Exam #_________

Name: ___________________________________________

Exam 1Acct 430-530

Fall 2010

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).

1-30. MULTIPLE CHOICE (100 points total)(Scored: number correct divided by 24 * 100) . Number correct is limited to maximum of 24 but you get 1 point extra credit for each correct answer beyond 24 – so 6 free misses

31-34. Problems (30 points each for 90 points total)Select at least 3 problems(If all 4 are attempted, I will count the 3 best scores)

31.___________

32.___________

33.___________

34.___________

35. Short answer essay questions (10 points) 35. ___________

Total points earned (max = 200) __________ points _________%

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Blank page – use for scratch paper Additional scratch paper on back of last page

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Multiple Choice Questions

1. A primary characteristic that distinguishes not-for-profit entities from business entities isa) The need to generate revenues equal to or in excess of expenditures/expenses.b) The importance of the budget in the governing process.c) The need to provide goods or services. d) The correlation between revenues generated and demand for goods or services.

2. Which of the following entities was a principal in creating the FASAB?a) U.S. Congress.b) Office of Management and Budget.c) Governmental Accounting Standards Board.d) Securities and Exchange Commission.

3. Which of the following activities is NOT an activity in which a governmental entity might engage?a) Selling electric power.b) Operating a golf course.c) Operating a bookstore.d) All of the above are activities that might be carried out by a government.

4. As used by GASB, interperiod equity refers to which of the following? Financial reporting should:a) Demonstrate compliance with finance-related contractual requirements.b) Demonstrate whether resources were obtained and used in accordance with the entity’s legally

adopted budget.c) Provide information to determine whether current-year revenues were sufficient to pay for

current-year services.d) Provide information to assist users in assessing the government’s economy, efficiency, and

effectiveness.

5. Which of the following is a probable use a donor would make of the external financial statements of a not-for-profit entity?a) To determine the proportion of entity resources directed to programs as opposed to fund-raising.b) To determine the creditworthiness of the entity for investment purposes.c) To determine the salaries paid to all employees of the entity.d) To determine the budget of the entity.

6. Which of the following is not one of the GASB’s financial reporting objectives? a) Providing information on the extent to which inter-period equity is achieved.b) Providing information on service efforts and accomplishmentsc) Ensuring budgetary compliance.d) Reporting on the sources and uses of financial resources.

7. Which of the following accounts would you least expect to see in a debt service fund?a) Principal payments.b) Interest charges.c) Interest earned.d) Outstanding balance of the debt being serviced.

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8. Which of the following funds is a governmental fund?a) Enterprise fund.b) Debt service fund.c) Internal service fund.d) Agency fund.

9. Which of the following activities conducted by a city-owned junior college should be accounted for in an agency fund?a) Receipt of revenues belonging to the student accounting club.b) Receipt of state monies appropriated for general operations.c) Receipt of tuition payments.d) Receipt of donations in support of the university’s athletic program.

10. To fulfill the printing needs of its various departments and agencies, the City has established a Central Print Shop, which bills the various departments and agencies of the city for printing services rendered. The Central Print Shop should be accounted for in which of the following funds.a) Internal service fund.b) Enterprise fund.c) General fund.d) Special revenue fund.

11. Which of the following assets would NOT be found in the fund balance sheet of the General Fund of the City of Harrison?

a) Cash.b) Due from Special Revenue Fund.c) Inventory.d) Capital assets.

12. Under the GASB Statement No. 34 reporting model for governmental entities, the government-wide Statement of Activities will display which of the following?a) Assets, Liabilities, and Net Assets.b) Assets, Liabilities, and Fund Balances.c) Revenues, Expenses and Net Assetsd) Revenues, Expenses and Fund Balance.

13. Which branch of local (city and county) government most commonly prepares the budget?a) Executive branch.b) Legislative branch.c) Judicial branch.d) None of the above.

14. An officially adopted budget is generally calleda) An operating budget.b) A capital budget.c) An appropriation bill.d) None of the above.

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15. GASB requires that governmental entities present their budgeted-to-actual comparison data on which of the following bases of accounting?a) Modified accrual basis.b) Accrual basis.c) Budgetary basis.d) Cash basis.

16. The City of Lakeview adopts its budget on a basis of accounting that permits outstanding purchase commitments to be charged against the budget in the year that the goods are ordered instead of in the year they are received. During the year the City ordered and received $4,000 of supplies (of which $3,000 had been paid and $1,000 was unpaid) and had $500 of outstanding purchase commitments for supplies at year-end. In the Statement of Budget to Actual, the expenditures for supplies would be:a) $3,000.b) $3,500.c) $4,000.d) $4,500.

17. A governmental entity has formally integrated the budget into its accounting records. At the end of the third quarter the ledger account “Expenditures--Salaries” has a $100,000 debit balance. Which of the following is a true statement?a) The entity has $100,000 available to spend on salaries.b) The entity has incurred salaries in the amount of $100,000.c) The entity had paid salaries in the amount of $100,000.d) The entity has overspent its budget for salaries by $100,000.

18. Which of the following is the primary reason why governments formally integrate their legally adopted budget into their accounting systems?a) It is required by GASB.b) It enables the government to better control its expenditures.c) It keeps the government from overspending its budget.d) It helps a government by letting it know when it is in danger of overspending its budget.

19. For fund financial statements, the measurement focus and basis of accounting used by governmental fund types are

a) current financial resources and modified accrual accounting.b) economic resources and modified accrual accounting.c) current financial resources and full accrual accounting.d) economic resources and full accrual accounting.

20. Under the accrual basis of accounting, gains and losses on disposal of fixed assets a) are not recognized.b) are recognized when the proceeds (cash) of the sale are received (on the installment basis).c) are recognized only if there is a gain.d) are recognized when the sale occurs, regardless of when the cash is collected.

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21. Under GAAP, property taxes levied in one fiscal period to finance the activities of the following fiscal period are recognized as revenue in the governmental fund financial statementsa) in the year levied.b) in the year for which they are intended to finance the activities.c) when collected, regardless of when levied.d) in the year for which they are intended to finance the activities, if collected within that period

or within a period no greater than 60 days after the close of the fiscal year.

22. Unrestricted grant revenues with a time requirement should be recognized a) when the award is announced.b) when the cash is received.c) in the period in which the grant is can be used.d) when expenditures are recognized on grant-related activities.

23. Which of the following is not characterized as non-exchange?a) Sales taxesb) Property taxesc) Charges for servicesd) Fines and forfeits

24. State governments should recognize food stamp revenue from debit cards issued to qualifying recipients

a) when the recipient receives the debit card.b) when debit card is used by recipient.c) when the government receives funding from the federal governmentd) never. Food stamps are not financial resources.

25. State Community College, a public college, grants faculty members a one-year sabbatical leave after each seven years of service. There are no requirements for research, study or service during the compensated sabbatical leave. A particular faculty member earns $40,000 per year. Assuming that the college maintains its books and records in a manner that facilitates the preparation of the fund financial statements and assuming that any appropriate accruals have been made, what is the appropriate entry to record the employee’s salary paid while on sabbatical?

a) No entry required.b) Debit Sabbatical Leave Payable $40,000; Credit Cash $40,000.c) Debit Expenditures $40,000; Credit Sabbatical Leave Payable $40,000. d) Debit Expenditures $40,000; Credit Cash $40,000.

26. This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the icy City Hall steps. The City attorney estimates the City will be held liable by the courts and a judgment of $200,000 will result. Because of the nature of the case it will likely be four years before the City makes any payment related to the accident. The present value of the likely future payment is $167,000. In the government-wide financial statements, at the end of the current fiscal year, Port City should recognize a liability ofa)$0.b)$50,000c)$167,000.d)$200,000.e)Either (c) or (d).

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27. The construction of a Bike Path in Bay City was accounted for in a capital projects fund. Financing for the project came from the following sources:

Transfer from Bay City’s general fund $10,000Proceeds from general obligation bond issue $100,000Grant from state government $50,000

Which of the following amounts should appear in this year’s governmental funds statement of revenues, expenditures, and changes in fund balances for Other Financing Sources?

a) $10,000b) $60,000c) $100,000d) $110,000e) 160,000

28. The City of Holbrook transferred $100,000 from the General Fund to the Debt Service Fund for payment of interest. The appropriate entry in the General Fund to record this transfer would be

a) Debit Expenditures $100,000; Credit Cash $100,000.b) Debit Other Financing Uses—Transfer Out $100,000; Credit Cash $100,000.c) Debit Fund Balance—Transfer Out $100,000; Credit Cash $100,000.d) Debit Other Financing Sources—Transfer In $100,000; Credit Cash $100,000.

29. Star City leased a bulldozer for use in activities accounted for in the General Fund. The City paid $30,000 and agreed to pay $30,000 per year for 3 years. The present value of the cash flows is $105,000. The bulldozer has a useful life of six years. The lease qualified as a capital lease. Assuming that the city maintains is books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the General Fund at the date of acquisition would be

a) Debit Expenditures $105,000; Credit Cash $30,000 and Other Financing Sources $75,000.b) Debit Expenditures $30,000 and Prepaid Lease $75,000; Credit Cash $30,000 and Other

Financing Sources $75,000.c) Debit Equipment $120,000; Credit Cash $30,000 and Other Financing Sources $90,000.d) Debit Expenditures $105,000; Credit Cash $30,000 and Lease Payable $75,000.

30.Campbell County uses the consumption method to record all inventories and prepayments. The County has a 9/30 fiscal year-end. On April 1, 2010, the County purchased a two-year insurance policy at a total cost of $400,000, paying for the policy out of the General Fund. In the fund financial statements, the amount to be reported as nonspendable fund balance at 9/30/10 would bea) $100,000.b) $200,000.c) $300,000.d) $400,000.

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Problems (pick 3 of the 4 to work – 30 points each)

31. Assume that the City of Amber maintains its books and records in a manner that facilitates the preparation of the fund financial statements. Amber City maintains a general fund, a capital projects fund, and a special revenue fund. During the current fiscal year, the City engaged in the following transactions. Record all transactions. Be sure to clearly indicate the fund in which the entry is made.

FUND Account Title Debit Credita. The City sold bonds, face value $26 million, at par to finance the construction of a new City Hall.

b. The City purchased two new police cars at a total cost of $50,000.

c. The City collected $8,000 in taxes dedicated for the eradication of noxious weeds.

d. The City spent $6,000 on pesticides for noxious weeds.

e. The City acquired a new tractor for $75,000. The City paid $20,000 in cash and signed a note that is due in three years.

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32. Journal entries in the General Fund of the City of Minimax

The City uses the encumbrance system to record purchase orders. The City accounts for its inventory using the purchases method. There were no supplies on hand at the beginning of the year. The City has adopted the new GASB 54 categories to describe fund balances.

Account Title Debit Credita. During the year the City issued purchase orders for $400,000 of supplies.

b. The supplies were received and the total cost invoiced to the City was $415,000.

c. The City paid $315,000 on account during the year and will pay for the remaining invoices from available expendable financial resources.

d. The ending inventory in supplies is valued at $60,000. Based on this information, make any necessary year-end entries.

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33. Property Taxes

A city that has a 12/31 fiscal year end has adopted a policy of recognizing property tax revenue consistent with the 60-day rule allowable period under GAAP. Property taxes of $600,000 (of which 2% are estimated to be uncollectible) are levied in October 2010 to finance the activities of fiscal year 2011. Property taxes are due in two installments June 20 and December 20. Cash collections related to property taxes are as follows:

1/15/11 for property taxes levied in 2009, due in 2010 $ 25,000 2/15/11 for property taxes levied in 2009, due in 2010 $ 15,0003/15/11 for property taxes levied in 2009, due in 2010 $ 10,0006/20/11 First installment of taxes levied in 2010, due 6/20/11 $350,000

12/20/11 Second installment of taxes levied in 2010, due 12/20/11 $150,000 1/15/12 for property taxes levied in 2010, due in 2011 $ 15,0002/15/12 for property taxes levied in 2010, due in 2011 $ 10,0003/15/12 for property taxes levied in 2010, due in 2011 $ 5,000

Journal entries are not required but SHOW COMPUTATIONS:

a. What is the total amount of property tax revenue that should be recognized in the statement of revenues, expenditures, and other changes in fund balance for 2011?

b. What is the total amount of property tax revenue that should be recognized in the statement of activities for 2011?

c. What amounts will be reported on the 12/31/11 balance sheet assuming the City identifies its property taxes by year?

(1) Deferred property tax revenues (2011) = _____________________________

(2) Property taxes receivable (2011) = _________________________________

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34. Salaries and Benefits at the City of Homer

Employees of the City of Homer are paid from the general fund semi-monthly on the 15 th day and the last day of the month. The City provides numerous employee benefits including the following:

Employees earn ten vacation days for each 12 months of employment. The employee can take the vacation during any summer months (May-September) prior to retirement.

The employees also earn one sick day for each month of employment. Sick pay vests at the completion of five years of continuous service. Vested unused sick pay will be paid upon retirement or termination.

At the beginning of the current year employees had $.4 million of earned vacation time and $7 million of vested earned sick leave.

Accounting Method The City’s fiscal year end is December 31. The City recognizes revenues/expenditures when collected/paid or if collected/paid within 60

days of year-end. The City uses the FIFO method of accounting for vacation and sick days. The City maintains its books and records in a manner to facilitate the preparation of its fund

financial statements

Instructions:Using the “answer sheet” on next page, record the transactions related to employee salaries and benefits.

Be sure to make ALL necessary entries, including any amount that would be added to the schedule of long-term debt (needed to prepare the government-wide statements).

If there is no change to long-term liabilities reported in the government-wide financial statements, enter “n/a” under the “schedule of long-term debt” headings.

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Problem 34Account Title Debit Credit

a. During the year employees of the City earned $60 million. At year-end all but $2 million had been paid to the employees. (This amount does not include vacation and sick leave.)

SCHEDULE OF LONG-TERM DEBT:

b. During the year the employees of the City earn $2.5 million in vacation pay. By year-end the employees had taken $2 million of vacation. Of the balance of vacation pay due to the employees, the City estimates that $.3 million will be taken during the next year and $.2 million will be deferred until later.

SCHEDULE OF LONG-TERM DEBT:

c. During the year the employees of the City earned $3 million in sick pay, of which $2.5 million is expected to vest. Of the 2.5 million, employees are expected to take $2.0 million and $.5 million is expected to be paid to employees upon their termination or retirement. During the year employees took $1 million in sick days.

SCHEDULE OF LONG-TERM DEBT:

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ESSAY (10 points)Short answer, please!

35. In the United States, educational services can be provided by federal governmental entities, by non-federal governmental entities, by not-for-profit entities, and by for-profit entities. Are the accounting and financial reporting standards the same for each of these entities? Should they be the same?

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SOLUTIONSMultiple choice answers:1. B 2. B 3. D 4. C 5. A 6. C 7. D 8. B 9. A 10. A11. D 12. C 13. A 14. C 15. C 16. D 17. B 18. B 19. A 20. D21. D 22. C 23. C 24. B 25. D 26. E 27. D 28. B 29. A 30. C

Problem 31.

a. CAPITAL PROJECTS FUNDCash $26 million

Other financing sources - Bond proceeds $26 million

b. GENERAL FUNDVehicle expenditure $ 50,000

Cash $ 50,000

c. SPECIAL REVENUE FUNDCash $ 8,000

Tax revenue $ 8,000

d. SPECIAL REVENUE FUNDExpenditures for weeds $ 6,000

Cash $ 6,000

e. GENERAL FUNDTractor expenditure $75,000

Other financing sources - Proceeds of note $ 55,000Cash 20,000

Problem 32 Debit Credita. Encumbrances

Reserve for encumbrances$400,000

$400,000b. Reserve for encumbrances

Encumbrances400.000

400,000c. Expenditures for supplies

Accounts payableCash

415,000100,000315,000

d. Consumption method is required so the existence of inventory must be recognized.

InventoryExpenditures for supplies

Unassigned fund balanceNonspendable fund balance

Or as shown on page 192:Inventory

Nonspendable Fund Balance

60,000

60,000

60,000

60,000

60,000

60,000

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Problem 33 a. The amount recognized as total property tax revenues includes portion of 2009 taxes collected more than 60 days after the end of 2009, the cash collected on 2011 taxes during the year, and the 2011 taxes collected within 60 days of year end – from list: $10 +350+150+15+10 = $535,000

b. The property tax revenues recognized in the statement of activities would the collectible portion of the assessed property taxes: $600,000 * 98% = $588,000

(c-1) Deferred property tax revenues (2011) = $588,000 collectible less amount recognized under the modified accrual method. $588 – -350 – 150 – 15 – 10 = $63,000This amount is reported on the Balance Sheet (modified accrual) but not on the government-wide Statement of Net Assets which would report no deferred tax revenues because they would not be deferred under full accrual method.

(c-2) Property taxes receivable (2011) = $600,000 original receivable less collections = $100,000(600-350-150=100). The Allowance for 2011 = 2% * $600K = $12,000 so the NET property taxes receivable for 2011 = $88,000.

Problem 34 a. GENERAL FUND Salary expenditures $60 million

Cash $58 millionSalaries payable $ 2 million

SCHEDULE OF LONG-TERM DEBTn/a (no difference between modified accrual and full accrual)

b. GENERAL FUND Vacation pay expenditures $ 2 million

Cash $ 2 million

SCHEDULE OF LONG-TERM DEBTVacation Pay Payable add $ .5 million (for ending balance of .9 M)

c. GENERAL FUNDSick pay expenditures $ 1 million

Cash $ 1 million

SCHEDULE OF LONG-TERM DEBTSick Pay Payable add $ .5 million (for ending balance of $7.5 M)

Essay 35 Accounting standards for educational institutions differ by the nature of the ownership. Public schools (K-12) are accounted for in the same way as state and local governments, as are public colleges and universities, theoretically. Private schools, colleges, and universities are accounted for using not-for-profit standards established by FASB. For-profit educational institutions would use the FASB rules for other for-profit entities.

Because these entities are all involved in delivering the same basic service—education—it would appear that they should have the same standards. However, public schools are subject to the same openness as other government activities. The citizens should have a voice in determining what services are offered through the schools and how those services are delivered. The budget process is the opportunity for the public to be heard and the adopted budget is a plan of action to which citizens can, and should, hold officials accountable. For-profit schools are organized to generate profits and should measure net income using full accrual accounting. Not-for-profit entities generate revenues from tuition and solicit contributions from the public, or a select group of the public. Donors to not-for-profit entities may be interested in different information than taxpayers are interested in.