Chapter 5 Recognizing Expenditures in Governmental Funds

25. Several years ago, Grant County was sued by a former County employee for wrongful discharge. Although it was to be contested by the County, at the time of the lawsuit the attorneys believed that the County was likely to lose the suit and the estimated amount of the ultimate judgment would be $100,000. This year, the case was finally settled with a judgment against the County of $150,000, which was paid. Assuming that the County maintains its books and records in a manner to facilitate the preparation of its fund financial statements, the entry in the current year should be

a) Debit Expenditures $150,000; Credit Cash $150,000.

b) Debit Expenses $150,000; Credit Cash $150,000.

c) Debit Expenditures $50,000 and Claims Payable $100,000; Credit Cash $150,000.

d) Debit Expenses $50,000 and Claims Payable $100,000; Credit Cash $150,000.

26. Several years ago, Grant County was sued by a former County employee for wrongful discharge. Although it was to be contested by the County, at the time of the lawsuit the attorneys believed that the County was likely to lose and the estimated amount of the ultimate judgment would be $100,000. This year, the case was finally settled with a judgment against the County of $150,000, which was paid. Assuming that the County maintains its books and records in a manner to facilitate the preparation of its government-wide financial statements, the entry in the current year should be

a) Debit Expenditures $150,000; Credit Cash $150,000.

b) Debit Expenses $150,000; Credit Cash $150,000.

c) Debit Expenditures $50,000 and Claims Payable $100,000; Credit Cash $150,000.

d) Debit Expenses $50,000 and Claims Payable $100,000; Credit Cash $150,000.

27. The City of Upper Falls accounts for its inventory using the purchases method. During the year the City bought $400,000 of supplies, for which it owed $100,000 at year-end. The City will pay for the supplies from available expendable financial resources. The entry that should be recorded in the City’s General Fund is

a) Debit Expenditures $400,000; Credit Cash $300,000 and Accounts Payable $100,000.

b) Debit Expenditures $300,000; Credit Cash $300,000.

c) Debit Supplies Inventory $400,000; Credit Cash $300,000 and Accounts Payable $100,000.

d) Debit Supplies Inventory $300,000; Credit Cash $300,000.

28. Bay City uses the purchases method to account for supplies. At the beginning of the year the City had no supplies on hand. During the year the City purchased $600,000 of supplies for use by activities accounted for in the General Fund. The City used $400,000 of those supplies during the year. Assuming that the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements, at fiscal year-end the appropriate account balances related to supplies expenditures and supplies inventory would be

a) Expenditures $600,000; Supplies Inventory $200,000.

b) Expenditures $600,000; Supplies Inventory $0.

c) Expenditures $400,000; Supplies Inventory $200,000.

d) Expenditures $400,000; Supplies Inventory $0.

29. Shoshone County uses the consumption method to account for supplies. At the beginning of the year the City had no supplies on hand. During the year the City purchased $600,000 of supplies for use by activities accounted for in the General Fund. The City used $400,000 of those supplies during the year. At fiscal year-end, the appropriate account balances on the General Fund financial statements would be

a) Expenditures $600,000; Supplies Inventory $200,000.

b) Expenditures $600,000; Supplies Inventory $0.

c) Expenditures $400,000; Supplies Inventory $200,000.

d) Expenditures $400,000; Supplies Inventory $0.

30. Shoshone County uses the consumption method to account for supplies. At the beginning of the year the City had no supplies on hand. During the year the City purchased $600,000 of supplies for use by activities accounted for in the General Fund. The City used $400,000 of those supplies during the year. At fiscal year-end the appropriate account balances on the government-wide financial statements would be

a) Expenses $600,000; Supplies Inventory $200,000.

b) Expenses $600,000; Supplies Inventory $0.

c) Expenses $400,000; Supplies Inventory $200,000.

d) Expenses $400,000; Supplies Inventory $0.

31. Sugar City uses the purchases method to record all prepayments. The City has a 6/30 fiscal year-end. On 12/31/06, the City purchased a three-year insurance policy covering all city owned vehicles accounted acquired by the General Fund to be used in general government activity. Cost of the policy was $360,000. After the 6/30/07 closing entries, the appropriate balance sheet accounts and balances associated with this transaction are in the City’s General Fund:

a) Prepaid Insurance $300,000; Expenditure $60,000.

b) Prepaid Insurance $300,000; Expenditures $360,000

c) Prepaid Insurance $0; Expenditure $360,000.

d) Prepaid Insurance $0; Expenditures $60,000.

32. Campbell County uses the consumption method to record all inventories and prepayments. The County has a 9/30 fiscal year-end. On April 1, 2007, the County purchased a two-year insurance policy at a total cost of $400,000, paying for the policy out of the General Fund. In the fund financial statements, the amount of insurance expenditures for the fiscal year ended 9/30/07 would be

a) $400,000.

b) $300,000.

c) $200,000.

d) $100,000.

33. On July 1, Gilbert County bought computer equipment for use in the administrative offices of the County. The equipment has an estimated useful life of three years and salvage of $10,000. Gilbert County has a 6/30 fiscal year-end. Assuming that the County maintains its books and records in a manner that facilitates the preparation of fund financial statements, the $70,000 cost of this equipment would require which of the following entries?

a) Debit Expenditures $70,000; Credit Cash $70,000.

b) Debit Equipment $70,000; Credit Cash $70,000.

c) Debit Expenses $70,000; Credit Cash $70,000.

d) No entry in the City’s governmental funds.

34. On July 1, Gilbert County bought computer equipment for use in the administrative offices of the County. The equipment has an estimated useful life of three years and salvage of $10,000. Gilbert County has a 6/30 fiscal year-end. Assuming that the County maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, the $70,000 cost of this equipment would require which of the following entries?

a) Debit Expenditures $70,000; Credit Cash $70,000.

b) Debit Equipment $70,000; Credit Cash $70,000.

c) Debit Expenses $70,000; Credit Cash $70,000.

d) No entry is required.

35. The City of Roswell has a 6/30 fiscal year-end. The City uses the consumption method for recognizing inventories and prepayments. On July 1, 2006, the City leased computer equipment for use in the City’s general activities. The lease is a three-year lease that qualifies as an operating lease. The City prepaid the entire three-year rental fee of $45,000. At June 30, 2007, the appropriate account balances in the General Fund associated with this transaction would be

a) Prepaid Lease $0; Expenditures $45,000; Fund Balance Reserved for Prepaid Lease $0.

b) Prepaid Lease $30,000; Expenditures $15,000; Fund Balance Reserved for Prepaid Lease $30,000.

c) Prepaid Lease $30,000; Expenditures $45,000; Fund Balance Reserved for Prepaid Lease $30,000.

d) Prepaid Lease $30,000; Expenditures $15,000; Fund Balance Reserved for Prepaid Lease $0.

36. Pocahontas School District, an independent public school district, financed the acquisition of a new school bus by signing a note for $90,000 plus interest on the unpaid balance at 6%. Annual principal payments of $30,000, plus interest, are due each July 1. Assuming that the District maintains its books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the General Fund at the date of acquisition is

a) Debit Expenditures $90,000; Credit Notes Payable $90,000.

b) Debit Fixed Assets $90,000; Credit Notes Payable $90,000.

c) Debit Expenditures $90,000; Credit Other Financing Sources $90,000.

d) Debit Fixed Assets $90,000; Credit Other Financing Sources $90,000.