GOVERNMENT AND NOT-FOR-PROFIT ACCOUNTING

90 MINS
(Choose 4 out of 6 questions)
Name:
ID:
Question 1: Choose the best answer
1. A characteristic of governments that is different from businesses
a. Expenditures are driven mainly by the ability of the entity to raise revenues
b. The amount of expenditures is independent of the amount of revenues collected
c. The amount of revenues collected is a signal of the demand for services
d. There may not be a direct relationship between revenues raised and the demand for
the entity’s services
2. Inter-period equity implies
a. Total tax revenues are approximately the same from year to year
a. b. Current‐year revenues are sufficient to pay for current‐year services
b. c. Taxes are distributed fairly among all taxpayers, regardless of income level
d. Current‐year revenues cover both operating and capital expenditures
3. A city issues $32 million of general obligation bonds to improve its central park. In
accordance with the bond covenants it committed $2 million to help ensure that it is able to
meet its first payment of principal and $500,000 for its first payment of interest. The amount
of liability that the city should report in its debt service fund is
a. $0 b. $29.5 million c. $30 million d. $32 million
4. A city receives a $10 million contribution. The donor stipulates that the money is to be
invested. The principal is to remain intact and the investment proceeds are to be used to
provide scholarships for the children of city employees. The city should report the
contribution in a:
a. Special revenue fund
b. Permanent fund
c. Fiduciary fund
d. Agency fund
5. A private school receives a donation of $14 million. The donor stipulates that the entire
amount must be used to construct a new athletic field house. The school should classify the
donation as
a. Unrestricted c. Permanently restricted
b. Temporarily restricted d. Semi‐restricted

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Question 2: True or False (getting them right)
1. Fund-basis statements are presented for three categories of government activities:
governmental, proprietary, and fiduciary.
2. The term “fiduciary funds” applies to enterprise, internal service, and private-
purpose trust funds.
3. Governmental funds use the economic resources measurement focus and accrual
basis of accounting.
4. The Enterprise Fund accounts for all resources other than those required to be
accounted for in other funds.
5. Internal Service Fund is used to account for the payment of principal and
interest of general long term debt of a government

Question 3: To enhance control over both revenues and expenditures, a government health
care district incorporates its budget in its accounting system and encumbers all commitments.
The district engaged in the following transactions in summary form during its fiscal year. All
amounts are in millions.
1. The governing board adopted a budget in which agency revenues were estimated at
$500 and expenditures of $495 were appropriated
2. It collected $520 in fees, grants, taxes, and other revenues.
3. It ordered goods and services for $250. Except in special circumstances it classifies
reserves for encumbrances as “assigned” fund balance.
4. It received and paid for $200 worth of goods and services that had been previously
encumbered. It expects to receive the remaining $50 in the following year.
5. It incurred $300 in other expenditures for goods and services that had not been
encumbered.
Instructions:
a. Prepare appropriate journal entries.
b. Prepare appropriate year‐end closing entries.

Question 4: The following account shows the amounts related to general purpose supplies
that a city debited and credited to the indicated accounts during a year (not necessarily the
year‐end balances), excluding closing entries. The organization records its budget, encumbers
all its expenditures, and initially vouchers all payments. The city began the year with $5,000
of supplies in inventory and ended the year with $7,000.
Vouchers
Cash Inventory payable Appropriators Encumbrances
0 80 ? 0 ? ? 0 110 ? ?

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 Reserve for Unassigned Nonspendable
Expenditures encumbrances fund balance fund balance

60 0 60 95 0 ? 0 ?

Instructions
a. By reconstructing the entries that the organization made during the year, you are to
determine the missing data assuming that the city uses the purchases method
b. By reconstructing the entries that the organization made during the year, you are to
determine the missing data assuming that the city uses the consumption method

Question 5: At the beginning of its fiscal year on July1, York County reported the Fund
balance as follow (all dollar amounts in thousands):
Unassigned Committed for Fund balance
encumbrances
$300 $200 $500
During the year:
1. It estimated that revenues for the year would be $7,000.
2. It appropriated $6,800 for operations.
3. It received and used all goods that it ordered in the previous year. Actual cost was
$190
4. It recognized actual revenues of $7,200.
5. It ordered goods and services estimated to cost $5,200. Of these, the county
received and used goods and services that it had estimated would cost $5,000.
Actual cost, however, was $5,100.
Instructions:
1. Show how the unassigned fund balance change during the year.
2. Show how the total Fund balance would be displayed at year‐end
Question 6 The newly formed district engaged in the following transactions
- To purchase a new Council office building, it issued $10 million in bonds. The
proceeds were recorded in a capital projects fund.
- The building was acquired for $10 million.
- Depreciation on municipal vehicles was recognized for $100,000.
- It transferred $1,150,000 from the general fund to a debt service fund.
- It paid $1 million of principal on a long-term debt and alsopaid $150,000 in interest
on the same long-term debt

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 - It sold an old building for $6 million which had been acquired for $4 million and
depreciated for $200,000. The proceeds were recorded in the general fund.
Instructions
a. For each of the transactions, prepare journal entries to record them in appropriate
governmental funds
b. Prepare journal entries to reflect how the transactions would be reflected in
government-wide statements