The recorded premium on tax-supported bonds issued by a capital projects fund should
be amortized at both the government-wide and fund levels.
Under the FASB Codification a $5 million endowment that cannot be spent for 50 years
should be classified as permanently restricted net assets.
Both a general purpose and a special purpose government could be considered
examples of primary governments under GAAP.
When an investment pool is created, the assets of each fund entering the pool should be
transferred to the pool at their fair value at the date of the transfer.
TRUE/FALSE
Fund-based financial statements are intended to provide detailed financial information
about the governmental, proprietary, and fiduciary activities of the primary government.
TRUE/FALSE
The government-wide statement of net position displays the net expense or revenue for
each function or program of the government.
GASB Concepts Statement No. 2 requires state and local governments to include
service efforts and accomplishments measures within the comprehensive annual
financial report.
Estimated uncollectible tax amounts are recorded in the General Fund general journal
as a reduction in revenues and in the governmental activities journal as a bad debt
expense.
In the capital projects fund general journal, Construction Work in Progress is the
account used to capitalize the accumulated cost of partially-completed general capital
assets.
Deferred inflow of resources and deferred outflow of resources would be shown in
separate sections of a government’s statement of net position.
When planning, budgeting, and performance measurement are related, good
performance is rewarded, and consequences exist for substandard performance, then
public employees’ behaviors will change.
Generally accepted government auditing standards (GAGAS) require that auditors
conducting a GAGAS audit complete at least 80 hours of continuing professional
education (CPE) that directly contributes to the auditor’s professional proficiency to
perform such audit work.
The General Fund is the only fund that can have a positive unassigned fund balance.
The FASB standards require not-for-profit entities to separately report program
expenses and support expenses.
The GASB defines a component unit as any organization for which the primary
government is financially accountable.
The governmental fund financial statements are intended to report on fiscal
accountability.
The financial condition of a government is easily determined by calculating the
financial ratios discussed in Chapter 10.
The National Association of College and University Business Officers (NACUBO)
provides second-tier GAAP for private colleges and universities.
Under a service concession arrangement, a government transfers the rights and
obligations of an asset to another legally separate governmental or private sector entity.
Some governments choose to sell the collection rights to unpaid property taxes in tax
lien public auctions and therefore will not have property tax balances reported within
the financial statements.
When an appropriation is passed a federal agency would record entries in both the
budgetary and the proprietary track accounts.
An expenditure is an example of what the GASB terms an outflow of resources.
Political culture, one of the environmental factors affecting financial condition, includes
such factors as form of government and the entity’s economic, political, and social
history.
In evaluating an entity’s system of internal controls a significant deficiency is a
deficiency in the design or operation of internal controls of such magnitude that the
internal control components do not reduce the risk of detection or prevention of
material misstatement to an acceptably low level.
Debt margin is a term used to denote the total amount of indebtedness of specified
kinds that is allowed by law to be outstanding at any one time, while debt limit is the
difference between the debt margin and the amount of outstanding debt subject to the
debt limitation.
Governmental fund liabilities and expenditures for debt service on general long-term
debt are generally recognized in the reporting period that debt payments are due.
The financial statements of the U.S. government are prepared using generally accepted
accounting principles promulgated by the Governmental Accounting Standards Board.
The Financial Accounting Standards Board (FASB) is the body authorized to establish
accounting principles for all colleges and universities and health care entities.
Under FASB standards the statement of activities for a not-for-profit organization is
required to be separated into operating and nonoperating activity.
Debt service fund activities are reported as part of governmental activities at the
government-wide level.
According to the information provided in the textbook, Beta Alpha Psi would be
considered an other nonprofit organization (ONPO).
Contributions or grants restricted by an external donor for a particular operating
purpose would be reported as increases to restricted fund balances by a public college
or university engaged only in business-type activities and as an addition to temporarily
restricted net assets by a private college or university.
Under the modified accrual basis of accounting applicable to governmental fund types,
property tax revenue is accrued and recorded at net realizable value.
Which of the following has contributed most to governments’ increased interest in
activity-based accounting?
A. GASB standards.
B. Implementation of innovative management approaches (such as TQM and SEA
measures) in response to public demand for greater accountability and productivity.
C. Increased demand for high profile management tools to bolster the image of
government.
D. The enactment of Sarbanes-Oxley legislation.
The FASB requires that private colleges and universities prepare which of the following
financial statements?
A. A statement of functional expenses.
B. A statement of net changes in financial position.
C. A statement of activities.
D. The FASB requires private colleges and universities to prepare all of the above
statements.
The GASB “Budgeting Principle” states that an annual budget should be adopted by
(for) every:
A. Fiduciary fund type.
B. Fund of a government.
C. Governmental unit.
D. Governmental fund type except special revenue funds
Under the modified accrual basis of accounting, expenditures generally are not
recognized until:
A. They are paid in cash.
B. An obligation is incurred that will be paid from currently available financial
resources.
C. Goods or services are ordered.
D. They are approved by the legislative body.
The basis of accounting that should be used in preparing fund financial statements is:
Governmental funds Proprietary funds Fiduciary funds
A) Modified accrual Accrual Modified accrual
B) Modified accrual Modified accrual Modified accrual
C) Modified accrual Accrual Accrual
D) Accrual Accrual Accrual
A. Choice A
B. Choice B
C. Choice C
D. Choice D
Which of the following is a true statement about the relationship between generally
accepted government auditing standards (GAGAS) and generally accepted auditing
standards (GAAS)?
A. GAGAS and GAAS provide standards for financial audits, attestation engagements,
and performance audits.
B. GAGAS encompass GAAS and supplement certain GAAS.
C. Single audits must be performed using GAGAS and GAAS.
D. GAGAS are promulgated by the Government Accountability Office and GAAS are
promulgated by the Governmental Accounting Standards Board.
Which of the following should be accounted for in an internal service fund?
A. $65,000.
B. $415,000.
C. $1,250,000.
D. $1,315,000.
Which of the following is the appropriate measurement focus for agency funds?
A. Economic resources.
B. Current financial resources.
C. Cash and cash equivalents.
D. Accrual basis.
A statement of revenues, expenditures, and changes in fund balances-budget and actual
is:
A. Required by GAAP for the General Fund, special revenue funds, and all other
governmental fund types for which an annual budget has been adopted.
B. Required by GAAP for internal management reports only; not permitted for external
financial reporting.
C. Required by GAAP for all governmental fund types.
D. Optional under GAAP, as long as a budgetary comparison schedule is presented.
Which of the following is a fiduciary fund?
A. Investment trust fund.
B. Special revenue fund.
C. Debt service fund.
D. Enterprise fund.
A hospital originally recorded all patient services it provided as a $500,000 debit to
accounts receivable. Upon review the hospital determined that a contractual adjustment
of $200,000 needs to be made, and estimated bad debts of $5,000 need to be recorded.
In addition, at the time the receivable was recorded the hospital did not realize
$100,000 should be considered charity services. Based on the information provided,
what is the net amount of accounts receivable that the hospital would report on its
financial statements?
A. $495,000.
B. $300,000.
C. $200,000.
D. $195,000.
Which of the following illustrates the appropriate basis of accounting for enterprise and
internal service funds?
A. Option A
B. Option B
C. Option C
D. Option D
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 special revenue fund will
include:
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.
Which of the following is not true regarding proprietary funds?
A. The difference between assets plus deferred outflows of resources and liabilities plus
deferred inflows of resources of proprietary funds is called “net assets.”
B. Proprietary funds record long-term debt directly in the fund accounts.
C. Proprietary funds record capital assets directly in the fund accounts.
D. Proprietary funds present a statement of cash flows.
The following are key terms in Chapter 11 that relate to single audits:
A. Risk-based approach
B. Single audit
C. Questioned cost
D. Material weakness
E. Oversight agency
F. Major programs
G. Cognizant agency
H. Significant deficiency
For each of the following definitions, indicate the key term from the list above that best
matches by placing the appropriate letter in the blank space next to the definition.
_____ 1) The federal agency that makes the predominant amount of direct funding to
the nonfederal entity receiving less than $50 million in federal awards
_____ 2) A deficiency in internal control such that there is a reasonable possibility that
a material misstatement of the entity’s financial statements will not be prevented, or
detected and corrected on a timely basis
_____ 3) An audit prescribed by federal law for state and local governments and
not-for-profit organizations that expend more than $750,000 in a fiscal year
_____ 4) Used by auditors to determine which programs will be audited as part of the
single audit
_____ 5) A monetary item identified by an auditor in an audit finding that generally
relates to noncompliance with a law, regulation, or agreement, where the costs are either
not supported by adequate documentation or appear unreasonable
At the inception of a capital lease for equipment the journal entry required in the capital
projects fund will include which of the following?
A. A debit to Equipment.
B. A debit to Capital Lease Expense.
C. A credit to Obligations under Capital Leases.
D. A credit to Other Financing Uses-Capital Leases.
Which of the following would not be required under not-for-profit incorporation laws?
A. Appointment of a board of directors.
B. Establishment of by-laws.
C. A clearly stated purpose for the organization.
D. Application for 501(c)(3) status.
Debt service funds are used to account for which of the following?
A. Payment of only interest on general long-term debt.
B. Payment of only principal on general long-term debt.
C. Payment of principal and interest on general long-term debt.
D. Payment of principal and interest on all debt of the government.
Describe the purpose of a management’s discussion and analysis (MD&A) in the
general purpose federal financial report of a federal agency.
Cognizant agencies:
A. Are responsible for conducting governmental single audits.
B. Are assigned to each nonfederal agency expending more than $50 million of federal
funds per year.
C. Are also referred to as oversight agencies.
D. Are responsible for issuing Government Auditing Standards.
The following are key terms in Chapter 11 that relate to auditing of governmental and
not-for-profit organizations:
A. Attestation engagement
B. Generally accepted auditing standards (GAAS)
C. Opinion units
D. Materiality
E. Financial audit
F. Generally accepted government auditing standards (GAGAS)
G. Performance audits For each of the following definitions, indicate the key term from
the list above that best matches by placing the appropriate letter in the blank space next
to the definition.
_____ 1. A process that culminates in an opinion that financial statements present fairly
an entity’s financial position and results of operations in conformity with GAAP
_____ 2. An auditor’s judgment as to the level at which the quantitative or qualitative
effects of misstatements will have a significant impact on user’s evaluations
_____ 3. Standards prescribed by the AICPA to provide guidance for planning,
conducting, and reporting on audits by CPAs
_____ 4. Professional services related to internal control, compliance, MD&A
presentation, allowability and reasonableness of proposed contract amounts, final
contract costs, and reliability of performance measures
_____ 5. Units of the government on which the auditor expresses an opinion (e.g.,
governmental activities, each major governmental fund, etc.)
Which of the following items are typically reported differently between the
governmental fund statements and the Governmental Activities column of the
government-wide statements?
A. Capital outlays.
B. Cash collected on property taxes receivable.
C. Accounts payable and other accrued expenses.
D. Inventories.
Under utility regulatory accounting principles (RAP), the account “Utility Plant
Acquisition Adjustment” reflects:
A. The difference between the amount paid for utility plant and the amount originally
paid by the utility that first placed the plant into public service, less accumulated
depreciation.
B. The difference between the fair market value of the utility plant and the amount paid
for it, less accumulated depreciation.
C. The difference between the amount paid for the utility plant less its current
replacement cost.
D. The difference between the amount paid for the utility plant less the fair market
value of its tangible plant assets.
Which of the following is not a true statement about tax-exempt organizations?
A. They must be organized to serve the charitable needs of the public at large.
B. They must first become a not-for-profit corporation or charitable trust.
C. They are permitted to do some political lobbying if guidelines are met.
D. Their unrelated business income is taxed at corporate income tax rates.
Vacation City was awarded a $500,000 federal operating grant for use in Year 2. On
December 1 of year 1, half of the grant money was received by the City. The journal
entry to record receipt of the grant funds will include:
A. A credit to Revenues in the amount of $250,000.
B. A credit to Deferred Inflow of Resources- Grant Proceeds in the amount of $250,000.
C. A debit to Grant Expenditures in the amount of $250,000.
D. No journal entry will be made until expenditures are made in Year 2.
Which of the following debt service funds would normally have the largest balance in
its Fund Balance account?
A. Serial bond debt service fund.
B. Deferred serial bond debt service fund.
C. Irregular serial bond debt service fund.
D. Term bond debt service fund.
Under the existing GAAP hierarchy for state and local government financial reporting,
the GASB Implementation guides are:
A. More authoritative than GASB Statements.
B. Less authoritative than GASB Technical Bulletins.
C. More authoritative than the AICPA state and local government audit guide.
D. Equally authoritative to AICPA Practice Bulletins.
The voters of the city passed an ordinance to increase their sales tax by percent. The
proceeds of the sales tax are to be used for culture and recreation. In the governmental
activities journal, how would the percent sales tax revenue be recorded?
A. Program Revenue-Culture and Recreation-Sales Tax.
B. Program Revenue-Culture and Recreation-Operating Grants and Contributions.
C. General Revenue-Sales Tax.
D. General Revenue-Culture and Recreation-Sales Tax.
Which of the following is not a characteristic of a fund as defined by GASB standards?
A. An accounting entity.
B. A fiscal entity.
C. A reporting entity.
D. A self-balancing set of accounts.
For which of the following is a low or decreasing value of the item associated with a
stronger financial condition of a governmental entity?
A. Unfunded pension liability.
B. Property values.
C. Home ownership.
D. Employment rate.
The Estimated Revenues account of a government is debited when:
A. The budget is recorded at the beginning of the year.
B. Property taxes are recorded.
C. The account is closed to fund balance-unassigned at the end of the year.
D. Property taxes are collected.
Where would federal agencies report information concerning their performance goals
and performance results, along with their future challenges?
A. Other accompanying information.
B. Required supplemental information.
C. Management discussion and analysis.
D. Notes to the financial statements.
When part of a progress payment for construction is withheld until final settlement of
the contract, what account is credited?
A. Encumbrances.
B. Appropriations.
C. Contracts Payable-Retained Percentage.
D. Construction Expenditures.
Which of the following is a reason why a not-for-profit organization might fail to
qualify for tax-exempt status?
A. It is operated primarily for the benefit of its members.
B. Its officers are paid excessive wages.
C. Its primary purpose is to promote the election of a senate candidate.
D. It has unrelated business income.
GASB standards require that general capital assets be recorded in the fund statements
at:
A. Historical cost.
B. Fair value at the financial statement date.
C. Estimated cost at the financial statement date
D. None of the above.
Briefly describe how GASB Statements 67 and 68 compare to prior pension accounting
standards.
The City of McNeely sold bonds in the amount of $25,000,000 to finance the
construction of a public health center. The bonds are serial bonds and were sold at par
on July 1, 2017 the first day of a fiscal year. Shortly thereafter a construction contract in
the amount of $22,000,000 was signed and the contractor commenced work. By
year-end the contractor had been paid in full for all billings to date amounting to
$12,000,000.
Prepare, in general journal form, all journal entries that should have been made during
the fiscal year ended June 30, 2018 to record the preceding information in the capital
projects fund. (No closing entry is required).
List the basic financial statements required by GASB standards and briefly explain their
purposes.
What is a Performance and Accountability Report (PAR)? Describe its purpose and
contents.
Identify the four types of nonexchange transactions and discuss the rules for recognition
of revenues and expenses/expenditures for each type of transaction.
What budgeting approach requires justification for the inclusion of every activity each
year? Briefly describe this method and how it can be effective.
As of December 31, 2016, Westport had $9,500,000 in 4.5 percent serial bonds
outstanding. The serial bonds pay interest semiannually on July1 and December 31,
with $500,000 in bonds being retired on each interest payment date. Resources for
payment of principal and interest are transferred from the General Fund. Prepare debt
service fund and government-wide entries in general journal form to reflect, as
necessary, the following information and transactions for FY 2017.
(1) The operating budget for FY 2017 consists of other financing sources (transfers
from the General Fund) equal to estimated principal and interest payments.
Appropriations also must be provided for interest payments and bond redemptions on
January 1 and July 1.
(2) Cash was received from the General Fund and checks were written and mailed for
the July 1 principal and interest payments.
Explain the accounting for contributions received by a financial intermediary under the
FASB Codification.
Describe the budgetary accounts used in federal agency accounting and the flow of
budgetary authority through those accounts.
How do credit analysts assist decision makers in evaluating the credit worthiness of a
state or local government?
What are the alternative methods of dissolving an internal service fund?
Explain the relationships among environmental factors, organizational factors, and
financial factors in determining government financial condition.
“Financial statements are virtually useless in evaluating a city’s financial condition.” Do
you agree with this statement? Why or why not?
Would a not-for-profit library that receives the majority of its resources from a specific
tax levy on local citizens remitted to the city follow the same financial reporting
principles as would a library that operates without a dedicated tax and instead relies on
contributions from individuals and grants from foundations and governments? Explain.
“The entire debt arising from the acquisition of general capital assets under a capital
lease agreement should be reported as debt of the fund that accounts for the activities of
the department or function using the leased asset. Only debt arising from the lease of
equipment used by a number of departments should be reported in the governmental
activities accounts, rather than a fund.” Do you agree? Why or why not?
Describe what is meant by the direct costs of a program (for example, a fire prevention
program) and why it is important to distinguish direct costs from indirect costs.