Question: Multiple Choice Questions Identify the best answer for each of

Multiple Choice Questions
Identify the best answer for each of the following:
1. In governmental funds, expenditures should be recognized in the period in which a fund liability is incurred, though there are some exceptions to the general rule. Which of the following is not an exception to the expenditure accrual rule?
a. Expenditures for inventory.
b. Salaries and wages expenditures.
c. Debt service expenditures.
d. Prepayments for insurance premiums.

2. Which of the following is not a common type of governmental fund expenditure?
a. Capital outlay.
b. Debt service.
c. Salaries and wages.
d. Depreciation.

3. An Expenditures account in a General Fund should be charged for materials and supplies
a. Only as the materials and supplies are being consumed.
b. Only as the materials and supplies are purchased.
c. Only as the materials and supplies are distributed to departments or agencies.
d. Either as the materials and supplies are consumed or when they are purchased.

4. Both the periodic and perpetual inventory systems may be used with
a. The consumption method.
b. The purchases method.
c. Either the consumption or purchase methods.
d. The purchases method if local laws require this method of accounting.

5. Which of the following statements is true concerning the accounting and financial reporting for capital leases in governmental funds?
a. Both the leased asset and the current portion of the lease liability must be reported in the governmental fund balance sheet.
b. When a governmental fund enters into a capital lease, the transaction should result in a capital outlay expenditure and another financing source.
c. Capital leases in governmental funds do not result in expenditures in either the current or future periods.
d. The fund liability equals the present value of the minimum lease payments.

6. Assume a governmental entity enters into a capital lease for the purchase of seven new public safety vehicles. The present value of the future minimum lease payments is $224,750, and a down payment of $25,000 is made at the inception of the lease. The net effect on fund balance of the General Fund in the year of inception is
a. A decrease of $25,000.
b. A decrease of $224,750.
c. A decrease of $199,750.
d. An increase of $224,750.

7. A state pays salaries and wages of $118 million to General Fund employees during a year. Unpaid, accrued salaries were $3 million at the beginning of the year and $6 million at year end. General Fund salary expenditures should be reported for the year in the amount of
a. $115 million.
b. $118 million.
c. $121 million.
d. $124 million.

8. Which of the following events could require a restatement of the beginning fund balance of a governmental fund?
a. Management changes the method of accounting for inventory to FIFO.
b. A claim that was previously not reported due to uncertainties about its validity is now considered probable and reasonably estimable.
c. The GASB issues new accounting and financial reporting guidance that must be implemented retroactively.
d. Items a and c only.

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