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Chapter_5_Multiple_Choice

Chapter_5_Multiple_Choice - Chapter 5 Accounting for...

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Unformatted text preview: Chapter 5 Accounting for General Capital Assets and Capital Projects 203 how are the assets, related liabilities, expenditures, and other financing sources reported in the basic financial statements or in another section of the CAFR of the reporting entity? ultiple Choice. Choose the best answer. nder GASB standards, which of the following would be considered an example of an intangible asset? a. A lake located on city property. b. Water rights associated with the springs that supply the water to the lake. 0. The city’s irrigation system, which uses water from the lake. ‘ . None of the above would be considered an intangible asset. our new desktop computers, for which the cost exceeded the city’s capital— ization threshold, were purchased for use in the city clerk’s office using Gen- eral Fund resources. Which of the following entries would be required to completely record this transaction? Debits Credits a. General Fund: Expenditures ........................ 8,000 Vouchers Payable .................... 8,000 b. Governmental Activities: Expenses ........................... 8,000 Vouchers Payable .................... 8,000 '1 c. General Fund: Expenditures ........................ 8,000 :t Vouchers Payable .................... 8,000 if Governmental Activities: _ Expenses ........................... 8,000 _e Vouchers Payable .................... 8,000 ’31. 0'. General Fund: 1? Expenditures ....... . ................. 8,000 1d Vouchers Payable .................... 8,000 Governmental Activities: :ts Equipment .......................... 8,000 :dS Vouchers Payable .................... 8,000 ts? 1:: @Nhich of the following capital assets would not be depreciated? 3cm a. The city’s street lights. len- 17. Purchased computer software. lach c. The partially completed elty hall. ' d. The art work owned and displayed in the city parks. ;setS 'A capital projects fund would probably not be used for which of the fol- mitS lowing assets? tate‘ a. Construction and installation of new shelving in the mayor’s office. :d as b. Financing and construction of three new fire substations. ,jects 6. Purchase and installation of an entity-wide integrated computer system hi or (such as SAP or Oracle). d. Replacing a bridge. 204 Part One State and Local Governments achinery and equipment depreciation expense for general capital assets otaled $163,000 for the reporting period. Which of the following correctly defines the recording of depreciation for general capital assets? Debits Credits a. Depreciation Expenditure ................... 163,000 Accumulated Depreciation ................. 163 ,000 b. Depreciation Expense ...................... 163,000 163 ,000 Machinery and Equipment ................. c. Depreciation is allocated, and recorded at the government-wide level with a debit to the functions or programs of government and a credit to accu- mulated depreciation. d. Since depreciation does not involve the use of financial resources it is not necessary for the government to record it at the fund level or government—wide level. ich of the following is a correct statement regarding the use of the mod- ified approach for accounting for eligible infrastructure assets? a. Depreciation on eligible infrastructure assets need not be recorded if the assets are being maintained at or above the established condition level. I). Depreciation on eligible infrastructure assets must still be recorded for 3 _ informational purposes only. ' c. The government must document that it is maintaining eligible infrastruc- ture assets at the condition level prescribed by the GASB. d. All of the above are correct statements. 7. A government experienced significant loss of certain roadways and bridges as a result of major flooding. Which of the following estimation approaches would be most usefiil in estimating the amount of asset impairment that has occurred? a. Deflated depreciated replacement cost approach. b. Service units approach. 0. Restorative cost approach. d. None of the above; each of these three approaches would be equally useful. allaway County issued $10,000,000 in bonds at 101 for the purpose of con— structing a new County Recreation Center. State law requires that any pre— mium on bond issues be deposited directly in a debt service fund for eventual repayment of bond principal. The journal entry to record issuance of the bonds will require a (an): a. Credit to Bonds Payable 1n the capital projects fund. 19. Credit to Other Financing Sources—Proceeds of Bonds in the capital projects fund. 0. Credit to Other Financing Sources—Premium on Bonds in the debt ser- vice fund. d. Both b and c are correct. I 9. The primary reason for reestablishing the Encumbrance account balance at the beginning of the second and subsequent years of a multiple—year capital project is that: a. The project continues beyond a single year; thus it is important that the Encumbrances account show the amount of contractual commitment remaining on the project. b. This procedure allows the accountant to record a normal reversal of encumbrances when the next project billing is received. (I) «Di—1d tal 31'- at ital the .ent ,of Pet) “l / Chapter 5 Accounting for General Capital Assets and Capital Projects 205 c. This procedure corrects for an erroneous closure of the Encumbrances account at the end of the preceding year. ‘ d. Failure to reestablish the Encumbrances account balance is a violation of GASB standards. 10. n 2011 the city started and completed installation of curbs and sidewalks in a new subdivision. The project was funded through special assessments. The first $500,000 installment on $2,500,000 in special assessments was received and recorded in the capital projects fund in 2011. Over the next four years the remaining special assessments are due. How would the receipt of the special assessment funds be recorded in the capital projects , fund in 2011? Debits ............................. 500,000 Special Assessments Receivable ............ 2,000,000 Credits Revenues ........ - ................. 500,000 Deferred Revenue ................... 2,000,000 b. Cash ............................. 500,000 Revenues ......................... 500,000 C. Cash ............................. 500,000 Other Financing Sources#Assessments ..... 500,000 d. Cash ............................. 2,500,000 Revenues ......................... 500,000 Due to Debt Service Fund .............. 2,000,000 5—3 General Capital Assets. Make all necessary entries in the appropriate governmental fund general journal and the government—wide governmental activities general journal for each of the following transactions entered into by the City of Fordache. 1. The city received a donation of land that is to be used by Parks and Recre- ation for a park. At the time of the donation, the land had a fair value of $5,200,000 and was recorded on the donor’s books at a historical cost of $4,500,000. 2. The Public Works Department sold machinery with a historical cost of $35,100 and accumulated depreciation of $28,700 for $6,400. The machin- ery had originally been purchased with special revenue funds. 3. A car was leased for the mayor’s use. Since the term of the lease exceeded 75 percent of the useful life of the car, the lease was capitalized. The first payment was $550 and the present value of the remaining lease payments was $30,000. 4. During the current year, a capital projects fund completed a new public safety building that was started in the prior year. The total cost of the project was $9,720,000. Financing for the project came from a $9,000,000 bond issue that was sold in the prior year, and from a $720,000 federal capital grant ”received in the current year. Current year expenditures for the project totaled $1,176,000. The full cost is attributed to the building since it was constructed on city-owned property. 5. Due to technological developments, the city determined that the service capacity of some of the technology equipment used by general government had been impaired. The calculated impairment loss due to technology obso- lescence was $1,156,000. T‘Qt-PVJ it )f F (TY/M / Chapter 5 Accounting for General Capital Assets and Capital Projects 207 Required a. Should the estimated impairment loss be reported as an extraordinary item? As a special item? Explain. Record the estimated impairment loss in the journal for governmental activ- ities at the government-wide level. How should the insurance recovery be reported in the following fiscal year? (You need not provide the journal entry or entries here.) ecording Capital Projects Fund Transactions. In Erikus County, the Parks nd Recreation Department constructed a library in one of the county’s high growth areas. The construction was funded by a number of sources. Below is selected information related to the funding and closing of the Library Capital Project Fund. All activity related to the library construction occurred within the 2011 fiscal year. 1. DJ (J! The county issued $6,000,000, 4 percent bonds, with interest payable semi- annually on June 30 and December 31. The bonds sold for 101 on July 30, 2010. Proceeds from the bonds were to be used for construction of the library, with all interest and premiums received to be used to service the debt issue. . A $650,000 federal grant was received to help finance construction of the library. . The Library Special Revenue Fund transferred $250,000 for use in construc— tion of the library. . A construction contract was awarded in the amount of $6,800,000. . The library was completed on June 1, 2011, four months ahead of sched- ule. Total construction expenditures for the library amounted to $6,890,000. When the project was completed, the cost of the library was allocated as follows: $200,000 to land, $6,295,000 to building, and the remainder to quipment. The capital projects fund was closed. It was determined that remaining funds were related to the bond issue, and thus they were appropriately transferred to the debt service fund. Required Make all necessary entries in the capital projects fund general journal and the governmental activities general journal at the government—wide level. 5—8 Statement of Revenues, Expenditures, and Changes in Fund Balance. The pre-closing trial balance for the Annette County Public Works Capital Project Fund is provided below. Debits Credits Cash $ 701,000 Grant Receivable 500,000 investments 800,000 Contract Payable $ 835,000 Contract Payable—Retained Percentage 24,000 Reserve for Encumbrances . 1,500,000 Revenues 680,000 Encumbrances 1,500,000 Construction Expenditures 3,338,000 Other Financing Sources—Proceeds of Bonds 3,800,000 $6,839,000 $6,839,000 208 Part One State and Local Governments Required a. Prepare the June 30, 2011, statement of revenues, expenditures, and changes in fund balance for the capital projects fund. 7 . Has the capital project been completed? Explain your answer. 5—9 onstruction Fund. During FY 2011, the voters of the Town of Dex approved onstructing and equipping a recreation center to be financed by tax-supported bonds in the amount of $3,000,000. During 2011, the following events and transactions occurred. 1. Preliminary planning and engineering expenses in the amount of $60,000 were incurred. No money was immediately available for paying these costs (credit Vouchers Payable). . A contract was let under competitive bids for a major segment of the con— struction project in the amount of $2,500,000. , . An invoice for $1,600,000 was received from a contractor for a portion of work that had been completed under the general contract. . The bond issue was sold at par plus accrued interest of $25,000 (the accrued interest was deposited in the fund that will service the bonded debt). 5. The contractor’s bill, less a 4 percent retention, was vouchered for payment. 6. All vouchers payable, except $1,300 (about which there was some contro— ersy), were paid. )(Fiscal year—end closing entries were prepared. Required a. Prepare journal entries to record the preceding information in the Town of Dex Recreation Center Construction Fund and the governmental activities general journal at the government—wide level. . Prepare a Town of Dex Recreation Center Construction Fund balance sheet for the year ended December 31, 2011. . Prepare a Recreation Center Construction Fund statement of revenues, expenditures, and changes in fund balance for the year ended December 31, 2011. . How would these capital expenditures for the recreation center appear on the Town of Dex’s government-wide statements of net assets and activities? 5- i pita] Project Transactions. In 2011, Falts City began work to improve cer- streets to be financed by a bond issue and supplemented by a federal grant. Estimated total cost of the project was $4,000,000; $2,500,000 was to come from the bond issue, and the balance from the federal grant. The capital projects fund to account for the project was designated as the Street Improvement Fund. The folloWing transactions occurred in 2011: 1. Issued $100,000 of 6 percent bond anticipation notes to be repaid from the proceeds of bonds in 180 days. 2. The federal grant was recorded as a receivable; half of the grant is to be paid to Falts City in 2011 and the remainder late in 2012. The grantor specifies that the portion to be received in 2012 is not available for use until 2012 because there is no guarantee that the federal government will appropriate the 2012 portion. . A contract was let to Appel Construction Company for the major part of the project on a bid of $2,700,000. ...
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