Chapter 17 – Accounting for State and Local Governments, Part II
1. What is the highest level of authoritative rules for state and local government accounting?
A) Technical Bulletins
B) Implementation Guides
C) Official Statements of GASB
D) Interpretations no longer in effect
E) Financial Accounting Standards
2. All of the following about tax abatement agreements must be disclosed by state and local governments
except:
A) The purpose of the tax abatement program.
B) The type of tax being abated.
C) Identify the companies receiving the abatements.
D) Dollar amount of taxes abated.
E) Commitments made by the government or other party.
3. Jones College, a public institution of higher education, must prepare financial statements
A) As if the college was an enterprise fund.
B) Following the same rules as state and local governments.
C) According to GAAP.
D) As if the college was a fiduciary fund.
E) In the same manner as private colleges and universities.
4. For the purpose of government-wide financial statements, the cost of cleaning up a government-owned
landfill and closing the landfill
A) Is not recognized until the costs are actually incurred.
B) Is accrued and amortized over the expected useful life of the landfill.
C) Is accrued on a pro-rated basis each period based on how full the landfill is.
D) Is accrued in full at the time the costs become estimable.
E) Is treated as an encumbrance at the time it become estimable, and then as an expenditure when it is
actually paid.
5. A method of accounting for infrastructure assets that allows the expensing of all maintenance costs
each year instead of computing depreciation is called
A) Government-wide depreciation.
B) Proprietary depreciation.
C) GASB depreciation.
D) Modified approach.
E) Alternative depreciation.
6. Drye Township has received a donation of a rare painting worth $1,000,000. For Drye’s government–
wide financial statements, three criteria must be met before Drye can opt not to recognize the painting as
an asset. Which of the following is not one of the three criteria?
(1.) The painting is held for public exhibition, education, or research in furtherance of public service,
rather than financial gain.
(2.) The painting is scheduled to be sold immediately at auction.
(3.) The painting is protected, kept unencumbered, cared for, and preserved.
A) Item 1 is not one of the three criteria.
B) Item 2 is not one of the three criteria.
C) Item 3 is not one of the three criteria.
D) All three items are required criteria.
E) None of the three items are required criteria.
7. Which of the following statements regarding Management’s Discussion and Analysis is true?
A) MD&A is required only for Proprietary Fund Financial Statements.
B) MD&A is reported in the statistical section of the annual report.
C) MD&A is required for comprehensive annual financial reports.
D) MD&A for state and local government financial statements must include an analysis of potential,
untapped revenue sources.
E) MD&A is an optional inclusion for state and local government financial statements.
8. Which one of the following is a criterion for identifying a primary government?
A) it has an appointed board of directors.
B) it is fiscally dependent.
C) it is a local government.
D) it has a separately elected governing board.
E) it must prepare financial statements.
9. A local government’s basic financial statements would include a statement of cash flows for all
A) proprietary fund types.
B) governmental fund types.
C) fund types.
D) fiduciary fund types.
E) A statement of cash flows is not required for any fund types.
10. According to the GASB (Governmental Accounting Standards Board), which one of the following is
not a criterion for determining whether a government is legally separate?
A) The government can determine its own budget.
B) The government can issue bonded debt.
C) The government has corporate powers including the right to sue and be sued.
D) The government has the power to levy taxes.
E) The government can issue preferred stock.
11. Which of the following is not a step in reporting a pension liability?
A) The pension benefit payments that will ultimately be required are estimated by an actuary.
B) The portion of those payments that are attributable to past periods of employee service is calculated.
C) The present value of amounts attributable to past periods of employee service is determined in order
to arrive at the government’s obligation at the present time.
D) Excess liability balance is shown in the government-wide financial statements as a net pension asset.
E) Excess liability balance is shown in the government-wide financial statements as a net pension
liability.
12. The modified approach to accounting for infrastructure assets may be utilized by a state or local
government if:
i. The government accumulates information about all infrastructure assets within either a network or
subsystem of a network.
ii. The government capitalizes infrastructure assets.
iii. The government expenses costs of maintaining the infrastructure assets.
iv. The government chooses to depreciate its infrastructure assets.
A) i and ii.
B) i, ii, and iv.
C) ii and iii.
D) i, ii, and iii.
E) i, ii, iii, and iv.
13. All of the following are true about the modified approach to infrastructure depreciation except:
A) If specific guidelines are met, a government can choose to expense all maintenance costs each year in
lieu of recording depreciation.
B) The modified approach specifically excludes infrastructure assets within a network or subsystem of a
network.
C) If specific guidelines are met, additions and improvements must be capitalized.
D) For eligible assets, the government must establish a minimum acceptable condition level.
E) The government must have an asset management system in place to monitor the eligible assets.
14. Which of the following is a section of the financial section of the comprehensive annual financial
report (CAFR) of a state or local government?
(1) Management’s discussion and analysis (MD&A).
(2) Required supplementary information (other than MD&A).
(3.) Basic financial statements and notes to financial statements.
A) 1 and 2.
B) 2 and 3.
C) 1 and 3.
D) 3 only.
E) 1, 2, and 3.
15. Which of the following is true regarding Management’s Discussion and Analysis (MD&A)?
A) MD&A should provide an objective analysis of the financial activities based on currently known
facts, decisions, or conditions.
B) MD&A should disclose total assets and liabilities for all substantial component units.
C) Management should provide a cash flow projection for at least three consecutive fiscal years in
MD&A.
D) MD&A is optional for city governments.
E) MD&A is the final element of the introductory section of the comprehensive annual financial report
(CAFR).
16. What are the three broad sections of a state or local government’s CAFR?
A) Introductory, financial, and statistical.
B) Financial statements, notes to the financial statements, and component units.
C) Introductory, statistical, and component units.
D) Component units, financial, and statistical.
E) Financial statements, notes to the financial statements, and statistical.
17. Which of the following is a financial statement of a proprietary fund?
A) Balance sheet.
B) Statement of Operations.
C) Statement of Changes in Cash Flows.
D) Statement of Net Position.
E) Statement of Revenues, Expenditures, and Changes in Fund Balance.
18. Which criteria must be met to be considered a special purpose government?
(1.) Have a separately elected governing body
(2.) Be legally independent
(3.) Be fiscally independent
A) 1 only.
B) 1 and 2.
C) 2 and 3.
D) 1 and 3.
E) 1, 2, and 3.
19. Which statement is false regarding the government-wide Statement of Net Position?
A) Noncurrent liabilities are presented separately from current liabilities.
B) Assets are reported excluding capital assets.
C) Capital assets are reported net of depreciation.
D) Investments are reported at fair value rather than historical cost.
E) Discretely presented component units are grouped and shown on the right of the total.
20. Which item is not included on the government-wide Statement of Activities?
A) Revenues.
B) Expenses.
C) Assets.
D) Operating grants.
E) Capital contributions.
21. Which statement is false regarding the Balance Sheet for Governmental Fund Financial Statements?
A) The Balance Sheet for Governmental Fund Financial Statements measures only current financial
resources of the governmental entity.
B) The Balance Sheet for Governmental Fund Financial Statements uses the modified accrual method for
timing purposes.
C) Capital Assets are not reported on the Balance Sheet for Governmental Fund Financial Statements.
D) The Balance Sheet for Governmental Fund Financial Statements measures only long-term financial
resources of the governmental entity.
E) Long-term debts are not reported on the Balance Sheet for Governmental Fund Financial Statements.
22. The city operates a public swimming pool where each person is assessed a $2 entrance fee. Which
financial statement is most appropriate to report these revenues?
A) Statement of Net Position.
B) Statement of Revenue, Expenditures, and Other Changes in Fund Balance.
C) Statement of Revenue, Expenses, and Other Changes in Fund Balance.
D) Statement of Net Revenue and Expenses.
E) Statement of Revenue, Expenses, and Other Changes in Net Position.
23. Which statement is false regarding the Statement of Revenues, Expenditures, and Other Changes in
Fund Balance when it is included with government-wide financial statements?
A) The Statement of Revenues, Expenditures, and Other Changes in Fund Balance uses the modified
accrual method of accounting.
B) The Statement of Revenues, Expenditures, and Changes in Fund Balance presents revenues as either
program revenues or general revenues.
C) A presentation reconciles the change in governmental fund balance to the change in net position for
governmental activities.
D) Other financing sources are presented on the Statement of Revenues, Expenditures, and Other Changes
in Fund Balance.
E) All non-major funds are combined and reported together.
24. On government-wide financial statements, which of the following are the appropriate amounts to
present in the financial statements for 2018?
A) Both expense and liability will be zero.
B) Expense will be $300,000 and liability will be $600,000.
C) Expense will be $600,000 and liability will be $600,000.
D) Expense will be $675,000 and liability will be $600,000.
E) Expense will be $375,000 and liability will be $675,000.
2018.
[QUESTION]
25. If the landfill is judged to be a governmental fund, what liability is reported on the fund financial
statements at the end of 2018?
A) $ 0.
B) $300,000.
C) $375,000.
D) $600,000.
E) $675,000.
26. Over the years, four alternatives have been suggested for constructing the financial statements for
public colleges and universities. These alternatives include all of the following except:
A) Adopt FASB’s requirements so that all colleges and universities (public and private) prepare
comparable financial statements.
B) Apply a more traditional model focusing on fund financial statements and the wide variety of funds
that such schools often have to maintain.
C) Create an entirely new set of financial statements designed specifically to meet the unique needs of
public colleges and universities.
D) Adopt the requirements issued by the Private Company Council (PCC) of the FASB.
E) Adopt the same reporting model for public schools that has been created for state and local
governments.
27. Which information must be disclosed regarding tax abatement agreements?
i) The purpose of the tax abatement program.
ii) The dollar amount of abatement and the names of recipients.
iii) The type of tax being abated.
A) i and iii.
B) i only.
C) ii only.
D) iii only.
E) i, ii, and iii.
28. The Town of Conway opened a solid waste landfill in 1995 that is filled to capacity in the current
year. The city initially anticipated closure costs of $2 million. These costs were not expected to be
incurred until the landfill was closed. What is the final journal entry to record these costs assuming the
estimated $2 million closure costs were properly recorded and the landfill is accounted for in an enterprise
fund?
A)
Expense—Landfill Closure
2,000,000
Landfill Closure Liability
2,000,000
B)
Landfill Closure Liability
2,000,000
Expense—Landfill Closure
2,000,000
C)
Expense—Landfill Closure
2,000,000
Cash
2,000,000
D)
Landfill Closure Liability
2,000,000
Cash
2,000,000
E)
Expenditure- Landfill Closure
2,000,000
Cash
2,000,000
29. What three criteria must be met to identify a governmental unit as a primary government?