Package Title: Test Bank Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 18

Question Type: Multiple Choice

1) The highest level of priority of pronouncements that a government entity should look to for accounting
and reporting guidance is:

a) GASB Technical Bulletins.

b) GASB Concepts Statements.
c) AICPA Industry Accounting Guides.
d) GASB Statements.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 01

Difficulty: Easy
Learning Objective: 1 Identify the issues involved in developing standards for nonprofit organizations.
Section Reference: 18.1

2) Which of the following funds would account for operations that are financed and operated in a manner
similar to private business enterprises?

a) Debt Service Fund

b) Enterprise Fund
c) Internal Service Fund
d) Special Revenue Fund

Answer: b

Question Title: Test Bank (Multiple Choice) Question 02

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

3) All of the following are Governmental (Expendable) Fund Entities EXCEPT the:

a) Capital Projects Fund.

b) Debt Service Fund.
c) Internal Service Fund.
d) Special Revenue Fund.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 03

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities.
Section Reference: 18.2

4) The activities of a municipal airport should be accounted for in the:

a) General Fund.
b) Internal Service Fund.
c) Special Revenue Fund.
d) Enterprise Fund.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 04

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

5) Fixed assets and noncurrent liabilities are accounted for in the records of:

a) governmental funds
b) expendable funds
c) proprietary funds
d) both governmental and expendable funds.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 05

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

6) The liability for general obligation long-term debt is reported in the:

a) Debt Service Fund.

b) Capital Projects Fund.
c) Enterprise Fund.
d) none of these.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 06

Difficulty: Medium
Learning Objective: 8 Describe where capital assets and long-term obligations are reported in government
financial statements.
Section Reference: 18.6
7) The activities of a central computer facility should be accounted for in the:

a) General Fund.
b) Internal Service Fund.
c) Enterprise Fund.
d) Capital Projects Fund.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 07

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

8) Internal Service Fund billings to government departments for services rendered is an example of
interfund:

a) reimbursements.
b) transfers.
c) services provided and used.
d) loans.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 08

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

9) A nonrecurring contribution from the General Fund to the Enterprise Fund is an example of an interfund:

a) reimbursement.
b) transfer.
c) services provided and used.
d) loan.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 09

Difficulty: Easy
Learning Objective: 11 Describe the types of interfund activities.
Section Reference: 18.11
10) For state and local government units, the full accrual basis of accounting should be used for what type of
fund?

a) Special revenue
b) General
c) Debt service
d) Internal service

Answer: d

Question Title: Test Bank (Multiple Choice) Question 10

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

11) Encumbrances would NOT appear in which fund?

a) General
b) Enterprise
c) Capital projects
d) Special revenue

Answer: b

Question Title: Test Bank (Multiple Choice) Question 11

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

12) Which type of fund can be either expendable or nonexpendable?

a) Debt service
b) Enterprise
c) Trust
d) Special revenues

Answer: c

Question Title: Test Bank (Multiple Choice) Question 12

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 6 Explain the use of a
permanent fund.
Section Reference: 18.2, 18.5

13) Which of the following funds frequently does NOT have a fund balance?
a) General fund
b) Agency fund
c) Special revenue fund
d) Capital projects fund

Answer: b

Question Title: Test Bank (Multiple Choice) Question 13

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.5

14) A city should record depreciation as an expense in its:

a) general fund and enterprise fund.

b) internal service fund and general fund.
c) enterprise fund and internal service fund.
d) enterprise fund and capital projects fund.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 14

Difficulty: Easy
Learning Objective: 2 Describe the broad categories of government fund entities., 7 Distinguish proprietary
funds from government funds.
Section Reference: 18.2, 18.4

15) Part of the general obligation bond proceeds from a new issuance was used to pay for the cost of a new
city hall as soon as construction was completed. The remainder of the proceeds was transferred to repay the
debt. Entries are needed to record these transactions in the:

a) general fund and capital projects fund.

b) general fund and debt-service fund.
c) trust fund and debt-service fund.
d) debt-service fund and capital projects fund.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 15

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 4 Explain the use of a
capital projects fund., 5 Describe the purpose of a debt service fund.
Section Reference: 18.2, 18.3

16) One of the differences between accounting for a governmental unit and a commercial unit is that a
governmental unit should:
a) not record depreciation expense in any of its funds.
b) always establish and maintain complete self-balancing accounts for each fund.
c) use only the cash basis of accounting.
d) use only the modified accrual basis of accounting.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 16

Difficulty: Easy
Learning Objective: 1 Identify the issues involved in developing standards for nonprofit organizations., 2
Describe the broad categories of government fund entities.
Section Reference: 18.1, 18.2

17) When a truck is received by a governmental unit, it should be recorded in the General Fund as a(n):

a) appropriation.
b) encumbrance.
c) expenditure.
d) fixed asset.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 17

Difficulty: Easy
Learning Objective: 1 Identify the issues involved in developing standards for nonprofit organizations., 2
Describe the broad categories of government fund entities.
Section Reference: 18.1, 18.2

18) Which of the following should be accrued as revenues by the general fund of a local government?

a) Sales tax held by the state which will be remitted to the local government:
b) Parking meter revenues
c) Sales tax collected by merchants
d) Income taxes currently due

Answer: a

Question Title: Test Bank (Multiple Choice) Question 18

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund.
Section Reference: 18.2, 18.3

19) Which of the following funds of a governmental unit recognizes revenues and expenditures under the
same basis of accounting as the general fund?

a) Debt service
b) Enterprise
c) Internal service
d) Nonexpendable trust

Answer: a

Question Title: Test Bank (Multiple Choice) Question 19

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund.
Section Reference: 18.2, 18.3

20) Repayments from the funds responsible for a particular expenditure to the funds that initially paid for
them are interfund:

a) loans.
b) services provided and used.
c) transfers.
d) reimbursements.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 20

Difficulty: Easy
Learning Objective: 11 Describe the types of interfund activities.
Section Reference: 18.11

21) It is proper to recognize revenues or expenditures resulting from which of the following classifications
of interfund activity?

a) Interfund loans and interfund transfers

b) Interfund services provided/used and interfund reimbursements
c) Interfund reimbursements and interfund loans
d) Interfund services provided/used and interfund transfers

Answer: b

Question Title: Test Bank (Multiple Choice) Question 21

Difficulty: Medium
Learning Objective: 11 Describe the types of interfund activities.
Section Reference: 18.11

22) Revenues of a special revenue fund of a governmental unit should be recognized in the period in which
the:

a) revenues become available and measurable.

b) revenues become available and appropriated.
c) revenues are billable.
d) cash is received.
Answer: a

Question Title: Test Bank (Multiple Choice) Question 22

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund.
Section Reference: 18.2, 18.3

23) What is the underlying reason a governmental unit uses separate funds to account for its transactions?

a) Governmental units are so large that it would be unduly cumbersome to account for all transactions as a
single unit.
b) Because of the diverse nature of the services offered and legal provisions regarding activities of a
governmental unit, it is necessary to segregate activities by functional nature.
c) Generally accepted accounting principles require that nonbusiness entities report on a funds basis.
d) Many activities carried on by governmental units are short-lived and their inclusion in a general set of
accounts could cause undue probability of error and omission.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 23

Difficulty: Easy
Learning Objective: 1 Identify the issues involved in developing standards for nonprofit organizations., 2
Describe the broad categories of government fund entities.
Section Reference: 18.1, 18.2

24) Which of the following is NOT a budgetary account?

a) Appropriations
b) Estimated Revenues
c) Encumbrances
d) Reserve for Encumbrances

Answer: d

Question Title: Test Bank (Multiple Choice) Question 24

Difficulty: Hard
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund.
Section Reference: 18.3

25) An interfund transfer should be reported in a governmental fund operating statement as a(n):

a) due from (to) other funds

b) other financing source (use)
c) revenue or expenditure
d) none of these
Answer: b

Question Title: Test Bank (Multiple Choice) Question 25

Difficulty: Medium
Learning Objective: 11 Describe the types of interfund activities.
Section Reference: 18.8, 18.11

Question Type: Essay

26) There are eleven categories of government fund entities that fall under three subheadings. What are the
subheadings of government fund entities? What are the main characteristics that set these three subheadings
apart?

Answer: Governmental funds report on current period resources and focus on inflows, outflows, and
unexpended financial resources. They are designed to determine compliance with legal provisions
specifying how revenues are raised and resources spent.

Proprietary funds are used to account for the business-type activities of the government. The reporting
focused on the determination of operating income, changes in net assets, financial position, and cash flows.

Fiduciary funds account for assets held by the government for others and these funds cannot be used to
support the government’s own programs. The reporting focuses on net assets and changes in net assets.

Question Title: Test Bank (Essay) Question 26

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities.
Section Reference: 18.2

27) GASB Statement No. 34 specifies how governments report capital assets. Describe where capital assets
are reported in government financial statements.

Answer: All capital assets should be reported in the government-wide statement of net assets. Schedules of
capital assets are required to be presented.

Question Title: Test Bank (Essay) Question 27

Difficulty: Easy
Learning Objective: 8 Describe where capital assets and long-term obligations are reported in government
financial statements.
Section Reference: 18.7

28) During 2013, the City of Atlantis started a street paving project. The project is being financed by the
proceeds from the issue of five-year, 6% special assessment bonds payable at a face value of $3,000,000.
The bonds were issued July 1, 2013 at their par value. One-fifth of the principal plus interest is payable on
June 30 of each year beginning June 30, 2014. Property owners are assessed to provide the funds to pay the
principal and interest on the debt.

The following transactions occurred during 2013 and 2014:

1. The bonds for the paving of the streets were issued.

2. The street paving was completed at a cost of $3,000,000.

3. Property owners were assessed and billed for the first installment of principal and interest on the special
assessment debt.

4. Assessments for the first installment of principal and interest on the special assessment debt were
collected. The June 30, 2014, payment of principal and interest was made.

Required:
Prepare all journal entries for the preceding transactions that are necessary for the City of Atlantis assuming:

A. The City of Atlantis has not obligated itself in any manner to the holders of the special assessment bonds.

B. The City of Atlantis has made a commitment to the holders of the special assessment bonds to assure the
full payment of principal and interest on the due dates.

Answer:
A.
1. Capital Projects Fund
Cash 3,000,000
Contribution from Property Owners 3,000,000

2. Capital Projects Fund

Expenditures 3,000,000
Cash 3,000,000

3. No Entry Necessary

4. Agency Fund
Cash [(3,000,000/5) + (3,000,000 × .06)] 780,000
Amount Held for Debt Service 780,000

Amount Held for Debt Service 780,000

Cash 780,000

B.
1. Capital Projects Fund
Cash 3,000,000
Term Bond Payable 3,000,000

2. Capital Projects Fund

Expenditures 3,000,000
Cash 3,000,000

3. Debt Service Fund

 Special Assessment Receivable 780,000
Special Assessment Revenue 780,000
[(3,000,000/5) + (3,000,000 × .06)]

4. Debt Service Fund

Cash 780,000
Special Assessment Receivable 780,000

Expenditures – Principal 600,000

Expenditures – Interest 180,000
Cash 780,000

Question Title: Test Bank (Problem) Question 18-1

Difficulty: Hard
Learning Objective: 4 Explain the use of a capital projects fund., 5 Describe the purpose of a debt service
fund.
Section Reference: 18.3

29) The following activities and transactions are typical of those which may affect the various funds used by
a municipal government.

Required:
Prepare journal entries to record each transaction and identify the fund in which each entry is recorded.

1. The Sparta City Council passed a resolution approving a general operating budget of $6,800,000 for the
fiscal year. Total revenues are estimated at $5,800,000.

2. The Sparta City Council passed an ordinance providing a property tax levy of $3.50 per $100 of assessed
valuation for the fiscal year. Total property valuation in Sparta City is $320,000,000. Property is assessed at
30% of current property valuation. Property tax bills are mailed to property owners. An estimated 5% will
be uncollectible.

3. Sparta City sold a general obligation term bond issue for $1,000,000 at 104 to a major brokerage firm.
The stated interest rate is 10%. Construction of a new Municipal Courts Building will be financed by the
bond issue proceeds.

4. The premium on bond sale in (3) above is transferred to the Debt Service Fund.

5. At the end of fiscal year, the Sparta City Council approves the write-off of $55,000 of uncollected taxes
because of inability to locate the property owners.

6. The Sparta City Municipal Courts Building (3 above) is completed. Contracts and expenses total
$1,190,000, and all have been paid and recorded in the Capital Projects Fund. Prepare entries to close this
project and record the completion of the project in all other funds and/or account groups affected. Any
balance in the Capital Projects Fund is to be applied to payment of interest and principal of the bond issue.

7. On March 1, Sparta City issued 10% serial bonds at par to finance streetlights in an area recently
incorporated in the city limits. The face amount of the bonds is $900,000; interest is payable annually, and
bonds are to be retired in equal amounts over 6 years from collections from assessments against property
affected. In case of default by the property owners, the bond principal will be paid by the city.
a. Record the issuance of the bonds on March 1 of the current year.
b. Record the payment to bondholders on March 1 of the next year.

8. The street lighting project in (7) above was completed on September 30 at a total cost of $840,000.
Record summary entries for expenditure transactions from March 1 - September 30, and on completion of
the project.

Answer:
1. General Fund:
Estimated Revenue 5,800,000
Unreserved Fund Balance 1,000,000
Appropriations 6,800,000

2. General Fund:
Property Tax Receivable 3,360,000
Allowance for Uncollectible Taxes 168,000
Revenue 3,192,000

3. Capital Projects Fund:

Cash 1,040,000
Term Bond Payable 1,000,000
Premium on Bond Payable 40,000

4. Capital Projects Fund:

Transfer to Debt Service Fund 40,000
Cash 40,000

Debt Service Fund:

Cash 40,000
Transfer from Capital Projects Fund 40,000

5. General Fund:
Allowance for Uncollectible Taxes 55,000
Property Tax Receivable 55,000

6. Capital Assets:
Buildings 1,190,000
Cash 1,190,000

Capital Projects Fund:

Transfer to Debt Service Fund 10,000
Cash 10,000

Debt Service Fund:

Cash 10,000
Transfer from Capital Projects Fund 10,000
 7. Capital Projects Fund:
Cash 900,000
Term Bond Payable 900,000

Debt Service Fund:

Expenditures – Principal 150,000
Expenditures – Interest 90,000
Cash 240,000

8. Capital Projects Fund:

Expenditures 840,000
Vouchers Payable/Cash 840,000

Fund Balance 840,000

Expenditures 840,000

Question Title: Test Bank (Problem) Question 18-2

Difficulty: Hard
Learning Objective: 3 Distinguish between a general fund and a special revenue fund., 4 Explain the use of a
capital projects fund., 5 Describe the purpose of a debt service fund.
Section Reference: 18.3

30) Prepare entries, in general journal form, to record the following transactions in the proper fund(s) and/or
account group(s). Designate the fund or account group in which each entry is recorded.

1. Bond proceeds of $2,000,000 were received to be used in constructing a new City Jail. An equal amount
is contributed from general revenues.

2. Serial bonds in the amount of $300,000 matured. Interest of $75,000 was paid on these and other serial
bonds outstanding.

3. Insurance proceeds amounting to $19,000 were received as a result of the accidental destruction of a
garbage truck costing $33,000. Accumulated depreciation on the truck was $21,000.

4. The City Parks Endowment Fund transferred $160,000 in expendable funds to the City Parks Special
Revenue Fund.

5. Proceeds of $21,000 were received from the sale of equipment which had been purchased from general
revenues at a cost of $100,000. Accumulated depreciation on the equipment was $75,000.

6. The City Power Company (an enterprise fund) issued a bill for $400,000 for electricity provided to
municipal government buildings.

7. The City Power Company transferred excess funds of $90,000 to the General Fund.
8. A central data processing center was established by a contribution of $400,000 from the General Fund, a
long-term loan of $130,000 from the City Parks Special Revenue Fund, and general obligation bond
proceeds of $180,000.

9. The Data Processing Fund billed the General Fund $20,000 and the City Parks Special Revenue Fund
$8,500 for data processing services.

10. The City Power Company received $7,000 as customer deposits during the year. The monies are to be
held in trust until customers request that their services be discontinued and final bills are collected.

11. In order to retire general obligation term bonds when they become due, it is determined that the Debt
Service Fund will require annual contributions of $40,000 and earnings in the current year of $3,000.

Answer:
1. Capital Projects Fund:
Cash 4,000,000
Term Bond Payable 2,000,000
Transfer from General Fund 2,000,000

General Fund:
Transfer to Capital Projects Fund 2,000,000
Cash 2,000,000

2. Debt Service Fund:

Expenditures 375,000
Cash 375,000

3. General Fund:
Cash 19,000
Revenue 19,000

Capital Assets
Cash 19,000
Accumulated Depreciation 21,000
Gain on Sale 7,000
Vehicles 33,000

4. Trust Fund:
Transfer to Special Revenue Fund 160,000
Cash 160,000

Special Revenue Fund:

Cash 160,000
Transfer from Trust Fund 160,000

5. General Fund:
Cash 21,000
Revenue 21,000

Capital Assets:
Cash 21,000
 Accumulated Depreciation 75,000
Loss on Sale 4,000
Machinery and Equipment 100,000

6. Enterprise Fund:
Due from General Fund 400,000
Revenue 400,000

General Fund:
Expenditures 400,000
Due to Enterprise Fund 400,000

7. Enterprise Fund:
Transfer to General Fund 90,000
Cash 90,000

General Fund:
Cash 90,000
Transfer from Enterprise Fund 90,000

8. Internal Service Fund:

Cash 710,000
Contribution from General Fund 400,000
Due to City Parks Fund 130,000
Contributions from General Obligation Bonds 180,000

General Fund:
Transfer to Internal Service Fund 400,000
Cash 400,000

Special Revenue Fund:

Due from Internal Service Fund 130,000
Cash 130,000

9. Internal Service Fund:

Due from General Fund 20,000
Due from Special Revenue Fund 8,500
Revenue 28,500

General Fund:
Expenditures 20,000
Due to Internal Service Fund 20,000

Special Revenue Fund:

Expenditures 8,500
Due to Internal Service Fund 8,500

10. Agency Fund:

Cash 7,000
Customer Deposit Agency Fund Balance 7,000
 11. Debt Service Fund:
Required Additions 40,000
Required Earnings 3,000
Fund Balance 43,000

Question Title: Test Bank (Problem) Question 18-3

Difficulty: Hard
Learning Objective: 4 Explain the use of a capital projects fund., 5 Describe the purpose of a debt service
fund.
Section Reference: 18.3

31) The general fund trial balance for Model City held the following balances at June 30, 2014, just before
closing entries were made:

Unreserved Fund Balance $ 2,000

Estimated Revenues 33,000
Revenues 27,250
Appropriations 28,000
Expenditures 26,200
Expenditures-Prior Year 1,200
Encumbrances 3,000
Operating Transfers In 6,000
Reserve for Encumbrances 3,000
Reserve for Encumbrances – Prior Year 1,500

Required:
Prepare the necessary closing entries.

Answer:
Appropriations 28,000
Unreserved Fund Balance 5,000
Estimated Revenues 33,000

Revenues 27,250
Operating Transfers In 6,000
Expenditures 26,200
Encumbrances 3,000
Unreserved Fund Balance 4,050

Reserve for Encumbrances – Prior Year 1,500

Expenditures – Prior Year 1,500

Question Title: Test Bank (Problem) Question 18-4

Difficulty: Medium
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund.
Section Reference: 18.3
32) The following schedule of capital assets was prepared for Johnson County.

Government Activities Beg. Balance Additions Retirements Ending Balance

Total Capital Assets $850,000 250,000 (185,000) $915,000
Less: Accumulated ( 500,000) ( 50,000) 150,000 ( 400,000)
Depreciation
Net Capital Assets $350,000 $200,000 ( 35,000) $515,000

All capital asset acquisitions were made in the capital projects fund and paid in cash. An asset was sold by
the general fund for $40,000 cash.

Required:
Determine how the above information will be reflected on each of the following statements for the year
2014.
A. The governmental funds’ statement of revenues, expenditures, and changes in fund balances. List the
governmental fund and then list the dollar amount within the appropriate heading on the statement (such as
Revenues, Expenditures, or Other Financing Sources (Uses)).

B. The government-wide statement of net assets.

C. The government-wide statement of activities.

Answer:

A. Governmental Funds
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended December 31, 2014

Capital Debt Total

General Projects Service Governmental
Fund Fund Fund Funds

Revenues

Expenditures
Expenditure (250,000) (250,000)

Other Financing Sources (Uses)

Special Items
Revenue from asset sale 40,000 40,000

B.
Government-wide
Statement of Activities
For the Year Ended December 31, 2014

Depreciation expense (50,000)

Gain on sale 5,000
 C.
Government-wide
Statement of Net Assets
December 31, 2014

Capital Assets 915,000

Accumulated Depreciation (400,000)
Net Capital Assets $515,000

Question Title: Test Bank (Problem) Question 18-5

Difficulty: Medium
Learning Objective: 9 Describe the changes in reporting requirements under GASB Statement No. 34.
Section Reference: 18.9

33) The following events take place:

1. Interest payments in the amount of $20,000 that are the responsibility of the Debt Service
Fund are paid by the General Fund.
2. The Internal Service Fund bills the Special Revenue Fund $25,000 for services performed.
3. The Special Revenue Fund transfers $10,000 to the Internal Service Fund as a temporary loan.
4. The General Fund transfers $150,000 to start an Internal Service Fund.

Required:
Identify the interfund activity as a loan, services provided and used, interfund transfer, or interfund
reimbursement and prepare entries in general journal form to record the transactions on the records of the
fund involved.

Answer:
1. Interfund Reimbursement

General Fund
Due From Debt Service Fund 20,000
Expenditures 20,000

Debt Service Fund

Expenditures 20,000
Due to General Fund 20,000

2. Interfund service provided and used

Internal Service Fund

Due From Special Revenue Fund 25,000
Revenue 25,000

Special Revenue Fund

Expenditures 25,000
Due to Internal Service Fund 25,000
3. Interfund loan

Special Revenue Fund

Due From Internal Service Fund 10,000
Cash 10,000

Internal Service Fund

Cash 10,000
Due to Special Revenue Fund 10,000

4. Interfund Transfer

General Fund
Transfer to Internal Service Fund 150,000
Cash 150,000

Internal Service Fund

Cash 150,000
Contributions from General Fund 150,000

Question Title: Test Bank (Problem) Question 18-6

Difficulty: Medium
Learning Objective: 11 Describe the types of interfund activities.
Section Reference: 18.11

34) The following transactions take place:

1. On January 1, the city issued 9% general obligation bonds with a face value of $4,000,000
payable in 10 years to finance the construction of city offices. Total proceeds were
$4,500,000.
2. On December 20, construction was completed and occupancy taken of the city offices. The
full cost of $3,900,000 was paid to the contractor, and appropriate closing entries were made
with regard to the project.
3. The General Fund repaid the Special Revenue Fund a loan of $15,000 plus $900 in interest on
the loan.

Required:
Prepare entries in general journal form to record these transactions in the proper fund(s). Designate the fund
in which each entry is recorded.

Answer:
1. Capital Projects Fund
Cash 4,500,000
Term Bond Payable 4,000,000
Premium on Bond Payable 500,000

Transfer to Debt Service Fund 500,000

Cash 500,000
 Debt Service Fund
Cash 500,000
Transfer From Capital Projects Fund 500,000

2. Capital Projects Fund

Expenditures 3,900,000
Cash 3,900,000

Bond Issue Proceeds 4,500,000

Expenditures 3,900,000
Transfer to Debt Service Fund 500,000
Unreserved Fund Balance 100,000

Transfer to Debt Service Fund 100,000

Cash 100,000

Unreserved Fund Balance 100,000

Transfer to Debt Service Fund 100,000

Debt Service Fund

Cash 100,000
Transfer from Capital Projects Fund 100,000

Capital Assets
Buildings 3,900,000
Cash 3,900,000

3. General Fund
Due to Special Revenue Fund 15,000
Expenditures 900
Cash 15,900

Special Revenue Fund

Cash 15,900
Due From General Fund 15,000
Revenue 900

Question Title: Test Bank (Problem) Question 18-7

Difficulty: Hard
Learning Objective: 2 Describe the broad categories of government fund entities., 3 Distinguish between a
general fund and a special revenue fund., 4 Explain the use of a capital projects fund., 5 Describe the
purpose of a debt service fund.
Section Reference: 18.3