Capital projects funds differ from the General Fund and special revenue funds in that
the latter categories have a year-to-year life, whereas capital projects funds have a
project-life focus.
A contractual adjustment is recorded as a contra-revenue account.
Governments that are temporarily short of cash but that have levied taxes expected to
be collectible during the fiscal year are generally able to borrow on short-term notes
known as “tax anticipation notes payable.”
Heritage assets are defined as beneficial investments of the federal government in items
such as nonfederal physical property, human capital, and research and development.
Internal service funds utilize encumbrance accounting.
Cash received by a nongovernmental not-for-profit in year 1 that the donor stipulates is
to cover operating expenses of the following year should be recognized as an “increase
in temporarily restricted net assets” in year 1 and as “net assets released from
restrictions” in year 2.
Capital projects funds generally do not use the Encumbrances control account.
One of the required reconciliations in converting governmental fund financial
statements to governmental activities statements at the government-wide level is an
adjustment for internal service funds’ assets, liabilities, operating income (loss), and
transfers.
Some of the auditing issues and standards used by auditors of governmental and
not-for-profit entities are unique to the public sector.
A 501(c)(3) organization must provide donors with a written disclosure of the amount
of the donation if the donation is $1,000 or more.
The format for a not-for-profit health care entity’s statement of operations is the same as
that for other types of not-for-profits; the FASB requires a different title on the
statement since most revenues are derived from user charges.
The acquisition of long-lived assets under an operating lease does not require any asset
recognition in the accounts of any governmental fund.
Deferred outflow of resources is a type of asset that is unique to government.
The FASB requires that support from special events, if related to the central ongoing
and major activities of the organization, and related direct costs, be reported at their
gross amounts in the statement of activities.
A nongovernmental not-for-profit health care entity would report the net asset
categories unrestricted, restricted, and permanently restricted.
Under generally accepted government auditing standards, safeguards are controls
designed to reduce or eliminate threats to independence.
A not-for-profit organization could be reported as a component unit of a primary
government.
Vehicles used by the Culture and Recreation Department should be reported in the
governmental fund financial statements.
TRUE/FALSE
When an activity accounted for by the General Fund results in issuance of purchase
orders or contracts for goods or services a record must be kept, but no journal entries in
the General Fund are necessary.
Similar to the GASB, the FASB requires not-for-profit entities to prepare the statement
of cash flows using the direct method.
Investment trust funds and pension trust funds should be accounted for in the same
manner as permanent funds.
Streets, curbs, and sidewalks constructed or acquired through use of capital projects
fund resources should never be reported in the financial statements of a government
because they are for the use of the public, not for use by the government.
Internal managers and credit analysts evaluate financial condition of a government in
the same way.
Grant funds received before time requirements are met, but after all other eligibility
requirements have been met, should be reported as an asset and a deferred inflow of
resources by the recipient.
To help identify threats to independence, generally accepted government auditing
standards establish a conceptual framework that requires auditors to identify, evaluate,
and apply safeguards to appropriately address threats to independence.
GASB standards require that interfund receivables and payables between governmental
and business-type activities be presented as internal balances.
Encumbrance accounts need not be closed at year-end if the government is required or
intends to honor the encumbrances outstanding at year-end.
Encumbrances Outstanding is shown on the balance sheet as a restriction on fund
balance.
The United States Office of Management and Budget (OMB) publishes a ‘super
circular” which provides streamlined guidelines for grant accounting and reporting.
The net position of an internal service fund is classified as nonspendable, restricted,
committed, assigned, and unassigned.
The governmental fund financial statements are useful in assessing operational
accountability.
Providing information on accountability is the primary financial reporting objective for
both governmental and not-for-profit entities.
Enterprise funds may capitalize interest paid on debt incurred for construction of plant
assets.
General capital assets acquired under capital leases should not be recorded in the
governmental activities accounts.
Assets that are held in an agency fund belong to the party or parties for which the
government acts as agent; however, the government retains legal right of ownership in
the event of party’s bankruptcy.
Intangible assets are defined by the GASB as capital assets that lack physical substance,
have a useful life of more than one reporting period, and are nonfinancial in nature.
Term bond issues mature in installments.
Agency funds should utilize the modified accrual basis of accounting.
All of the following reports are included in the reporting package resulting from the
single audit except:
A. Financial statements and schedule of expenditures of federal awards.
B. Summary schedule of prior audit findings.
C. Report on efficiency and effectiveness.
D. Corrective action plan.
If supplies that were ordered by a department financed by the General Fund are
received at an actual price that is less than the estimated price on the purchase order, the
department’s available balance of appropriations for supplies will be:
A. Decreased.
B. Increased.
C. Unaffected.
D. Either a or b, depending on the department’s specific budgetary control procedures.
Which of the following debt service fund accounts would not be closed at the end of
each fiscal year?
A. Estimated Revenues.
B. Fund Balance.
C. Revenues.
D. ExpendituresBond Interest.
For what funds do budgetary comparisons need to be presented in connection with the
basic financial statements?
A. General Fund.
B. General Fund and all major funds.
C. All governmental funds with legally adopted annual budgets.
D. General Fund and major special revenue funds for which a budget is legally adopted.
Which of the following sections is not considered a part of a federal agency’s
performance and accountability report?
A. Basic financial statements.
B. Annual performance report.
C. Statistical section.
D. Management’s discussion and analysis.
Which of the following funds would be used to account for an activity that provides
centralized purchasing and sales of goods or services to other departments or agencies
of the government on a cost-reimbursement basis?
A. Enterprise fund.
B. Fiduciary fund.
C. Internal service fund.
D. Permanent fund.
Which of the following funds of a government uses the same basis of accounting as a
proprietary fund?
A. Permanent fund.
B. Investment trust fund.
C. Special revenue fund.
D. Capital projects fund.
During the year ended June 30, 2017, Hopkins College, a private college, received a
federal government grant of $800,000 for research on the role of music in improving
math skills for students. Expenses for this research amounted to $100,000 during the
same year. Under FASB standards, which of the following best represents how Hopkins
College would report this nonexchange transaction in the net assets section for the year
ended June 30, 2017?
Unrestricted Temporarily Restricted Permanently Restricted
A) $0 $800,000 $0
B) $0 $100,000 $700,000
C) $100,000 $700,000 $0
D) $800,000 $0 $0
A. Choice A
B. Choice B
C. Choice C
D. Choice D
Cash disbursement budgets:
A. Are prepared to facilitate the preparation of government-wide financial statements.
B. Are usually prepared for each month of the year, or for shorter intervals, in order to
facilitate planning short-term borrowings and investments.
C. Are prepared only for funds not required to operate under legal appropriation
budgets.
D. Are prepared only for each fiscal year because disbursements for each month are
approximately equal.
Other comprehensive bases of accounting (OCBOA) are considered generally accepted
accounting principles (GAAP) for state and local governments.
The term that means information skewed toward a particular belief with a tendency to
have little or no factual basis is:
A. Political influence.
B. Legislation.
C. Propaganda.
D. Lobbying.
Which of the following items would not affect the amounts reported in the Revenues
and Gains section of the statement of activities for a private college or university?
A. Student tuition and fees.
B. Tuition and fees discounts and allowances.
C. Net assets released from restriction.
D. Deferred revenues.
Which of the following statements concerning the reporting of internal balances by a
government at the end of its fiscal year is true?
A. The internal balances amounts reported in the balance sheet columns represent
activity among governmental funds.
B. The internal balances amounts reported in the statement of net position columns
represent activity between governmental activities and business-type activities.
C. The internal balances amounts are reported in both the asset and liability sections on
the statement of net position.
D. The internal balances amounts reported represent the difference between interfund
transfers in and interfund transfers out.
Which of the following describes the usual flow of budgetary authority through the
budgetary accounts of a federal agency?
A. Apportionment, allotment, appropriation, commitment, obligation, expended
appropriation.
B. Allotment, commitment, obligation, expended appropriation, apportionment.
C. Appropriation, apportionment, allotment, commitment, obligation, expended
appropriation.
D. Commitment, obligation, appropriation, apportionment, allotment, expended
appropriation.
An example of an increase in net assets for a not-for-profit organization that would be
labeled revenue rather than support is:
A. An unconditional promise to give.
B. Investment income.
C. A restricted gift.
D. An allocation of funds from the local United Way organization.
The number of lane-miles of road repaired to a specified minimum condition is an
example of an:
A. Output measure.
B. Input measure.
C. Outcome measure.
D. Efficiency measure.
Which of the following would properly be reported in the operating statement of a
governmental fund?
A. Which of the following would properly be reported in the operating statement of a
governmental fund?
B. Amortization expense.
C. Depreciation expense.
D. A grant that is intended to finance activities of the following period.
Which of the following activities or services would most likely not be accounted for by
an internal service fund?
A. Electronic data processing.
B. Central purchasing, warehousing, and issuing of supplies.
C. Municipal swimming pool.
D. Risk management.
Which of the following statements is true about diagnosis-related groups (DRGs)?
A. DRGs are the basis for a cost accounting method that groups costs together by
departments performing the services.
B. A DRG is a case-mix classification scheme that is used to determine the payment
provided to the hospital for inpatient services, regardless of how much the hospital
spends to treat a patient.
C. The federal Medicare system of retroactive payment for services depends on DRGs.
D. The DRGs method is the prevailing practice of billing third-party payors for a health
care organization’s average cost for providing care for locally defined similar medical
conditions.
In reconciling the total fund balances of the governmental funds to the net position of
governmental activities, which of the following would be added to the net position of
governmental activities?
A. Accumulated depreciation.
B. Premium on bonds payable.
C. Construction work in progress.
D. Bond interest payable.
Which of the following is not an objective of financial reporting by state and local
governments?
A. To assist users in assessing the adequacy of systems and controls.
B. To assist users in assessing financial condition and results of operations.
C. To assist financial report users in comparing actual financial results with the legally
adopted budget.
D. To assist in determining compliance with finance-related laws, rules, and
regulations.
A government experienced significant loss of certain roadways and bridges as a result
of major flooding. Which of the following estimation approaches would be most useful
in estimating the amount of asset impairment that has occurred?
A. Deflated depreciated replacement cost approach.
B. Service units approach.
C. Restorative cost approach.
D. None of the above; each of these three approaches would be equally useful.
Which of the following is not a requirement that must be met to elect the “modified
approach” to reporting certain eligible infrastructure assets?
A. The government gets the permission of the Government Accounting Standards
Board.
B. The government documents that the eligible infrastructure assets are being preserved
approximately at (or above) the condition level established and disclosed.
C. The government manages the assets using an asset management system that includes
condition assessments of the assets and summary of results using a measurement scale.
D. The government manages the assets using an asset management system that includes
estimates each year of the annual amount needed to maintain and preserve the eligible
assets at the condition level established and disclosed by the government.
Under federal government accounting, recording the estimated amount of equipment
prior to actually placing an order or entering into a contract is called a(an):
A. Obligation.
B. Apportionment.
C. Commitment.
D. Allotment.
Which of the following is not a classification of revenues for a college or university as
recommended by the National Association of College and University Business Officers
(NACUBO)?
A. Sporting events.
B. Federal appropriations.
C. Investment income.
D. Private gifts.
The following items were included in Castle City’s General Fund expenditures for the
year ended June.
Personal computer for the city treasurer $6,000 Furniture for the mayor’s office $20,000
How much should be classified as capital assets in Castle City’s General Fund balance
sheet at June 30?
A. $ 0.
B. $ 6,000.
C. $20,000.
D. $26,000.
An auditor performing nonaudit work for a client may be in danger of violating the
independence rules in Government Auditing Standards when he or she provides:
A. Valuation services.
B. Advice on establishing or improving internal controls.
C. Benchmarking information to the client.
D. The client with answers to technical questions.
The City of Crescent Hill operates a central motor pool as an internal service fund for
the benefit of the city’s other funds and departments. In the current year, this fund billed
the Parks Department $30,000 for vehicle rentals. If the Parks Department is a
governmental fund, which account should the Parks Department use to record these
billings?
A. Interfund Transfers In.
B. Interfund Exchanges.
C. Expenditures.
D. Cost of Rentals from Other Funds and Units.
A measure of whether the government lived within its means in the measurement year,
was required to use prior year resources to fund a portion of current year costs, or
shifted the funding of some current year costs to future periods, is:
A. Business-type activities revenues/business-type activities expenses.
B. Unrestricted net position/total revenues.
C. Total revenues/total expenditures.
D. Total net position (governmental activities and business-type activities) less total net
position at the beginning of the year.
A liability is recorded in governmental funds when:
A. Goods or services are ordered.
B. Goods or services are received and the invoice is vouchered.
C. Invoices are paid.
D. The appropriation is reduced.