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Unformatted text preview: 9 Chapter Business-Type Activities TRUE/FALSE (CHAPTER 9) 1. In both the fund statements and the government-wide statements, business- type activities and internal service funds are on a full accrual basis, and their measurement focus is on all economic resources. The operating statement required as one of the three basic financial statements for proprietary funds is called the statement of revenues, expenditures, and changes in fund net assets. The amounts reported in proprietary fund statements are generally the same as those reported in the government-wide statements because both sets of statements are on a full accrual basis of accounting. Governments are required to prepare a statement of cash flows for proprietary funds, but not for governmental funds. GASB Statement No. 34 mandates that governments report their cash flows from operations using the indirect method. The FASB mandates entities report their cash flows from operations using the direct method. Governments generally do not have to get formal legislative approval for enterprise fund budgets or incorporate them into their accounting systems. In accounting for closure and postclosure landfill costs in an enterprise fund, a government does not necessarily have to fund the costs during the landfill s useful life; it merely has to report both an expense and a liability for them. The revenues of an internal service fund are the expenditures and expenses of other funds of that government. 2. 3. 4. 5. 6. 7. 8. 9. 10. The proprietary fund operating statement includes ALL changes in net assets including capital contributions. Ch 9 Test Bank-4e doc Page 1 MULTIPLE CHOICE (CHAPTER 9) 1. The appropriate measurement focus for the business-type activities of the City of Rockford is a) Current financial resources. b) Economic resources. c) Both (a) and (b). d) None of the above. 2. Which of the following is not a proprietary fund? a) City Water Enterprise Fund. b) City Motor Pool Internal Service Fund. c) City Hall Capital Project Fund. d) None of the above. They are all proprietary funds. 3. The appropriate basis of accounting for the proprietary funds of a governmental entity is a) Cash basis. b) Modified accrual. c) Full accrual. d) None of the above. 4. Which of the following is a valid reason for governmental entities to engage in business-type activities? a) The entity does not want control over the activity. b) The activity competes with general government activities. c) The entity does not want to subsidize the activity. d) The entity can provide the services more cheaply or efficiently than can a private firm. 5. Which of the following is a valid argument for separate accounting principles for proprietary activities? a) Two separate measurement focuses and bases for accounting within the same set of financial statements are confusing. b) There are no clear-cut distinctions between business and non-business activities. c) The measurement focus on all economic resources is more consistent with the GASB s objectives that financial reporting...
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- Spring '10