Chapter 16 – Accounting for State and Local Governments, Part I
1. The Governmental Accounting Standards Board (GASB) requires state and local governments
to prepare two sets of financial statements which include:
A) Fund financial statements and proprietary financial statements.
B) Proprietary financial statements and fund- based financial statements.
C) Fund financial statements and government-wide financial statements.
D) GAAP-based financial statements and government-wide financial statements.
E) Statement of net assets and statement of cash flows.
2. Which group of government financial statements reports all revenues and all costs as well as
all assets and liabilities of the governmental entity?
A) GAAP-based Financial Statements
B) Fund financial Statements.
C) Governmental fund financial statements.
D) Government-wide financial statements.
E) General fund financial statements.
3. Proprietary funds are
A) Funds used to account for the activities of a government that are carried out primarily to
provide services to citizens.
B) Funds used to account for a government’s ongoing activities that are similar to those operated
by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee or agency capacity.
D) Funds used to account for all financial resources except those required to be accounted for in
another fund.
E) Funds used to account for resources that are restricted or committed for a specific purpose
other than debt payments or capital projects.
4. Fiduciary funds are
A) Funds used to account for the activities of a government that are carried out primarily to
provide services to citizens.
B) Funds used to account for a government’s ongoing organizations and activities that are similar
to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee or agency capacity.
D) Funds used to account for all financial resources except those required to be accounted for in
another fund.
E) Funds used to account for resources that are restricted or committed for a specific purpose
other than debt payments or capital projects.
5. Governmental funds are
A) Funds used to account for the activities of a government that are carried out primarily to
provide services to citizens.
B) Funds used to account for a government’s ongoing organizations and activities that are similar
to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee or agency capacity.
D) Funds used to account for all financial resources except those required to be accounted for in
another fund.
E) Funds used to account for resources that are restricted or committed for a specific purpose
other than debt payments or capital projects.
6. Special Revenue funds are
A) Funds used to account for the activities of a government that are carried out primarily to
provide services to citizens.
B) Funds used to account for a government’s ongoing organizations and activities that are similar
to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee or agency capacity.
D) Funds used to account for all financial resources except those required to be accounted for in
another fund.
E) Funds used to account for resources that are restricted or committed for a specific purpose
other than debt payments or capital projects.
7. The term “current financial resources” refers to
A) Those assets that can quickly be converted into cash.
B) Assets that are available to be used for current expenditures.
C) The government’s current assets and current liabilities.
D) The current value of all net assets owned by the governmental unit.
E) Financial resources used to provide electricity to local citizens.
8. What are the broad classifications of funds for a governmental entity such as a city?
A) General, governmental, and trust funds.
B) Governmental, proprietary, and fiduciary funds.
C) Revenue, trust, and governmental funds.
D) Enterprise, revenue, and fiduciary funds.
E) Governmental, agency, and enterprise funds.
9. Which group of financial statements is prepared using the “modified accrual accounting”
approach?
A) GAAP-based financial statements.
B) Governmental fund financial statements.
C) Cost-based financial statements.
D) Government-wide financial statements.
E) General-purpose financial statements.
10. Under modified accrual accounting, revenues should be recognized when they are
A) Collected.
B) Realizable and estimable.
C) Reasonably estimable.
D) Measurable and available to be used.
E) Earned and collected.
11. Under modified accrual accounting, when should an expenditure be recorded to recognize
interest on long-term debt?
A) At the end of each accounting period.
B) When payment is due within one fiscal year.
C) When it reduces current financial resources.
D) When cash is available to pay the interest.
E) When the interest is incurred.
12. Which of the following funds is most likely created with an endowed gift?
A) Enterprise Fund.
B) Internal Service Fund.
C) Debt Service Fund.
D) Capital Projects Fund.
E) Permanent Fund.
13. Revenue from property taxes should be recorded in the General Fund
A) When received.
B) When there is an enforceable legal claim.
C) When they are available for recognition.
D) In the period for which the resulting resources are required or permitted to be used.
E) In the period in which the tax bills are mailed.
14. Government-wide financial statements benefit users by allowing them to do all of the
following except:
A) Determine whether the government’s overall financial position improved or deteriorated
during the reporting period.
B) Understand the cost of providing services to the citizenry.
C) See how the government finances its programs.
D) Identify the government official responsible for managing each fund.
E) Understand the extent to which the government has invested in capital assets.
15. A city received a grant of $5,000,000 from a private agency. The money was to be used to
build a new city library. In which fund should the money be recorded for the governmental fund
financial statements?
A) The General Fund.
B) An Expendable Trust Fund.
C) A Capital Projects Fund.
D) An Agency Fund.
E) A Permanent Fund.
16. When a city received a county grant designated for providing food and other assistance to the
homeless, the money should have been recorded in
A) The General Fund.
B) An Expendable Trust Fund.
C) A Capital Projects Fund.
D) An Agency Fund.
E) A Special Revenue Fund.
17. Bay City received a federal grant to provide health care services to low income mothers and
children. When should the revenues be recognized?
A) As health care services are provided.
B) When the awarding of the grant is announced.
C) When the grant money is received.
D) At the end of Bay City’s fiscal year.
E) When the grant money is receivable.
18. Trapper City issued 30-year bonds for the purpose of building a new City Hall. The proceeds
of the bonds are deposited in the General Fund. For the governmental fund financial statements,
in what fund will Bonds Payable appear?
A) General fund.
B) Internal service fund.
C) Permanent fund.
D) Debt service fund.
E) Bonds Payable do not appear in governmental fund financial statements.
19. Which of the following is a governmental fund?
A) Enterprise fund.
B) Internal service fund.
C) Permanent fund.
D) Investment trust fund.
E) Agency fund.
20. Which of the following is a fiduciary fund?
A) Pension trust fund.
B) Debt service fund.
C) Permanent fund.
D) Enterprise fund.
E) Capital projects fund.
21. According to GASB Concepts Statement No. 1, what are the three groups of primary users of
external state and local governmental financial reports?
A) The Securities and Exchange Commission, the citizenry, and legislative and oversight bodies.
B) The Securities and Exchange Commission, legislative and oversight bodies, and investors and
creditors.
C) The Securities and Exchange Commission, the citizenry, and investors and creditors.
D) The citizenry, legislative and oversight bodies, and investors and creditors.
E) The citizenry, management, and the Governmental Accounting Office.
22. Which of the following statements is true regarding governmental fund financial statements?
A) Governmental fund financial statements report a government’s activities and financial position
as a whole.
B) Governmental fund financial statements should tell the amount spent this year on such services
as public safety, education, health and sanitation, and the construction of a new road.
C) Governmental fund financial statements utilize the accrual basis of accounting much like any
for-profit entity.
D) Governmental fund financial statements help to determine whether the government’s overall
financial position improved or deteriorated.
E) Governmental fund financial statements report all assets and liabilities in a way comparable to
business-type accounting.
23. Which of the following statements is false regarding government-wide financial statements?
A) Government-wide financial statements report a government’s activities and financial position
as a whole.
B) The government-wide financial statement approach helps users make long-term evaluations of
the financial decisions and stability of the government.
C) Government-wide financial statements focus on the short-term instead of the long-term.
D) Government-wide financial statements assess the finances of the government in its entirety,
including the year’s operating results.
E) The measurement focus of government-wide financial statements is on all economic resources
and utilizes accrual accounting.
24. How do the balance sheet and statement of revenues, expenditures, and changes in fund
balances of governmental funds differ from the financial statement presentation for the
governmental activities in the government-wide statement of net assets and statement of
activities?
(1) Internal service funds are not included in the fund financial statements of governmental funds
but could be reported in the governmental activities of government-wide financial statements.
(2) The economic resources measurement basis is used for fund financial statements of
governmental funds and the current financial resources measurement basis is used for
governmental activities in the government-wide financial statements.
(3) Modified accrual accounting is used for fund financial statements of governmental funds to
time revenues and expenditures and accrual accounting is used for governmental activities of
government-wide financial statements.
(4) The financial statements of governmental funds for fund financial statements are the same as
governmental activities in government-wide financial statements but with different titles of the
financial statements.
A) 1 and 2.
B) 2, 3, and 4.
C) 1, 2 and 3.
D) 1 and 3.
E) 1, 2, 3, and 4.
25. Which of the following is not a classification of non-exchange transactions?
A) Derived tax expenditures.
B) Voluntary non-exchange transactions.
C) Government-mandated non-exchange transactions.
D) Derived tax revenues.
E) Imposed non-exchange revenues.
26. For determining revenue recognition, eligibility requirements for government-mandated
nonexchange transactions and voluntary nonexchange transactions are categorized into four
general classifications including all of the following except:
A) Required characteristics of the recipients.
B) Time requirements.
C) Reimbursement.
D) Contingencies.
E) Refunding.
27. Which statement is not correct?
A) Governmental funds account for expenditures of financial resources rather than matching
revenues and expenses.
B) The Encumbrances Outstanding account should be reversed and closed at the end of a fiscal
year.
C) Revenues from licenses and permit fees are recognized when received in cash if using the
modified accrual basis of accounting for governmental funds.
D) A fund is an independent accounting entity composed of cash and other financial resources,
segregated for the purpose of carrying on specific activities and objectives.
E) Commitments for purchase orders are recorded as expenses.
28. For governmental entities, the accrual basis of accounting is used for:
A) Special revenue funds.
B) Internal service funds.
C) Debt service funds.
D) The general fund.
E) Capital projects funds.
29. What account is debited in the general fund when equipment is received by a governmental
entity?
A) Expenditures.
B) Encumbrances.
C) Plant assets.
D) Accounts Payable.
E) Fund Balance-Reserve for Encumbrances.
30. Annual budgets must be recorded within:
A) The general fund and special revenue funds.
B) Capital projects funds and debt service funds.
C) Enterprise funds and internal service funds.
D) The general fund and pension trust Fund.
E) Agency funds and the general fund.
31. When a city received a federal grant designated for books to be purchased for a library, the
money should have been recorded in
A) A permanent fund.
B) A private purpose trust fund.
C) A capital projects fund.
D) An agency fund.
E) A special revenue fund.
32. When a city holds pension monies for city employees, the monies should be recorded in
A) The general fund.
B) A private purpose trust fund.
C) A fiduciary fund.
D) An agency fund.
E) A special revenue fund.
33. When a city received a private donation of $1,000,000 stipulating that the principal donation
would be preserved but allowing the interest income to be spent on building a city park with
access for disabled children, which fund should the money be recorded in?
A) The general fund.
B) A private purpose trust fund.
C) A permanent fund.
D) An agency fund.
E) A special revenue fund.
34. When a city collects admission fees from citizens who use the public swimming pool, the
money should be recorded in
A) The general fund.
B) An enterprise fund.
C) A capital projects fund.
D) An agency fund.
E) An internal service fund.
35. A city operates a central data processing facility. The expenses of this facility would be
accounted for using
A) The general fund.
B) An enterprise fund.
C) A capital projects fund.
D) An agency fund.
E) An internal service fund.
36. What are the two proprietary fund types?
(1) Internal service funds.
(2) Investment trust funds.
(3) Enterprise funds.
(4) Agency funds.
A) 1 and 2.
B) 2 and 3.
C) 1 and 3.
D) 2 and 4.
E) 1 and 4.
37. Salaries and wages that have been earned by governmental employees that have not yet been
paid are recorded in the general fund as:
A) An expenditure.
B) An encumbrance.
C) An appropriation.
D) An expense.
E) An investment.
38. The reporting of the fund balance of governmental funds will result in a maximum of how
many categories:
A) One
B) Two
C) Three
D) Four
E) Five
39. Which of the following is not one of the categories for reporting fund balances of
governmental funds?
A) Spendable
B) Nonspendable
C) Assigned
D) Unassigned
E) Restricted
40. Which of the following statements is true about Fund Balance classifications for the
governmental funds?
A) A restricted fund balance is for monies the governing board has appropriated.
B) An assigned fund balance has been designated for a specific purpose and is restricted to use
for only that purpose.
C) An unassigned fund balance has no restriction for use of the money and is normally applicable
to the general fund.
D) A committed fund balance has been designated by an outside party for a particular use.
E) A nonspendable fund balance is designated only for the balance of permanent funds.
41. Which type of account would you assign a gift of $1.5 million dollars with restriction
indicating that only the future income generated from this balance can be used by the
government?
A) Committed
B) Nonspendable
C) Assigned
D) Unassigned
E) Restricted
42. The government has just voted to repair the parking garages to all federal building
and estimate the cost to be $750,000. The government discloses this decision by debiting
which account?
A) Committed
B) Nonspendable
C) Assigned
D) Unassigned
E) Restricted
43. Which of the following is not a true statement regarding revenues from various types
of nonexchange transactions?
A) Derived tax revenues occur as a result of sales and or income tax.
B) Imposed nonexchange revenues consist of only fines and penalties assess by the
governing agency.
C) Government mandated nonexchange transactions includes grants from the federal
government to the local public school system for a free lunch program.
D) Voluntary nonexchange transactions can originate from a governmental agency or
private citizen organization.
E) Imposed nonexchange transactions revenue recognition is made in the time period
when the resulting resources are required to be used or in the first period in which
use is permitted.
44. Which statement most accurately reflects property taxes?
A) Property taxes are derived tax revenues because property owners have the benefit of
ownership.
B) Property taxes are considered a special assessment by the governing agency.
C) When recording, property taxes the receivable is record and the revenue is recognized
when the government has enforceable legal claim.
D) When recording, property taxes the revenue is recognized in the period in which it
can be used.
E) Property taxes are the result of the government making an assessment, only when an
underlying exchange has occurred.
45. Which of the following would be considered a derived tax revenue?
A. Collection of property taxes.
B. FICA is withheld from the employee pay.
C. A grant is received from the federal government.
D. A private citizen willing sends money to buy books for the local library.
E. Fees are collected on overdue library books.
46. For each of the following transactions, select the area of accounting records in which an entry
will be recorded for governmental fund financial statements and for government-wide financial
statements.
(A) General fund only.