A not-for-profit typically has gross receipts of $4,500 or less each year. According to
the IRS it would not have to file with the IRS to be considered tax-exempt under Sec.
501(c)(3).
Service-level solvency is the government’s ability to meet its current budget by
expending no more resources than were appropriated.
Cash planning and budgeting are important in government because the timing of cash
inflows often do not necessarily coincide with the timing of cash outflows.
All special assessment debt should be reported in the government-wide statement of net
position in the Business-type Activities column.
The account Budgetary Fund Balance can have either a debit or credit balance.
TRUE/FALSE
The legal level of budgetary control represents the administrative level at which
expenditures may not exceed appropriations without a formal budgetary amendment.
A generally unallowable cost may be allowable under certain circumstances.
The objectives of federal financial reporting are to assist report users in evaluating
budgetary integrity, operating performance, stewardship, and adequacy of systems and
controls.
Unlike the General Fund and other major governmental funds for which a budget is
legally adopted, proprietary funds are not required by GASB standards to record
budgets in their accounting systems, nor are they required to present a budgetary
comparison schedule.
All officers of a not-for-profit organization have the same responsibilities to the
organization and its constituents.
The disposal of a general capital asset, resulting in no revenue or expenditure to the
government, is recorded only in the governmental activities accounts.
The GASB concept statements indicate that an asset that is going to be converted to
cash should be reported at a remeasured amount at the financial statement date.
Internal service funds are intended to operate on taxes or other financing sources
authorized by the legally enacted revenue budget for each year; therefore, they are
classified as governmental funds.
Neither governmental nor not-for-profit entities have residual equity that can be
distributed to owners.
To determine which costs are allowable for charging to a federal assistance program,
accountants and auditors refer to the GASB cost circular.
Objectives that are identified by SFFAC No. 1 for federal financial reporting include
budgetary integrity, operating performance, transparency, and stewardship.
Museums and religious organizations reporting in accordance with FASB must
capitalize and report assets such as works of art, historical treasures, and similar
collectible items if they are held for public inspection.
The governmental funds category includes the General Fund, special revenue funds,
debt service funds, capital projects funds, and internal service funds.
The Governmental Accounting Standards Board (GASB) is the body authorized to
establish accounting principles for all state and local governments, both general purpose
and special purpose.
In accounting for health care entities, the account Provision for Bad Debts should be
reported as a contra-revenue, rather than as an expense.
Statistical tables included in comprehensive annual financial reports should provide
social and economic data, in addition to financial data, to assist financial statement
users in better understanding the activities and condition of the government.
Unlike other not-for-profit entities, the FASB requires health care entities to prepare a
statement of changes in net assets.
Management practices and legislative policies are very relevant in the evaluation of a
government’s financial performance.
Public utilities owned and operated by governments are common examples of enterprise
funds.
Governmental budgets must be voted upon by citizens for approval in an annual general
election.
Similar to other not-for-profit entities, health care entities are required under FASB
standards to report program and support functional expenses.
Donor-imposed restrictions must be clearly reflected in financial statements of
not-for-profit organizations reporting under the FASB.
Auditing standards issued by the U.S. General Accountability Office include specific
reference to ethical requirements relating to an audit of financial statements, however,
auditing standards issued by the Auditing Standards Board do not address ethics.
One of the required general capital asset disclosures is a schedule of the additions to,
and deductions from, general capital assets during the course of a fiscal year.
Compensated absences, pollution remediation obligations, and claims and judgments
are examples of long-term liabilities that can arise from operating activities.
Recording the annual budget is optional in the General Fund.
TRUE/FALSE
An allotment may be described as an internal allocation of funds on a periodic basis
usually agreed upon by the department heads and the chief executive.
Governmental funds account for assets but not the liabilities.
oth public and private universities report an infrastructure classification.
State and local governments and not-for-profit organizations that receive grants or
contracts from the federal government should charge costs of these grants or contracts
in conformity with:
A. Cost Accounting Standards Board standards.
B. Office of Management and Budget circulars.
C. Financial Accounting Standards Board standards.
D. Governmental Accounting Standards Board standards.
Which of the following will increase the fund balance of a government at the end of the
fiscal year?
A. The sum of revenues and other financing sources is more than the sum of
expenditures and other financing uses.
B. Expenditures are more than the difference between revenues and the excess of other
financing sources over other financing uses.
C. Revenues are less than the sum of expenditures, other financing sources, and other
financing uses.
D. The sum of fund balance, revenues, and other financing sources is more than the sum
of expenditures and other financing uses.
Which of the following activities would be accounted for by a trust fund?
A. Deposits held for customers of a city-owned electric utility.
B. Assets passed-through the state government to the local government.
C. Assets held for special assessment bondholders for which the city has no liability.
D. Assets which are used to assist in the preservation of a private residence.
A donor contributed $500,000 to the city stipulating that the money be invested and that
the earnings thereon be used for maintenance of the a band shell in the city’s park. The
$500,000 would most appropriately be recorded in a(an):
A. Agency fund.
B. Private-purpose trust fund.
C. Endowment fund.
D. Permanent fund.
A nongovernmental tax-exempt organization must complete a Form 990 and send it to
the Internal Revenue Service:
A. Only if they have unrelated business income.
B. If they are not a religious organization, and have gross receipts of $5,000 or more
each year.
C. If they have gross receipts of $1,000 or more each year.
D. Only if they are a private foundation, not a public charity.
Electronic Municipal Market Access (EMMA) is an electronic database of government
financial reports provided by the Securities and Exchange Commission.
Which of the following statements is not true?
A. A balanced scorecard is an integrated set of performance targets, both financial and
nonfinancial, that are derived from an organization’s strategies about how to achieve its
goals.
B. Total quality management (TQM) seeks to continuously improve the government’s
ability to meet or exceed demands from customers who might be external, such as
taxpayers and service recipients, or internal, such as the customers of an internal service
fund.
C. Service efforts and accomplishments (SEA) reporting links customer (taxpayer and
other resource provider) satisfaction to improvements in the operating systems and
processes used to provide goods and services.
D. Customer relationship management (CRM) systems create an integrated view of a
customer to coordinate services from all channels of the organization with the intent to
improve the long-term relationship the organization has with its customer.
The following are key terms in Chapter 13 that relate to accounting for not-for-profit
organizations:
A. Nonexchange transactions
B. Temporarily restricted net assets
C. Collections
D. Variance power
E. Exchange transactions
F. Board-designated net assets
G. Permanently restricted net assets
H. Promise to give
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. unrestricted net assets that the governing body decides to set aside for specific
purposes
____2. The unilateral power of an organization to redirect donated assets to a different
beneficiary than initially indicated by the donor
____3. Net assets for which the donor has indicated use in a future period for
aparticular purpose
____4. Transaction in which the donor derives no direct tangible benefits
____5. Work for art, historical treasures or similar assets held and protected for public
exhibition, and, if sold, proceeds would be used to acquire similar assets
Which of the following terms is used to indicate that a donor provided a gift with
explicit instructions that the gift is to be used for a specific purpose by the not-for-profit
but the entire amount may be spent right away?
A. Board-designated net assets.
B. Permanently restricted net assets.
C. Endowment assets.
D. Temporarily restricted net assets.
The Governmental Accounting Standards Board is assigned responsibility for setting
accounting and financial reporting standards for
A. Governments such as federal agencies, states, cities, counties, villages, and
townships.
B. State and local government entities and governmentally-related units and agencies,
such as utilities, authorities, hospitals, and colleges and universities.
C. Not-for-profit organizations.
D. State and local governments and all not-for-profit organizations.
The Encumbrances control account of a city is decreased when
Goods are ordered Goods are received
A) Yes No
B) No No
C) No Yes
D) Yes Yes
A. Choice A.
B. Choice B.
C. Choice C.
D. Choice D.
A local civic group gave the county government $25,000 cash to be used to pay the
utility bills of persons with income below the poverty level. The city should account for
the $25,000 contribution in:
A. An investment trust fund.
B. The General Fund.
C. A permanent fund.
D. Private-purpose trust fund.
The following are types of ratios described in Chapter 14 that can be used to assess the
financial performance of not-for-profit organizations:
A. Liquidity
B. Going concern
C. Capital structure
D. Program effectiveness
E. Efficiency
F. Leverage and debt coverage
G. Fund-raising ratio
H. Fund-raising efficiency
I. Investment performance For each of the following performance indicators, indicate
the type of ratio from the list above that best matches by placing the appropriate letter
in the blank space next to the phrase.
_____1) Are earnings on investments on target?
_____ 2) What percentage of contributions remains after deducting the cost of raising
the contributions?
_____ 3) Does the organization rely more on debt or net assets to finance its
operations?
_____ 4) Is an appropriate amount spent on accomplishing the organization’s program
goals?
_____ 5) Are revenues sufficient to cover expenses?
A certain federal agency placed an order for office supplies at an estimated cost of
$14,400. Later in the same fiscal year these supplies were received at an actual cost of
$14,800. Assume commitment accounting is not used by this agency. At the time the
order is placed, what is the net effect on the budgetary and proprietary track accounts?
A. Budgetary accounts: $14,400; Proprietary accounts: $14,400.
B. Budgetary accounts: $14,400; Proprietary accounts: $0.
C. Budgetary accounts: $14,400; Proprietary accounts: $14,800.
D. Budgetary accounts: $0; Proprietary accounts: $0.
The expenditure classification “Public Safety” is an example of which of the following
types of classifications?
A. Activity.
B. Function.
C. Character.
D. Object.
When utility customers are billed during the year, the enterprise fund journal entry will
include:
A. A debit to Sales of Water.
B. A debit to Cash – Restricted.
C. A debit to Customer Accounts Receivable.
D. All of the above.
When a supplies internal service fund records a billing to the General Fund, the journal
entry in the internal service fund will include:
A. A debit to Due from General Fund.
B. A debit to Due to General Fund.
C. A debit to Billings to Department.
D. A debit to Inventory of Supplies.
A governmental employer who makes contributions to pension plans for all employees:
A. Reports pension expenditures in a governmental fund in the amount actually
contributed.
B. Reports pension expenses in a proprietary fund reflecting changes to the net pension
liability.
C. Recognizes pension costs in the government-wide statements on the accrual basis of
accounting.
D. All of the above.
Which of the following would always be classified as a general revenue?
A. Grant proceeds.
B. Special assessment charges for snow removal.
C. Library fines.
D. Fuel taxes earmarked for maintenance of roads and bridges.
Which of the following statements about the Uniform Prudent Management of
Institutional Funds Act (UPMIFA) is correct?
A. It establishes a maximum total return rate for investments.
B. It requires that the spending rate for the return on investments be no more than five
percent.
C. It allows institutions to release net assets from restrictions if certain criteria are met.
D. It requires that specific policies concerning solicitation of donations be established.
Which of the following is (are) considered an authoritative source of GAAP for
nongovernmental not-for-profit health care entities?
A. The AICPA Audit and Accounting Guide Health Care Entities.
B. The Healthcare Financial Management Associations’ Financial Accounting and
Reporting Manual.
C. The FASB Accounting Standards Codification (ASC).
D. All of the above are considered GAAP according to the GAAP hierarchy.
The revenue classifications recommended by GASB standards are listed below:
A. Taxes
B. Licenses and permits
C. Intergovernmental revenue
D. Charges for services
E. Fines and forfeits
F. Miscellaneous
For each revenue source listed below indicate its correct classification by placing the
appropriate letter in the blank space next to the item.
____ 1) Capital grant received by a city from a state
____ 2) Property tax levied by city
____ 3) Library use fees
____ 4)Building permit
____ 5) Speeding ticket
As identified by FASAB, which of the following are major user groups of federal
financial reports?
A. Congress, executives, program managers, and citizens.
B. Congress, executives, citizens, and municipal rating agencies.
C. Congress, program managers, foreign governments, and citizens.
D. Congress, program managers, bond rating agencies, and political parties.
In accordance with the FASB Codification, donated medicines that normally would be
purchased by a hospital should be recorded at fair value and credited to which of the
following?
A. Net Patient Service Revenue.
B. Other Revenue.
C. Nonoperating Gains.
D. Deferred Revenues.
GASB accounting and reporting standards applicable to public colleges and
universities:
A. Are now the same as FASB standards to permit comparability between public and
private colleges and universities.
B. Permit public colleges and universities to use the AICPA model which differs
substantially from the reporting model used by private colleges and universities subject
to FASB jurisdiction.
C. Permit public colleges and universities to optionally follow FASB standards.
D. Differ in some significant ways from FASB standards applicable to private colleges
and universities.
Which of the following circumstances would indicate that a potential component unit
(PCU) should be included as part of the government financial reporting entity?
A. The primary government is entitled to the resources of the PCU.
B. Officials of the primary government appoint a majority of the members of the
governing board of the PCU.
C. The primary government significantly influences the programs and activities of the
PCU.
D. Officials of the primary government appoint a majority of the members of the PCU’s
governing board and the primary government is able to impose its will on the PCU.
How should a capital lease for a general capital asset be recorded in the General Fund
accounts at the inception of the lease?
A. Debit to a capital asset account.
B. Debit to a capital expenditure account.
C. Credit to Capital Lease Obligations Payable.
D. Both A and C are correct.
The Central City Golf Course, an enterprise fund, purchased a new stove for use in the
course’s snack shop. The debit for the entry to record the purchase should be to:
A. Expenditures.
B. Purchases.
C. Equipment.
D. General capital assets.
An alumnus donates securities to a private college and stipulates that the principal be
held in perpetuity and income from the securities be used for faculty travel. Dividends
received from the securities should be recognized as increases in:
A. Endowments.
B. Unrestricted net assets.
C. Permanently restricted net assets.
D. Temporarily restricted net assets.
Which of the following items is not required to be included in the segment information
that must be reported for a municipality’s enterprise funds?
A. Enterprise fund capital assets.
B. Enterprise fund operating income or loss.
C. Enterprise fund tax revenues.
D. Intergovernmental operating subsidies to an enterprise fund.
When a government transfers the rights and obligations of an asset to another legally
separate governmental or private sector entity, the transaction is referred to as:
A. A capital lease.
B. An operating lease.
C. A service concession arrangement.
D. A sale-leaseback agreement.
The following are fund balance classifications described in Chapter 2:
A. Nonspendable
B. SpendableRestricted
C. SpendableCommitted
D. SpendableAssigned
E. SpendableUnassigned
For each of the following scenarios, indicate how they would be classified for fund
balance reporting purposes using the classification list above. Place the appropriate
letter in the blank space next to each scenario.
_______1) Bond proceeds of $15,000,000 that must be used for construction of a fire
substation remain unspent at the end of the fiscal year. _______2) Prepaid rent of
$6,000 remains at the end of the fiscal year.
_______3) The city council adopted a plan to set aside 2% of revenues over the next
three years to help build cash reserves.At the end of the fiscal year 2% of the revenues
were set aside.
_______4) The state transportation department provided $1,000,000 in state funds to be
used for street widening.At the end of the fiscal year $750,000 remained unspent.
_______5) The county received a $3,000,000 endowment during the year.
After financial ratios are calculated, the results should be compared to any of the
following except:
A. The same indicator from prior years.
B. Budgeted information for the government for the upcoming year.
C. Comparable government ratios calculated from the Government Finance Officers
Association’s Financial Indicators Database.
D. Credit analyst measures or other red flag indicators.
Which of the following characteristics of not-for-profit organizations (NFPs) can be
used to distinguish a nongovernmental from a governmental NFP?
A. Contributions by resource providers who do not expect a return on investment.
B. Ability to impose taxes on citizens.
C. Absence of ownership interests.
D. All of the above characteristics are generally different for nongovernmental versus
governmental NFPs.