Prepare journal entries for Lincoln County Tax Agency Fund
Course:- Accounting Basics
Reference No.:- EM132369431

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Accounting For Governmental And Nonprofit Organizations Questions -

The City Council of Simpson City voted to establish an internal service fund to account for the city's printing services. In order for the new fund to begin operations, the city transferred $600,000 cash from its General fund to the newly created internal service fund.

1. The appropriate entry in the general fund to account for this transfer is a credit to cash for $600,000 and a debit for $600,000 to .....

a) Due from internal service fund.

b) Nonreciprocal transfer-out.

c) Expenditures.

d) Investment in internal service fund.

2. The appropriate entry in the internal service fund is a debit to cash for $600,000 and a credit for $600,000 to

a) Due to general fund.

b) Nonreciprocal transfer-in.

c) Capital contribution (Revenues).

d) Investment provided by the general fund.

3. Listed below is terminology relating to audits of governmental and not-for-profit organizations:

A. Attestation engagement for compliance

B. Generally accepted auditing standards (GAAS)

C. Opinion units

D. Materiality

E. Financial audit

F. Generally accepted government auditing standards (GAGAS)

G. Non-audit work

H. Performance audits

I. Questioned Cost

J. Material Weakness

For the seven definitions listed here, indicate the key term from the list above that best matches it. To do that, place the appropriate letter next to the numbers that are listed next to the definitions.

_____1. Services providing an opinion that financial statements present fairly an entity's financial position and results of operations in conformity with GAAP.

_____2. A deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis

_____3. Standards prescribed by the AICPA to provide guidance for CPAs to plan, conduct, and report on audits.

_____4. Services related to internal control, compliance, MD&A presentation, allowability and reasonableness of proposed contract amounts, final contract costs, and reliability of performance measures.

_____5. Services characterized by a broader range of evidence that may extend beyond financial data.

_____ 6. An auditor's judgment as to the level at which the quantitative or qualitative effects of misstatements will have a significant impact on user's evaluations

_____ 7. A monetary item identified by an auditor in an audit finding that generally relates to noncompliance with a law, regulation, or agreement, where the costs are either not supported by adequate documentation or appear unreasonable

4. Under a single audit:

A. All of the statements below regarding a single audit are true.

B. The audit must be conducted by an independent auditor in accordance with generally accepted government auditing standards (GAGAS) and cover the operations of the entire nonfederal entity.

C. For each major program, the auditor must obtain an understanding of the internal controls pertaining to the compliance requirements for the program, assess control risk, and perform tests of controls, unless the controls are deemed to be ineffective.

D. An annual audit must be performed encompassing the nonfederal entity's financial statements and schedule of expenditures of federal awards.

5. City Center Hospital reported the following amounts as being uncollectible:

a. Services rendered to homeless individuals with no intention of collection - $10,000.

b. Services rendered with the expectation of collection, but which proved to be uncollectible - $30,000.

Based on this information, what amount should the hospital report as revenues and provision for bad debt for these items?

A. Revenues: $0; Provision for Bad Debt: 0.

B. Revenues: $30,000; Provision for Bad Debt: 30,000.

C. Revenues: $40,000; Provision for Bad Debt: 30,000.

D. Revenues: $40,000; Provision for Bad Debt: 40,000.

6. In the list below, which activity would most appropriately be recorded within a government's trust fund?

A. Donations collected for improvements to the public library.

B. Deposits held for customers of a municipal-owned electric utility.

C. Assets held for investment, the earnings from which are used for maintenance of the City Cemetery.

D. Assets held for college scholarships to be awarded to the children of police officers.

7. A governmental employer makes contributions to two pension plans for all of its employees. How should the employer record these contributions?

A. Report pension expenditures in a governmental fund in the amount actually contributed.

B. Report pension expenses in a proprietary fund reflecting changes to the net pension liability.

C. Recognize pension costs in the government-wide statements on the accrual basis of accounting.

D. All of the above.

8. The Tax Agency Fund of Citrus County collected the following amounts:

  • $7,500,000 for a school district,
  • $3,300,000 for its county General Fund, and
  • $5,700,000 for a municipality located in the County.

County General Fund employees handle all collections and charge a 2.5% collection fee to all entities (except the county). What would be the total amount of revenue recognized by the county's General Fund?

A. $330,000.

B. $3,300,000.

C. $3,630,000.

D. $9,000,000.

9. Central Hospital is a private sector, not-for-profit hospital. It received a pledge of $100,000 during 2018 containing no purpose restrictions. The pledge card indicated that the funds were to be used in 2019. In addition, the hospital received the cash in 2019. When should the not-for-profit hospital recognize the revenue for this contribution?

A. When the funds are expended.

B. 2019.

C. 2018.

D. Either 2018 or 2019, depending on the policy of the hospital.

10. The City of Summerland maintains three pension plans, as listed below:

  • A locally administered police plan for which the city is trustee,
  • A statewide cost sharing plan, and
  • A statewide agency plan.

For proper reporting purposes, the City would include pension trust fund financial statements in its CAFR for:

A. Both statewide plans.

B. All three plans.

C. The locally administered plan plus the statewide agency plan.

D. The locally administered plan only.

11. An anonymous donor gave a $50,000 cash gift to a private college during 2018 to support basic medical research. The college expended all of the funds during 2019. How should the private college recognize the $50,000 as revenue in its financial records?

A. Revenue in 2018 increasing net assets with donor restrictions; recognize the expense in 2019, and reclassify the resources from net assets with donor restrictions to net assets released from restriction in 2019.

B. Deferred revenue in 2018 and revenue in 2019, increasing net assets with donor restrictions. The expense would be recognized also in 2019, and the resources would be reclassified from net assets with donor restrictions to net assets released from restriction in 2019.

C. Deferred revenue in 2018 and revenue in 2019, increasing net assets without donor restriction. The expense would be recognized in 2019.

D. Either (b) or (c), depending upon the policy of the private college.

12. What could be a common reason why a government might receive a "modified opinion" from the external auditors for the audit of its financial statements?

A. A violation of generally accepted accounting principles was noted that does not cause a material misstatement of the financial statements.

B. A fund balance deficit in the General Fund.

C. General Fund expenditures exceeded appropriations.

D. Accounting records could not be audited due to deficient internal controls.

13. St. Luke's Hospital recorded the various financial transactions listed below in its accounting records during the year. St. Luke's Hospital is a private not-for-profit hospital.

(a) St. Luke's billed patients $652,000 for services rendered. Of this amount, 4.5% is expected to be uncollectible. The hospital anticipates that contractual adjustments with insurance companies will total $92,000.

(b) St. Luke's received $600,000 in the form of pledges supporting a campaign undertaken to purchase new MRI equipment. All of the pledges are payable within one year and the hospital expects that 7% of the pledges are uncollectible.

(c) St. Luke's collected $519,000 for the services billed in item (a) above. In addition, actual contractual adjustments for these services amounted to $94,000. The hospital also determined that $17,900 of the receivables were uncollectible and written off.

(d) The hospital incurred charity care costs in the amount of $36,000 (at standard charges), all of which was performed on an indigent patient.

Assume that you are the hospital's accountant. Indicate below the appropriate journal entries you would record for these transactions. Indicate the names of the accounts to be debited and credited and the appropriate amounts.

14. A not-for-profit organization received a pledge from a local philanthropist totaling $200,000. The pledge will be paid in five equal installments of $40,000 starting in the next fiscal year. Using the applicable FASB standards, how should the pledge be recognized?

A. Support of $40,000 in each of the following five years.

B. Support of $200,000 in the year the pledge was made, discounted at an appropriate rate for future receipts.

C. Deferred support of $200,000 in the year the pledge was made.

D. Support of $40,000 in the year the pledge was made and $160,000 as deferred support.

15. Identify the statement below that is NOT true regarding accounting and reporting for federal government agencies versus accounting and reporting for state and local governments?

a) In their respective government-wide statements, state and local governments use the accrual basis of accounting whereas federal agencies use the cash basis of accounting.

b) State and local governments record appropriations whereas federal agencies record apportionments.

c) Federal agencies use a dual-track method of accounting for proprietary accounts and budgetary accounts; state and local governments use both budgetary and proprietary accounts only in governmental funds.

d) The budget is recorded in the General Ledger of a state or local government, but not in the General Ledger of a federal agency.

16. Current GASB accounting standards require that all of the items listed below require a reconciliation between financial statements for governmental funds and financial statements for governmental activities at the government-wide level. In light of this requirement, indicate whether the reconciliation will:

(A) always be subtracted from fund balances-governmental funds,

(B) always be added to fund balances-governmental funds, or

(C) may be added to or subtracted from fund balances-governmental funds in arriving at net position of governmental activities.

_____ 1. Long-term liabilities not payable in the current period

_____ 2. Capital assets that are used in governmental activities

_____ 3. Net position of internal service funds that are primarily governmental in nature

_____ 4. Accrued interest payable that is not due during the current period

17. Lowlands College is a public college engaged in some business-type activities. Which of the following statements below is not correct as it applies to Lowlands?

A. All of the statements below are correct

B. Most public college foundations are required to be reported as discretely presented component units in the college's financial report.

C. Only amounts that are to paid by students and third-party payers can be shown as tuition and fee revenue net of any scholarship discounts and allowances.

D. GASB requirements for business-type activities of public colleges require accrual accounts for debt, includes accrual of interest, and amortization of debt discount and premium.

18. Highlands College is a public college. During the year, it received tuition and fees totaling $25,000,000. The college also awarded scholarships, for which no services were required, amounting to $2,500,000. In addition, the college offered graduate assistantships, for which services were required, amounting to $1,500,000. What amount should Highlands report as its net tuition and fees for the year?

A. $20,000,000.

B. $25,000,000.

C. $21,500,000.

D. $23,500,000.

19. The terms below are key terms all relating to Single Audits:

A. Risk-based approach

B. Single audit

C. Questioned cost

D. Material weakness

E. Major programs

F. Oversight agency

G. Significant deficiency

H. Audit finding

For each of the definitions listed below, indicate the key term from the list above that best matches it. To do that, place the appropriate letter from the list above next to the numbers for the definitions listed below.

____1. A federal agency which provides the major amount of direct funding to a recipient of its federal funds is described as an ....

____2. A significant deficiency that is of such magnitude that the internal control system does not reduce the risk of material misstatement to an acceptably low level....

____3. An audit that is prescribed by federal law for state and local governments and not-for-profit organizations that expend more than $750,000 during a fiscal year in federal awards ...

____4. An approach used by auditors to determine which programs will be audited more substantially as part of an entity's single audit ...

____5. A cost identified in an audit finding that generally relates to noncompliance with a law, regulation, or agreement, where the costs are either not supported by adequate documentation or appear unreasonable ....

20. Listed below are various contributions made to a not-for-profit organization. Based on FASB standards, which one would not have to be reported as an asset in the organization's the Statement of Financial Position?

A. Land donated to the Friends of the Forest Society for conversion into a nature trail.

B. An original courthouse donated to the Historical Preservation Society to be converted for use as a museum.

C. A famous oil painting donated by an art collector to a local nongovernmental art museum for display in its exhibit hall.

D. A valuable coin collection donated to the Youth for Conservation organization, which the organization plans to sell at current market prices.

21. Performance audits, as defined in the GAO's Governmental Auditing Standards........

A. Provide a basis for an auditor's opinion as to whether the entity is acquiring, protecting, and using its resources economically and efficiently.

B. Provide assurance that program operations are in compliance with all applicable laws and regulations that may have a material effect on the financial statements.

C. Are always performed by the internal audit staff to assist the entity's independent auditor.

D) Provide assurance or conclusions based on an evaluation of evidence regarding program effectiveness; economy and efficiency; internal control, compliance, and prospective analyses.

22. In its Statement of Revenues, Expenses, and Changes in Net Position, a Proprietary Fund should include which of the following line items in addition to operating revenues, operating expenses, and ending net position?

a) Only Nonoperating revenues and expenses.

b) Only Nonoperating revenues and expenses and other changes in net position.

c) Nonoperating revenues and expenses, capital contributions, other changes in net position, and beginning net assets.

d) None of the above.

23. A local Conservatory recently held a fund-raising drive. The purpose of the fund raiser was to raise money for purchasing land that will provide habitat for an endangered animal. During the drive, a donor pledged $2 million to the project but with an additional stipulation that the Conservatory raise an additional $1.5 million from other sources. The Conservatory is a not-for-profit entity, so what accounting entry should it make when the $2 million pledge is made?

a) Debit Pledges receivable $2 million; Credit Net Assets with Donor Restrictions $2 million.

b) Debit Pledges receivable $2 million; Credit Deferred Revenue $2 million.

c) Debit Pledges receivable $3.5 million; Credit Deferred Revenue $3.5 million.

d) No entry is made at the time of the pledge.

24. A public university billed and collected $60 million in tuition during June of 2018 for its summer semester. The semester ran from June 1 through July 15 of that year. In addition, during May and June, it billed students $400 million for the fall semester, which runs from September 1 through December 15 of that year. Of the $400 million amount, the university collected $220 million, but expects to collect the balance prior to September 1. Taking all of this financial activity into account, how much should the university recognize as tuition revenue in its Statement of Revenues, Expenses, and Changes in Net Position for the fiscal year ending June 30, 2018?

a) $60 million

b) $280 million

c) $460 million

d) $40 million

25. A not-for-profit hospital and an insurance company negotiated and signed a contract agreement specifying that the insurance company would to pay the hospital $10 million in capitation fees for the year July 1, 2018, through June 30, 2019. Between July 1, 2018 and December 31, 2018, the hospital provides services totaling $6.1 million based on its standard billing rates for the health services provided. Between January 1, 2019, and June 30, 2019, the hospital provided services totaling $4.2 million based on its standard billing rates for the health services provided. If you are the hospital's accountant, how much should you record as capitation revenue for the year ended December 31, 2018?

a) $0

b) $6.1 million

c) $5.0 million

d) $10 million

e) $10.3 million

26. West Valley Water District is a not-for-profit entity that received federal financial assistance during the year. The District engaged an auditor for the annual audit of its financial statements. In compliance with Government Auditing Standards, the auditor also designed his audit of the District to provide reasonable assurance of detecting material misstatements resulting from illegal acts. What additional requirements does the auditor have with regard to the entity's compliance?

a) None.

b) The auditor must design the audit to provide reasonable assurance of detecting noncompliance with terms of grants and contracts.

c) The auditor must design the audit to provide reasonable assurance of detecting all misstatements resulting from illegal acts.

d) The auditor must design the audit to provide reasonable assurance of detecting any fraud.

27. All federal financial assistance programs have specific compliance requirements. Which of the following is not an example of general compliance requirements for such assistance programs?

a) The eligibility of individuals or groups to participate in the assistance programs.

b) The allowability of costs for certain types of goods or services that may be acquired.

c) Maximum dollar amounts of expenditures incurred.

d) Matching fund requirements by the government entity receiving the assistance.

28. An auditor has been engaged to conduct an audit of a government program subject to a performance audit. However, while planning the audit, the auditor discovers that the program lacks clearly defined objectives. What should the auditor do next in an attempt to resolve this problem?

a) Decline the audit until the government entity involved defines its program objectives.

b) Personally discern the objectives based on the auditor's opinions about the program.

c) Examine the underlying legislation that created the program to see if the legislation articulated the goals and objectives of the program.

d) Create a list of goals and objectives based on assumptions about the program.

29. A State's Governor appoints the members of the State Fish and Game Commission. The members of the commission serve ten-year terms and can be removed only for cause. State law prohibits the reappointment of a commissioner. The commission receives no tax dollars and is supported entirely by licenses and fees paid by hunters and anglers. The only bonds that the commission can legally issue are revenue bonds backed by the licenses and fees paid by the sportsmen. The Fish and Game Commission is not a 501(c)(3) organization and does not have separate legal status. Based on this information, the Fish and Game Commission is an example of a:

a) Primary government.

b) Component unit.

c) Related Organization.

d) None of the above.

30. Which of the following statements regarding audit findings for internal control is true?

A. A significant deficiency is a deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

B. A material weakness is a deficiency in internal control important enough to merit attention by those charged with governance.

C. An internal control deficiency exists when the design or operation of a control does not allow management or employees to prevent, or detect and correct misstatements on a timely basis.

D. All of the above are true.

E. None of the above are true

31. Clover College is a public college which held a 10-week summer session that started on June 25, 2019, so that one week was held during FY 2018-19 and the other nine weeks meet during FY 2019-20. Tuition and fees in the amount of $1,500,000 were collected from students for classes to be conducted in this session. What amount should Clover College recognize as unrestricted revenue in each of the years ended (FYE) June 30, 2019 and June 30, 2020 for this summer session?

FYE 2019 FYE 2020

A. $150,000 $1,350,000

B. $0 $1,500,000

C. $1,500,000 $0

D. $750,000 $750,000

A. Choice A.

B. Choice B.

C. Choice C.

D. Choice D.

32. A government's Schedule of Changes in Long-Term Obligations contains an account titled "Net Pension Liability." Which of the following events gave rise to this account?

a) The actual plan contribution made by a proprietary fund was less than the annual required contribution determined by an actuary.

b) The actual plan contribution by a governmental fund was less than the annual required contribution determined by an actuary.

c) The actuarially computed pension liability at year end exceeded the pension plan assets.

d) The actuarially computed pension liability at year end was less than the pension plan assets.

33. How are health services designated as charity care and bad debts reported for a government hospital that follows business-type accounting?

A. Both amounts are reported as deductions from gross patient revenue in arriving at net patient revenue.

B. Both amounts are reported differently, with charity care reported as a deduction from gross patient revenue and bad debts reported as an expense.

C. Both amounts are reported differently, with charity care disclosed in the notes to the financial statements and bad debts reported as a deduction from revenue.

D. Both amounts are reported as expenses.

34. A federal financial statement includes an amount titled "Allowance for Unrealized Holding Gains." It appears in the cost of goods sold section of the statement. The amount effectively does which of the following?

a) Adjusts the latest acquisition cost inventory valuation to the historical cost valuation.

b) Increases the cost of goods sold by the increase in market value of the inventory.

c) Decreases the cost of goods sold by the increase in market value of the inventory.

d) Adjusts the historical cost valuation to the latest acquisition cost inventory valuation.

35. Which statement below is false regarding federal special funds?

a) They are maintained primarily to account for resources that are designated for specific programs or activities.

b) They are typically financed by dedicated fees.

c) They account for resources used to pay for national defense.

d) They are included in the unified budget of the federal government.

36. A Medical Society placed advertisements in prominent publications in the region costing $40,000. The advertisements provided information about symptoms of diseases and offered practical advice for controlling their immediate effects. The society's accountants estimate that about 75% of the advertising copy was devoted to information about diseases and the remaining advertising was an appeal for funds. Using the physical units method of separating joint costs, how much of the cost of the advertisement should be reported as program costs?

a) $40,000.

b) $10,000.

c) $30,000.

d) $5,000.

37. Grace Church is a not-for-profit entity and operates a school in connection with the church. This year, church members decided to construct a new wing for its school containing six new classrooms. The church hired an architect and a construction supervisor. Church members donated the bulk of the labor for construction. The church members were willing workers but not necessarily skilled carpenters. Construction materials cost $1,600,000 and paid labor cost an additional $400,000. After the project was completed, the fair value of the building was $4 million. When the building was completed, what should be the balances in the Asset account "Building" and the account "Contributed revenue"?

a) Building $2,000,000; Contributed Revenue $0.

b) Building $2,000,000; Contributed Revenue $2,000,000.

c) Building $4 million; Contributed Revenue $0.

d) Building $4 million; Contributed Revenue $2,000,000.

38. The federal government maintains a dual system of accounts. What are the two types of accounts? Why does the federal government keep two types? Include as many relevant points as possible in your answer.

39. The Mid-State University Foundation is a legally separate, tax-exempt 501(c)(3) entity. It was organized for the purpose of raising funds to provide scholarships only to academically qualified students at the University. The existing university foundation Board members annually elect all new members to the Board. The foundation provides scholarships to students of the University, but receives no financial support from the university itself. Based on this information, the Foundation is an example of a:

a) Primary government.

b) Related organization.

c) Affiliated organization.

d) None of the above.

40. The following are key terms in Chapter 16 that relate to accounting and financial reporting for federal agencies and the federal government:

A. Apportionment

B. Budgetary resources

C. Expended appropriation

D. Governmental assets

E. Heritage assets

F. Intragovernmental assets

G. Stewardship investments

H. Stewardship land

For each of the following definitions, indicate the key term from the list above that best matches by placing the appropriate letter from the list above in the blank space next to the definition below.

______1. Federal capital assets that possess educational, cultural, and/or natural characteristics.

______2. Claims by or against a reporting entity that arise from transactions between the entity and other reporting entities.

______3. Assets that arise from transactions of the federal government or an entity of the federal government with non-federal entities.

______4. An account used when goods or services have been received.

______5. Federal land other than that included in general property, plant, and equipment.

______6. Dividing a federal appropriation into amounts that are available during specific time periods.

______7. New budgetary authority for the period, plus unobligated budgetary authority carried over from the prior period and offsetting collections, if any, plus or minus any budgetary adjustments.

41. Lincoln County collects property taxes for the City of Bear Creek, the City of Dixon, and the Lincoln County School District. The County established a tax agency fund to account for the property taxes it collects. Total tax levies of the three governmental units during the year were $400,000, of which $120,000 was for the City of Bear Creek, $80,000 for Dixon, and $200,000 for the School District.

The tax agency fund charges a 2% collection fee that it transfers to the county's General Fund in order to cover the costs incurred for agency fund operations. During the year, the tax agency fund collected and remitted $350,000 of the $400,000 in tax levies to the various governmental units. Collection fees associated with the $350,000 amount collected were remitted to Lincoln County's General Fund prior to year-end.

Required: Assume that you are the county's primary accountant and part of your assigned duties is to prepare the journal entries for the Lincoln County Tax Agency Fund. Show below the journal entries required to record the taxes collected during the year and the remittances made to the participating government entities. Use the resources in your textbook and in the lesson material to complete this problem. (Hint - four sets of journal entries will be required to record all of the financial activity.)

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    This is a take-home test. It contains: 34 multiple choice questions - 2 points each (68 points), 1 Written question (9 points), 2 Problems (40 points) and 4 Fill-in-the-Blank (23 points). Show work on problems for partial credit, for example… account titles, amounts of debit/credit entries, and names of funds (if required). For example, even if the entry amounts are incorrect, points can still be earned for using the correct account titles and vice-versa. For multiple choice questions – circle the answer that you think is correct. If you want to change your answer after having already circled one of the choices, please circle the new choice AND write the letter to the right of the question so I will know which answer you prefer.

  2. user image

    NOTE - The way that these questions are worded is similar to what you could expect on the CPA exam. This does NOT mean that they are “tricky.” Instead, it means that means you need to pay close attention to the wording to determine the appropriate answer. For a number of these questions, determining what kind of entity or fund you are working with is important.

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