Question

Which of the following is true regarding proprietary funds?

A.		When an Enterprise Fund is used, expenses are accrued only if they are expected to be paid within 60 days of year end.
B.		An Enterprise Fund may not be used if the fund receives a subsidy from another fund.
C.		An Internal Service Fund is used if the main customers paying for the service are other funds or agencies of the government.
D.		An Enterprise Fund must be used if the activity is financed through the proceeds of a general obligation bond.

Answer 1

Solution: An Internal Service Fund is used if the main customers paying for the service are other funds or agencies of the government

Explanation:

1) When an Enterprise Fund is used, expenses are accrued only if they are expected to be paid within 60 days of year end.

FALSE, these are accrued immediately

2) An Enterprise Fund may not be used if the fund receives a subsidy from another fund.

False, the general fund acts as an supplement the enterprise fund

3) An Internal Service Fund is used if the main customers paying for the service are other funds or agencies of the government.

TRUE, Internal Service funds are used to keep track of the business-type activities wherein the customers are other funds, or agencies within the same governmental unit

4) An Enterprise Fund must be used if the activity is financed through the proceeds of a general obligation bond

FALSE, amounts given to the enterprise fund needs to be recorded as a transfer from the fund recording the bond proceeds