Acct 430-530, Exam 2, Fall 2009 Page 19

Acct 430-530, Exam 2, Fall 2009 Page 19

Name: ______

Exam 2
Acct 430-530
Fall 2009

INSTRUCTIONS:

{Not following instructions could cost you up to 10 points.}

Put your name on answer sheet and exam. Put your name and student ID number on answer sheet in both human and machine-readable formats. (For the ID number, do not put in a hyphen -- the last two columns will be blank.)

If you tear the test apart, please be sure it is in order before stapling back together. Do not staple answer sheet to the exam

MATCHING and MULTIPLE CHOICE: Darken your selected answer on the separate answer sheet. You should also clearly circle or otherwise mark your answer on the exam itself since the answer sheet will not be returned. There is no penalty for guessing.

SHORT PROBLEMS: Show any necessary computations if you want to be eligible for partial credit. Present your work in a neat, well-organized manner. Answer all parts of the problem.

SHORT ANSWER (ESSAY): Write legibly and use complete sentences. If I can’t read it, I can’t give you credit for your thoughts! Abbreviations are acceptable as long as they are obvious, i.e., SRF, CPF, etc. In particular, I need to be able to tell if you meant expense or expenditure! I don’t think there will be time, but you may answer a second essay questions for extra credit (maximum 10 points).

1-25. MULTIPLE CHOICE (90 points total)
(Scored: number correct times by 5 for maximum of 90 points or 18 correct answers)
26-29. Problems (100 points total)
Pick 26 OR 29. You must do both 27 & 28
26. 10 points (or 29)
27. 42 points
28. 48 points
29. 10 points (or 26) / 26.______
27.______
28. ______
29. ______
30-31. Short answer essay questions (10 points)
Pick ONE of the two questions
/ 30 ______
31.______
Total points earned (max = 200) / ______points ______%

MULTIPLE CHOICE QUESTIONS

1. MC7-2 possible use F09 B
A governmental entity may record long-term assets in which of the following funds or account groups?

a)  General Fund

b)  Internal service funds.

c)  Capital Project Fund

d)  Debt Service Fund.

2. MC7-8 possible use F09 C
Donated assets are reported in the government-wide financial statements at

a)  Historical cost to the donor.

b)  Book value in the hands of the donor.

c)  Fair value on date of donation.

d)  Zero value because they were not purchased.

3. MC7-19 possible use F09 C
If a government receives a donation of a work of art, the government must recognize revenue in its government-wide financial statements

a)  Only if it elects to capitalize its collection.

b)  Only if it elects NOT to capitalize its collection.

c)  On all donations of works of art.

d)  It is not permitted to recognize revenue from donations.

4. MC7-20 possible use F09 D
For a government that elects NOT to capitalize its works of art and similar assets, the appropriate entry when receiving a contribution of a work of art in the government-wide financial statements is

a)  No entry is required for contributed assets.

b)  Debit Asset; Credit Revenues.

c)  Debit Asset; Credit Equity.

d)  Debit Expense, Credit Revenue.

5. MC8-6 possible use F09 B
In the government-wide financial statements, the assets acquired under a capital lease would be reported at

a) They are not reported in the government-wide financial statements.

b) The present value of the required lease payments.

c) The undiscounted total of required lease payments.

d) The total of all payments required under the lease.

6. MC8-8 possible use F09 A
Salmon County issued $20 million of 5% demand bonds for construction of a county maintenance building. Before year-end the County entered into a two-year noncancellable take-out agreement with a local bank with a 10-year payback period. The County estimates that 25% of the bonds would be demanded (called) by the buyers if interest rates increased at least 1%. At year-end rates on comparable debt were 7%. How should these demand bonds be reported in the County’s government-wide financial statements at year-end?

a)  $20 million in the Long-term Liability section of the governmental activities column.

b)  $5 million in the Current Liabilities section of the governmental activities column AND $15 million in the Long-term Liabilities section of the governmental activities column.

c)  $5 million in the governmental activities column AND $15 million would be reported in the Schedule of Changes in Long-term Debt Obligations.

d)  $20 million in the Current Liabilities section of the governmental activities column.

7. MC8-12 possible use F09 A
Governmental entities enter into capital leases, rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases

a)  May be an effective means of circumventing debt limitations.

b)  Are less expensive overall than buy and borrow arrangements.

c)  Reduce the cash outflows related to the asset acquisition.

d)  Have less effect on governmental fund balances than buy and borrow arrangements.

8. MC8-15 possible use F09 D
Why would a government issue revenue bonds (which generally are issued at a higher rate of interest than general obligation bonds) even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments, the government will use resources from general government activities to fund the principal and interest payments?

a)  Revenue bonds may not require approval of the voters.

b)  Revenue bonds may not be considered in legal debt limitations.

c)  Revenue bonds may permit the interest costs to be passed on to the users of the services financed.

d)  All of the above.

9. MC8-16 possible use F09 C
Which of the following funds is most likely to receive the proceeds of revenue bonds?

a)  General Fund.

b)  Capital Project Fund.

c)  City Utility Enterprise Fund.

d)  Highway Department Special Revenue Fund.

10. MC8-18 possible use F09 C
Overlapping debt should be reported in which of the following ways?

a)  It should be reported in the Schedule of Changes in Long-term Obligations.

b)  It should be disclosed as a note to the financial statements.

c)  It should be reported in a schedule in the statistical section of the annual report.

d)  It should not be reported in the financial statements of the reporting entity.

11. MC8-19 possible use F09 B
Obligations issued in the name of a government on behalf of a nongovernmental entity is called

a)  Overlapping debt.

b)  Conduit debt.

c)  Committed debt.

d)  Moral obligation debt.

12. MC8-24 possible use F09 D
Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is

a)  Committed debt.

b)  Overlapping debt.

c)  Conduit debt.

d)  Moral obligation debt.

13. MC8-25 possible use F09 because it is like a problem on X1 that as missed A
A City entered into a long-term capital lease for some office equipment. Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in its General Fund to record this event?

a)  Debit Expenditures; Credit Other Financing Sources—Leases.

b)  Debit Equipment; Credit Other Financing Sources—Leases.

c)  Debit Equipment; Credit Leases Payable.

d)  No entry because this event had no effect on financial resources.

14. MC9-8 Possible use F09 D
A governmental entity reports its utility services provided to the citizens in an enterprise fund. Which of the following best represents an acceptable election of accounting standards for the enterprise fund? Unless the FASB pronouncement conflicts with or contradicts a GASB pronouncement, a propriety fund must adhere to

a)  All FASB pronouncements.

b)  All FASB pronouncements issued prior to November 30, 1989, as well as any post-November 30, 1989 pronouncements specifically adopted by GASB.

c)  It must apply only GASB standards.

d)  It may elect either (a) or (b).

15. MC9-16 possible use F09 A
Franklin County operates a solid waste landfill that is accounted for in an enterprise fund. The County calculated this year’s portion of the total closure and postclosure costs associated with the landfill to be $300,000. The entry(ies) to record this cost should be

a)  Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000

b)  Debit Landfill Expense $300,000; Credit Liability for Landfill Costs $300,000 AND

Include an addition of $300,000 on the Schedule of Changes in Long-term Obligations.

c)  Show only an addition of $300,000 on the Schedule of Changes in Long-term Obligations.

d)  No entry in any fund; No entry in the Schedule of Changes in Long-term Liabilities.

16. Text Ex9-1-5 A There is an incorrect answer in SM which says “c” but this answer is contradicted by page 343 {I could get lots of errors on this one as a result!}
Tap fees that exceed the cost of hooking customers into the utility should be accounted for as

a)  Capital contributions.

b)  Ordinary revenues.

c)  A combination of capital contributions and ordinary revenues

d)  Extraordinary items.

17. MC9-30 possible use F09 C
Any internal service fund balances that are not eliminated in the consolidation process should generally be presented on the government-wide financial statements

a)  In the business-type activities column.

b)  In the internal service fund column.

c)  In the governmental activities column.

d)  These balances should not be presented on the government-wide financial statements.

18. MC9-36 possible useF09 D
In an enterprise fund, cash flows from Capital and Related Financing Activities include which of the following as inflows

a)  Repayment of bonds issued to construct a new city hall building.

b)  Interest received on investments.

c)  Grant from the state to subsidize the mass transit system.

d)  Receipts from the sale of an old backhoe that had been used in general government activities.

19. MC9-41 possible use F09 A
The reporting of activities by an Enterprise Fund is most likely optional if:

a)  Fees are charged to external users for goods or services.

b)  The entity’s pricing policies set fees and charges to recover costs.

c)  The entity is financed with debt, and the only security is a pledge of the activity’s net revenues from fees and charges.

d)  The entity’s costs are legally required to be recovered from fees and charges.

20. MC13-4 possible use F09 C
Katerah College, a private college, received a $1 million donation. The donor specified that the principal of her gift could never be used for program activities but the earnings on the principal must be used to provide scholarships to academically qualified students in the business school. The $1 million gift would increase which of the following categories of net assets?

a)  Unrestricted net assets.

b)  Temporarily restricted net assets.

c)  Permanently restricted net assets.

d)  Either (b) and (c).

21. MC13-15 possible use F09 A
In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships. During the current year $8,000 of scholarships were awarded. These scholarships should be reported

a)  As expenses in the unrestricted fund.

b)  As reductions in the revenue section in the unrestricted fund.

c)  As expenses in the temporarily restricted fund.

d)  As expenses in the permanently restricted fund.

22. MC13-18 possible use F09 C
A hospital estimates that, based on past experience, it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause. The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be

a)  $0.

b)  $2 million.

c)  $3 million.

d)  $5 million.

23. MC13-30 for possible use F09 D
The current rates of General Hospital provide that revenues should have been $5 million for the current year; however, only $3.8 million was actually collected due to allowances for charity care of $700,000 and discounts of $500,000 to third-party payors. What amount should General Hospital report as net health care services revenues in the statement of operations for the current year? [You may assume zero accounts receivable at year end.]

a)  $5 million

b)  $4.5 million

c)  $4.3 million

d)  $3.8 million

24. Similar to Text Ex13-1-2 B
For purposes of external reporting, a public college or university -

a)  May report as if it were a comparable private college or university

b)  May report as if it were a general purpose government

c)  Must report as a special purpose government engaged exclusively in business-type activities

d)  Either a or b

25. Text Ex13-1-3 B
Government universities should report state appropriations as

a)  Special revenues

b)  Nonoperating revenues

c)  Noncapital revenues

d)  Operating revenues

PROBLEMS

26. (10 points or do #29). TB Problem 7-4 possible use F09
In 1987, the City of Kayla constructed a new Fifth Avenue bridge. The City has no records of the cost of the bridge. The City must apply GASB Statement 34 retroactively to its infrastructure assets in 2007. The City’s engineers estimate that the current replacement cost of the bridge is $20 million. The construction price index in 1987 was 150 and is 200 in 2007. The engineers also estimate that the bridge has a total useful life of 30 years.

REQUIRED:

a.  What values should the City assign to the bridge for estimated historical cost and accumulated depreciation?

b.  Suppose the City decided to use the modified approach to report its bridges. What value would the City assign to the bridge?

c. Extra credit (5 points): In your opinion, would a depreciation charge for the bridge add significant information to the City’s financial statements? Why or why not?

27. (42 points) TB Problem 10-1
The City of Bancroft received a donation from the estate of the late Kathy Smith to be used to support the City Public Library. The gift consisted of $200,000 cash and a portfolio of securities with a market value of $300,000. The securities have a book value of $250,000. The donor stipulated that the principal of the gift, including investment gains (realized and unrealized) but excluding investment losses, must be kept intact. The income must be used to care for and maintain the book collection at the Smith Public Library. All appropriate costs, including investment losses, may be charged against the revenues yearly to determine the amount available for the specified purposes. During the year, the City engaged in the following transactions on behalf of the Library. Prepare the appropriate entries in the City’s permanent fund.