Course Introduction
Municipal Accounting Study Guide
Questions
Municipal Accounting focuses on the principles and practices governing the financial management and reporting of local government entities such as cities, towns, and counties. The course covers topics including fund accounting, budget preparation and control, revenue and expenditure recognition, internal controls, and statutory compliance. Students learn how municipalities track public funds, prepare and analyze financial statements, and ensure accountability and transparency in the use of taxpayer resources. Emphasis is also given to government financial reporting standards and the role of audits in the public sector.
Recommended Textbook
Introduction to Governmental and Not for Profit Accounting 7th Edition by Patton
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Page 2
Chapter 1: Governmental and Not-For-Profit
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Q1) Which entity establishes financial accounting standards and principles for the federal government?
A)FASB
B)GASB
C)FASAB
D)None of the above.
Answer: C
Q2) Which of the following is the most authoritative source of accounting standards for cities and counties?
A)Current practices widely used by not-for-profit entities
B)GASB Statements and Interpretations
C)AICPA Industry Audit Guides
D)Implementation guides published by GASB staff
Answer: B
Q3) Government and nonprofit accounting focuses on which of the following?
A)Calculating profit or loss
B)Protecting investors from fraud
C)Demonstrating accountability
D)Reporting to management
Answer: C
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Chapter 2: The Use of Funds in Governmental Accounting
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Q1) Which of the following funds all use the current financial resources measurement focus?
A)Debt Service Fund,Special Revenue Fund,and Capital Projects Fund
B)General Fund,Debt Service Fund,and Internal Service Fund
C)Debt Service Fund,Investment Trust Fund,and Capital Projects Fund
D)General Fund,Debt Service Fund,and Pension Trust Fund
Answer: A
Q2) What is the disposition of the earnings of a Permanent Fund?
A)The earnings remain indefinitely in a permanent fund.
B)The earnings are used only for non-governmental programs.
C)The earnings are used for programs that benefit the government or its citizens.
D)The earnings must be used for permanent projects,such as bridges.
Answer: C
Q3) Governmental accounting normally does not
A)use separate funds to account for various activities
B)incorporate budgetary accounts into the accounting system
C)measure the amount of profit earned during a fiscal year
D)focus on flows of current financial resources
Answer: C
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Page 4
Chapter 3: Budgetary Considerations in Governmental Accounting
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Sample Questions
Q1) The City of Kent's police department needs a new police car.A police car is ordered at an estimated cost of $34,000 and the appropriate budgetary control journal entry is made.When the car is received,the actual cost is $35,000.Which of the following is a part of the budgetary entry that should be made when the police car is received?
A)debit encumbrances for $34,000
B)credit encumbrances for $34,000
C)debit encumbrances for $35,000
D)credit encumbrances for $35,000
Answer: B
Q2) For a typical city government,the budget has an important influence on the determination of the annual A)income tax rate
B)hotel/motel tax rate
C)sales tax rate
D)property tax rate
Answer: D
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5
Chapter 4: The Governmental Fund Accounting Cycle
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Q1) 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
Q2) At the beginning of its fiscal year,the Town of Harmon estimates that its revenues for street maintenance activities are $100,000,and it appropriates $90,000 for street maintenance supplies.It currently has outstanding encumbrances for street maintenance supplies of $40,000 and has incurred expenditures for street maintenance supplies of $30,000.How much does the Town of Harmon currently have available to spend for street maintenance supplies?
A)$20,000
B)$30,000
C)$40,000
D)$50,000
E)$60,000
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Chapter 5: The Governmental Fund Accounting Cycle
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Q1) A town's garbage trucks accidentally sideswiped two parked automobiles in the year ended December 31,2013.One case was settled for $3,000,and the town expects to pay it in January 2014.In the other case,the claimant originally demanded $15,000.The town attorney thinks they can settle the claim for $10,000,but it probably will take two years to settle the case.What amount should the town report as a claims liability on the General Fund's December 31,2013 balance sheet?
A)$0
B)$3,000
C)$13,000
D)$18,000
Q2) A General Fund receives an invoice from the Electric Utility Fund (an Enterprise Fund)for electricity provided by the Utility Fund.When it receives the invoice,what account should be debited in the General Fund?
A)due from electric utility fund
B)transfer in from electric utility fund
C)expenditures - utility services
D)due to electric utility fund
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Page 7
Chapter 6: The Governmental Fund Accounting Cycle
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Q1) What kinds of expenditures are accounted for in Debt Service Funds?
A)only the principal payments on general obligation long-term debt
B)only the interest expenditures on general obligation long-term debt
C)both principal payments and interest expenditures on general obligation long-term debt
D)all debt service on all governmental debt,regardless of the purpose of the debt
Q2) Which of the following groups of accounts best describes the types of assets and liabilities likely to be found in Capital Projects Funds?
A)cash,investments,construction contract payable,matured bonds payable
B)cash,buildings,equipment,construction contracts payable
C)cash,investments,construction contracts payable,vouchers payable,long-term debt payable
D)cash,investments,retainage payable,vouchers payable
Q3) Retainage payable will most likely appear in which financial statement?
A)government-wide statement of net assets
B)capital projects fund balance sheet
C)debt service fund balance sheet
D)special revenue fund balance sheet
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Chapter 7: The Governmental Accounting Cycle
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Q1) Which basis of accounting is used by Enterprise Funds?
A)full accrual
B)modified accrual
C)cash
D)modified cash
Q2) In establishing prices for its services,which of the following practices is the least appropriate for an Internal Service Fund?
A)price at less than cost
B)price at cost only
C)price at cost plus an amount for anticipated inflation of equipment costs
D)price at cost plus an amount for depreciation of equipment purchased with a transfer of cash from the General Fund
Q3) A city's Water and Sewer Enterprise Fund should include which of the following components in its statement of net position?
A)only assets,liabilities,and net position
B)assets,deferred outflows,liabilities,deferred inflows,and net position
C)assets,deferred outflows,liabilities,deferred inflows,and retained earnings
D)assets,liabilities,and retained earnings
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9
Chapter 8: The Governmental Fund Accounting
Cycle--Fiduciary
Funds
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Q1) Assume a pension plan's actuarially-computed liabilities are greater than the actuarial value of the assets.How does this difference between assets and liabilities affect the actuarially determined contribution to the pension plan required for the following year?
A)It does not enter into the actuary's calculation if the actuarial value of plan assets exceeds their aggregate cost
B)It is not considered in establishing the required contribution,but it is disclosed in the schedule of funding progress
C)The entire amount of the unfunded actuarially accrued liability is included in the next year's required contribution to show "good faith" to retirees
D)A portion of the unfunded actuarial accrued liability is included in the next year's contribution by means of an amortization process
Q2) Which of the following characteristics is true of fiduciary funds?
A)they report assigned fund balances
B)their net assets are unavailable to finance government programs
C)they prepare statements of cash flows for external reporting
D)their net assets cannot have debit balances under any circumstances
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Page 10
Chapter 9: Reporting Principles and Preparation of Fund
Financial Statements
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Q1) Which of the following is one of the two basic criteria that makes a primary government financially accountable for a legally separate entity?
A)The primary government's chief executive appoints three of the entity's trustees.
B)The primary government appoints a voting majority of the entity's governing body.
C)A department of the primary government can make grants to the entity.
D)A department of the primary government is authorized to obtain and review the entity's financial statements.
Q2) Which basis of accounting must be used in presenting the "actual" column of the fund-level budgetary comparison schedules for the General Fund and major Special Revenue Funds?
A)the government's budgetary basis of accounting
B)the modified accrual basis of accounting
C)the full accrual basis of accounting
D)the cash basis of accounting
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Chapter 10: Government-Wide Financial Statements
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Q1) An Internal Service Fund (ISF)provided services to two agencies financed by the General Fund -- the Tax Department (which it billed $200,000)and the Comptroller's Office (which it billed $100,000).In the fund financial statements,the ISF reported a loss of $30,000.How should this information be reported in the government-wide statement of activities?
A)Under "business-type activities," in a separate line captioned ISF,revenues of $300,000,expenses of $330,000,and net expenses of ($30,000)should be reported
B)Under "governmental-type activities," in a separate line captioned ISF,revenues of$300,000,expenses of $330,000,and net expenses of ($30,000)should be reported
C)ISF activities should not be reported,but expenses reported for the Tax Department and the Comptroller's Office should be increased by $20,000 and $10,000,respectively
D)ISF activities should not be reported,but expenses reported for the Tax Department and the Comptroller's Office should be reduced by $20,000 and $10,000,respectively
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Chapter 11: Federal Government Accounting and Reporting
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Q1) What basis of accounting is used in the Statement of Net Costs prepared by a federal agency?
A)the budgetary basis
B)the accrual basis
C)the cash basis
D)the modified accrual basis
Q2) Which of the following does not account for the differences between budgetary resources used by a Federal agency and the agency's net cost of operations?
A)depreciation of equipment acquired in a previous year
B)requisitions for supplies needed but not ordered
C)supplies received during the year but not used
D)accrual of a liability that had not been funded
Q3) When a federal agency receives supplies that have been ordered previously,what kind of entry (or entries)is (or are)required?
A)both a budgetary and a proprietary entry
B)only a proprietary entry
C)only a budgetary entry
D)neither a budgetary nor a proprietary entry
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13
Chapter 12: Accounting for Not-For-Profit Organizations
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Q1) A not-for-profit organization uses fund accounting.Which of the following transactions is likely to be accounted for in a Restricted Current Fund?
A)a donation of $10,000 that may be used for any purpose designated by the trustees
B)a donation of $50,000 that must be used to purchase a new building
C)a donation of $500,000 that must be kept intact in perpetuity
D)a grant of $30,000 that must be used to operate a day-care center for one year
Q2) In response to a fund-raising campaign,an electric utility provides free electricity to a not-for-profit entity.How should the not-for-profit entity report this gift in its statement of activities?
A)It should not be reported in the statement.
B)It should not be reported on the face of the statement,but should be disclosed in the notes.
C)It should be reported at its fair value as a revenue and as an expense.
D)The entity may choose either to not report it or to report it at fair value as a revenue and as an expense.
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Chapter 13: Accounting for Health Care Organizations
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Q1) Catlett County Hospital,a governmental hospital,has its financial statement audit done by a local CPA firm.In 2012,the CPA firm announced that it would no longer charge for the audit.How is the County Hospital required to report the donated audit in 2013,assuming that it would have been billed $20,000 for the audit and that the cost incurred by the CPA firm is estimated at $11,000?
A)Report contribution revenue of $20,000 and audit fees of $11,000
B)Report contribution revenue of $0 and audit fees of $0
C)Report contribution revenue of $20,000 and audit fees of $20,000
D)Report contribution revenue of $11,000 and audit fees of $11,000.
Q2) Differences between a hospital's established rates and amounts negotiated with third-party payers are referred to as:
A)contractual adjustments
B)unrecovered costs
C)equity adjustments
D)restricted revenues
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Chapter 14: Analysis of Financial Statements and Financial Condition
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Sample Questions
Q1) What is Olde Towne's interest coverage?
A)2.0 times
B)3.0 times
C)4.0 times
D)5.0 times
Q2) You are calculating the quick ratio for the General Fund.The General Fund balance sheet contains the following captions: (1)cash; (2)cash equivalents; (3)taxes receivable; (4)inventory; (5)prepaid items;and (6)due from other funds.Which of these accounts will enter into the calculation?
A)(1)and (2)
B)(1), (2),and (3)
C)(1), (2), (3),and (6)
D)all six
Q3) Which of the following items should be excluded from the assets or liabilities when computing the quick ratio?
A)inventories
B)amount of long-term debt due in the following year
C)accounts payable
D)cash equivalents
Page 16
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Chapter 15: Fundamentals of Accounting
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Q1) Robert Plant invests $50,000 of his own money in a business.What journal entry should be made to record Robert's investment in the business?
A)debit cash (business);and credit cash (personal)
B)debit cash;and credit Robert Plant,capital
C)debit cash;and credit loans payable
D)debit Robert Plant,capital;and credit cash
Q2) Why would the accrual basis of accounting be preferable to the cash basis?
A)it is easier to keep records on the accrual basis than on the cash basis
B)it measures performance by comparing inflows and outflows of cash
C)it ignores the effect of the consumption of assets on the cost of doing business
D)it measures performance by comparing revenues earned with expenses incurred.
Q3) After you have closed an entity's books,what happens to the account balances?
A)all asset accounts will have zero balances
B)none of the accounts will have zero balances
C)all liability accounts will have zero balances
D)the revenue and expense accounts will have zero balances
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