Multiple Choice Questions
Identify the best answer for each of the following:
1. Which of the following activities is not commonly accounted for in an Internal Service Fund?
a. Self-insurance
b. Central garage
c. Landfill operations
d. Warehouse facility

2. GAAP requires the use of an Internal Service Fund for which of the following activities?
a. Self-insurance
b. Central garage
c. Warehouse facility
d. No specific type of activity is required to be reported as an Internal Service Fund.

3. Internal Service Funds are required to be reported in the proprietary fund financial statements
a. By major fund.
b. By fund type.
c. As governmental funds.
d. As either governmental or proprietary funds, depending on the nature of the Internal Service Fund operation.

4. GAAP require which of the following statements to be prepared for an Internal Service Fund?
a. Statement of net position
b. Statement of budgetary compliance
c. Statement of cash flows
d. Items a and c

5. In the government-wide financial statements, activities of an Internal Service Fund are
a. Always reported as governmental activities.
b. Always reported as business-type activities.
c. Reported either as governmental activities or business-type activities, depending on the fund’s primary customer base.
d. Eliminated and do not affect the statements.

6. Which of the following equity classifications is not reported for an Internal Service Fund?
a. Net investment in capital assets
b. Restricted net position
c. Retained earnings
d. Unrestricted net position

7. Which method of cash flow reporting is used to report operating activities?
a. Indirect method
b. Direct method
c. Either the indirect or direct method, depending on the method chosen for the government’s Enterprise Funds
d. Cash flow reporting is optional for Internal Service Funds.

8. Which of the following accounts would not typically be reported on the operating statement of an Internal Service Fund?
a. Salaries and wages expense
b. Supplies expense
c. Capital outlay expense
d. Maintenance expense

9. Which of the following transactions would not be allowed in an Internal Service Fund?
a. The purchase of capital items
b. Borrowing from another fund
c. Transfers from other funds
d. Negative accumulated, net changes in net position on an ongoing basis over time

10. What method of accounting does GAAP require for inventories in an Internal Service Fund?
a. Consumption method
b. Purchases method
c. Acquisition method
d. LIFO inventory costing