Exam (elaborations)
Governmental Accounting--Exam #1 Questions with Complete Answers
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Governmental Accounting--Exam #1 Questions with Complete Answers
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Governmental Accounting--Exam #1Questions with Complete Answers
Expenditures - Answer-Are the foundation of planning, authorizing, controlling, and
evaluating activities of governmental funds. It's a measure of the fund liabilities incurred
(or expendable financial resources used). Typically classified as operations, capital
outlay, or debt service.
When to Recognize Expenditures - Answer-In the accounting period in which the fund
liability is incurred except for unmatured interest (and principal) on long-term debt,
which is recognized when due.
Inventory Expenditures - Answer-May be recognized using either purchases method or
consumption method.
Prepayment Expenditures - Answer-May be allocated over benefited period or
accounted for only in current period.
Pension Cost Expenditures - Answer-Payments to pension plans, even self-
administered ones, qualify as expenditures; most govt's either use defined contribution
or defined benefit contribution.
Defined Contribution Plan - Answer-Government obligation is limited to making
contributions required by the plan; retiree benefits dependent upon contributions made
and the investment performance of the plan. Government should recognize the
expenditure in the year employees earned the benefit -- underpayment is not liability of
fund but a noncurrent liability.
Defined Benefit Plan - Answer-Government obligation is to pay certain amount to
retirees each period. Annual required contribution (ARC) based on many actuarial
assumptions.
Consumption Method for Inventory - Answer-Supplies represent an expendable current
financial resource - it can be used to finance future "expenditures" for supplies.
Purchases Method for Inventory - Answer-Already charged to expenditures, so it does
not represent a current financial resource.
Consumption Method for Prepayments - Answer-The prepayments account balance is
reported as an asset.
Purchases Method for Prepayments - Answer-The prepayments account balance is not
reported as an asset, since the amount has already been charged to expenditures.
, Fund - Answer-Basic classification of these are by this, but it does have other options.
Capital Leases - Answer-Assets under this are recorded in General Capital Assets with
corresponding entry in General Long-Term Liabilities.
Allocation - Answer-An apportionment of an appropriation made by executive branch of
a legislative branch appropriation.
Allotment - Answer-Is a periodic release of an appropriation, i.e., a quarterly allotment --
helps keep departments from spending entire budget early in the fiscal year.
Long-term Debt Service - Answer-Debt service (principal and interest) not normally
accrued at year-end; governments may accrue if 2 conditions are met: 1.) debt service
payment occurs early (not more than 30 days) in the next fiscal year AND 2.) dedicated
financial resources must have been provided in current fiscal year; if accrual is made, it
must be for the full amount.
Short-term Debt Service - Answer-Recorded as fund liabilities; accrue interest at year-
end; governmental funds borrow like this using tax anticipation notes (TANs), revenue
anticipation notes (RANs), bond anticipation notes (BANs), and other similar notes.
Contingencies - Answer-Claims are against the government are called this.
Liability - Answer-This is recorded if it is probable that an asset has been impaired or
this has been incurred (as of the date of the financial statements) AND it can be
reasonably estimated.
Compensated Absences - Answer-Vacation, sick leave, maternity leave, and other such
employee benefits.
Sick Leave - Answer-Expenditures in the year in which the employees are ill. Accrued
only if it is probable that the employees will be paid upon retirement or termination.
Vacation Leave - Answer-Must accrue a liability when BOTH conditions are met:
employees' right to receive compensation for future absences are attributable to service
already rendered AND it is probable that the employer will compensate the employees
through paid time off or with cash payments at termination or retirement.
Change in Accounting Principles - Answer-Expenditure not previously measurable may
now be considered reasonably estimable; change from one acceptable alternative
principle to another; change in method of applying the principle; GASB issues new
expenditure recognition criteria that is different than a policy currently in use.
Error Correction Process - Answer-1. Recognize the erroneous entry that was recorded,
2.) Determine what the correct entry should be and 3.) Fix the error by essentially
combining steps 1 and 2.
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