Exercise 2 Worksheet: City Operations Transactions

Determine whether each of the following statements is true or false, and explain why.

1. The government-wide financial statements, not the fund financial statements, will disclose the pension trust fund.

True or False

Brief Explanation

2. Permanent funds are disclosed as one of the governmental funds.

True or False

Brief Explanation

3. A police department requisitions $40,000 in equipment. The cost of the equipment received is $41,600. As required for fund financial statements, a $40,000 encumbrance is recorded at the time the order was placed. A $41,600 expenditure is recorded upon receipt of the equipment.

True or False

Brief Explanation

4. The government reports a biomass energy plant as an enterprise fund. At the end of the first year, the cost for clean-up after eventual project closure was estimated at $875,000. The current expenditure was 12%. At the end of the second year, and an expenditure of 20%, the estimate was revised upward to $960,000. Payments are not due for several years. An $87,000 expense should be reported on fund financial statements for the second year.

True or False

Brief Explanation

5. A city reports a landfill in its general fund. At the end of the first year, the city anticipated that landfill clean-up, after its full, would cost $1,200,000 and reported it as 11% full. At the end of the second year, the city revised its estimates to $1,150,000 and 20% full. Payments are not due for several years. A $98,000 expense should be reported on government-wide financial statements for the second year.

True or False

Brief Explanation

6. On the first day in January of Year 1, a city signs a six-year lease for a communications system (for use by police department). Six $15,000 yearly payments will be made under the terms of the lease, with the first payment due immediately. The present value of the $90,000 in cash flows, based on an interest rate of 10%, is $65,329. First-year fund financial statements should report $15,000 in total expenditures.

True or False

Brief Explanation

7. An agency fund does not have revenues or expenses but reports expenditures.

True or False

Brief Explanation

8. On the first day in January of Year 1, a city signs a six-year lease for a communications system (for use by police department). Six $15,000 yearly payments will be made under the terms of the lease, with the first payment due immediately. The present value of the $90,000 in cash flows, based on an interest rate of 10%, is $65,329. First-year government-wide financial statements should report expenses of $20,033.

True or False

Brief Explanation