Exam 7: Accounting for the Business-Type Activities of State and Local Governments

Public utilities owned and operated by governments are the most common examples of enterprise funds.

To facilitate the combination of utility financial statements with the statements of other enterprise funds,GAAP permits utilities to follow the customary format used by nonutility business organizations.

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.

The Encumbrances account should be used by an internal service fund in the same manner as by the General Fund.

In order to conform to GASB standards,goods and services provided by internal service funds to other departments of the government must be priced to

"Reporting 'utility plant in service' as a single line on the balance sheet provides adequate information for regulatory purposes and/or sound management." Do you agree with the statement? Explain why or why not.

Internal service funds should be used only if

The Supplies Fund,an internal service fund,of a certain city recorded the following journal entry:

Depreciation of general capital assets is not recorded in the accounts of any of the governmental funds.If a building is transferred from the General Fund to an internal service fund because the character of its use changes,should the internal service fund record building depreciation expense each year after the transfer? Explain.

Which of the following would be reflected in the operating statement of a proprietary fund?

Which of the following accounts would least likely be found in the general ledger of an internal service fund?

An internal service fund can be liquidated only if there is a ready and willing buyer for the fund's assets.

Internal service funds should account for operating expenditures on the accrual basis.

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.

Internal service funds account within the fund for any long-term liabilities to be serviced from revenue derived from fund operations.

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.

The following are key terms in Chapter 7 that relate accounting for the business-type activities of state and local governments: A.Customer advances for construction B.Revenue bonds C.Utility plant acquisition adjustment D.Regulatory accounting principles E.Original cost F.Historical cost G.General obligation bonds For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

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.

In which of the following funds is it appropriate to record depreciation of capital assets?

Which of the following is not a true statement about the Allowance for Funds Used During Construction (AFUDC)?