Multiple-Choice Questions on Financial Reporting Issues for Government-wide and Fund-Based Financial Statements
Select the correct answer for each of the following questions.
1. Which of the following statements is correct?
I. In the government-wide financial statements, internal service fund activities are reported in the governmental activities column.
II. The total fund balance for the governmental funds that is reported on the governmental funds balance sheet will not equal the total net assets of governmental activities that is reported on the government-wide statement of net assets.
a. I only.
b. II only.
c. I and II.
d. Neither I nor II.
2. For the year ended June 30, 20X5, the internal service funds of Stanton Township reported an increase in net assets of $300,000 and ending net assets at June 30, 20X5, of $4,500,000. On the reconciliation of the balance sheet of the governmental funds to the statement of net assets as of June 30, 20X5, what amount should be added?
a. $300,000.
b. $4,200,000.
c. $4,500,000.
d. $4,800,000.
3. For the year ended June 30, 20X5, the enterprise funds of Stanton Township reported an increase in net assets of $300,000 and ending net assets at June 30, 20X5, of $4,500,000. The enterprise fund also reported net assets—unrestricted of $1,200,000 at June 30, 20X5, on its statement of net assets. On the reconciliation of the balance sheet of the governmental funds to the statement of net assets as of June 30, 20X5, what amount should be added?
a. $4,200,000.
b. $5,700,000.
c. $4,800,000.
d. $0.
4. Which of the following is true regarding permanent funds?
a. Permanent funds use modified accrual accounting.
b. The principal of permanent funds cannot be expended.
c. Dividend and interest income from permanent fund investments are used to benefit the government and its citizens.
d. All of the above.
Note: Use the information below to answer questions 5 through 7.
A water and sewer enterprise fund provided you with the following information for the year ended June 30, 20X5:
Customer receipts | $ 500,000 |
Dividends received from investments in common and preferred stock | 25,000 |
Proceeds from issuance of revenue bonds (used for plant construction) | 1,000,000 |
Proceeds of short-term notes (used to pay operating expenses) | 30,000 |
Capital grant received from state (used for wastewater plant addition) | 300,000 |
Paid interest on revenue bonds | 40,000 |
Paid interest on short-term notes | 1,000 |
Proceeds received from sale of Dell common stock | 20,000 |
Acquired investments in corporate bonds | 8,000 |
Made capital expenditures | 600,000 |
Operating expenses paid | 350,000 |
Depreciation expense for period | 50,000 |
Answer the following questions about the amounts reported on the statement of cash flows for the water and sewer enterprise fund.
5. What amount should be reported for cash flows provided by operating activities?
a. $150,000.
b. $175,000.
c. $134,000.
d. $100,000.
6. What amount should be reported for cash flows provided by investing activities?
a. $12,000.
b. $45,000.
c. $17,000.
d. $37,000.
7. What amount should be reported for cash flows provided by capital and related financing activities?
a. $700,000.
b. $360,000.
c. $660,000.
d. $400,000.
8. Mary Smith donated cash of $1,000,000 to Elizabeth City with the stipulation that the contribution be invested and that earnings from the investment be spent for salaries for the City’s symphony orchestra. The contribution was received on June 30, 20X4, and the cash received was invested in bonds on July 1, 20X4. The bonds were acquired at face value and pay interest at 6 percent on January 1 and July 1. At June 30, 20X5, the fair value of the bonds was $995,000. During the year ended June 30, 20X5, $20,000 was provided to the symphony orchestra to help pay salaries. On the statement of fiduciary net assets at June 30, 20X5, what would be the amount reported for net assets held in trust for the symphony orchestra?
a. $1,060,000.
b. $1,055,000.
c. $1,025,000.
d. $1,035,000.
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