ACCT 4421 EXAM REVIEW
QUESTIONS WITH CORRECT
ANSWERS 2025
Paul City received payment of two grants from the state during its fiscal year ending
September 30, 2013. Grant A can be used to cover any operating expenses incurred
during fiscal 2014. Grant B can be used at any time to acquire equipment for the
city's fire department. Should the city report these grants as grant revenues or
deferred inflows in its governmental fund financial statements for fiscal 2013?
State Grant--
Grant Revenue Deferred Inflow
A. Grants A and B Neither grant
B. Grant B Grant A
C. Grant A Grant B
D. Neither grant Grants A and B - ANSWER-B
Paul City received payment of two grants from the state during its fiscal year ending
September 30, 2013. Grant A can be used to cover any operating expenses incurred
during fiscal 2014. Grant B can be used at any time to acquire equipment for the
city's fire department. Should the city report these grants as grant revenues or
deferred inflows in its government-wide financial statements for fiscal 2013?
State Grant--
Grant Revenue Deferred Inflow
A. Grants A and B Neither grant
B. Grant B Grant A
C. Grant A Grant B
D. Neither grant Grants A and B - ANSWER-B
The resources to service all general long-term debt of governments are typically
accounted for in debt service funds - ANSWER-T
When governments establish capital projects funds, they may choose to maintain a
separate fund for each major project, or they may choose to combine two or more
projects in a single fund - ANSWER-T
Governments are required to integrate budgetary account information in their debt
service and capital projects funds only when control cannot readily be established by
means other than a budget - ANSWER-T
Capital projects funds do not report long-term obligations in the fund - ANSWER-T
When bonds are issued at a premium, the capital projects fund can transfer those
excess resources to the debt service fund - ANSWER-T
When bonds are issued at a discount, the debt service fund usually transfers an
amount to the capital projects fund to make up for the deficiency - ANSWER-F
,In accounting for costs incurred on a major construction project in a capital projects
fund, the construction outlays would be reported in the fund as general capital assets
- ANSWER-F
Debt service funds are maintained to account for resources accumulated to pay
interest and principal on general long-term debt—that is, long-term debt associated
primarily with governmental activities - ANSWER-T
In contrast to the accounting for debt service fund expenditures, the interest revenue
on bonds held as investments should be accrued in the period the revenue is earned
- ANSWER-T
Special assessments are imposed nonexchange transactions, similar to property tax
levies - ANSWER-T
The interest paid on debt issued for public purposes by state and local governments
is generally subject to federal taxation - ANSWER-F
Nongovernmental not-for-profits must account for defeasances differently than
governments do - ANSWER-T
In the statement of revenues, expenditures, and changes in fund balance of a debt
service fund, the fund balance amount should be reported as restricted for debt
service - ANSWER-T
Governments should account for special assessment debt service transactions in a
debt service fund, even if they are not obligated to pay the debt - ANSWER-F
Arbitrage is the process of negotiating resolution of conflicts between the federal
government and municipalities over the applicability of federal regulations -
ANSWER-F
Sound fiscal policy dictates that the maturity of debt should be no longer than the life
of the assets it is used to finance - ANSWER-T
Proceeds of debt issued to finance a capital project should be reported in a capital
projects fund as a liability until the project is completed - ANSWER-F
Special assessment debt to be paid from a water utility fund should be accounted for
in that fund along with the related capital improvements - ANSWER-T
The capital projects fund of a government is accounted for using which of the
following bases of accounting?
A. Budgetary basis
B. Cash basis
C. Modified accrual basis
D. Accrual basis - ANSWER-C
In which fund type would a government's capital projects fund be found?
A. Governmental fund type
,B. Proprietary fund type
C. Fiduciary fund type
D. Governmental activities - ANSWER-A
The debt service fund of a government is accounted for using which of the following
bases of accounting?
A. Budgetary basis
B. Cash basis
C. Modified accrual basis
D. Accrual basis - ANSWER-C
In which fund type would a government's debt service fund be found?
A. Governmental fund type
B. Proprietary fund type
C. Fiduciary fund type
D. Governmental activities - ANSWER-A
With regard to the resources dedicated to the acquisition of capital assets that will be
used in general government activities, which of the following is true?
A. Governments must maintain capital projects funds for resources that are legally
restricted to the acquisition of capital assets
B. Governments may maintain capital projects funds for resources that are legally
restricted to the acquisition of capital assets
C. Governments may account for any resources dedicated (whether legally or not) to
the acquisition of capital assets in any of the governmental funds
D. Governments must account for all resources set aside for capital asset acquisition
in a capital projects fund - ANSWER-A
Salt City issued $5 billion of bonds at face value to fund the reconstruction of major
interstate highways in and around the city. The bond underwriters withheld $2 million
for underwriting fees and remitted the balance to the city. Assuming the city
maintains its books and records in a manner that facilitates the preparation of fund
financial statements, how should the underwriting fee be recorded in the capital
projects fund?
A. Reduce other financing sources by $2 million
B. Reduce bonds payable by $2 million
C. Increase expenditures by $2 million
D. It would not be accounted for in the capital projects fund - ANSWER-C
Sugar City issued $2 million of bonds to fund the construction of a new city office
building. The bonds have a stated rate of interest of 5 percent and were sold at 101.
Which of the following entries should be made in the capital projects fund to record
this event?
A. Debit Cash $2.02 million; Credit Bonds payable $2 million and Premium on bonds
payable $0.02 million
B. Debit Cash $2.02 million; Credit Bonds payable $2 million and Other financing
sources $0.02 million
C. Debit Cash $2.02 million; Credit Other financing sources $2.02 million
D. Debit Cash $2.02 million; Credit Other financing sources $2 million and Revenue
$0.02 million - ANSWER-C
, Voters in Lincoln School District approved the construction of a new high school and
approved an $8 million bond issue with a stated rate of interest of 6 percent to fund
the construction. Bids were received and the low bid was $8 million. When the bonds
were issued, they sold for face value less bond underwriting fees of $0.5 million. The
school board voted to fund the balance of the construction by a transfer from the
general fund.
The entry in the capital projects fund to record the receipt of the bond proceeds
should be
A. Debit Cash $7.5 million; Credit Bonds payable $7.5
B. Debit Cash $7.5 million; Credit Other financing sources $7.5
C. Debit Cash $7.5 million and Expenditures $0.5 million; Credit Bonds payable $8
million
D. Debit Cash $7.5 million and Expenditures $0.5 million; Credit Other financing
sources $8 million - ANSWER-D
Voters in Lincoln School District approved the construction of a new high school and
approved an $8 million bond issue with a stated rate of interest of 6 percent to fund
the construction. Bids were received and the low bid was $8 million. When the bonds
were issued, they sold for face value less bond underwriting fees of $0.5 million. The
school board voted to fund the balance of the construction by a transfer from the
general fund.
The entry in the capital projects fund to record the additional funding for the
construction should be
A. Debit Due from general fund $0.5 million; Credit Other financing sources—
nonreciprocal transfer-in $0.5 million
B. Debit Due from general fund $0.5 million; Credit Revenue $0.5 million
C. Debit Cash $0.5 million; Credit Due to general fund $0.5 million
D. Debit Other financing sources $0.5 million; Credit Due to general fund $0.5 million
- ANSWER-A
Voters in Phillips City approved the construction of a new city hall building and
approved a $5 million bond issue with a stated rate of interest of 6 percent to fund
the construction. When the bonds were issued, they sold for 101. What are
appropriate entries related to the premium?
In the capital projects fund
A. Debit Cash $50,000; Credit Revenues $50,000; no other entries required
B. Debit Cash $50,000; Credit Other financing sources—nonreciprocal transfer-in
$50,000; no other entries required
C. Debit Cash $50,000; Credit Revenues; ALSO
Debit Other financing uses—nonreciprocal transfer-out $50,000; Credit Cash
$50,000
D. Debit Cash $50,000; Credit Other financing sources—Bond premium $50,000;
ALSO
Debit Other financing uses—nonreciprocal transfer-out $50,000; Credit Cash
$50,000 - ANSWER-D
QUESTIONS WITH CORRECT
ANSWERS 2025
Paul City received payment of two grants from the state during its fiscal year ending
September 30, 2013. Grant A can be used to cover any operating expenses incurred
during fiscal 2014. Grant B can be used at any time to acquire equipment for the
city's fire department. Should the city report these grants as grant revenues or
deferred inflows in its governmental fund financial statements for fiscal 2013?
State Grant--
Grant Revenue Deferred Inflow
A. Grants A and B Neither grant
B. Grant B Grant A
C. Grant A Grant B
D. Neither grant Grants A and B - ANSWER-B
Paul City received payment of two grants from the state during its fiscal year ending
September 30, 2013. Grant A can be used to cover any operating expenses incurred
during fiscal 2014. Grant B can be used at any time to acquire equipment for the
city's fire department. Should the city report these grants as grant revenues or
deferred inflows in its government-wide financial statements for fiscal 2013?
State Grant--
Grant Revenue Deferred Inflow
A. Grants A and B Neither grant
B. Grant B Grant A
C. Grant A Grant B
D. Neither grant Grants A and B - ANSWER-B
The resources to service all general long-term debt of governments are typically
accounted for in debt service funds - ANSWER-T
When governments establish capital projects funds, they may choose to maintain a
separate fund for each major project, or they may choose to combine two or more
projects in a single fund - ANSWER-T
Governments are required to integrate budgetary account information in their debt
service and capital projects funds only when control cannot readily be established by
means other than a budget - ANSWER-T
Capital projects funds do not report long-term obligations in the fund - ANSWER-T
When bonds are issued at a premium, the capital projects fund can transfer those
excess resources to the debt service fund - ANSWER-T
When bonds are issued at a discount, the debt service fund usually transfers an
amount to the capital projects fund to make up for the deficiency - ANSWER-F
,In accounting for costs incurred on a major construction project in a capital projects
fund, the construction outlays would be reported in the fund as general capital assets
- ANSWER-F
Debt service funds are maintained to account for resources accumulated to pay
interest and principal on general long-term debt—that is, long-term debt associated
primarily with governmental activities - ANSWER-T
In contrast to the accounting for debt service fund expenditures, the interest revenue
on bonds held as investments should be accrued in the period the revenue is earned
- ANSWER-T
Special assessments are imposed nonexchange transactions, similar to property tax
levies - ANSWER-T
The interest paid on debt issued for public purposes by state and local governments
is generally subject to federal taxation - ANSWER-F
Nongovernmental not-for-profits must account for defeasances differently than
governments do - ANSWER-T
In the statement of revenues, expenditures, and changes in fund balance of a debt
service fund, the fund balance amount should be reported as restricted for debt
service - ANSWER-T
Governments should account for special assessment debt service transactions in a
debt service fund, even if they are not obligated to pay the debt - ANSWER-F
Arbitrage is the process of negotiating resolution of conflicts between the federal
government and municipalities over the applicability of federal regulations -
ANSWER-F
Sound fiscal policy dictates that the maturity of debt should be no longer than the life
of the assets it is used to finance - ANSWER-T
Proceeds of debt issued to finance a capital project should be reported in a capital
projects fund as a liability until the project is completed - ANSWER-F
Special assessment debt to be paid from a water utility fund should be accounted for
in that fund along with the related capital improvements - ANSWER-T
The capital projects fund of a government is accounted for using which of the
following bases of accounting?
A. Budgetary basis
B. Cash basis
C. Modified accrual basis
D. Accrual basis - ANSWER-C
In which fund type would a government's capital projects fund be found?
A. Governmental fund type
,B. Proprietary fund type
C. Fiduciary fund type
D. Governmental activities - ANSWER-A
The debt service fund of a government is accounted for using which of the following
bases of accounting?
A. Budgetary basis
B. Cash basis
C. Modified accrual basis
D. Accrual basis - ANSWER-C
In which fund type would a government's debt service fund be found?
A. Governmental fund type
B. Proprietary fund type
C. Fiduciary fund type
D. Governmental activities - ANSWER-A
With regard to the resources dedicated to the acquisition of capital assets that will be
used in general government activities, which of the following is true?
A. Governments must maintain capital projects funds for resources that are legally
restricted to the acquisition of capital assets
B. Governments may maintain capital projects funds for resources that are legally
restricted to the acquisition of capital assets
C. Governments may account for any resources dedicated (whether legally or not) to
the acquisition of capital assets in any of the governmental funds
D. Governments must account for all resources set aside for capital asset acquisition
in a capital projects fund - ANSWER-A
Salt City issued $5 billion of bonds at face value to fund the reconstruction of major
interstate highways in and around the city. The bond underwriters withheld $2 million
for underwriting fees and remitted the balance to the city. Assuming the city
maintains its books and records in a manner that facilitates the preparation of fund
financial statements, how should the underwriting fee be recorded in the capital
projects fund?
A. Reduce other financing sources by $2 million
B. Reduce bonds payable by $2 million
C. Increase expenditures by $2 million
D. It would not be accounted for in the capital projects fund - ANSWER-C
Sugar City issued $2 million of bonds to fund the construction of a new city office
building. The bonds have a stated rate of interest of 5 percent and were sold at 101.
Which of the following entries should be made in the capital projects fund to record
this event?
A. Debit Cash $2.02 million; Credit Bonds payable $2 million and Premium on bonds
payable $0.02 million
B. Debit Cash $2.02 million; Credit Bonds payable $2 million and Other financing
sources $0.02 million
C. Debit Cash $2.02 million; Credit Other financing sources $2.02 million
D. Debit Cash $2.02 million; Credit Other financing sources $2 million and Revenue
$0.02 million - ANSWER-C
, Voters in Lincoln School District approved the construction of a new high school and
approved an $8 million bond issue with a stated rate of interest of 6 percent to fund
the construction. Bids were received and the low bid was $8 million. When the bonds
were issued, they sold for face value less bond underwriting fees of $0.5 million. The
school board voted to fund the balance of the construction by a transfer from the
general fund.
The entry in the capital projects fund to record the receipt of the bond proceeds
should be
A. Debit Cash $7.5 million; Credit Bonds payable $7.5
B. Debit Cash $7.5 million; Credit Other financing sources $7.5
C. Debit Cash $7.5 million and Expenditures $0.5 million; Credit Bonds payable $8
million
D. Debit Cash $7.5 million and Expenditures $0.5 million; Credit Other financing
sources $8 million - ANSWER-D
Voters in Lincoln School District approved the construction of a new high school and
approved an $8 million bond issue with a stated rate of interest of 6 percent to fund
the construction. Bids were received and the low bid was $8 million. When the bonds
were issued, they sold for face value less bond underwriting fees of $0.5 million. The
school board voted to fund the balance of the construction by a transfer from the
general fund.
The entry in the capital projects fund to record the additional funding for the
construction should be
A. Debit Due from general fund $0.5 million; Credit Other financing sources—
nonreciprocal transfer-in $0.5 million
B. Debit Due from general fund $0.5 million; Credit Revenue $0.5 million
C. Debit Cash $0.5 million; Credit Due to general fund $0.5 million
D. Debit Other financing sources $0.5 million; Credit Due to general fund $0.5 million
- ANSWER-A
Voters in Phillips City approved the construction of a new city hall building and
approved a $5 million bond issue with a stated rate of interest of 6 percent to fund
the construction. When the bonds were issued, they sold for 101. What are
appropriate entries related to the premium?
In the capital projects fund
A. Debit Cash $50,000; Credit Revenues $50,000; no other entries required
B. Debit Cash $50,000; Credit Other financing sources—nonreciprocal transfer-in
$50,000; no other entries required
C. Debit Cash $50,000; Credit Revenues; ALSO
Debit Other financing uses—nonreciprocal transfer-out $50,000; Credit Cash
$50,000
D. Debit Cash $50,000; Credit Other financing sources—Bond premium $50,000;
ALSO
Debit Other financing uses—nonreciprocal transfer-out $50,000; Credit Cash
$50,000 - ANSWER-D
