Multiple Choice Questions
1. A city government has obtained an asset through a capital lease. Which of the following is true for the government-wide financial statements?
a. The accounting parallels that used in for-profit accounting.
b. The city must report another financing source.
c. The city must report an expenditure.
d. Recognition of depreciation is optional.

2. A city government has a six-year capital lease for property being used within the General Fund. Minimum lease payments total $70,000 starting next year but have a current present value of $49,000. What is the total amount of expenditures to be recognized on the fund-based financial statements over the six-year period?
a. $-0-.
b. $49,000.
c. $70,000.
d. $119,000.

3. A city government holds a six-year capital lease for property being used within the General Fund. Minimum lease payments total $70,000 starting next year but have a current present value of $49,000. What is the total amount of other financing sources to be recognized on the fund-based financial statements over this six-year period?
a. $-0-.
b. $49,000.
c. $70,000.
d. $119,000.

4. A city government has a nine-year capital lease for property being used within the General Fund. The lease was signed on January 1, 2010. Minimum lease payments total $90,000 starting at the end of the first year but have a current present value of $69,000. Annual payments are $10,000, and the interest rate being applied is 10 percent. When the first payment is made on December 31, 2010, which of the following recordings is made?
Government-Wide Statements Fund-Based Statements
a. Interest Expense $–0– ........ Interest Expense $–0–
b. Interest Expense $6,900 ....... Expenditures $6,900
c. Expenditures $10,000 ........ Expenditures $10,000
d. Interest Expense $6,900 ....... Expenditures $10,000

5. A city government has a nine-year capital lease for property being used within the General Fund. The lease was signed on January 1, 2010. Minimum lease payments total $90,000 starting at the end of the first year but have a current present value of $69,000. Annual payments are $10,000, and the interest rate being applied is 10 percent. What liability is reported on the fund-based financial statements as of December 31, 2010, after the first payment has been made?
a. $–0–.
b. $59,000.
c. $65,900.
d. $80,000.

6. A city creates a solid waste landfill. It assesses every person or company that uses the landfill a charge based on the amount of materials contributed. In which of the following will the landfill probably be recorded?
a. General Fund.
b. Special revenues funds.
c. Internal service funds.
d. Enterprise funds.
Use the following information for problems 7, 8, and 9
A city starts a solid waste landfill that it expects to fill to capacity gradually over a 10-year period. At the end of the first year, it is 8 percent filled. At the end of the second year, it is 19 percent filled. Currently, the cost of closure and postclosure is estimated at $1 million. None of this amount will be paid until the landfill has reached its capacity.

7. Which of the following is true for the Year 2 government-wide financial statements?
a. Both expense and liability will be zero.
b. Both expense and liability will be $110,000.
c. Expense will be $110,000 and liability will be $190,000.
d. Expense will be $100,000 and liability will be $200,000.

8. If this landfill is judged to be a proprietary fund, what liability will be reported at the end of the second year on fund-based financial statements?
a. $-0-.
b. $110,000.
c. $190,000.
d. $200,000.

9. If this landfill is judged to be a governmental fund, what liability will be reported at the end of the second year on fund-based financial statements?
a. $-0-.
b. $110,000.
c. $190,000.
d. $200,000.
Use the following information
Use the following information for problems 10
The employees of the City of Jones earn vacation time that totals $1,000 per week during the year. Of this amount, $12,000 is actually taken in Year 1 and the remainder is taken in Year 2.

10. What liability should the city report on government-wide financial statements at the end of Year 1?
a. It depends on whether the employees work at governmental activities or business-type activities.
b. $–0–.
c. $40,000.
d. $52,000.