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Unformatted text preview: 1Chapter 6 End of Chapter Materials Solutions REVIEW QUESTIONS Q6-1 The relationship between Debt Service Funds and Capital Project Funds is that the latter are used to record the receipt and disbursement of resources to acquire or build major capital assets, whereas, Debt Service Funds are used to account for the accumulation of resources and the payment of principal and interest on debt as it comes due. Q6-2 No. Capital assets of a relatively minor nature, such as vehicles, equipment, and furniture often are acquired with General Fund or Special Revenue Fund resources. Capital Projects Funds are established to account for the construction/acquisition of major capital assets, such as buildings, sports complexes, parks, etc. Q6-3 Capital Projects Funds are used to record the transactions incurred in the acquisition or construction of major capital facilities other than those financed by proprietary and trust funds. Capital Projects Funds must be used when they are legally required or when the projects are at least partially financed with restricted resources. Q6-4 Capital Projects Funds are controlled through the provisions of bond indentures, restrictive provisions of grant agreements, and so forth. In addition, formal budgetary integration into the accounts can be used as an additional control tool. Usually governmental units also use encumbrance accounting to control the expenditures. Q6-5 Encumbrance accounting is part of the overall control system used for Capital Projects Funds. Its purpose is to limit the amount of expenditures that can be made for a given project. By using encumbrance accounting, a project manager will be able to determine, through the subsidiary ledgers, the amount that has been approved for a certain project and the amount that has either been spent or committed. Thus, through the use of encumbrance accounting, a project manager will be able to determine the remaining expendable resources for a given project. Q6-6 Yes, as a practical matter. Closing entries are used to accumulate information necessary for the preparation of financial statements on an annual basis. This process makes it easier to prepare the financial statements. Since the life of a Capital Projects Fund is based on the project and not periodic accounting cycles, the same information can be gleaned from the records without closing the books. For lengthy projects, it is much simpler, however, to use the closing process. 6-1 Q6-7 Fixed assets are not recorded in Capital Projects Funds because the purpose of such funds is to provide control over the acquisition and use of resources to acquire and/or build major capital facilities. The assets themselves are not appropriable resources, therefore, they are not accounted for in these funds....
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- Spring '11