Test bank Advanced Accounting 10e by Beams Chapter 20
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Chapter 20 Test Bank
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS PROPRIETARY AND FIDUCIARY FUNDS
Multiple Choice Questions
LO1
1.
What basis of accounting is used by proprietary funds?
a.
b.
c.
d.
LO1
2.
Enterprise funds are accounted for in a manner similar to
a.
b.
c.
d.
LO1
3.
internal service funds.
construction project funds.
agency funds.
private-purpose trust funds.
Payments in lieu of taxes from an enterprise fund should be
reported as a(n)
a.
b.
c.
d.
LO1
4.
Modified accrual accounting.
Accrual accounting.
Cash basis accounting.
Fair value accounting.
operating expense.
operating transfer out.
nonoperating expense.
nonoperating transfer out.
The enterprise fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund
balance.
c. current assets + noncurrent assets + liabilities = net
assets.
d. current assets + noncurrent assets - liabilities = net
assets.
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LO1
5.
Depreciation of a proprietary fund’s fixed assets
is
I. reported in the governmental-wide financial statements.
II.recorded in the proprietary fund.
a.
b.
c.
d.
LO1
6.
Which of the following funds is not included in government-wide
financial statements?
a.
b.
c.
d.
LO2
7.
operating activities.
noncapital financing activities.
capital and related financing activities.
investing activities.
Major categories of the enterprise fund cash flow statement
include all of the following except cash flows from
a.
b.
c.
d.
LO2
9.
Internal service funds.
Enterprise funds.
Fiduciary funds.
Permanent funds.
In a proprietary fund statement of cash flows, cash paid to
other funds, except for interfund services used, should be
classified as a cash outflow from
a.
b.
c.
d.
LO2
8.
I. only.
II. only.
I. and II.
Neither I nor II.
investing activities.
restricted and unrestricted fund balances.
noncapital financing activities.
capital and related financing activities.
GASB’s cash flow statement reporting
a.
b.
c.
d.
requires the direct method.
requires the indirect method.
permits either the direct or indirect method.
requires reconciliation between the direct and indirect
method.
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LO3
10.
The agency fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund
balance.
c. current assets + noncurrent assets + liabilities = net
assets.
d. current assets + noncurrent assets - liabilities = net
assets.
LO3
11.
Which of the following does not appear on the statement of cash
flows as an operating activity?
a.
b.
c.
d.
LO3
12.
Which of the following is not a fiduciary fund?
a.
b.
c.
d.
LO3
13.
A permanent fund.
A proprietary fund.
A trust fund.
An agency fund.
What basis of accounting is used by fiduciary funds?
a.
b.
c.
d.
LO3
14.
Receipts from interfund reimbursements.
Payments for taxes and in lieu of taxes.
Payments for interest.
Fines for late service payments.
Modified accrual accounting.
Accrual accounting.
Cash basis accounting.
Present value accounting.
Prudent City collects state sales taxes quarterly from local
businesses and then gives the state revenue department the
money at the end of the year. The sales taxes would go in
Prudent City’s
a.
b.
c.
d.
special revenue fund.
general fund.
agency fund.
enterprise fund.
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LO3
15.
In reference to agency funds, which of the following statements
is correct?
a. Agency funds are fiduciary funds used to account for
resources that governments hold in a custodial capacity.
b. Agency funds can arise from the normal and recurring
operations of other funds.
c. Agency funds can be used when the governmental entity
undertakes necessary administrative duties, such as
determining the eligibility of potential recipients.
d. All of the above are correct.
LO3
16.
Private-purpose trust funds are accounted for in the same
manner as
a.
b.
c.
d.
LO3
17.
permanent funds.
proprietary funds.
special revenue funds.
fiduciary funds.
In reference to trust funds, which of the following statements
is correct?
a. Investment trust funds are fiduciary funds used to account
for multigovernmental external investment pools sponsored
by a governmental agency.
b. Private-purpose trust funds are fiduciary funds used to
account for resources that are held for the benefit of
parties outside of the governmental agency.
c. Pension trust funds are fiduciary funds used when a
government acts as trustee for a defined pension plan for a
governmental entity.
d. All of the above are correct.
LO4
18.
The two required financial statements for defined benefit
pension plans are a statement of
a. plan net assets and a schedule of funding progress.
b. plan net assets and a statement of changes in plan net
assets.
c. changes in plan net assets and a schedule of employer
contributions.
d. revenues, expenses, and changes in net assets and a
statement of cash flows.
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LO4
19.
A pension trust fund statement of changes in plan net assets
would include all of the following except
a.
b.
c.
d.
LO4
20.
employer contributions.
employee contributions.
benefit payments.
cash surrender value.
In reference to governmental accounting for public employee
retirement systems (PERS), which of the following statements is
correct?
a. PERS are subject to ERISA regulations.
b. Governments often turn to FASB for guidance in their
efforts to comply with pension regulations.
c. GASB pension standards require governments to present a
schedule of funding progress for defined benefit pension
plans.
d. All of the above are correct.
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LO1
Exercise 1
Prepare journal entries to record the following transactions in the
enterprise fund for a state university.
1. Tuition and fees assessed total $8,000,000 of which 80% was
collected by year-end; scholarships were granted for $300,000 and
$200,000 was estimated to be uncollectible.
2. Revenues collected from sales and services to the university
bookstore were $1,200,000.
3. Salaries and wages were $3,000,000, of which $200,000 was for
employees of the university bookstore.
4. Unrestricted cash was used to pay the long-term mortgage on the
university's buildings: $1,500,000 for interest and $500,000 for
mortgage principal.
5. Restricted contributions of $800,000 for a specific academic program
were received.
6. Expenditures of $445,000 for the restricted program were incurred
and paid.
7. Equipment of $55,000 was purchased and paid for with unrestricted
cash.
LO1
Exercise 2
Spencer College assessed $1,350,000 in student tuition for the fall
semester. The college estimates bad debts will be 2% of the gross
assessed tuition. Spencer is located in Montana where a scholarship
program provides for tuition waivers totaling $120,000. Estimated
uncollectible tuition is $13,500.
Determine the amount of revenue to be reported in the Spencer
enterprise fund.
LO1
Exercise 3
Record the following transactions in the Porter Hospital enterprise
fund:
1.
2.
3.
4.
5.
Gross patient services revenues: $10,000,000.
Included in the above revenues are: charity services, $200,000;
contractual adjustments, $700,000; and estimated uncollectible
amounts, $350,000.
Purchased equipment by issuing a 5-year note for $80,000.
Received cash donations restricted for a capital building
addition program, $2,200,000.
Incurred and paid $180,000 of contractor billings for the capital
building program.
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LO1
Exercise 4
Journalize the following utility transactions in the Brown County
enterprise fund:
1. Billings to external customers $1,600,000, billings to Brown County
governmental funds $130,000.
2. Collected refundable deposits from new utility customers $10,000.
3. Collected 95% of all billings by fiscal year-end.
4. Refunded $4,000 in deposits to former utility customers.
5. Unbilled services to outside customers at year-end $14,000.
LO1
Exercise 5
Prepare journal entries in an Internal Service Fund of Prat County to
record each of the following transactions.
1.
Purchased equipment on September 1 by paying $25,000 down and
borrowing $100,000 on a 6%, 2-year note.
2.
Billed General Fund departments $620,000 for services provided to
those departments. Billings to the Enterprise Fund totaled
$165,000. All billings were collected by year-end except for
$100,000 charged to the General Fund.
3.
Accrued year-end (December 31) adjustments for interest expense
and depreciation. The useful life of the equipment is 5 years
with no salvage value.
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LO1
Exercise 6
Journalize the following utility transactions in the Starkey County
enterprise fund:
1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1
(an interest payment date). The bond proceeds are to be used for
new plant construction and the issue will mature in 20 years.
2. Depreciation for the year-ended December 31 included $300,000 for
buildings and $190,000 for equipment.
3. The utility paid $600,000 in construction costs for the new plant.
4. Interest on the revenue bonds was accrued at year-end.
LO1
Exercise 7
Prepare journal entries to record the following grant-related
transactions of an enterprise fund.
1.
2.
3.
4.
Received an operating grant in cash from the state, $2,500,000.
Incurred and paid qualifying expenses on the grant program,
$1,600,000.
Received a federal grant to finance construction of a plant,
$4,500,000 (cash received in advance).
Incurred and paid construction cost on the plant, $3,000,000.
LO2
Exercise 8
Based upon the provided 2006 annual cash flow information, prepare a
cash flow statement for the Blue Valley Aquatic Center enterprise
fund.
Green fees received
Membership fees received
League outing fees received
Interest revenue received
Cash received from short-term note payable
Payments to employees
Payments to suppliers
Cash paid in lieu of taxes to the general fund
Payments for capital improvements
Interest paid on short-term loan
Cash balance on January 1, 2006
$500,000
30,000
120,000
2,000
75,000
350,000
198,000
60,000
85,000
3,000
15,000
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LO2
Exercise 9
The four cash flow activities required in a government proprietary
fund's statement of cash flows are listed below and assigned a letter
code.
A) Cash flows from operating activities
B) Cash flows from noncapital financing activities
C) Cash flows from capital and related financing activities
D) Cash flows from investing activities
Required:
Use the correct letter code to indicate where each of the following
ten items should be reported in the statement of cash flows.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
An enterprise fund fixed asset was sold for cash.
The proceeds from the sale of the fixed asset were transferred to
the general fund.
Paid principal, $100, 000, and interest, $250,000, on a mortgage.
Cash proceeds from sale of investments, $90,000. Investments were
purchased with the proceeds of debt issued to finance
construction of specialized equipment that is almost completed.
Cash paid for new equipment, $22,000.
Cash received from the general fund to cover part of the cost of
plant expansion, $1,000,000.
Cash received from another fund as a 6-month loan for the sole
purpose of financing purchase of equipment, $90,000.
Cash proceeds from issuing bonds for an enterprise fund
construction project.
Cash paid to employees for salaries.
Cash received from interest earned on investments.
LO2
Exercise 10
Based upon the provided 2006 annual cash flow information, prepare a
cash flow statement for the Downtown University Motor Pool internal
service fund.
Cash received from customers
Cash received general fund (noncapital loan)
Interest revenue received
Cash received from short-term note payable
Payments to employees
Payments to suppliers
Cash paid in lieu of taxes to the general fund
Payments for capital improvements
Interest paid on short-term loan
Principal paid on capital debt
Interest paid on capital debt
Cash balance on January 1, 2006
$850,000
20,000
1,000
40,000
450,000
250,000
65,000
75,000
2,000
50,000
10,000
12,000
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SOLUTIONS
Multiple Choice Questions
1.
b
2.
a
3.
d
4.
d
5.
c
6.
a
7.
b
8.
b
9.
a
10.
a
11.
a
12.
b
13.
b
14.
c
15.
a
16.
d
17.
d
18.
a
19.
d
20.
c
I wrote a replacement question.
I wrote a replacement question.
I wrote a replacement question.
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Exercise 1
1.
Tuition and fees receivable .............
Tuition revenue ....................
Scholarships expense ....................
Bad debts expense ......................
Tuition and fees receivable .........
Allowance for uncollectible accounts
8,000,000
8,000,000
300,000
200,000
300,000
200,000
Cash
.................................
Tuition and fees receivable .........
6,400,000
Cash
.................................
Auxiliary enterprises revenue .......
1,200,000
Educational and general expenses
Auxiliary enterprises expense ...........
Cash ................................
2,800,000
200,000
Interest expense ........................
Mortgage payable ........................
Cash ................................
1,500,000
500,000
Restricted cash .........................
Deferred contribution revenue ......
800,000
Educational expense ...................
Restricted cash .....................
445,000
Deferred contribution revenue ...........
Contribution revenue ................
445,000
Equipment ..............................
Cash ................................
55,000
6,400,000
2.
1,200,000
3.
3,000,000
4.
2,000,000
5.
800,000
6.
445,000
445,000
7.
55,000
Exercise 2
The full amount of tuition charges is recognized. The tuition waivers
and the uncollectible accounts should be reported as expenses.
Therefore, the revenue of the enterprise fund is $1,350,000.
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Exercise 3
1.
Accounts receivable/Cash ...............
Patient service revenue .............
10,000,000
10,000,000
2.
Charity service adjustments ............
Contract adjustments ...................
Bad debt expense .......................
Accounts receivable .................
Allowance for uncollectible accounts
200,000
700,000
350,000
Equipment ...............................
Notes payable .......................
80,000
900,000
350,000
3.
80,000
4.
Restricted cash .........................
Deferred contribution revenue .......
2,200,000
2,200,000
5.
Construction in progress ................
Deferred contribution revenue .......
Restricted cash .........................
Contribution revenue ................
180,000
180,000
180,000
180,000
Exercise 4
1.
Accounts receivable .....................
Due from other funds ....................
Service revenue .....................
1,600,000
130,000
1,730,000
2.
Restricted cash .........................
Customer deposits ...................
10,000
10,000
3.
Cash
.................................
Accounts receivable .................
Due from other funds ................
1,643,500
Customer deposits .......................
Restricted cash .....................
4,000
Accounts receivable .....................
Service revenue .....................
14,000
1,520,000
123,500
4.
4,000
5.
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14,000
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Exercise 5
1.
2.
3.
Equipment .............................
Cash .............................
Notes payable ....................
125,000
Due from general fund ..................
Due from enterprise fund ..............
Service revenues .................
620,000
165,000
Cash ..................................
Due from general fund ............
Due from enterprise fund .........
685,000
Interest expense .......................
Interest payable .................
($100,000 X .06 X 4/12 = $2,000)
2,000
Depreciation expense ..................
Accumulated depreciation-equip. ..
($125,000 / 5 years) X 4/12 = $8,333
8,333
25,000
100,000
785,000
520,000
165,000
2,000
8,333
Exercise 6
1.
2.
3.
4.
Restricted cash
Discount on revenue bonds .............
Bonds payable .....................
3,920,000
80,000
Depreciation expense ...................
Accumulated depreciation-building
Accumulated depreciation-equipment
490,000
Construction in progress ...............
Restricted cash ...................
600,000
Interest expense .......................
Discount on revenue bonds ........
Interest payable .................
132,000
4,000,000
300,000
190,000
600,000
2,000
130,000
(Interest payable = $4,000,000 x 6.5% x 1/2 = $130,000)
(Discount amortization = $80,000/20 x 1/2 = $2,000)
Exercise 7
1.
Restricted cash .....................
Deferred grant revenues ..........
2,500,000
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2,500,000
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2.
3.
4.
Expenses ............................
Restricted cash ..................
1,600,000
Deferred grant revenues .............
Nonoperating revenues--grants ....
1,600,000
Restricted cash .....................
Deferred contributed capital .....
4,500,000
Construction in progress ............
Restricted cash ..................
3,000,000
Deferred contributed capital ........
Contributed capital .................
3,000,000
1,600,000
1,600,000
4,500,000
3,000,000
3,000,000
Exercise 8
Red River Municipal Golf Course Fund
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers
Cash paid for operating expenses
Net cash provided
Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note
Cash paid for interest
Operating transfer out - other funds
Net cash provided
Cash Flows from Capital and Related
Financing activities:
Cash paid on capital improvements
Net cash used
Cash Flows from Investing Activities:
Interest received
Net cash provided
Net increase in unrestricted cash
Cash balance, January 1, 2006
Cash balance, December 31, 2006
$ 650,000
(548,000)
$ 102,000
75,000
( 3,000)
(60,000)
12,000
(85,000)
( 85,000)
2,000
2,000
31,000
15,000
$ 46,000
Exercise 9
1.
2.
3.
C
B
C
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4.
5.
6.
7.
8.
9.
10.
D
C
C
C
C
A
D
Exercise 10
Downtown University Motor Pool Fund
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers
Cash paid for operating expenses
Net cash provided
Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note
Cash received from general fund Noncapital loan
Cash paid for interest
Operating transfer out - other funds
Net cash used
Cash Flows from Capital and Related
Financing activities:
Principal paid on capital debt
Interest paid on capital debt
Cash paid on capital improvements
Net cash used
Cash Flows from Investing Activities:
Interest received
Net cash provided
Net increase in unrestricted cash
Cash balance, January 1, 2006
Cash balance, December 31, 2006
$ 850,000
(700,000)
$ 150,000
40,000
20,000
( 2,000)
(65,000)
(
7,000)
(50,000)
(10,000)
(75,000)
(135,000)
1,000
1,000
9,000
12,000
$ 21,000
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20-15
Chapter 20 Test Bank
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS PROPRIETARY AND FIDUCIARY FUNDS
Multiple Choice Questions
LO1
1.
What basis of accounting is used by proprietary funds?
a.
b.
c.
d.
LO1
2.
Enterprise funds are accounted for in a manner similar to
a.
b.
c.
d.
LO1
3.
internal service funds.
construction project funds.
agency funds.
private-purpose trust funds.
Payments in lieu of taxes from an enterprise fund should be
reported as a(n)
a.
b.
c.
d.
LO1
4.
Modified accrual accounting.
Accrual accounting.
Cash basis accounting.
Fair value accounting.
operating expense.
operating transfer out.
nonoperating expense.
nonoperating transfer out.
The enterprise fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund
balance.
c. current assets + noncurrent assets + liabilities = net
assets.
d. current assets + noncurrent assets - liabilities = net
assets.
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20-1
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LO1
5.
Depreciation of a proprietary fund’s fixed assets
is
I. reported in the governmental-wide financial statements.
II.recorded in the proprietary fund.
a.
b.
c.
d.
LO1
6.
Which of the following funds is not included in government-wide
financial statements?
a.
b.
c.
d.
LO2
7.
operating activities.
noncapital financing activities.
capital and related financing activities.
investing activities.
Major categories of the enterprise fund cash flow statement
include all of the following except cash flows from
a.
b.
c.
d.
LO2
9.
Internal service funds.
Enterprise funds.
Fiduciary funds.
Permanent funds.
In a proprietary fund statement of cash flows, cash paid to
other funds, except for interfund services used, should be
classified as a cash outflow from
a.
b.
c.
d.
LO2
8.
I. only.
II. only.
I. and II.
Neither I nor II.
investing activities.
restricted and unrestricted fund balances.
noncapital financing activities.
capital and related financing activities.
GASB’s cash flow statement reporting
a.
b.
c.
d.
requires the direct method.
requires the indirect method.
permits either the direct or indirect method.
requires reconciliation between the direct and indirect
method.
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LO3
10.
The agency fund accounting equation is
a. assets = liabilities.
b. current assets + noncurrent assets + liabilities = fund
balance.
c. current assets + noncurrent assets + liabilities = net
assets.
d. current assets + noncurrent assets - liabilities = net
assets.
LO3
11.
Which of the following does not appear on the statement of cash
flows as an operating activity?
a.
b.
c.
d.
LO3
12.
Which of the following is not a fiduciary fund?
a.
b.
c.
d.
LO3
13.
A permanent fund.
A proprietary fund.
A trust fund.
An agency fund.
What basis of accounting is used by fiduciary funds?
a.
b.
c.
d.
LO3
14.
Receipts from interfund reimbursements.
Payments for taxes and in lieu of taxes.
Payments for interest.
Fines for late service payments.
Modified accrual accounting.
Accrual accounting.
Cash basis accounting.
Present value accounting.
Prudent City collects state sales taxes quarterly from local
businesses and then gives the state revenue department the
money at the end of the year. The sales taxes would go in
Prudent City’s
a.
b.
c.
d.
special revenue fund.
general fund.
agency fund.
enterprise fund.
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LO3
15.
In reference to agency funds, which of the following statements
is correct?
a. Agency funds are fiduciary funds used to account for
resources that governments hold in a custodial capacity.
b. Agency funds can arise from the normal and recurring
operations of other funds.
c. Agency funds can be used when the governmental entity
undertakes necessary administrative duties, such as
determining the eligibility of potential recipients.
d. All of the above are correct.
LO3
16.
Private-purpose trust funds are accounted for in the same
manner as
a.
b.
c.
d.
LO3
17.
permanent funds.
proprietary funds.
special revenue funds.
fiduciary funds.
In reference to trust funds, which of the following statements
is correct?
a. Investment trust funds are fiduciary funds used to account
for multigovernmental external investment pools sponsored
by a governmental agency.
b. Private-purpose trust funds are fiduciary funds used to
account for resources that are held for the benefit of
parties outside of the governmental agency.
c. Pension trust funds are fiduciary funds used when a
government acts as trustee for a defined pension plan for a
governmental entity.
d. All of the above are correct.
LO4
18.
The two required financial statements for defined benefit
pension plans are a statement of
a. plan net assets and a schedule of funding progress.
b. plan net assets and a statement of changes in plan net
assets.
c. changes in plan net assets and a schedule of employer
contributions.
d. revenues, expenses, and changes in net assets and a
statement of cash flows.
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LO4
19.
A pension trust fund statement of changes in plan net assets
would include all of the following except
a.
b.
c.
d.
LO4
20.
employer contributions.
employee contributions.
benefit payments.
cash surrender value.
In reference to governmental accounting for public employee
retirement systems (PERS), which of the following statements is
correct?
a. PERS are subject to ERISA regulations.
b. Governments often turn to FASB for guidance in their
efforts to comply with pension regulations.
c. GASB pension standards require governments to present a
schedule of funding progress for defined benefit pension
plans.
d. All of the above are correct.
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LO1
Exercise 1
Prepare journal entries to record the following transactions in the
enterprise fund for a state university.
1. Tuition and fees assessed total $8,000,000 of which 80% was
collected by year-end; scholarships were granted for $300,000 and
$200,000 was estimated to be uncollectible.
2. Revenues collected from sales and services to the university
bookstore were $1,200,000.
3. Salaries and wages were $3,000,000, of which $200,000 was for
employees of the university bookstore.
4. Unrestricted cash was used to pay the long-term mortgage on the
university's buildings: $1,500,000 for interest and $500,000 for
mortgage principal.
5. Restricted contributions of $800,000 for a specific academic program
were received.
6. Expenditures of $445,000 for the restricted program were incurred
and paid.
7. Equipment of $55,000 was purchased and paid for with unrestricted
cash.
LO1
Exercise 2
Spencer College assessed $1,350,000 in student tuition for the fall
semester. The college estimates bad debts will be 2% of the gross
assessed tuition. Spencer is located in Montana where a scholarship
program provides for tuition waivers totaling $120,000. Estimated
uncollectible tuition is $13,500.
Determine the amount of revenue to be reported in the Spencer
enterprise fund.
LO1
Exercise 3
Record the following transactions in the Porter Hospital enterprise
fund:
1.
2.
3.
4.
5.
Gross patient services revenues: $10,000,000.
Included in the above revenues are: charity services, $200,000;
contractual adjustments, $700,000; and estimated uncollectible
amounts, $350,000.
Purchased equipment by issuing a 5-year note for $80,000.
Received cash donations restricted for a capital building
addition program, $2,200,000.
Incurred and paid $180,000 of contractor billings for the capital
building program.
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LO1
Exercise 4
Journalize the following utility transactions in the Brown County
enterprise fund:
1. Billings to external customers $1,600,000, billings to Brown County
governmental funds $130,000.
2. Collected refundable deposits from new utility customers $10,000.
3. Collected 95% of all billings by fiscal year-end.
4. Refunded $4,000 in deposits to former utility customers.
5. Unbilled services to outside customers at year-end $14,000.
LO1
Exercise 5
Prepare journal entries in an Internal Service Fund of Prat County to
record each of the following transactions.
1.
Purchased equipment on September 1 by paying $25,000 down and
borrowing $100,000 on a 6%, 2-year note.
2.
Billed General Fund departments $620,000 for services provided to
those departments. Billings to the Enterprise Fund totaled
$165,000. All billings were collected by year-end except for
$100,000 charged to the General Fund.
3.
Accrued year-end (December 31) adjustments for interest expense
and depreciation. The useful life of the equipment is 5 years
with no salvage value.
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LO1
Exercise 6
Journalize the following utility transactions in the Starkey County
enterprise fund:
1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1
(an interest payment date). The bond proceeds are to be used for
new plant construction and the issue will mature in 20 years.
2. Depreciation for the year-ended December 31 included $300,000 for
buildings and $190,000 for equipment.
3. The utility paid $600,000 in construction costs for the new plant.
4. Interest on the revenue bonds was accrued at year-end.
LO1
Exercise 7
Prepare journal entries to record the following grant-related
transactions of an enterprise fund.
1.
2.
3.
4.
Received an operating grant in cash from the state, $2,500,000.
Incurred and paid qualifying expenses on the grant program,
$1,600,000.
Received a federal grant to finance construction of a plant,
$4,500,000 (cash received in advance).
Incurred and paid construction cost on the plant, $3,000,000.
LO2
Exercise 8
Based upon the provided 2006 annual cash flow information, prepare a
cash flow statement for the Blue Valley Aquatic Center enterprise
fund.
Green fees received
Membership fees received
League outing fees received
Interest revenue received
Cash received from short-term note payable
Payments to employees
Payments to suppliers
Cash paid in lieu of taxes to the general fund
Payments for capital improvements
Interest paid on short-term loan
Cash balance on January 1, 2006
$500,000
30,000
120,000
2,000
75,000
350,000
198,000
60,000
85,000
3,000
15,000
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LO2
Exercise 9
The four cash flow activities required in a government proprietary
fund's statement of cash flows are listed below and assigned a letter
code.
A) Cash flows from operating activities
B) Cash flows from noncapital financing activities
C) Cash flows from capital and related financing activities
D) Cash flows from investing activities
Required:
Use the correct letter code to indicate where each of the following
ten items should be reported in the statement of cash flows.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
An enterprise fund fixed asset was sold for cash.
The proceeds from the sale of the fixed asset were transferred to
the general fund.
Paid principal, $100, 000, and interest, $250,000, on a mortgage.
Cash proceeds from sale of investments, $90,000. Investments were
purchased with the proceeds of debt issued to finance
construction of specialized equipment that is almost completed.
Cash paid for new equipment, $22,000.
Cash received from the general fund to cover part of the cost of
plant expansion, $1,000,000.
Cash received from another fund as a 6-month loan for the sole
purpose of financing purchase of equipment, $90,000.
Cash proceeds from issuing bonds for an enterprise fund
construction project.
Cash paid to employees for salaries.
Cash received from interest earned on investments.
LO2
Exercise 10
Based upon the provided 2006 annual cash flow information, prepare a
cash flow statement for the Downtown University Motor Pool internal
service fund.
Cash received from customers
Cash received general fund (noncapital loan)
Interest revenue received
Cash received from short-term note payable
Payments to employees
Payments to suppliers
Cash paid in lieu of taxes to the general fund
Payments for capital improvements
Interest paid on short-term loan
Principal paid on capital debt
Interest paid on capital debt
Cash balance on January 1, 2006
$850,000
20,000
1,000
40,000
450,000
250,000
65,000
75,000
2,000
50,000
10,000
12,000
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SOLUTIONS
Multiple Choice Questions
1.
b
2.
a
3.
d
4.
d
5.
c
6.
a
7.
b
8.
b
9.
a
10.
a
11.
a
12.
b
13.
b
14.
c
15.
a
16.
d
17.
d
18.
a
19.
d
20.
c
I wrote a replacement question.
I wrote a replacement question.
I wrote a replacement question.
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Exercise 1
1.
Tuition and fees receivable .............
Tuition revenue ....................
Scholarships expense ....................
Bad debts expense ......................
Tuition and fees receivable .........
Allowance for uncollectible accounts
8,000,000
8,000,000
300,000
200,000
300,000
200,000
Cash
.................................
Tuition and fees receivable .........
6,400,000
Cash
.................................
Auxiliary enterprises revenue .......
1,200,000
Educational and general expenses
Auxiliary enterprises expense ...........
Cash ................................
2,800,000
200,000
Interest expense ........................
Mortgage payable ........................
Cash ................................
1,500,000
500,000
Restricted cash .........................
Deferred contribution revenue ......
800,000
Educational expense ...................
Restricted cash .....................
445,000
Deferred contribution revenue ...........
Contribution revenue ................
445,000
Equipment ..............................
Cash ................................
55,000
6,400,000
2.
1,200,000
3.
3,000,000
4.
2,000,000
5.
800,000
6.
445,000
445,000
7.
55,000
Exercise 2
The full amount of tuition charges is recognized. The tuition waivers
and the uncollectible accounts should be reported as expenses.
Therefore, the revenue of the enterprise fund is $1,350,000.
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Exercise 3
1.
Accounts receivable/Cash ...............
Patient service revenue .............
10,000,000
10,000,000
2.
Charity service adjustments ............
Contract adjustments ...................
Bad debt expense .......................
Accounts receivable .................
Allowance for uncollectible accounts
200,000
700,000
350,000
Equipment ...............................
Notes payable .......................
80,000
900,000
350,000
3.
80,000
4.
Restricted cash .........................
Deferred contribution revenue .......
2,200,000
2,200,000
5.
Construction in progress ................
Deferred contribution revenue .......
Restricted cash .........................
Contribution revenue ................
180,000
180,000
180,000
180,000
Exercise 4
1.
Accounts receivable .....................
Due from other funds ....................
Service revenue .....................
1,600,000
130,000
1,730,000
2.
Restricted cash .........................
Customer deposits ...................
10,000
10,000
3.
Cash
.................................
Accounts receivable .................
Due from other funds ................
1,643,500
Customer deposits .......................
Restricted cash .....................
4,000
Accounts receivable .....................
Service revenue .....................
14,000
1,520,000
123,500
4.
4,000
5.
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Exercise 5
1.
2.
3.
Equipment .............................
Cash .............................
Notes payable ....................
125,000
Due from general fund ..................
Due from enterprise fund ..............
Service revenues .................
620,000
165,000
Cash ..................................
Due from general fund ............
Due from enterprise fund .........
685,000
Interest expense .......................
Interest payable .................
($100,000 X .06 X 4/12 = $2,000)
2,000
Depreciation expense ..................
Accumulated depreciation-equip. ..
($125,000 / 5 years) X 4/12 = $8,333
8,333
25,000
100,000
785,000
520,000
165,000
2,000
8,333
Exercise 6
1.
2.
3.
4.
Restricted cash
Discount on revenue bonds .............
Bonds payable .....................
3,920,000
80,000
Depreciation expense ...................
Accumulated depreciation-building
Accumulated depreciation-equipment
490,000
Construction in progress ...............
Restricted cash ...................
600,000
Interest expense .......................
Discount on revenue bonds ........
Interest payable .................
132,000
4,000,000
300,000
190,000
600,000
2,000
130,000
(Interest payable = $4,000,000 x 6.5% x 1/2 = $130,000)
(Discount amortization = $80,000/20 x 1/2 = $2,000)
Exercise 7
1.
Restricted cash .....................
Deferred grant revenues ..........
2,500,000
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2.
3.
4.
Expenses ............................
Restricted cash ..................
1,600,000
Deferred grant revenues .............
Nonoperating revenues--grants ....
1,600,000
Restricted cash .....................
Deferred contributed capital .....
4,500,000
Construction in progress ............
Restricted cash ..................
3,000,000
Deferred contributed capital ........
Contributed capital .................
3,000,000
1,600,000
1,600,000
4,500,000
3,000,000
3,000,000
Exercise 8
Red River Municipal Golf Course Fund
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers
Cash paid for operating expenses
Net cash provided
Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note
Cash paid for interest
Operating transfer out - other funds
Net cash provided
Cash Flows from Capital and Related
Financing activities:
Cash paid on capital improvements
Net cash used
Cash Flows from Investing Activities:
Interest received
Net cash provided
Net increase in unrestricted cash
Cash balance, January 1, 2006
Cash balance, December 31, 2006
$ 650,000
(548,000)
$ 102,000
75,000
( 3,000)
(60,000)
12,000
(85,000)
( 85,000)
2,000
2,000
31,000
15,000
$ 46,000
Exercise 9
1.
2.
3.
C
B
C
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4.
5.
6.
7.
8.
9.
10.
D
C
C
C
C
A
D
Exercise 10
Downtown University Motor Pool Fund
Statement of Cash Flows
For the Year Ended December 31, 2006
Cash Flows from Operating Activities:
Cash received from customers
Cash paid for operating expenses
Net cash provided
Cash Flows from Noncapital
Financing Activities:
Cash received from short-term note
Cash received from general fund Noncapital loan
Cash paid for interest
Operating transfer out - other funds
Net cash used
Cash Flows from Capital and Related
Financing activities:
Principal paid on capital debt
Interest paid on capital debt
Cash paid on capital improvements
Net cash used
Cash Flows from Investing Activities:
Interest received
Net cash provided
Net increase in unrestricted cash
Cash balance, January 1, 2006
Cash balance, December 31, 2006
$ 850,000
(700,000)
$ 150,000
40,000
20,000
( 2,000)
(65,000)
(
7,000)
(50,000)
(10,000)
(75,000)
(135,000)
1,000
1,000
9,000
12,000
$ 21,000
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