Chap007 - Chapter 07 - Accounting for the Business-Type...

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Chapter 07 - Accounting for the Business-Type Activities of State and Local Governments Chapter 07 Accounting for the Business-Type Activities of State and Local Governments True / False Questions 1. Internal service funds of one government may not provide goods or services, on a cost- reimbursement basis, to other governments. True False 2. Revenues of internal service funds should be recognized only when they are expected to be available in time to pay current liabilities of the fund. True False 3. Internal service funds should account for operating expenditures on the accrual basis. True False 4. Internal service funds account within the fund for any long-term liabilities to be serviced from revenue derived from fund operations. True False 5. Internal service funds should not account for depreciation of capital assets used in their operations, since this would, in effect, charge the government twice for the same assets. True False 6. Internal service funds are intended to operate on taxes or other financing sources authorized by the legally enacted revenue budget for each year; therefore, they are classified as governmental funds. True False 7-1
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Chapter 07 - Accounting for the Business-Type Activities of State and Local Governments 7. The net assets of an internal service fund consist of contributed equity and reserves for assets that will not be converted into cash in the normal operation of the fund. True False 8. In the information for the Supplies Fund that follows, the account "Interfund Loan from Electric Utility Fund" should be credited for $320,000 because this amount was borrowed from and will have to be repaid by the Supplies Fund. True False 9. In the information for the Supplies Fund that follows, the account "Interfund Transfer In from General Fund" should be credited for $89,200 because this amount was transferred from the General Fund to the Supplies Fund in a nonexchange transfer that will not have to be repaid. True False 10. The Encumbrances account should be used by an internal service fund in the same manner as by the General Fund. True False 11. Proprietary funds are accounted for in a manner similar to investor-owned businesses; among other features, the accrual basis of accounting is used and all of the capital assets used in fund operations are accounted for by the using fund. True False 7-2
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Chapter 07 - Accounting for the Business-Type Activities of State and Local Governments 12. If an internal service fund is created to improve the management of resources devoted to the supply function, the supplies fund should use periodic inventory accounting instead of perpetual physical inventory accounting. True False 13. Capital assets acquired under a capital lease for use by an internal service fund should be recorded in the General Fund in order to report all leased assets in one financial statement.
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This note was uploaded on 02/20/2012 for the course ACCTG 471 taught by Professor Muthannette during the Fall '08 term at Pennsylvania State University, University Park.

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Chap007 - Chapter 07 - Accounting for the Business-Type...

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