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Accounting for the Business-type Activities of State and Local Governments
True / False Questions
1. For proprietary funds, governments generally present a statement of net position in a format that displays assets, plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position.
True False
2. Internal service funds of one government may notprovide goods or services, on a costreimbursement basis, to other governments.
True False
3. Revenues of internal service funds should be recognized only when they are expected to be available in time to pay current liabilities of the fund.
True False
4. Internal service funds should account for operating expenditures on the accrual basis.
True False
5. Internal service funds account within the fund for any long-term liabilities to be serviced from revenue derived from fund operations.
True False
6. Internal service funds should notaccount for depreciation of capital assets used in their operations, since this would, in effect, charge the government twice for the same assets.
True False
7. Internal service funds are intended to operate on taxes or other financing sources authorized by the legally enacted revenue budget for each year; therefore, they are classified as governmental funds.
True False
8. The net position of an internal service fund consists of contributed equity and reserves for assets that will notbe converted into cash in the normal operation of the fund.
True False
9. In the information for the Supplies Fund that follows, the account "Interfund Loan from Electric Utility Fund" should be credited for $320,000 because this amount was borrowed from and will have to be repaid by the Supplies Fund.
True False
7-2 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
10. In the information for the Supplies Fund that follows, the account "Interfund Transfer In from General Fund" should be credited for $89,200 because this amount was transferred from the General Fund to the Supplies Fund in a nonexchange transfer that will not have to be repaid.
True False
11. The Encumbrances account should be used by an internal service fund in the same manner as by the General Fund.
True False
12. Proprietary funds are accounted for in a manner similar to investor-owned businesses; among other features, the accrual basis of accounting is used and all of the capital assets used in fund operations are accounted for by the using fund.
True False
13. Internal balances between governmental and business-type activities are reported in the government-wide statements.
True False
14. Capital assets acquired under a capital lease for use by an internal service fund should be recorded in the General Fund in order to report all leased assets in one financial statement.
True False
7-3 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
15. A statement of revenues, expenses, and changes in net position for an internal service fund is similar in many respects to an income statement prepared for an investor-owned business.
True False
16. A statement of cash flows is notprepared for an internal service fund.
True False
17. An internal service fund can be liquidated only if there is a ready and willing buyer for the fund's assets.
True False
18. Public utilities owned and operated by governments are common examples of enterprise funds.
True False
19. Enterprise funds are used by state and local governments to account for services that are provided to the general public on a user-charge basis, with prices set to recover the costs of operations, activities financed with debt secured solely by revenues from fees of the activity, activities required by law or regulations to recover operating costs from user charges, or any activity that the governing body of the government has decided should be accounted for on a "business basis".
True False
20. The liability for utility revenue bonds should be reported in business-type activities on the government-wide statements, as well as in the enterprise fund.
True False
7-4 © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
21. Budgets for enterprise funds should be recorded in the accounts in the same manner as budgets for a General Fund or a special revenue fund.
True False
22. Unbilled customer accounts receivable should be reflected in the balance sheet of a governmentally owned utility even though the exact amount of service to be billed is unknown until the customers' meters can be read.
True False
23. General obligation bonds used to increase the capacity of a water treatment plant (part of a water utility enterprise fund), but for which the debt service (including repayment of principal) will be paid from general government revenues should be reported as a long-term liability in the water utility fund balance sheet.
True False
24. Interest and principal on enterprise fund revenue bonds should be recorded in a debt service fund until paid.
True False
25. Governments can follow either the GASB or FASB Codification.
True False
26. The liability for long-term debt issued to provide financing for an enterprise fund and to be serviced from revenues of the enterprise fund should be reported in the financial statements of the enterprise fund, even though the debt also is backed by the general obligation credit of the government.
True False
7-5
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
