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Governmental and Nonprofit Accounting 10th Edition Smith Test Bank
Governmental and Nonprofit Accounting 10th Edition Smith Test Bank
Governmental and Nonprofit Accounting 10th Edition Smith Test Bank
Problem 1 – Matching: Match the Resource Flow with the Type of Expenditure
Listed below in the left column are events that may or may not be expenditures for the General Fund.
Listed in the right column are the classifications of expenditures for governmental funds. Correctly match
each event with the appropriate expenditure classification. Unless specifically stated otherwise, assume
all amounts have been incurred. If the event is not an expenditure, state how the event would be reported
in the current year General Fund financial statements.
Answers:
1. E
2. F – reported as a capital outlay expenditure by the SRF
3. C
4. F – reported as a general long-term liability until paid
5. F – Balance Sheet liability
6. F – not accrued
7. A
8. A
9. F – Balance Sheet liability
10. F – reported as an encumbrance until received
11. A
12. F – expenditure reported when received
13. F – reported as an encumbrance until received
14. F – Other financing source
15. F – Balance Sheet asset
16. A
17. D
18. A
19. E
20. F – reduction of Balance Sheet liability
21. G – A
22. E
23. F – general long-term liability
24. A
25. A
26. F – Other financing use – transfer
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Problem 2 – Inventory Journal Entries
A government with a beginning inventory of supplies of $100 in its General Fund and had the
following transactions during the year (all amounts are in thousands).
Transactions:
Requirements:
Answers:
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# Accounts Debit Credit
2b Supplies Inventory 2,920
Vouchers Payable 2,920
5 Supplies Inventory 30
Expenditures – Operating 30
5 Supplies Inventory 50
Expenditures – Operating 50
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A2. Effects of journal entries on the Balance Sheet equation using regular entries (perpetual
inventory system)
Note: Since the effects for Deferred Outflows and Deferred Inflows are all NE, you may
choose to omit those columns.
Effects of journal entries on the Balance Sheet equation using regular entries (periodic
inventory system).
Balance Sheet
Asset – Inventory 150
Fund Balance – Nonspendable 150
Operating Statement
Expenditures – Operating 2,870
4 No Entry Required
5 Supplies Inventory 50
Other Financing Source – Increase in Inventory 50
Balance Sheet
Asset – Inventory 150
Fund Balance – Nonspendable 150
Operating Statement
Expenditures – Operating 2,920
Other Financing Source – Increase in Inventory 50
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Problem 3 – Capital Leases
A general government department of the City of Rocky Flats leased specialized equipment under
a multi-year, noncancelable lease agreement that qualifies as a capital lease. The lease required a
down payment of $500 and the present value of the minimum lease payments (i.e., the
capitalizable cost of the leased asset) was $5,000. The implicit rate of interest on the lease is
10%. Subsequent lease payments of $750 are required annually beginning in 20X2. All
amounts are in thousands of dollars.
Transactions:
Requirements:
1. Prepare the general ledger journal entries for the transactions for the General Fund. If no
entry is required, do not leave it blank. State "No Entry Required" and briefly explain
why.
2. Indicate the effects of the transaction on the accounting equations for the General Fund
and the General Capital Assets and General Long-Term Liabilities accounts. Do not
leave a cell blank.
3. How will the capital lease be reported on the General Fund financial statements for the
year ended December 31, 20X1?
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Answers:
1. Journal Entries
2. Effects on accounting equations for the General Fund and the General Capital Assets and
General Long-Term Liabilities accounts.
Operating Statement – as noted in the journal entry, Capital Outlay expenditure and OFS
for capital lease will be reported.
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Problem 4 – Other Expenditure Transactions
Listed below are various transactions affecting the City of Highland Flats General Fund for the
fiscal year ending June 30, 20X4.
Transactions:
1. Near the beginning of the year, the City was sued by one of its residents claiming that the
resident was injured due to a hazardous sidewalk. The resident is asking for damages of
$500,000. The City expects to win the case.
2. Later in the year, the City decided to settle the aforementioned lawsuit on the advice of its
legal counsel. The government settled the suit for $300,000, paying $100,000 now, and
$50,000 on August 1 for each of the next 4 years. For these types of lawsuits, the City is
self-insured for the first $50,000 and 100% insured for the remaining payments. Because
of a cash flow issue, the city borrowed $50,000 on a 6 month, 3% note that comes due 2
months after year-end. No money was received from the insurance company by year-
end, but the total amount due was expected by August 15.
3. The city’s employees earned $25,000 in compensated absences during the year. Of this
amount, $10,000 was paid during the year. In addition, $5,000 due at the end of last year
was paid this year, and another $7,500 will be paid in the first 45 days of the following
fiscal year. Finally, $7,000 earned in earlier years was paid this year.
4. The actuarial amount owed to the City’s OPEB Plan for the year is $20,000. Of this
amount, only $5,000 – the approximate amount of retiree healthcare costs paid for the
year – was paid to the plan. The balance will be paid in later years.
Requirements:
1. Prepare the journal entries for the above events, including any necessary year-end
adjusting entries. If a transaction requires no entry, state “No entry required” and explain
why.
2. Demonstrate the effects of these transactions on the accounting equation for the General
Fund and the General Capital Assets and General Long-term Liabilities accounts.
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Answers:
1. Journal entries:
b Cash 50,000
Note Payable 50,000
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2. Effects on accounting equations for the General Fund (Deferred Outflows and Deferred
Inflows have been excluded since all are no effect) and the General Capital Assets and
General Long-Term Liabilities accounts.
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