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Chapter 4: The Governmental Fund Accounting Cycle

An Introduction to General and Special Revenue Funds

Multiple Choice

1. Accounting for a Special Revenue Fund is most like the accounting for which of
the following?
a. the General Fund
b. an Internal Service Fund
c. a Pension Trust Fund
d. an Enterprise Fund

Answer: a

2. When should property tax revenues be recognized in the accounting records?


a. when the budget is prepared
b. when the appropriations bill is signed into law
c. when property taxes are levied
d. when property taxes are actually received in cash

Answer: c

3. What is the difference between the terms budgetary fund balance and unreserved
fund balance?
a. budgetary fund balance is reserved; unreserved fund balance is not
reserved
b. budgetary fund balance is permanent in nature; unreserved fund balance is
temporary
c. budgetary fund balance is the anticipated change in fund balance as a
result of adopting the budget; unreserved fund balance is the actual
difference between assets and liabilities
d. budgetary fund balance can be appropriated; unreserved fund balance
cannot

Answer: c
4. A local government always will have
One or more
a General Fund Special Revenue Funds
a. yes no
b. no yes
c. no no
d. yes yes

Answer: a

5. What is the general rule for recognizing revenues in governmental funds?


a. revenues should be recognized when the budget is adopted
b. revenues should be recognized when available and measurable
c. revenues should be recognized when collected in cash
d. revenues may be recognized either when collected in cash or when the
budget is adopted, at the option of the entity

Answer: b

6. Which line item does not properly belong in the balance sheet of a governmental
fund?
a. short-term investments
b. fixed assets
c. cash
d. accounts (or vouchers) payable

Answer: b

7. Which of the following journal entries is a budgetary entry?


a. debit estimated revenues and credit appropriations
b. debit expenditures and credit cash
c. debit property taxes receivable and credit property tax revenues
d. debit cash and credit property taxes receivable

Answer: a

8. When a city borrows cash short-term in anticipation of the receipt of property tax
revenues, which account would it credit?
a. property taxes receivable
b. property tax revenues
c. estimated other financing sources
d. tax anticipation notes payable

Answer: d

9. At year-end, a city's expenditures exceed its revenues. When the accounts are
closed, which of the following entries will be made to record this fact?
a. a credit to Unreserved fund balance
b. a debit to Unreserved fund balance
c. a credit to Appropriations
d. a debit to Budgetary fund balance

Answer: b

10. Which of the following financial statements normally are prepared for the General
Fund?
operating balance cash flows
statement sheet statement
a. yes no yes
b. no yes yes
c. yes yes yes
d. yes yes no

Answer: d

11. Expenditures of a city or county's governmental funds include


a. cash disbursements made to settle short-term liabilities
b. depreciation of general fixed assets
c. decreases in fund net assets for operating purposes but not for capital asset
acquisitions
d. decreases in fund net assets for operating purposes, repayment of debt
principal and interest, and capital asset acquisitions

Answer: d

12. A village derives about 5 percent of its General Fund revenues from traffic
violation fines. Violators of the law have 30 days to appeal the fines. Experience
shows that the village ultimately collects on about 75% of the violations. When
should the village recognize these revenues in the General Fund?
a. when the budget is prepared
b. at the beginning of the year, based on an estimate of collections
c. when the traffic violation tickets are issued
d. when the cash is collected

Answer: d

13. Which line item does not properly appear in the Statement of Revenues,
Expenditures, and Changes in Fund Balance ("operating statement") of a
governmental fund?
a. expenditures--debt service
b. expenditures--capital outlay
c. property taxes receivable
d. beginning fund balance

Answer: c

14. If the Budgetary fund balance account was debited when the budget was recorded
in the City of Ramville's General Fund, then
a. appropriations exceed estimated revenues
b. actual expenditures exceed appropriations
c. estimated revenues exceed appropriations
d. appropriations exceed actual revenues

Answer: a

15. Under the modified accrual basis of accounting


a. expenditures are recognized when paid in cash if not previously encumbered
b. revenues are recognized when earned
c. revenues are recognized when they become measurable and available
d. encumbrances are equivalent to expenditures

Answer: c

16. In governmental accounting, expenditures are


a. equal to expenses minus depreciation
b. incurred for operating purposes, capital acquisitions, and debt service
c. equal to encumbrances plus appropriations
d. incurred to generate revenue in order to promote the well-being of the
citizens

Answer: b

17. Which of the following accounts properly would not appear in the General Fund's
closing entry at fiscal year end?
a. revenues
b. unreserved fund balance
c. taxes receivable
d. expenditures

Answer: c

18. If the Unreserved fund balance account of a Special Revenue Fund has a debit
balance at the end of the fiscal year, it means that
a. revenues are less than expenditures for the year
b. actual revenues are less than estimated revenues
c. total liabilities exceed total assets
d. expenditures consistently exceeded encumbrances

Answer: c

19. Within a city's General Fund, which source of revenues is least likely to be
accrued in advance of receipt in cash?
a. building inspection fees
b. property taxes
c. interest on investments
d. sales taxes

Answer: a

20. A county borrows cash on a short-term basis. Which of the following is the
proper account to be credited in this transaction?
a. tax anticipation notes payable
b. revenues from borrowing
c. appropriations--borrowed money
d. unreserved fund balance

Answer: a

21. Which of the following financial statements normally are prepared for a Special
Revenue Fund?
operating balance cash flows
statement sheet statement
a. yes yes no
b. no yes yes
c. yes yes yes
d. yes no yes

Answer: a

22. The accounting and financial reporting for the General Fund is least similar to that for a
a. capital projects fund
b. debt service fund
c. pension trust fund
d. special revenue fund

Answer: c

23. A favorable expenditures variance signifies that, during the year,


a. Unreserved fund balance increased
b. actual spending was less than budgeted spending
c. estimated revenues were less than actual revenues
d. total expenditures did not exceed total encumbrances

Answer: b

24. The total amount of taxes receivable from all taxpayers within a government's
jurisdiction will be posted to which type of account?
a. a control account
b. a contra account
c. a net assets account
d. a subsidiary account

Answer: a

25. In governmental accounting, vouchers payable is most similar to which of the


following accounts used by business enterprises?
a. contributed capital
b. accounts payable
c. dividends payable
d. unearned revenues

Answer: b

Problems

26. (Journal entries - basic events and transactions)

Prepare entries to record the following events and transactions for


Tropical Township for the year 2009.
a. The Township adopted a budget calling for appropriations of
$360,000. The estimated revenues (all property taxes) were
$340,000.
b. The Township sent property tax bills amounting to $340,000 to
property owners.
c. Property owners paid $335,000 to the Township.
d. A purchase order of $25,000 was sent to a vendor of supplies.
e. The supplies ordered in transaction d. were received in good order
and the accompanying invoice of $24,000 was approved.

Answer:

a. Estimated revenues - property taxes 340,000


Budgetary fund balance 20,000
Appropriations 360,000

b. Property taxes receivable 340,000


Revenues - property taxes 340,000

c. Cash 335,000
Property taxes receivable 335,000

d. Encumbrances 25,000
Budgetary fund balance reserved for encumbrances 25,000

e. Budgetary fund balance reserved for encumbrances 25,000


Encumbrances 25,000

Expenditures - supplies 24,000


Vouchers payable 24,000

27. (Journal entries - budgetary and financial)

Prepare journal entries to record the following transactions for Cosmotown for
2009. The Town records encumbrances only for its Supplies appropriation.

a. Cosmotown adopted the following budget for the year:


Revenues:
Property taxes $275,000
Licenses and fees 35,000
Appropriations:
Salaries 255,000
Supplies 40,000
Interest 1,500
b. Property tax bills amounting to $275,000 were sent to the property
owners.
c. Because property taxes were not due to be received for several months
and the town needed cash to finance its activities, Cosmotown borrowed
$100,000 on tax anticipation notes from a local bank.
d. Cosmotown paid salaries in the amount of $75,000.

e. The town sent out two purchase orders for supplies: purchase order A for
$6,000 and purchase order B for $5,000.
f. The town received $130,000 from property owners in payment of their
property taxes.
g. Cosmotown repaid the bank on its borrowing in transaction c. The
amount paid was $101,000, which included interest of $1,000.
h. The town collected $15,000 for fishing licenses.
i. The town received the supplies ordered on purchase order A in transaction
e. All the supplies arrived in good condition and the invoice for $6,100
was approved for payment.
j. The town Treasurer paid the invoice in transaction i. for $6,100.

Answer:

a. Estimated revenues - property taxes 275,000


Estimated revenues - licenses and fees 35,000
Appropriations - salaries 255,000
Appropriations - supplies 40,000
Appropriations - interest 1,500
Budgetary fund balance 13,500

b. Property taxes receivable 275,000


Revenues - property taxes 275,000

c. Cash 100,000
Tax anticipation notes payable 100,000

d. Expenditures - salaries 75,000


Cash 75,000

e. Encumbrances 11,000
Budgetary fund balance reserved for encumbrances 11,000

f. Cash 130,000
Property taxes receivable 130,000

g. Tax anticipation notes payable 100,000


Expenditures - interest 1,000
Cash 101,000

h. Cash 15,000
Revenues - licenses and fees 15,000

i. Budgetary fund balance reserved for encumbrances 6,000


Encumbrances 6,000

Expenditures - supplies 6,100


Vouchers payable 6,100
j. Vouchers payable 6,100
Cash 6,100

28. (Calculating ending unreserved fund balance from selected information)


Presented below is information a Special Revenue Fund of Trinket City for fiscal
2009. Based on this information, determine the amounts of
a. actual revenues for 2009,
b. actual expenditures for 2009, and
c. ending unreserved fund balance at the end of fiscal 2009.

Beginning unreserved fund balance (actual) $ 10,000


Beginning budgetary fund balance -- debit (15,000)
Total appropriation 100,000
Total revenue variance -- favorable 8,000
Total expenditure variance -- favorable 4,000

Answer:

a. Estimated revenues = Appropriation less budgetary fund balance =


100,000 - 15,000 = 85,000.
Actual revenues = Estimated revenues + favorable revenues variance = 85,000
+ 8,000 = 93,000.

b. Actual expenditures = Appropriations less favorable expenditure variance


= 100,000 - 4,000 = 96,000.

c. Actual revenues = $ 93,000


Expenditures = 96,000
Decrease in unreserved fund balance (3,000)
Beginning unreserved fund balance 10,000
Ending unreserved fund balance $ 7,000
29. (Preparing closing entries and financial statements)

Presented below is the adjusted trial balance for the General Fund of the
Township of Sean’s Haven at June 30, 2009, the end of the fiscal year. Based on
this information, prepare, in good form:
a. closing entries
b. the statement of revenues, expenditures, and changes in fund balance for the year
c. the balance sheet at June 30, 2009.

Township of Sean’s Haven


General Fund
Adjusted Trial Balance
June 30, 2009

Cash $ 6,200
Taxes receivable 40,000
Investments 65,000
Vouchers payable 38,750
Tax anticipation notes payable 12,750
Unreserved fund balance 57,000
Estimated revenues 101,000
Appropriations 99,000
Budgetary fund balance 2,000
Revenues-taxes 100,000
Revenues-other 2,080
Expenditures-personal services 94,700
0
Expenditures-supplies 4,680
$ 311,580 $ 311,580
Answer:

a. Closing entries

Appropriations 99,000
Budgetary fund balance 2,000
Estimated revenues 101,000

Revenues-taxes 100,000
Revenues-other 2,080
Expenditures-personal services 94,700
Expenditures-supplies 4,680
Unreserved fund balance 2,700

b. Statement of Revenues, Expenditures, and Changes in Fund Balance


Township of Sean’s Haven
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the year ended June 30, 2009
Revenues
Taxes $100,000
Other 2,080
Total revenues $102,080
Expenditures
Personal services 94,700
Supplies 4,680
Total expenditures 99,380
Excess of revenues over (under) expenditures 2,700
Fund balance, beginning of year 57,000
Fund balance, end of year $ 59,700

c. Balance Sheet
Township of Sean’s Haven
General Fund
Balance Sheet
At June 30, 2009
Assets
Cash $ 6,200
Taxes receivable 40,000
Investments 65,000
Total assets $ 111,200
Liabilities
Vouchers payable $ 38,750
Tax anticipation notes payable 12,750
Total liabilities 51,500
Fund balance
Unreserved 59,700
Total liabilities and fund balance $ 111,200

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