Exam #_________

Name: ___________________________________________

Exam 1
Acct 430-530
Fall 2010
INSTRUCTIONS:
{Not following instructions could cost you up to 10 points.}
Put your name on answer sheet and exam. Put your name and student ID number on answer sheet in both human
and machine-readable formats. (For the ID number, do not put in a hyphen -- the last two columns will be blank.)
If you tear the test apart, please be sure it is in order before stapling back together. Do not staple answer sheet to the
exam
MATCHING and MULTIPLE CHOICE: Darken your selected answer on the separate answer sheet. You should
also clearly circle or otherwise mark your answer on the exam itself since the answer sheet will not be returned.
There is no penalty for guessing.
SHORT PROBLEMS: Show any necessary computations if you want to be eligible for partial credit. Present your
work in a neat, well-organized manner. Answer all parts of the problem.
SHORT ANSWER (ESSAY): Write legibly and use complete sentences. If I cant read it, I cant give you credit for
your thoughts! Abbreviations are acceptable as long as they are obvious, i.e., SRF, CPF, etc. In particular, I need to
be able to tell if you meant expense or expenditure! I dont think there will be time, but you may answer a second
essay questions for extra credit (maximum 10 points).

1-30.

MULTIPLE CHOICE (100 points total)

(Scored: number correct divided by 24 * 100) . Number
correct is limited to maximum of 24 but you get 1 point
extra credit for each correct answer beyond 24 so 6 free
misses

31.___________
31-34. Problems (30 points each for 90 points total)
Select at least 3 problems
(If all 4 are attempted, I will count the 3 best scores)

32.___________
33.___________
34.___________

35.

Short answer essay questions (10 points)

Total points earned (max = 200)

35. ___________
__________ points _________%

Acct 430-530 Exam 1 (Fall 2010)

Blank page use for scratch paper

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Additional scratch paper on back of last page

Acct 430-530 Exam 1 (Fall 2010)

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Multiple Choice Questions

1. A primary characteristic that distinguishes not-for-profit entities from business entities is
a) The need to generate revenues equal to or in excess of expenditures/expenses.
b) The importance of the budget in the governing process.
c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.
2. Which of the following entities was a principal in creating the FASAB?
a) U.S. Congress.
b) Office of Management and Budget.
c) Governmental Accounting Standards Board.
d) Securities and Exchange Commission.
3.
a)
b)
c)
d)

Which of the following activities is NOT an activity in which a governmental entity might engage?
Selling electric power.
Operating a golf course.
Operating a bookstore.
All of the above are activities that might be carried out by a government.

4. As used by GASB, interperiod equity refers to which of the following? Financial reporting should:
a) Demonstrate compliance with finance-related contractual requirements.
b) Demonstrate whether resources were obtained and used in accordance with the entitys legally
adopted budget.
c) Provide information to determine whether current-year revenues were sufficient to pay for
current-year services.
d) Provide information to assist users in assessing the governments economy, efficiency, and
effectiveness.
5. Which of the following is a probable use a donor would make of the external financial statements of a
not-for-profit entity?
a) To determine the proportion of entity resources directed to programs as opposed to fund-raising.
b) To determine the creditworthiness of the entity for investment purposes.
c) To determine the salaries paid to all employees of the entity.
d) To determine the budget of the entity.
6. Which of the following is not one of the GASBs financial reporting objectives?
a) Providing information on the extent to which inter-period equity is achieved.
b) Providing information on service efforts and accomplishments
c) Ensuring budgetary compliance.
d) Reporting on the sources and uses of financial resources.
7.
a)
b)
c)
d)

Which of the following accounts would you least expect to see in a debt service fund?
Principal payments.
Interest charges.
Interest earned.
Outstanding balance of the debt being serviced.

Acct 430-530 Exam 1 (Fall 2010)

8.
a)
b)
c)
d)

Page 4

Which of the following funds is a governmental fund?

Enterprise fund.
Debt service fund.
Internal service fund.
Agency fund.

9. Which of the following activities conducted by a city-owned junior college should be accounted for
in an agency fund?
a) Receipt of revenues belonging to the student accounting club.
b) Receipt of state monies appropriated for general operations.
c) Receipt of tuition payments.
d) Receipt of donations in support of the universitys athletic program.
10. To fulfill the printing needs of its various departments and agencies, the City has established a Central
Print Shop, which bills the various departments and agencies of the city for printing services
rendered. The Central Print Shop should be accounted for in which of the following funds.
a) Internal service fund.
b) Enterprise fund.
c) General fund.
d) Special revenue fund.
11.
a)
b)
c)
d)
12.

Under the GASB Statement No. 34 reporting model for governmental entities, the governmentwide Statement of Activities will display which of the following?
a) Assets, Liabilities, and Net Assets.
b) Assets, Liabilities, and Fund Balances.
c) Revenues, Expenses and Net Assets
d) Revenues, Expenses and Fund Balance.

13.
a)
b)
c)
d)
14.

Which of the following assets would NOT be found in the fund balance sheet of the General Fund
of the City of Harrison?
Cash.
Due from Special Revenue Fund.
Inventory.
Capital assets.

Which branch of local (city and county) government most commonly prepares the budget?
Executive branch.
Legislative branch.
Judicial branch.
None of the above.

An officially adopted budget is generally called

a) An operating budget.
b) A capital budget.
c) An appropriation bill.
d) None of the above.

Acct 430-530 Exam 1 (Fall 2010)

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15. GASB requires that governmental entities present their budgeted-to-actual comparison data on
which of the following bases of accounting?
a) Modified accrual basis.
b) Accrual basis.
c) Budgetary basis.
d) Cash basis.
16. The City of Lakeview adopts its budget on a basis of accounting that permits outstanding purchase
commitments to be charged against the budget in the year that the goods are ordered instead of in the
year they are received. During the year the City ordered and received $4,000 of supplies (of which
$3,000 had been paid and $1,000 was unpaid) and had $500 of outstanding purchase commitments
for supplies at year-end. In the Statement of Budget to Actual, the expenditures for supplies would
be:
a) $3,000.
b) $3,500.
c) $4,000.
d) $4,500.
17. A governmental entity has formally integrated the budget into its accounting records. At the end of
the third quarter the ledger account Expenditures--Salaries has a $100,000 debit balance. Which
of the following is a true statement?
a) The entity has $100,000 available to spend on salaries.
b) The entity has incurred salaries in the amount of $100,000.
c) The entity had paid salaries in the amount of $100,000.
d) The entity has overspent its budget for salaries by $100,000.
18. Which of the following is the primary reason why governments formally integrate their legally
adopted budget into their accounting systems?
a) It is required by GASB.
b) It enables the government to better control its expenditures.
c) It keeps the government from overspending its budget.
d) It helps a government by letting it know when it is in danger of overspending its budget.
19.
a)
b)
c)
d)

For fund financial statements, the measurement focus and basis of accounting used by
governmental fund types are
current financial resources and modified accrual accounting.
economic resources and modified accrual accounting.
current financial resources and full accrual accounting.
economic resources and full accrual accounting.

20. Under the accrual basis of accounting, gains and losses on disposal of fixed assets
a) are not recognized.
b) are recognized when the proceeds (cash) of the sale are received (on the installment basis).
c) are recognized only if there is a gain.
d) are recognized when the sale occurs, regardless of when the cash is collected.

Acct 430-530 Exam 1 (Fall 2010)

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21. Under GAAP, property taxes levied in one fiscal period to finance the activities of the following
fiscal period are recognized as revenue in the governmental fund financial statements
a) in the year levied.
b) in the year for which they are intended to finance the activities.
c) when collected, regardless of when levied.
d) in the year for which they are intended to finance the activities, if collected within that period
or within a period no greater than 60 days after the close of the fiscal year.
22.
a)
b)
c)
d)

Unrestricted grant revenues with a time requirement should be recognized

when the award is announced.
when the cash is received.
in the period in which the grant is can be used.
when expenditures are recognized on grant-related activities.

23. Which of the following is not characterized as non-exchange?

a)
Sales taxes
b)
Property taxes
c)
Charges for services
d)
Fines and forfeits
24.
a)
b)
c)
d)

State governments should recognize food stamp revenue from debit cards issued to qualifying
recipients
when the recipient receives the debit card.
when debit card is used by recipient.
when the government receives funding from the federal government
never. Food stamps are not financial resources.

25. State Community College, a public college, grants faculty members a one-year sabbatical leave after
each seven years of service. There are no requirements for research, study or service during the
compensated sabbatical leave. A particular faculty member earns $40,000 per year. Assuming that
the college maintains its books and records in a manner that facilitates the preparation of the fund
financial statements and assuming that any appropriate accruals have been made, what is the
appropriate entry to record the employees salary paid while on sabbatical?
a) No entry required.
b) Debit Sabbatical Leave Payable $40,000; Credit Cash $40,000.
c) Debit Expenditures $40,000; Credit Sabbatical Leave Payable $40,000.
d) Debit Expenditures $40,000; Credit Cash $40,000.
26. This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the
icy City Hall steps. The City attorney estimates the City will be held liable by the courts and a
judgment of $200,000 will result. Because of the nature of the case it will likely be four years before
the City makes any payment related to the accident. The present value of the likely future payment
is $167,000. In the government-wide financial statements, at the end of the current fiscal year, Port
City should recognize a liability of
a) $0.
b)$50,000
c) $167,000.
d)$200,000.
e) Either (c) or (d).

Acct 430-530 Exam 1 (Fall 2010)

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27.

The construction of a Bike Path in Bay City was accounted for in a capital projects fund.
Financing for the project came from the following sources:
Transfer from Bay Citys general fund
$10,000
Proceeds from general obligation bond issue
$100,000
Grant from state government
$50,000
Which of the following amounts should appear in this years governmental funds statement of revenues,
expenditures, and changes in fund balances for Other Financing Sources?
a)
b)
c)
d)
e)

$10,000
$60,000
$100,000
$110,000
160,000

28.

The City of Holbrook transferred $100,000 from the General Fund to the Debt Service Fund for
payment of interest. The appropriate entry in the General Fund to record this transfer would be
Debit Expenditures $100,000; Credit Cash $100,000.
Debit Other Financing UsesTransfer Out $100,000; Credit Cash $100,000.
Debit Fund BalanceTransfer Out $100,000; Credit Cash $100,000.
Debit Other Financing SourcesTransfer In $100,000; Credit Cash $100,000.

a)
b)
c)
d)
29.

a)
b)
c)
d)

Star City leased a bulldozer for use in activities accounted for in the General Fund. The City paid
$30,000 and agreed to pay $30,000 per year for 3 years. The present value of the cash flows is
$105,000. The bulldozer has a useful life of six years. The lease qualified as a capital lease.
Assuming that the city maintains is books and records in a manner that facilitates the preparation
of the fund financial statements, the appropriate entry in the General Fund at the date of
acquisition would be
Debit Expenditures $105,000; Credit Cash $30,000 and Other Financing Sources $75,000.
Debit Expenditures $30,000 and Prepaid Lease $75,000; Credit Cash $30,000 and Other
Financing Sources $75,000.
Debit Equipment $120,000; Credit Cash $30,000 and Other Financing Sources $90,000.
Debit Expenditures $105,000; Credit Cash $30,000 and Lease Payable $75,000.

30.
Campbell County uses the consumption method to record all inventories and prepayments. The
County has a 9/30 fiscal year-end. On April 1, 2010, the County purchased a two-year insurance
policy at a total cost of $400,000, paying for the policy out of the General Fund. In the fund
financial statements, the amount to be reported as nonspendable fund balance at 9/30/10 would be
a) $100,000.
b) $200,000.
c) $300,000.
d) $400,000.

Acct 430-530 Exam 1 (Fall 2010)

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Problems (pick 3 of the 4 to work 30 points each)

31.

Assume that the City of Amber maintains its books and records in a manner that facilitates the
preparation of the fund financial statements. Amber City maintains a general fund, a capital
projects fund, and a special revenue fund. During the current fiscal year, the City engaged in the
following transactions. Record all transactions. Be sure to clearly indicate the fund in which the
entry is made.
FUND

Account Title
a. The City sold bonds, face value $26 million,
at par to finance the construction of a new City
Hall.

b. The City purchased two new police cars at a

total cost of $50,000.

c. The City collected $8,000 in taxes dedicated

for the eradication of noxious weeds.

d. The City spent $6,000 on pesticides for

noxious weeds.

e. The City acquired a new tractor for $75,000.

The City paid $20,000 in cash and signed a note
that is due in three years.

Debit

Credit

Acct 430-530 Exam 1 (Fall 2010)

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Acct 430-530 Exam 1 (Fall 2010)

32.

Page 10

Journal entries in the General Fund of the City of Minimax

The City uses the encumbrance system to record purchase orders.

The City accounts for its inventory using the purchases method. There were no supplies on hand at the
beginning of the year.
The City has adopted the new GASB 54 categories to describe fund balances.
Account Title
a. During the year the City issued purchase orders for
$400,000 of supplies.

b. The supplies were received and the total cost invoiced to

the City was $415,000.

c. The City paid $315,000 on account during the year and will
pay for the remaining invoices from available expendable
financial resources.

d. The ending inventory in supplies is valued at $60,000.

Based on this information, make any necessary year-end
entries.

Debit

Credit

Acct 430-530 Exam 1 (Fall 2010)

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33. Property Taxes

A city that has a 12/31 fiscal year end has adopted a policy of recognizing property tax revenue
consistent with the 60-day rule allowable period under GAAP. Property taxes of $600,000 (of which
2% are estimated to be uncollectible) are levied in October 2010 to finance the activities of fiscal year
2011. Property taxes are due in two installments June 20 and December 20. Cash collections related
to property taxes are as follows:
1/15/11
2/15/11
3/15/11
6/20/11
12/20/11
1/15/12
2/15/12
3/15/12

for property taxes levied in 2009, due in 2010

for property taxes levied in 2009, due in 2010
for property taxes levied in 2009, due in 2010
First installment of taxes levied in 2010, due 6/20/11
Second installment of taxes levied in 2010, due 12/20/11
for property taxes levied in 2010, due in 2011
for property taxes levied in 2010, due in 2011
for property taxes levied in 2010, due in 2011

$ 25,000
$ 15,000
$ 10,000
$350,000
$150,000
$ 15,000
$ 10,000
$ 5,000

Journal entries are not required but SHOW COMPUTATIONS:

a. What is the total amount of property tax revenue that should be recognized in the statement of
revenues, expenditures, and other changes in fund balance for 2011?

b. What is the total amount of property tax revenue that should be recognized in the statement of
activities for 2011?

c.

What amounts will be reported on the 12/31/11 balance sheet assuming the City identifies its
property taxes by year?

(1) Deferred property tax revenues (2011) = _____________________________

(2) Property taxes receivable (2011) = _________________________________

Acct 430-530 Exam 1 (Fall 2010)

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34. Salaries and Benefits at the City of Homer

Employees of the City of Homer are paid from the general fund semi-monthly on the 15 th day and the last
day of the month. The City provides numerous employee benefits including the following:
Employees earn ten vacation days for each 12 months of employment. The employee can take
the vacation during any summer months (May-September) prior to retirement.
The employees also earn one sick day for each month of employment. Sick pay vests at the
completion of five years of continuous service. Vested unused sick pay will be paid upon
retirement or termination.
At the beginning of the current year employees had $.4 million of earned vacation time and $7 million of
vested earned sick leave.
Accounting Method
The Citys fiscal year end is December 31.
The City recognizes revenues/expenditures when collected/paid or if collected/paid within 60
days of year-end.
The City uses the FIFO method of accounting for vacation and sick days.
The City maintains its books and records in a manner to facilitate the preparation of its fund
financial statements
Instructions:
Using the answer sheet on next page, record the transactions related to employee salaries and benefits.
Be sure to make ALL necessary entries, including any amount that would be added to the schedule of
long-term debt (needed to prepare the government-wide statements).
If there is no change to long-term liabilities reported in the government-wide financial statements,
enter n/a under the schedule of long-term debt headings.

Acct 430-530 Exam 1 (Fall 2010)

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Problem 34
Account Title
a. During the year employees of the City earned $60 million. At
year-end all but $2 million had been paid to the employees. (This
amount does not include vacation and sick leave.)

SCHEDULE OF LONG-TERM DEBT:

b. During the year the employees of the City earn $2.5 million in
vacation pay. By year-end the employees had taken $2 million of
vacation. Of the balance of vacation pay due to the employees, the
City estimates that $.3 million will be taken during the next year
and $.2 million will be deferred until later.

SCHEDULE OF LONG-TERM DEBT:

c.

During the year the employees of the City earned $3 million in

sick pay, of which $2.5 million is expected to vest. Of the 2.5
million, employees are expected to take $2.0 million and $.5
million is expected to be paid to employees upon their termination
or retirement. During the year employees took $1 million in sick
days.

SCHEDULE OF LONG-TERM DEBT:

Debit

Credit

Acct 430-530 Exam 1 (Fall 2010)

Page 14

ESSAY (10 points)

Short answer, please!
35.

In the United States, educational services can be provided by federal governmental entities, by
non-federal governmental entities, by not-for-profit entities, and by for-profit entities. Are the
accounting and financial reporting standards the same for each of these entities? Should they be
the same?

Acct 430-530 Exam 1 (Fall 2010)

SOLUTIONS
Multiple choice answers:
1. B
2. B
3. D
11. D
12. C
13. A
21. D
22. C
23. C

4. C
14. C
24. B

Page 15

5. A
15. C
25. D

6. C
16. D
26. E

7. D
17. B
27. D

8. B
18. B
28. B

9. A
19. A
29. A

10. A
20. D
30. C

Problem 31.
a.

b.

c.

d.

e.

CAPITAL PROJECTS FUND

Cash
Other financing sources - Bond proceeds

$26 million

GENERAL FUND
Vehicle expenditure
Cash

$ 50,000

SPECIAL REVENUE FUND

Cash
Tax revenue

$ 8,000

SPECIAL REVENUE FUND

Expenditures for weeds
Cash

$ 6,000

$26 million

$ 50,000

$ 8,000

GENERAL FUND
Tractor expenditure
$75,000
Other financing sources - Proceeds of note
Cash

Problem 32
a. Encumbrances
Reserve for encumbrances
b. Reserve for encumbrances
Encumbrances
c. Expenditures for supplies
Accounts payable
Cash
d. Consumption method is required so the existence of
inventory must be recognized.

$ 6,000

$ 55,000
20,000

Debit
$400,000

Credit
$400,000

400.000
400,000
415,000
100,000
315,000
60,000

Inventory
Expenditures for supplies
Unassigned fund balance
Nonspendable fund balance
Or as shown on page 192:
Inventory
Nonspendable Fund Balance

60,000
60,000
60,000
60,000
60,000

Acct 430-530 Exam 1 (Fall 2010)

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Problem 33
a. The amount recognized as total property tax revenues includes portion of 2009 taxes collected more than 60 days
after the end of 2009, the cash collected on 2011 taxes during the year, and the 2011 taxes collected within 60 days
of year end from list: $10 +350+150+15+10 = $535,000
b. The property tax revenues recognized in the statement of activities would the collectible portion of the assessed
property taxes: $600,000 * 98% = $588,000
(c-1) Deferred property tax revenues (2011) = $588,000 collectible less amount recognized under the modified
accrual method. $588 -350 150 15 10 = $63,000
This amount is reported on the Balance Sheet (modified accrual) but not on the government-wide Statement of Net
Assets which would report no deferred tax revenues because they would not be deferred under full accrual method.
(c-2) Property taxes receivable (2011) = $600,000 original receivable less collections = $100,000
(600-350-150=100). The Allowance for 2011 = 2% * $600K = $12,000 so the NET property taxes receivable for
2011 = $88,000.
Problem 34
a. GENERAL FUND
Salary expenditures
Cash
Salaries payable

$60 million
$58 million
$ 2 million

SCHEDULE OF LONG-TERM DEBT

n/a
(no difference between modified accrual and full accrual)
b.

GENERAL FUND
Vacation pay expenditures
Cash

$ 2 million
$ 2 million

SCHEDULE OF LONG-TERM DEBT

Vacation Pay Payable
add $ .5 million (for ending balance of .9 M)
c.

GENERAL FUND
Sick pay expenditures
Cash

$ 1 million
$ 1 million

SCHEDULE OF LONG-TERM DEBT

Sick Pay Payable
add $ .5 million (for ending balance of $7.5 M)
Essay 35
Accounting standards for educational institutions differ by the nature of the ownership. Public schools (K-12) are
accounted for in the same way as state and local governments, as are public colleges and universities, theoretically.
Private schools, colleges, and universities are accounted for using not-for-profit standards established by FASB.
For-profit educational institutions would use the FASB rules for other for-profit entities.
Because these entities are all involved in delivering the same basic serviceeducationit would appear that they
should have the same standards. However, public schools are subject to the same openness as other government
activities. The citizens should have a voice in determining what services are offered through the schools and how
those services are delivered. The budget process is the opportunity for the public to be heard and the adopted budget
is a plan of action to which citizens can, and should, hold officials accountable. For-profit schools are organized to
generate profits and should measure net income using full accrual accounting. Not-for-profit entities generate
revenues from tuition and solicit contributions from the public, or a select group of the public. Donors to not-forprofit entities may be interested in different information than taxpayers are interested in.