schedules included in the notes to the financial
statements, the town had $1,450 of capital
assets (net of accumulated depreciation) and $1,315
in long-term liabilities associated with the capital
assets.
1. Recast the balance sheets in the form of a single
consolidated, full accrual balance sheet.
2. Put yourself in the place of an analyst. The
town mayor presents you with the consolidated
balance sheet. He asserts that the town’s
financial position is excellent, as measured
by the exceedingly “healthy” fund balance.
Based on your having seen the combined
balance sheet that shows the individual
fund types, why might you be skeptical of his
claim?
3. Comment on why a consolidated balance sheet
is no substitute for a combined balance sheet
that reports on major funds.
3’6
Exploring Vero Beach’s financial report
Refer to the financial statements of the City of
Vero Beach that are included in this chapter.
1. Per the government-wide statement of activities,
how much did the city incur in expense for
police? Of this amount, how much had to be
covered from general tax and other unrestricted
revenues?
2. Per the governmental funds statement of revenues,
expenditures, and changes in fund balances,
how much did the city incur in
expenditures for police? How do you account
for the difference between this amount and your
response to question 1?
3. Per the government-wide statement of activities,
what was the ending balance in net assets
associated with governmental activities? Is this
consistent with the government-wide statement
of net assets?
4. How much was transferred (net) from businesstype
to governmental activities during the year?
5. How much in taxes did the city direct to the
support of business-type activities?
6 Vero Beach’s statement include a schedule
(Table 3-6)
7. As noted in the text, government-wide statements
are on a full accrual basis and therefore
the statement of activities includes charges for
depreciation. Orlando’s government-wide statement
of activities reports $1.8 million of unallocated
depreciation (i.e., not allocated to specific
functions or programs) for governmental activities.
How much depreciation did Orlando allocate
to specific functions or programs of
governmental activities?
9. Over 90 percent of the total amount of capital
assets reported in the government-wide statement
of net assets are devoted to business-type
activities. What is the most likely explanation as
to why the proportion of capital assets directed
to business-type activities is greater than that
devoted to governmental activities?