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

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Question 1

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

A) AFUDC may have either a debt component or an equity component.
B) The amount credited to AFUDC may exceed the amount of interest paid during the period on bonds issued for construction.
C) AFUDC may be credited for an imputed amount of interest on the utility's own funds used for construction.
D) AFUDC may include the total amount of borrowing during construction.

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Question 2

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Premiums or discounts on bonds payable issued by enterprise funds should be accounted for in the same manner as those of a comparable business entity.

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Question 3

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Which of the following illustrates the appropriate basis of accounting for enterprise and internal service funds? Enterprise Funds Internal Service Funds

The following are key terms in Chapter 7 that relate accounting for the business-type activities of state and local governments: A. Allowance for Funds Used during 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. _____ 1. In utility accounting,the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds so used _____ 2. Accounting principles prescribed by federal or state regulatory commissions for investor-owned and some governmentally owned utilities. _____ 3. Bonds whose principal and interest are payable exclusively from earnings of a public enterprise. _____ 4. Bonds which carry the pledge of the government entity's full faith and credit,although the intent may be to service them from proprietary revenues rather than general taxes. _____ 5. The account that captures the premium paid on a utility plant purchased by a government.

Which of the following should be accounted for in an enterprise fund? Light poles to be paid for in installments by Affected property owners $350,000 Van used to transport supplies to all city Departments on a cost reimbursement basis 65,000 Equipment used for supplying electric power To residents 1,250,000

The City of Crescent Hill operates a central motor pool as an internal service fund for the benefit of the city's other funds and departments.In the current year,this fund billed the Parks Department $30,000 for vehicle rentals.If the Parks Department is a governmental fund,which account should the Parks Department use to record these billings?

The balance sheet format recommended for financial statements submitted to the NARUC and FERC for utilities subject to regulatory reporting requirements displays Utility Plant before Current and Accrued Assets and Long-Term Debt before Current and Accrued Liabilities.

The net position of an internal service fund is classified as nonspendable,restricted,committed,assigned,and unassigned.

Under GASB standards,an internal service fund should prepare all of the following financial statements except a:

Enterprise funds may capitalize interest paid on debt incurred for construction of plant assets.

"Enterprise funds should not be permitted to accumulate unrestricted net position,since to do so would indicate overpricing of its services." Do you agree? Why or why not?

A statement of revenues,expenses,and changes in fund net position for an internal service fund is similar in many respects to an income statement prepared for a commercial business.

The following cash transactions were among those reported by Genesee County's Wastewater Enterprise Fund for the year: Proceeds from sale of revenue bonds for construction $5,000,000 Interest income 300,000 Capital contributed by developers 1,000,000 In the Wastewater Enterprise Fund's statement of cash flows for the year ended December 31,what amount should be reported as cash flows from investing activities?

Which of the following properly portrays the components of net position for proprietary funds?

Consistent with accounting in capital projects funds,interest capitalization for self-constructed assets of proprietary funds is prohibited.

GASB requires the statement of cash flows for proprietary funds to be prepared using the direct method of presentation.

A motor pool is a common example of an internal service fund.

How does the statement of cash flows under GASB standards differ from the statement of cash flows under FASB standards?

Interest and principal on enterprise fund revenue bonds should be recorded in a debt service fund until paid.

Which of the following is a difference between enterprise funds and internal service funds?