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Chapter 5

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State & Local Govt - Capital Assets and Capital Projects

Question 1 of 29

1

Under a service concession arrangement,

Select one of the following:

  • The transferring government continues to report the transferred asset as a capital asset and any related contractual obligations as liabilities.

  • The operating government will record the transferring government's payment or receivable, a liability for the present value of significant contractual obligations and a corresponding deferred inflow of resources for the difference between the two.

  • Any deferred inflow is recognized as revenue at the time the arrangement takes place.

  • All of the statements are true.

Explanation

Question 2 of 29

1

During the year, a wealthy local merchant donated a building to the city of Pasedena. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The appraised fair market value of the donation at the date of the gift was $600,000, of which $40,000 was the value of the land on which the building was situated. At what amount should Rosewood record this donated property in the General Fund?

Select one of the following:

  • $50,000.

  • $300,000.

  • $600,000.

  • $0.

Explanation

Question 3 of 29

1

Equipment in general governmental service that had been acquired several years ago by a special revenue fund at a cost of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at the time of the sale. The journal entry to be made in the governmental activities journal will include all of the following except

Select one of the following:

  • A debit to Cash for $15,000.

  • A debit to Accumulated Depreciation for $30,000.

  • A credit to Equipment for $40,000.

  • A credit to Other Financing Sources for $5,000.

Explanation

Question 4 of 29

1

How should a capital lease for a general capital asset be recorded in the General Fund accounts at the inception of the lease?

Select one of the following:

  • Debit to a capital asset account.

  • Debit to a capital expense/expenditure account.

  • Credit to Capital Lease Obligations Payable.

  • Both Debit to a capital asset account and Credit to Capital Lease Obligations Payable.

Explanation

Question 5 of 29

1

A government enters into a capital lease for the purchase of a new fire truck. The present value of the future lease payments is $745,500 and there is a down payment at the inception of the lease of $25,000. The fire truck should be recorded in the governmental activities accounts at

Select one of the following:

  • $25,000.

  • $770,500.

  • $745,500.

  • $0.

Explanation

Question 6 of 29

1

In 2014, Canon City signed a contract in the amount of $6,000,000 for the construction of a new city hall. Expenditures were $4,000,000 in 2014 and $2,050,000 in 2015, which included a change to the original construction design in the amount of $50,000. What amount should be added to net capital assets in the governmental activities accounts in 2015?

Select one of the following:

  • $6,000,000

  • $6,050,000

  • $2,050,000

  • $2,000,000

Explanation

Question 7 of 29

1

Interfund transfers from the General Fund to the capital projects fund to provide partial financing of a capital project would be reported by the capital projects fund as a(an)

Select one of the following:

  • Fund balance addition.

  • Revenue.

  • Other financing source.

  • Current liability.

Explanation

Question 8 of 29

1

Which of the following activities or transactions would normally not be accounted for in a capital projects fund?

Select one of the following:

  • Construction of a new city jail.

  • Construction of airport runways financed by revenue bonds and to be repaid from the revenues of the city airport, an enterprise fund.

  • Lease of a building to be used as a city office building.

  • Construction of a new city park to be maintained primarily from General Fund revenues.

Explanation

Question 9 of 29

1

In late June, the Buildit Construction Co. submitted a $600,000 progress billing on a construction contract. On July 2, the bill was approved for payment, subject to a five percent retention, as provided by the contract. Construction expenditures should be debited when

Select one of the following:

  • The bill is approved for payment.

  • The bill is received.

  • The bill is paid (except for the five percent retention).

  • The final five percent of the bill is paid.

Explanation

Question 10 of 29

1

Which of the following is one of the requirements that must be met to elect the "modified approach" to reporting certain eligible infrastructure assets?

Select one of the following:

  • The government omits the cost of the assets from the government-wide statement of net assets.

  • The government maintains the assets at a condition level equal to or greater than 75 percent of the condition of a new asset.

  • The government manages the assets using an asset management system that meets specific criteria.

  • The government gets the permission of the Government Accounting Standards Board.

Explanation

Question 11 of 29

1

Which of the following would be reported as a general capital asset?

Select one of the following:

  • A garbage truck purchased and used by the city's Solid Waste Disposal Fund, an enterprise fund.

  • An off-set printer purchased and used by the city's Central Duplicating Fund, an internal service fund.

  • A computer purchased and used by the Finance Department, a function of the General Fund.

  • All of the statements are general capital assets.

Explanation

Question 12 of 29

1

The Village of Jonesburg had the following General Fund capital outlay expenditures during its current fiscal year:

Police cruiser for Police Department $47,000
Personal computer for Village Clerk's Office $ 3,000

Assuming these were the only capital outlays for the fiscal year, the amount to be reported as capital assets on the Village's General Fund balance sheet at the end of the current fiscal year is:

Select one of the following:

  • $50,000.

  • $47,000.

  • $3,000.

  • $0.

Explanation

Question 13 of 29

1

Which of the following would not be reported as a general capital asset?

Select one of the following:

  • Water rights acquired by the state's Department of Conservation, a function of the General Fund.

  • The inventory of asphalt held by the city's Street Maintenance Department, a function of the General Fund.

  • A new bridge constructed by the county and maintained by the Public Works Department, a function of the General Fund.

  • The sculptures of an internationally known local artist purchased by the mayor's office, a function of the General Fund, for display in city hall.

Explanation

Question 14 of 29

1

Which of the following is a required disclosure regarding capital assets?

Select one of the following:

  • Capital assets that are not being depreciated should be reported separately from those that are being depreciated.

  • Depreciation expense for the year with disclosure of the amounts charged to each function on the statement of activities.

  • An explanation concerning major changes in a capital asset category during the year.

  • Both Capital assets that are not being depreciated should be reported separately from those that are being depreciated and Depreciation expense for the year with disclosure of the amounts charged to each function on the statement of activities are required disclosures.

Explanation

Question 15 of 29

1

State and local governments can avoid reporting depreciation on infrastructure assets if they use the modified approach and meet which of the following two requirements?

Select one of the following:

  • (1) Manage the eligible infrastructure assets using an asset management system that includes (a) an up-to-date inventory, (b) condition assessment and results using a measurement scale, and (c) estimates of the amount needed to maintain and preserve assets at the condition level established. (2) Document that the eligible assets are being preserved at or above the condition level established.

  • (1) File a "Declaration of Intent to Follow the Modified Approach" with the GASB. (2) Agree in writing to maintain infrastructure assets at a high condition level.

  • (1) Agree in writing to maintain infrastructure assets at a high condition level. (2) Document that the assets are, in fact, being maintained at the high condition level established.

  • None of the statements are correct. A government cannot avoid reporting depreciation on infrastructure assets, even if it adopts the modified approach.

Explanation

Question 16 of 29

1

Elm City sold a truck for $5,000 that had an original cost of $32,000. Accumulated depreciation on the truck, which had been used by the Parks and Recreation Department, amounted to $28,000 at the date of the sale. The journal entries to record this transaction will include a (an):

Select one of the following:

  • Debit to Cash for $5,000 in the General Fund journal only.

  • Credit to Other Financing Sources—Proceeds of Sales of Assets for $1,000 in the governmental activities journal.

  • Credit to Gain on Disposal of Equipment for $1,000 in the governmental activities journal at the government-wide level.

  • All of the statements are correct.

Explanation

Question 17 of 29

1

Which of the following would be part of the journal entries to be made at the inception of a lease if a government leases a computer for the Police Department, a General Fund department?

Select one of the following:

  • A debit to Expenditures in the General Fund in an amount equal to the annual lease payment.

  • A debit to Equipment in the governmental activities journal in an amount equal to the present value of the minimum lease payments or fair value of the asset, whichever is lower.

  • A credit to Other Financing Sources—Capital Lease Agreements in the governmental activities journal in the amount equal to the present value of the minimum lease payments.

  • All of the statements are correct.

Explanation

Question 18 of 29

1

Upon the recommendation of its communications director, the City Council has decided that Southland City's public access Internet system has become obsolete and, therefore, meets the GASB's definition of an impaired asset. The amount of impairment is estimated at $100,000. Assuming that the Internet system has been managed by the City's Public Affairs Department, a function of the General Fund, and is not insured, the asset impairment will be recorded as a:

Select one of the following:

  • Debit to Other Financing Use—Decline in Value of Equipment the General Fund general journal.

  • Debit to Expenses—Public Affairs.

  • Credit to Equipment in the governmental activities journal at the government-wide level.

  • Both Debit to Expenses—Public Affairs and Credit to Equipment in the governmental activities journal at the government-wide level are correct.

Explanation

Question 19 of 29

1

Which of the following accounts would be least likely to be found in the general ledger of a capital projects fund?

Select one of the following:

  • Construction Work in Progress.

  • Expenditures.

  • Revenues.

  • Encumbrances.

Explanation

Question 20 of 29

1

During the current fiscal year, Midwest City incurred $500,000 of construction costs on its new city jail project and $15,000 of interest expense for bonds issued to finance the project. The City's engineers estimated the project, begun early in the current fiscal year, was 50 percent complete at year-end. Midwest City's financial statements will reflect which of the following items related to this project?

Select one of the following:

  • Construction Work in Progress of $515,000 in the Governmental Activities column of the government-wide statement of net position.

  • Construction Expenditures of $515,000 in the capital projects fund statement of revenues, expenditures, and changes in fund balances.

  • Construction Work in Progress of $500,000 in the Governmental Activities column of the government-wide statement of net position.

  • Both Construction Work in Progress of $515,000 in the Governmental Activities column of the government-wide statement of net position and Construction Expenditures of $515,000 in the capital projects fund statement of revenues, expenditures, and changes in fund balances are correct.

Explanation

Question 21 of 29

1

Which of the following capital assets would not be depreciated?

Select one of the following:

  • The city's police vehicles.

  • Purchased computer software.

  • The partially completed city hall.

  • The art work owned and displayed in the city parks.

Explanation

Question 22 of 29

1

A city completed construction of its new library. It was decided that the $10,000 remaining in the capital projects fund at the completion of construction should be used to service the long-term debt issued to construct the library. Which of the following is correct concerning the closing of the capital projects fund?

Select one of the following:

  • The capital projects fund would debit Expenditure—Principal and credit Cash for $10,000.

  • The capital projects fund would debit Other Financing Uses—Interfund Transfer Out and credit Fund Balance for $10,000.

  • The governmental activities journal at the government-wide level would make no journal entry.

  • None of the journal entries are correct concerning the closing of the capital projects fund.

Explanation

Question 23 of 29

1

After final inspection of the construction work on its new county jail, Carter County incurred an additional $50,000 of costs for site cleanup and interior rework performed by employees of the Public Works Department. The County had previously retained $40,000 of construction billings from the jail contractor to cover rework or project remediation. The journal entry or entries to record the additional work will include a:

Select one of the following:

  • Debit to Construction Expenditures in the amount of $50,000 in the capital projects fund journal.

  • Debit to Construction Expenditures in the amount of $10,000 in the capital projects fund journal.

  • Debit to Contracts Payable—Retained Percentage in the amount of $10,000 in the governmental activities journal.

  • Both Debit to Construction Expenditures in the amount of $10,000 in the capital projects fund journal and Debit to Contracts Payable—Retained Percentage in the amount of $10,000 in the governmental activities journal are correct.

Explanation

Question 24 of 29

1

Brisbane Township issued $1,000,000 of 6-month bond anticipation notes to facilitate the beginning of street construction while waiting to see if market conditions improved before issuing $10 million of bonds. Brisbane has a written agreement with an investment firm, Pitch Municipal Services, Inc., to refinance the $1,000,000 of bond anticipation notes with $1,000,000 of bonds when the $10 million of bonds are issued during the next few months. Recording the issuance of the bond anticipation notes will include a:

Select one of the following:

  • Credit to Other Financing Sources—Proceeds of Bond Anticipation Notes in the capital projects fund journal.

  • Credit to Bond Anticipation Notes Payable in the capital projects fund journal.

  • Credit to Estimated Other Financing Sources—Proceeds of Bonds in the governmental activities journal at the government-wide level.

  • None of the statements are correct.

Explanation

Question 25 of 29

1

An interfund transfer from the General Fund to partially finance a capital projects fund would be reported by the capital projects fund as a (an)

Select one of the following:

  • Fund balance addition.

  • Other financing source.

  • Revenue.

  • Current liability.

Explanation

Question 26 of 29

1

The county issued bonds to construct a new jail facility. Sale of the bonds occurred between interest payment dates. Which of the following statements concerning the sale of bonds between interest payment dates is correct?

Select one of the following:

  • Additional cash, in the amount of the accrued interest, will be available for use by the capital projects fund.

  • The capital projects fund will have a decrease in cash available for use equal to the amount of accrued interest.

  • The amount of accrued interest will have no effect on the cash available for use by the capital projects fund.

  • It is a management decision how accrued interest is used by the capital projects fund.

Explanation

Question 27 of 29

1

A capital projects fund will sometimes report a large excess of expenditures over revenues and other financing sources in its operating statement during the early stages of construction. The most likely reason is:

Select one of the following:

  • Short-term debt has been used for interim financing.

  • Poor management, resulting in large cost overruns.

  • Insufficient planning.

  • Inadequate financing.

Explanation

Question 28 of 29

1

Which of the following accounts will be debited in the capital projects fund journal when a contractor billing that was previously recorded is paid?

Select one of the following:

  • Construction Expenditures.

  • Contracts Payable.

  • Construction Work in Progress.

  • All of the statements are correct.

Explanation

Question 29 of 29

1

In the basic financial statements of a government, financial information for a capital projects fund will be reported in a separate column if:

Select one of the following:

  • The capital projects fund qualifies as a major fund.

  • The capital project is still ongoing at the end of the fiscal year.

  • Sufficient information has not been disclosed about the capital project in the notes to the financial statements.

  • All of the statements are corrct.

Explanation

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