A Deficit Unassigned Fund Balance Was Reported in a City

question 6

Multiple Choice

A deficit unassigned fund balance was reported in a city Capital Projects Fund balance sheet. Which of the following explanations for the deficit is not plausible?

• A) The project is being financed in large part by a federal grant, which provides that costs incurred will not be reimbursed until the project is completed.
• B) The city financed current year expenditures by issuing bond anticipation notes that are not general long-term liabilities.
• C) The city entered into a two-year construction contract. Transfers from the General Fund will be made each year to cover actual expenditures.
• D) The city had a large assigned fund balance.

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Definitions:

Annual Cash Inflow

The total amount of money received by a company from its various activities, including sales, investments, and financing, within a year.

Discount Rate

The interest rate critical for calculating the present-day valuation of future cash flows in discounted cash flow methodology.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows, used in capital budgeting to assess the profitability of investments or projects.

Initial Cost

Initial cost refers to the total amount of expenses incurred when acquiring a new asset or starting a new project, including purchase price and any additional costs necessary to get the asset into use.