Governmental Accounting Exam 2
questions and answers graded A+
Record equipment acquired with demand bonds - correct answer ✔✔Government-wide
statement
Equipment XXX
Demand bond payable - S/T XXX
What Funds Use Expenses - correct answer ✔✔Government-wide/proprietary/fiduciary
What method of accounting is used for expenses - correct answer ✔✔Full Accrual
What Funds Use Expenditures - correct answer ✔✔Governmental funds
What method of accounting is used for expenditures - correct answer ✔✔Modified Accrual
When is an expenditure recognized - correct answer ✔✔When an asset is acquired
Rule for liabilities in government - correct answer ✔✔A liability is current if it will be
paid/liquidated from current financial resources
When should governments accrue a liability - correct answer ✔✔1.) When it is incurred
2.) GASB allowed exception - which allows the delay of recognizing liability/expenditure until
the period the liability is paid
7 GASB Allowed Exceptions Liabilities - correct answer ✔✔1.) Compensated Absences
,2.) Pension & Other post-employment benefits
3.) Claims & Judgments
4.) Inventories
5.) Prepayment
6.) Capital Assets
7.) Principal & Interest
1.) Compensated Absences - correct answer ✔✔Ex. vacations, holidays, sick leave, sabbatical
leave, or jury duty
Earned in one period, but often not paid until several periods later
GASB Rules for compensated absences - correct answer ✔✔the liabilities and expenditures are
recognized in the periods in which payment is made
Where are compensated absences recorded? - correct answer ✔✔1.) Government-wide
statements
2.) Schedule of long term obligations
City employees earn $6M in vacation leave. Of this amount, they are paid $4.5M in 2017 &
postpone the balance until future years. The leave vests & can be taken anytime up to
retirement or as additional compensation at the time of retirement. - correct answer
✔✔Governmental Fund - 2017
Vacation Pay Expenditures 4.5M
Cash (Salary/Wages Payable) 4.5M
Government-Wide Statements - 2017
Expense - Vacation Pay 6M
Cash 4.5M
Accrued Vacation Pay 1.5M
,2.) Sick Leave - correct answer ✔✔GASB states that sick leave is recognized as a liability only if it
is probable that the employer will compensate the employee for the benefits through cash
payments conditions on the employees termination or retirement
A city allows employees one day of sick leave a month and permits them to accumulate any sick
leave they do not take. If they terminate after at least 10 yrs of service, they will be paid for
unused sick leave up to 30 days. In 2017, employees earned 10M of sick leave that they did not
take during the year. The city estimates that of this amount 7M will be paid to employees in
future years as sick leave, 2M will be paid to ten-year employees upon termination, & 1M will
not be paid. - correct answer ✔✔Governmental Fund
Sick leave termination benefit expenditure 2M
Cash 2M
Government-wide Statements
Sick leave termination benefit expenses 2M
Accrued sick leave 2M
Restricted Leave - correct answer ✔✔Leave Taken
Unrestricted Leave - correct answer ✔✔Period Earned
3.) Sabbatical Leave & When to Recognize - correct answer ✔✔1.) When earned by the
employee leading up to the leave
2.) Over the course of the leave
3.) Over the years to be benefited from the leave
GASB standards on Sabbatical Leave & When to Accrue It - correct answer ✔✔1.) If leave will
benefit employer, the sabbatical should be accounted for in the period the leave is taken. No
liability accrued in advance of the leave.
, 2.) If leave is for "compensated unrestricted time off" then the government should accrue a
liability during the period the leave is earned
A school district grants faculty members a one-year leave after seven years of service to engage
in research. In a particular year, it paid 2M to faculty on leave. In addition, it estimated that
faculty "earned" 2.4M toward leave they are likely to take in the future. - correct answer
✔✔Governmental Fund
Sabbatical leave expenditure 2M
Cash 2M
Government-wide Statements
Sabbatical leave expense 2M
Accrued sabbatical leave 2M
T/F: If no sabbatical leave was expected to be paid with expendable/available resources, no
governmental fund entry would be made. - correct answer ✔✔True
If sabbatical leave was unrestricted and the government expected to pay 1M of the 2.4M with
expendable/available resources. - correct answer ✔✔Governmental Fund
Sabbatical leave expenditure 1M
Cash 1M
Government-wide statement
Sabbatical leave expense 2.4M
Accrued sabbatical leave 2.4M
Two types of Pension plans - correct answer ✔✔1.) Defined benefit plan
2.) Defined contribution plans
questions and answers graded A+
Record equipment acquired with demand bonds - correct answer ✔✔Government-wide
statement
Equipment XXX
Demand bond payable - S/T XXX
What Funds Use Expenses - correct answer ✔✔Government-wide/proprietary/fiduciary
What method of accounting is used for expenses - correct answer ✔✔Full Accrual
What Funds Use Expenditures - correct answer ✔✔Governmental funds
What method of accounting is used for expenditures - correct answer ✔✔Modified Accrual
When is an expenditure recognized - correct answer ✔✔When an asset is acquired
Rule for liabilities in government - correct answer ✔✔A liability is current if it will be
paid/liquidated from current financial resources
When should governments accrue a liability - correct answer ✔✔1.) When it is incurred
2.) GASB allowed exception - which allows the delay of recognizing liability/expenditure until
the period the liability is paid
7 GASB Allowed Exceptions Liabilities - correct answer ✔✔1.) Compensated Absences
,2.) Pension & Other post-employment benefits
3.) Claims & Judgments
4.) Inventories
5.) Prepayment
6.) Capital Assets
7.) Principal & Interest
1.) Compensated Absences - correct answer ✔✔Ex. vacations, holidays, sick leave, sabbatical
leave, or jury duty
Earned in one period, but often not paid until several periods later
GASB Rules for compensated absences - correct answer ✔✔the liabilities and expenditures are
recognized in the periods in which payment is made
Where are compensated absences recorded? - correct answer ✔✔1.) Government-wide
statements
2.) Schedule of long term obligations
City employees earn $6M in vacation leave. Of this amount, they are paid $4.5M in 2017 &
postpone the balance until future years. The leave vests & can be taken anytime up to
retirement or as additional compensation at the time of retirement. - correct answer
✔✔Governmental Fund - 2017
Vacation Pay Expenditures 4.5M
Cash (Salary/Wages Payable) 4.5M
Government-Wide Statements - 2017
Expense - Vacation Pay 6M
Cash 4.5M
Accrued Vacation Pay 1.5M
,2.) Sick Leave - correct answer ✔✔GASB states that sick leave is recognized as a liability only if it
is probable that the employer will compensate the employee for the benefits through cash
payments conditions on the employees termination or retirement
A city allows employees one day of sick leave a month and permits them to accumulate any sick
leave they do not take. If they terminate after at least 10 yrs of service, they will be paid for
unused sick leave up to 30 days. In 2017, employees earned 10M of sick leave that they did not
take during the year. The city estimates that of this amount 7M will be paid to employees in
future years as sick leave, 2M will be paid to ten-year employees upon termination, & 1M will
not be paid. - correct answer ✔✔Governmental Fund
Sick leave termination benefit expenditure 2M
Cash 2M
Government-wide Statements
Sick leave termination benefit expenses 2M
Accrued sick leave 2M
Restricted Leave - correct answer ✔✔Leave Taken
Unrestricted Leave - correct answer ✔✔Period Earned
3.) Sabbatical Leave & When to Recognize - correct answer ✔✔1.) When earned by the
employee leading up to the leave
2.) Over the course of the leave
3.) Over the years to be benefited from the leave
GASB standards on Sabbatical Leave & When to Accrue It - correct answer ✔✔1.) If leave will
benefit employer, the sabbatical should be accounted for in the period the leave is taken. No
liability accrued in advance of the leave.
, 2.) If leave is for "compensated unrestricted time off" then the government should accrue a
liability during the period the leave is earned
A school district grants faculty members a one-year leave after seven years of service to engage
in research. In a particular year, it paid 2M to faculty on leave. In addition, it estimated that
faculty "earned" 2.4M toward leave they are likely to take in the future. - correct answer
✔✔Governmental Fund
Sabbatical leave expenditure 2M
Cash 2M
Government-wide Statements
Sabbatical leave expense 2M
Accrued sabbatical leave 2M
T/F: If no sabbatical leave was expected to be paid with expendable/available resources, no
governmental fund entry would be made. - correct answer ✔✔True
If sabbatical leave was unrestricted and the government expected to pay 1M of the 2.4M with
expendable/available resources. - correct answer ✔✔Governmental Fund
Sabbatical leave expenditure 1M
Cash 1M
Government-wide statement
Sabbatical leave expense 2.4M
Accrued sabbatical leave 2.4M
Two types of Pension plans - correct answer ✔✔1.) Defined benefit plan
2.) Defined contribution plans
