Generally accepted government auditing standards (GAGAS) apply to financial audits
of state and local governments only if they expend $750,000 or more in federal
financial assistance.
The Governmental Accounting Standards Board (GASB) is the body authorized to
establish accounting principles for all government entities.
The FASB requires that if a financial intermediary has variance power it recognize a
donation as a contribution payable on its financial statements.
The key cause of municipal financial crises is the failure of management to raise taxes
quickly enough in response to adverse environmental factors.
Other postemployment benefits (OPEB) include benefits other than pensions, such as
health care, life insurance, and long-term care.
Similar to for-profit entities, under FASB standards, not-for-profit health care entities
are required to classify investments into trading, available-for-sale, and held to maturity
for reporting purposes.
The federal government is considering a national ranking system in which colleges and
universities would be ranked on affordability, among other factors.
Not-for-profit organizations risk loss of their tax-exempt status if they engage in any
political activity.
Total quality management (TQM) seeks to continuously improve an organization’s
ability to meet or exceed customers’ demands, and, as such, is useful in a government
setting as well as a business setting.
Internal service funds account for operating expenditures on the accrual basis.
Although some governments have issued taxable debt, the interest earned on most debt
issued by state and local governments is exempt from federal taxation and, in some
states, from state taxation.
In accordance with the FASB Codification, an expense for diabetes research that was
financed by temporarily restricted contributions would be recorded as a decrease of
unrestricted net assets by a not-for-profit health care organization.
The amount of expense and liability to be reported each period for the closure and
postclosure costs of a municipal solid waste landfill (MSWLF) is proportional to the
amount of landfill capacity used during the period.
The sole purpose of preparing a governmental budget is to show compliance with laws
and regulations.
Current financial resources include cash and items such as marketable securities and
receivables expected to be converted into cash in the current period or soon enough
thereafter to pay current period obligations.
Political parties and campaign committees can qualify for tax-exempt status.
he purpose of a performance indicator is to provide an operating measure for
not-for-profit health care organizations that is equivalent to income from continuing
operations of for-profit health care organizations.
The type of budgeting that relates input of resources to output of services is zero-based
budgeting.
A disqualified person is a person who has violated and been sanctioned under the
Internal Revenue Code.
Expense amounts by natural classification can be determined from the statement of
functional expenses, as can the expense amounts for program services and supporting
services categories.
Service efforts and accomplishments reporting is also referred to as citizen-centric
reporting.
A revenues to expenditures ratio of over 0.90 is considered acceptable.
Interest incurred during construction of general capital assets cannot be capitalized as
part of the cost of those assets.
Pollution remediation obligations arise from responsibilities related to the cleanup of
hazardous wastes or hazardous substances resulting from existing pollution.
The Internal Revenue Service requires that information from the audited financial
statements be used to complete the Form 990.
TRUE/FALSE
An encumbrance represents the estimated future liability for goods or services resulting
from placing a purchase order or signing a contract.
An example of information found in the statistical section of the comprehensive annual
financial report (CAFR) is demographic information such as unemployment rates, and
personal income of citizens.
TRUE/FALSE
Encumbrance accounting is required in the accounting for payroll of governmental
funds.
Economic resources are cash or items expected to be converted into cash during the
current period, or soon enough thereafter to pay current period liabilities.
Loan assets represent loans made by a university to an external organization, and would
be recorded by debiting Investments.
A debt service fund is used to account for financial resources segregated for the purpose
of making principal and interest payments on general long-term debt.
Under GASB standards, Revenues must be credited for the total amount of the property
tax levy.
TRUE/FALSE
The numerical difference between (1) current assets and deferred outflows and (2)
current liabilities and deferred inflows recorded in governmental funds is denoted as net
position.
The two methods for presenting component units in the financial statements are
aggregated and disaggregated.
Compensated absences are leaves of absence for which employees earn the right to be
paid, but likely will not be paid due to insufficient government funds.
Which of the following statements is correct concerning interest expenditures incurred
during the period of construction of capital projects?
A. Interest expenditures may not be capitalized as part of the cost of general capital
assets reported in governmental activities.
B. Interest expenditures may be capitalized as part of the cost of general capital assets
reported in the governmental activities accounts at the government-wide level.
C. Interest expenditures must be capitalized as part of the cost of general capital assets
reported in the capital projects fund.
D. The capitalization of interest expenditures as part of the cost of general capital assets
reported in the capital projects fund is optional.
In which section of the standard audit report does the auditor inform financial statement
users that certain information, such as combining statements or budgetary comparison
schedules may not have been subject to the comprehensive audit procedures?
A. Auditor’s Opinion section.
B. Other Matters section.
C. Other Information section
D. Auditor’s Responsibility section.
An investor could find all but one of the following pieces of information through the
Electronic Municipal Market Access (EMMA). Which of the following is not available
on EMMA?
A. Credit rating for the debt issuance.
B. Comprehensive Annual Financial Report.
C. Interest rate and size of the debt issuance.
D. Credit report on the government issuing the debt.
Under GASB standards, where are nonmajor funds reported?
A. In the management’s discussion and analysis preceding the financial statements.
B. In aggregate amounts in a single column in the fund financial statements.
C. In a note disclosure following the financial statements.
D. In the government-wide financial statements.
The liability for general obligation bonds issued for the benefit of a governmentally
owned electric utility and serviced by its earnings should be recorded in:
A. An enterprise fund.
B. An enterprise fund and disclosed in the notes to the financial statements.
C. An enterprise fund and the business-like activities accounts.
D. The governmental activities accounts.
Which of the following terms refers to an actual cost rather than an estimate?
A. Budget.
B. Encumbrance.
C. Expenditure.
D. Appropriation.
Which of the following might appropriately be termed an outcome indicator for a police
department that reports service efforts and accomplishments (SEA) indicators?
A. Number of crimes investigated.
B. Value of property lost due to crime.
C. Hours of patrol.
D. Number of personnel hours expended.
Which of the following statements most accurately describes the dual-track accounting
system used in federal agency accounting?
A. Recording internal budgetary transactions and proprietary transactions with external
parties on a modified accrual basis of accounting.
B. Use of double-entry accounting.
C. Maintaining self-balancing sets of proprietary and budgetary accounts and recording
the effects of transactions on both available budgetary resources and proprietary
accounts.
D. Keeping separate books, one on a tax basis and the other on a GAAP basis.
When the budget for the General Fund is recorded, the required journal entry will
include:
A. A credit to Estimated Revenues.
B. A debit to Encumbrances.
C. A credit to Appropriations.
D. A credit to Fund Balance.
A local philanthropist made an unconditional pledge to donate $100,000 to a
not-for-profit organization to be paid in five equal installments of $20,000 beginning in
two years. Under FASB standards the pledge would be recognized as:
A. A contribution of $20,000 in each of the five years a contribution is made.
B. A contribution of $100,000 in the year the pledge is made, adjusted for the estimated
uncollectible amount.
C. Deferred support of $100,000 in the year the pledge was made.
D. A contribution of $100,000 in the year the pledge was made, discounted for the
difference between the pledge and its present value.
Culver City College, a public college, has a 10-week summer session that starts on June
25, 2017, so that one week is held during FY 2017 and the other nine weeks meet
during FY 2018. Tuition and fees in the amount of $1,000,000 were collected from
students for classes to be conducted in this session. What amount should Culver City
College recognize as unrestricted revenue in each of the years ended (FYE) June 30,
2017 and June 30, 2018?
FYE 2017 FYE 2018
A. $100,000 $900,000
B. $0 $1,000,000
C. $1,000,000 $0
D. $500,000 $500,000
A. Choice A.
B. Choice B.
C. Choice C.
D. Choice D.
On the statement of revenues, expenditures, and changes in fund balance for
governmental funds, how are capital outlays reported?
A. As a separate line item in the expenditures section of the statement.
B. Capital outlays are allocated to the functional areas, much like depreciation.
C. As a separate line item in the other financing sources (uses) section of the statement.
D. Below net change in fund balances, but before beginning fund balance.
Equipment that had been acquired several years ago by a special revenue fund at a cost
of $40,000 was sold for $15,000 cash. Accumulated depreciation of $30,000 existed at
the time of the sale. The journal entry to be made in the governmental activities journal
will include all of the following except:
A. A debit to Cash for $15,000.
B. A debit to Accumulated Depreciation for $30,000.
C. A credit to Equipment for $40,000.
D. A credit to Other Financing Sources for $5,000.
Threats to independence include all of the following except:
A. Bias threat.
B. Familiarity threat.
C. Undue influence threat.
D. Management representation threat.
Which of the following would be considered “contribution revenue or support” of a
not-for-profit organization under FASB standards?
A. Gain on disposal of capital assets.
B. Money received from a fund-raising campaign.
C. Money received from rental of surplus office space.
D. Investment earnings.
Where should infrastructure assets and long-term liabilities issued to finance
infrastructure be reported?
A. Letter of transmittal.
B. Fund financial statements.
C. Management’s discussion and analysis.
D. Government-wide financial statements.
When a supplies internal service fund records a billing to the General Fund, the journal
entry in the General Fund will include:
A. A debit to Cost of Supplies Issued.
B. A credit to Interfund Loans Payable.
C. A debit to Expenditures.
D. A credit to Billings to Department.
During the years ended June 30, 2017 and 2018, Jackson University, a private
university, conducted a cancer research project financed by a $1,000,000 gift from an
alumnus. The entire amount was pledged by the donor on July 10, 2016. The gift was
restricted to the financing of this particular research project. During the two-year
research period, Jackson’s gift receipts from the alumnus and research expenses related
to the research project were as follows for each fiscal year (FY):
FY 2017 FY 2018
Gift receipts $200,000 $800,000
Cancer research expenses $100,000 $900,000
What amount of net assets was released from restriction in 2017?
A. $200,000.
B. $100,000.
C. $1,000,000.
D. $0.
Which of the following would not be included within the financial section of the
comprehensive annual financial report (CAFR)?
A. Letter of transmittal.
B. Management’s discussion and analysis (MD&A).
C. Independent auditor’s report.
D. Required supplementary information (RSI).
Typically, proceeds from general obligation bonds will be recorded in the:
A. Debt service fund.
B. General obligation bond fund.
C. Permanent fund.
D. Capital projects fund.
Generally accepted government auditing standards (GAGAS) apply to all of the
following audits except:
A. Financial statement audits of federal organizations.
B. Financial audits of not-for-profit organizations that do not receive or expend federal
financial awards.
C. Financial audits of governments receiving and expending federal grants.
D. Performance audits of federal programs.
On what do the government-wide financial statements report?
A. Operational accountability.
B. Fiscal accountability.
C. The cost of government services.
D. Budgetary compliance.
Under a service concession arrangement,
A. The transferring government continues to report the transferred asset as a capital
asset and any related contractual obligations as liabilities.
B. The operating government will record the transferring government’s payment or
receivable, a liability for the present value of significant contractual obligations and a
corresponding deferred inflow of resources for the difference between the two.
C. Any deferred inflow of resources is recognized as revenue at the time the
arrangement takes place.
D. All of the above statements are true.
Governments can opt not to capitalize collections or individual works of art or historical
treasures if the collection is:
A. Held for public exhibition, education, or research in furtherance of public service
rather than for financial gain.
B. Protected, kept unencumbered, cared for, and preserved.
C. Subject to an organizational policy that requires the proceeds from sales of collection
items to be used to acquire other items for collections.
D. All of the above.
A city received resources that the state indicates can only be used for public works
projects, such as road construction. Assuming the resources have not been expended by
year end, how would the resources the city received be shown in the city’s fund
balances?
A. Spendable-Designated Fund Balance.
B. Spendable-Committed Fund Balance.
C. Spendable-Restricted Fund Balance.
D. Spendable-Assigned Fund Balance.
During the years ended June 30, 2017 and 2018, Jackson University, a private
university, conducted a cancer research project financed by a $1,000,000 gift from an
alumnus. The entire amount was pledged by the donor on July 10, 2016. The gift was
restricted to the financing of this particular research project. During the two-year
research period, Jackson’s gift receipts from the alumnus and research expenses related
to the research project were as follows for each fiscal year (FY):
FY 2017 FY 2018
Gift receipts $200,000 $800,000
Cancer research expenses $100,000 $900,000
How much had temporarily restricted net assets increased as of the end of FY2018 ?
A. $1,000,000.
B. $100,000.
C. $(100,000).
D. $0.
Which of the following depict the typical order of steps in the acquisition of goods and
services by an activity accounted for by the General Fund?
A. Appropriation, disbursement, encumbrance, expenditure.
B. Appropriation, encumbrance, expenditure, disbursement.
C. Encumbrance, appropriation, expenditure, disbursement
D. Encumbrance, appropriation, expenditure, disbursement.
The following key terms from Chapter 5 relate to general capital assets and capital
projects:
A. Bond anticipation notes
B. Infrastructure assets
C. Service Concession Arrangements
D. General capital assets
E. Capital projects funds
F. Asset impairment
G. Capital leases
H. Operating leases
I. Depreciation
For each of the following definitions, indicate the key term from the list above that best
matches the definition by placing the appropriate letter in the blank space next to the
definition.
_____ 1) A rental-type lease in which the risks and benefits of ownership are primarily
those of the lessor
_____ 2) Short-term interest-bearing instruments issued by a government with a plan to
replace with longer-term debt
_____ 3) Roads, bridges, curbs and gutters, streets, sidewalks, and drainage systems
installed for the common good
_____ 4) Capital assets of a government that are not recorded in a proprietary or
fiduciary fund
_____ 5) Significant, unexpected decline in the service utility of a capital asset
When a nongovernmental not-for-profit organization spends money for the purpose for
which an external donor intended, then the expense is reported as a:
A. Decrease in temporarily restricted net assets.
B. Decrease in unrestricted net assets.
C. Decrease in permanently restricted net assets.
D. Decrease in current-restricted fund balance.
Which of the following transactions is classified as an exchange transaction?
A. Fees charged for use of an athletic field at a city park.
B. State grant to conduct a smoking cessation program for middle school-aged youth.
C. Bequest left to the city by a former mayor.
D. Personal property taxes.
Which of the following factors would not indicate that a potential component unit
(PCU) imposes a financial burden or provides a financial benefit to the primary
government?
A. The primary government is entitled to its share of any dividends distributed by the
PCU.
B. The primary government is obligated to provide financial support to the PCU.
C. The primary government is obligated for the PCU’s debt.
D. The primary government is entitled to the PCU’s resources.
Effective capital budgeting for general capital assets of a government requires:
A. Intermediate and long-range capital improvement plans for general capital assets.
B. Nonfinancial information on physical measures and service condition of capital
assets of component units.
C. Consideration of how proprietary fund capital projects will be financed.
D. Information about the capital asset needs of a motor pool accounted for as an
internal service fund.
One of the minimum requirements for general purpose external financial reporting by
governments is:
A. Management’s discussion and analysis (MD&A).
B. Transmittal letter.
C. Combining and individual fund statements.
D. Statistical information.
The management’s discussion and analysis (MD&A) required in general purpose
federal financial reporting is different than that required by GASB of state and local
governments in that:
A. It includes information about the agency’s performance goals and results in addition
to financial activities.
B. It is outside the general purpose federal financial report and is optional, not required.
C. It is a part of the basic financial statements and, as a result, it is audited along with
the financial statements.
D. There are no significant differences.
A not-for-profit (NFP) organization acting as a financial intermediary receives a
contribution. Under the FASB Codification the NFP would be most likely to recognize
the contribution as a liability under which of the following situations?
A. The NFP has variance power.
B. The NFP is acting as an agent, receiving the contribution on behalf of another
organization.
C. The NFP is financially interrelated with the organization on whose behalf it received
the contribution.
D. The NFP has a 51 percent interest in the organization on whose behalf it received the
contribution.
What are the major types of audits and audit engagements described in the Government
Accountability Office’s Government Auditing Standards or generally accepted
government auditing standards (GAGAS), and how do they differ?
“The primary purpose of an accounting system for a state or a local government is to
make it possible for financial statements to demonstrate compliance with
finance-related legal and contractual provisions.” Explain why you believe this
statement to be correct or incorrect.
Explain the financial reporting for special assessment bonds when a government
assumes responsibility for debt service should special assessment collections be
insufficient, and when the government assumes no responsibility whatsoever.
Audit objectives set forth by the United States Comptroller General in Government
Auditing Standards (GAS or GAGAS) differ from the AICPA view (GAAS) as
discussed in Chapter 11. What are some of the differences?
Explain when donated materials should be recognized as a contribution and as an
expense by a nongovernmental not-for-profit organization.
For each of the following unrelated transactions, record the journal entry that would be
made by a nongovernmental, not-for-profit organization involved in medical research.
If no journal entry is recorded, explain why there is no journal entry.
1) The entity received $1,500 in cash contributions. Of that amount, $1,000 is to be
used for medical research.
2) The entity received pledges of $700,000 for its endowment fund. All pledges will be
collected next year.
3) The entity received donated services of $1,200 from medical researchers who helped
with the entity’s on-going drug development research. It also received $300 in donated
services from students, who helped clean the research facilities.
Describe the comprehensive annual financial report (CAFR). What are the sections of
the report and which components of the organization should it include? Is a CAFR
required?
xplain the concepts fiscal and operational accountability and the basis of accounting
used to capture each concept.