Select the best answer. 1. Which of the following items is least likely to appear on the

Question:

Select the best answer.
1. Which of the following items is least likely to appear on the of a capital projects fund?
a. Cash
b. Investments
c. Construction in process
d. Reserve for encumbrances

2. The fund balance of a debt service fund is most likely to be incorporated into the reporting entity’s government-wide statement of net position as
a. Net position, net investment in capital assets, (net of related debt)
b. Net position, restricted
c. Net position, unrestricted
d. Capital assets

3. The repayment of bond principal should be reported in the fund statements of a debt service fund as
a. An expenditure
b. An ‘‘other ﬁnancing use’’
c. A reduction of bonds payable
d. A direct charge to fund balance

4. A state issues bonds, at a premium, to ﬁnance road construction projects. The premium would affect
a. ‘Interest expenditure’’ as reported in the state’s debt service fund
b. Nonreciprocal transfers-out as reported in the state’s general fund
c. ‘‘Capital assets’’ as reported in the state’s government-wide statement of net position
d. ‘‘Net position, net investment in capital assets, (net of related debt)’’ in the state’s government-wide statement of net position
5. If a government issues bonds at a discount, the discount should be reported as
a. A reduction of fund balance in the of a capital projects fund
b. An amortization expenditure in the statement of revenues, expenditures, and changes in fund balance of a capital projects fund in the periods in which the bonds are outstanding
c. An amortization expense in the government-wide statement of activities in the periods in which the bonds are outstanding
d. A liability in the government-wide statement of net position

6. A city issued bonds on July 1. Interest of $600,000 is payable the following January 1. On December 31, the city transfers the required $600,000 from its general fund to its debt service fund. On its December 31 debt service fund statement of revenues, expenditures,
and changes in fund balance, the city
a. Must report interest expenditure of $0
b. Must report interest expenditure of $600,000
c. Must report interest expenditure of $500,000
d. May report interest expenditure of either $0 or $600,000

7. A city issues $10 million of debt that it uses to acquire an ofﬁce building. In the year that it issues the debt and acquires the building the city neither makes any interest payments nor repays any of the debt principal. Assume that the city accounts for all capital acquisitions in a capital projects fund and all payments of interest and principal in a debt service fund. The transaction would
a. Increase expenditures of the capital projects fund
b. Increase other ﬁnancing sources of the debt service fund
c. Increase fund balance of the capital projects fund
d. Increase expenditures of the debt service fund

8. A city assesses property owners $50 million to extend sewer lines to their neighborhood. By year-end, how-ever, it has not begun construction of the new lines and has not collected any of the assessments.
It accounts for its wastewater services in an enterprise fund. In its year-end enterprise fund ﬁnancial statements, the government should
a. Recognize the assessments as assessments receivable and a deferred inﬂow of resources
b. Recognize the assessments as assessments receivable and revenue
c. Recognize the assessments as assessments receivable and a liability for future construction costs
d. Not recognize the assessments until they will be available for expenditure

9. A county engages in an in-substance defeasance of its bonds. The transaction results in an economic gain but an accounting loss. In its government-wide statements the county should
a. Recognize the loss entirely in the year of the defeasance
b. Amortize the loss over the remaining life of either the existing debt or the new debt
c. Report the loss as a direct charge to net position
d. Not recognize the loss, but instead continue to report the defeased bonds (as well as the new bonds) as liabilities

10. A government issued, at par, $10 million of 20-year, 6 percent bonds that it accounts for in its electric utility fund. The bonds do not contain a call provision. Ten years later prevailing interest rates have fallen to 5 percent. The government is considering whether to purchase the outstanding bonds at their market price and retire them. It would acquire the necessary funds by issuing new ten-year, 5 percent bonds. The transaction would most likely result in
a. An economic gain but an accounting loss
b. An economic loss but an accounting gain
c. An economic gain and an accounting loss
d. Neither an economic gain or loss but an accounting loss

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...