4A - State and Local Government Concepts

Question 1

The debt service fund of a governmental unit is used to account for the accumulation of resources for, and the payment of, principal, and interest in connection with:

a proprietary fund.

a pension trust fund.

both a pension trust fund and a proprietary fund.

neither a pension trust fund nor a proprietary fund.

Answer 1

neither a pension trust fund nor a proprietary fund.

Debt service funds are governmental funds used to account for the accumulation of resources for, and the repayment of, general obligation long-term debt principal and interest. Debt accounted for in a pension trust or a proprietary fund is serviced from that fund and is not general long-term debt.

Question 2

Which of the following transactions should be reported as a liability in the general fund financial statements?

An amount set aside to pay for an unfilled contract

An amount that is due within one year of the balance sheet date

Principal on long-term debt due 90 days after the balance sheet date

An amount to be paid from current financial resources

Answer 2

An amount to be paid from current financial resources

Modified accrual accounting (revenues and expenditures reporting using the flow of current financial resources measurement focus) is used in the governmental funds, including the general fund. The General Fund is the primary governmental fund and is used to account for most routine general government operations.

A government’s unmatured long-term indebtedness should be reported as general long-term liabilities, rather than governmental fund liabilities

Question 3

The modified accrual basis of accounting should be used for which of the following funds?

Pension trust fund

Enterprise fund

Proprietary fund

Capital projects fund

Answer 3

Capital projects fund

In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds where revenues and expenditures are recorded, such as the General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds

Question 4

The City of Cobb has two trust funds for the benefit of the city’s library, trust fund A and trust fund B. Only the earnings from trust fund A can be expended and both the principal and interest from trust fund B can be expended. How should the City of Cobb report each trust fund?

Trust fund A: Permanent
Trust fund B: Permanent

Trust fund A: Special revenue
Trust fund B: Special revenue

Trust fund A: Permanent
Trust fund B: Special revenue

Trust fund A: Special revenue
Trust fund B: Permanent

Answer 4

Trust fund A should be classified as a permanent fund because the principal amount of the fund is restricted in use and only the earnings can be expended.

Trust fund B is classified as a special revenue fund because the fund’s principal and earnings are both restricted to use for the city’s library only. Trust fund B would be a permanent fund if, like trust fund A, the principal was prohibited from use

Question 5

Which of the following funds do not have a flow of financial resources measurement focus?

Enterprise funds

Debt service funds

Special revenue funds

Capital projects funds

Answer 5

Enterprise funds
Financial statements for governmental funds should be prepared and presented utilizing the flow of current financial resources measurement focus. Special revenue funds, debt service funds, and capital projects funds are all governmental funds.

Proprietary funds (enterprise and internal service funds) use the flow of economic resources measurement focus and the accrual basis of accounting

Question 6

Lake County received the following proceeds that are legally restricted to expenditure for specified purposes:

Levies on affected property owners to install sidewalks: $500,000
Gasoline taxes to finance road repairs: $900,000
What amount should be accounted for in Lake’s special revenue funds?

$900,000

$1,400,000

$500,000

$0

Answer 6

900,000
Special revenue funds are used to account for resources raised from revenues that are either restricted or committed for expenditure for specific general government purposes other than capital outlay or debt service.

Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays.

The sidewalks are capital in nature and would not be part of a special revenue fund but of a capital fund, whereas the road repairs are not capital but maintenance

Question 7

King City Council will be establishing a library fund. Library fees are expected to cover 55% of the library’s annual resource requirements. King has decided that an annual determination of net income is desirable in order to maintain management control and accountability over the library. What type of fund should King establish in order to meet their measurement objectives?

Internal service fund

Special revenue fund

Enterprise fund

General fund

Answer 7

Enterprise funds
Enterprise funds are used to report any activities for which a fee is charged, and 55% of the library’s needs are covered by fees

Question 8

The measurement focus of governmental-type funds is the determination of:

financial position.

both flow of financial resources and financial position.

neither flow of financial resources nor financial position.

flow of financial resources

Answer 8

both flow of financial resources and financial position.
The measurement focus of governmental type funds is on both:

the changes in financial position and
financial position.
The flow of financial resources refers to the changes in financial position from the sources and uses of financial resources (GASB 1300.102). By contrast, the measurement focus of a proprietary fund is on determining “operating income, changes in net position (or cost recovery), financial position, and cash flows”—similar to a commercial entity

Question 9

Governmental financial reporting should provide information to assist users in which situation(s)?

1. Making economic, social, and political decisions
2. Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens

I only

II only

Neither I nor II

Both I and II

Answer 9

Both I and II
GASB Concepts Statement 1, Objectives of Financial Reporting, is the basis for this question. Item I is an appropriate response because the Concepts Statement says at paragraph 32: “financial reporting by state and local governments is used in making economic, social, and political decisions and in assessing accountability….” Item II is also an appropriate response because paragraph 61, in the discussion of accountability, states that “interperiod equity is a significant part of accountability” and thus “financial reporting should help users assess whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume (financial) burdens for services previously provided.” (Emphasis added)

Question 10

Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund?

Enterprise funds

Internal trust funds

Pension trust funds

Permanent funds

Answer 10

Pension trust funds
Special revenue funds are classified as governmental funds. The other governmental funds are the general fund, capital projects funds, debt service funds and permanent funds. Governmental funds use the modified accrual basis of accounting. Enterprise funds are a type of proprietary fund and investment and pension trust funds are types of fiduciary funds. They use the accrual basis of accounting

Question 11

Answer 11

Revenues should be recognized in the period that they become susceptible to accrual, both measurable and available to finance that period’s expenditures.

“Available to finance the period’s expenditures” means the resources are legally available for use during the period and collected within the period or early enough in the next period to be used to pay the liabilities of the period. “Early enough in the next period” cannot exceed 60 days for property taxes; therefore, most governments apply the same limits to other revenue sources.

The first item, Year 3 property taxes, is collected in the same year and so would be recognized as revenue. The second item, Year 2 taxes collected in Year 3, is recognized in the year collected or Year 3. The third item, Year 3 taxes but not collected until January of Year 4, would be recognized as revenue in Year 3, as the collection happens within the 60-day limit:

$14,000,000 + $1,000,000 + $2,000,000 = $17,000,000

Question 12

A town’s fund financial statements are prepared following major fund reporting requirements, and combining fund statements detailing nonmajor funds are also provided. In reviewing the annual comprehensive financial report (ACFR), you notice that all the internal service funds were combined and reported in a single column in the basic financial statements. The combining financial statements for internal service funds included a column for each of the town’s four internal service funds. The explanation of this presentation is:

none of the internal service funds accounted for 10% of the total assets, liabilities, revenues, or expenditures/expenses of the proprietary funds or 5% of those elements of all funds.

management did not feel that any internal service fund was important enough for separate presentation in the basic financial statements, although the officials had the option of including any fund felt to be important.

major fund reporting requirements do not apply to internal service funds.

the internal service funds provided service specifically for governmental activities.

Answer 12

major fund reporting requirements do not apply to internal service funds

Major fund reporting requirements do not apply to internal service funds. Therefore, they are usually combined for financial reporting and presented individually with combining statements. The other answer choices are not sufficient explanations for the town’s presentation of the internal service fund financial information

Question 13

The Government Accounting Standards Board (GASB) is the body authorized to promulgate standards of financial accounting and reporting for:

U.S. companies that engage in transactions with governmental units.

nonprofit units.

governmental units.

None of the answer choices are correct

Answer 13

governmental units.

The Government Accounting Standards Board (GASB) is the body authorized to promulgate standards of financial accounting and reporting for governmental units. It was created by the Financial Accounting Foundation (FAF) in 1984 as successor to the NCGA and is recognized by the AICPA Code of Professional Conduct as an authorized body whose pronouncements must be followed in order to conform to the Compliance with Standards Rule (ET 1.310.001) and Accounting Principles Rule (ET 1.320.001)

Question 14

Which events are supportive of interperiod equity as a financial reporting objective of a governmental unit?

1. A balanced budget is adopted.
2. Transfers out equal transfers in.

I only

II only

Neither I nor II

Both I and II

Answer 14

I only

The intent of balanced budget laws is to achieve interperiod equity, such that current taxpayers neither pay disproportionately for future years’ services nor receive current-year services that must be paid for by future taxpayers. In contrast, transfers among funds should always be equal; however, equality of transfers in and out has no bearing on the extent to which interperiod equity is achieved in governmental external financial reporting. (GASB Concepts Statement 1)

Question 15

Answer 15

GASB N50.115 indicates governments should recognize revenues from property taxes net of estimated uncollectible amounts. The entire levy would not be considered revenue because $25,000 of it is estimated to be uncollectible. The $25,000 of uncollectible taxes is not considered a bad debt expense because the measurement focus of a governmental fund is on expenditures, decreases in resources, rather than expenses.

Question 16

Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund?

Capital projects

Nonexpendable trust

Internal service

Enterprise

Answer 16

Capital projects
In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds (General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds) where revenues and expenditures are recorded.

The flow of economic resources measurement focus and the accrual basis are used in proprietary funds (Enterprise and Internal Service Funds) where revenues and expenses are recorded. Modified accrual accounting is used for nonexpendable trusts.

Question 17

A capital projects fund for a new city courthouse recorded a receivable of $300,000 for a state grant for which all eligibility requirements have been met and a $450,000 transfer from the general fund. What amount should be reported as revenue by the capital projects fund?

$450,000

$300,000

$750,000

$0

Answer 17

$300,000
Transfers are other financing sources and are never recognized as revenues. If the receivable is associated with an unrestricted grant or with a restricted grant for which all eligibility requirements have been met, the state grant should be reported as revenues.

Question 18

Which of the following characteristics of service efforts and accomplishments is the most difficult to report for a governmental entity?

Timeliness

Consistency

Relevance

Comparability

Answer 18

Relevance
The service efforts and accomplishments (SEA) performance of governmental entities is primarily measured by output, outcome, and efficiency measures. These measures report what services the entity has provided, whether those services have achieved the objectives established, and what effects they have had upon the recipients and others. SEA performance information measures should meet the characteristics of relevance, understandability, comparability, timeliness, consistency, and reliability.

All of these measures, except for understandability and relevance, can be objectively examined. Understandability and relevance will be subject to the user’s own interpretation. As understandability is not listed in the answer choices, only relevance can be the proper answer.

Question 19

Which entity develops and distributes accounting standards for government entities?

IASB

FASB

GASB

SEC

Answer 19

GASB
Some not-for-profit organizations are government entities, but others are nongovernment.

Government not-for-profit organizations follow the SLG (state and local government) GAAP hierarchy in determining applicable GAAP. These not-for-profit organizations are prohibited by GASB Statement 29 from applying FASB not-for-profit standards.
Nongovernment not-for-profit organizations should follow the business GAAP hierarchy and look to the FASB for primary guidance in determining applicable GAAP.
There are significant differences in GAAP applicable to government and nongovernment not-for-profit organizations.

Question 20

An enterprise fund must be used when which of the following criteria are met?

1. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees of the activity.
2. Goods or services are provided on a cost-reimbursement basis.
3. Laws require that the cost of providing services be recovered with fees and charges, rather than with taxes.

I and II

II and III

I only

I and III

Answer 20

I and III
Activities are required to be reported as enterprise funds if either I or III is true. In addition, if pricing policies of the activity establish fees and charges designed to recover costs, an enterprise fund must be used. The language describing funds as providing goods and services “on a cost-reimbursement basis” applies to internal service funds.

Question 21

The City of Smithville enters into securities lending transactions. The costs of these transactions should be:

netted with interest revenue from investment of cash collateral.

reported as expenditures or expenses.

reported as intangible assets.

reported as increases in the carrying value of the collateral.

Answer 21

reported as expenditures or expenses.
“The costs of securities lending transactions should be reported as expenditures or expenses in the operating statement.” They should not be netted with interest revenue or the income from the investment of any cash collateral (GASB I60.106).

Question 22

Government C sponsors a public entity risk pool in which Government C is also a participant. However, Government C is not the predominant participant in the pool. For the situation described, indicate the fund(s) Government C must use to account for the risk pool.

Internal service

Enterprise

Agency

Special revenue

Answer 22

Enterprise
The proper accounting and financial reporting for this risk pool depends on whether the sponsoring government is also the predominant participant.

If Government C is not the predominant participant, the pool would be treated as a stand-alone pool in substance and thus be accounted for in an enterprise fund and Government C’s participation in the pool would be considered incidental.

Question 23

Sig City used the following funds for financial reporting purposes:

General fund
Internal service fund
Airport enterprise fund
Pension trust fund
Capital projects fund
Special revenue fund
Debt service fund
How many of Sig’s funds use the accrual basis of accounting?

Three

Two

Five

Four

Answer 23

Three.
The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. Proprietary funds consist of enterprise and internal service funds. GASB 1300.102.b indicates both enterprise and internal service funds use accrual accounting. The pension trust fund is a fiduciary fund. GASB 1300.102.b details that fiduciary funds use the accrual basis of accounting. The current financial resources measurement focus and the modified accrual basis of accounting are used for governmental funds. The general fund, capital projects fund, special revenue fund, and debt service fund are all governmental funds.

Question 24

State University received two contributions during the year that must be used to provide scholarships. Contribution A for $10,000 was collected during the year, and $8,000 was spent on scholarships. Contribution B is a pledge for $30,000 to be received next fiscal year. What amount of contribution revenue should the university report in its statement of activities?

$40,000

$38,000

$8,000

$10,000

Answer 24

40,000
State University would report the full amount of the pledges as revenue because the availability criterion does not apply. The Statement of Activities is a government-wide statement using the full accrual basis of accounting. The contributions are restricted to scholarships but this purpose restriction by the donor is not a condition that must be met before the donation is made. It does not function like an “expenditure driven” government grant (the recipient must incur allowable costs before it recognizes any grant revenue).

Question 25

Which of the following fund types should account for capital assets in a manner similar to a “for-profit” organization?

Special revenue fund

Enterprise fund

Permanent fund

Capital projects fund

Answer 25

Enterprise fund
An enterprise fund is the only answer choice in which capital assets are treated in a manner similar to a “for-profit” organization. The assets are recorded in the enterprise fund because they are used in production of the goods and/or services for which the fund exists. Depreciation of these assets is included in the expenses recorded as part of fund activity.

Capital assets resulting from the activities of a special revenue fund, a capital projects fund, or a permanent fund are general capital assets, which should not be reported as assets in governmental funds, but would be reported as assets in the governmental activities column of the government-wide statement of net position. (GASB 1400.114–.115)

Question 26

To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about all of the following, except:

legal or contractual restrictions of resources and risks of potential loss of resources.

how the governmental entity met its cash requirements.

the financial position and condition of the governmental entity.

the governmental entity’s physical and other nonfinancial resources.

Answer 26

how the governmental entity met its cash requirements.
To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about:

-the financial position and condition of the governmental entity,
-the governmental entity’s physical and other nonfinancial resources, and
legal or contractual restrictions of resources and risks of potential loss of resources.
-Information about how the governmental entity met its cash requirements is related to the objective of providing information to assist users in evaluating the operating results of the governmental entity. (GASB Concepts Statement 1)

Question 27

A government may be required to recognize an asset retirement obligation (ARO) and a corresponding deferred outflow of resources related to which of the following activities?

The temporary idling of a tangible capital asset

The removal and disposal of wind turbines in wind farms

Plans to prepare a tangible capital asset for an alternative use

Obligations associated with maintenance of a tangible capital asset

Answer 27

The removal and disposal of wind turbines in wind farms
An example of an activity that may result in an ARO discussed in GASB Statement 83 is the removal and disposal of wind turbines in wind farms. The definition of an ARO is a legally enforceable liability associated with the retirement of a tangible capital asset.

The other three answer choices (obligations associated with maintenance of a tangible capital asset, the temporary idling of a tangible capital asset, and plans to prepare a tangible capital asset for an alternative use) are not activities that result in AROs as they do not relate to the retirement of a tangible capital asset.

Question 28

Roy City received a gift, the principal of which is to be invested in perpetuity with the income to be used to support the local library. In which type of fund should this gift be recorded?

Private-purpose trust fund

Permanent fund

Special revenue fund

Investment trusts fund

Answer 28

Permanent fund
The GASB Codification directs that resources that must be held as investment principal with earnings restricted to support the reporting government’s programs for a specific purpose must be accounted for in a permanent fund. The gift received by Roy City meets this description.

Investment trust funds and private-purpose trust funds are both fiduciary funds that should be used to hold resources held in trust for others and not for gifts received by the government itself. A special revenue fund could be used to account for the income from the gift, but not for the investment of the gift itself.

Question 29

What is the basic criterion used to determine the reporting entity for a governmental unit?

Geographic boundaries

Financial accountability

Special financing arrangement

Scope of public services

Answer 29

Financial accountability
GASB 2100.111 states that “the financial reporting entity consists of the primary government and organizations for which the primary government is financially accountable….In addition, the primary government may determine through the exercise of management’s professional judgment that the inclusion of an organization that does not meet the financial accountability criteria is necessary in order to prevent the reporting entity’s financial statements from being misleading.”

Thus, the basic criterion for determining whether another organization should be part of the reporting entity is financial accountability.

Question 30

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of short-term financing received from a bank, secured by the city’s taxing power?

Credit expenditures control

Debit deferred revenues

Credit tax anticipation notes payable

Credit other financing sources

Answer 30

Credit tax anticipation notes payable

In this problem, a city obtained short-term bank financing secured by the city’s taxing power. This is interpreted to mean that (1) the General Fund is involved, since some or all of a city’s tax revenues are normally recorded in that fund, and (2) future tax proceeds will be used to repay the loan. The journal entry to record the transaction will include a debit to cash, of course.

In this problem, the loan is short-term and there is no information to suggest that the loan will be refinanced with long-term borrowing. Therefore, the loan represents establishment of a fund liability (not an increase in “other financing sources” as is the case when the General Fund accounts for the proceeds from long-term borrowing). The credit side of the entry then must be to some liability account. The only available response in this problem that increases a liability is “credit tax anticipation notes payable.” Moreover, in view of the information given, this is the ideal response.

Question 31

Which one of the following statements is correct regarding comparability of governmental financial reports?

Comparability is not relevant in governmental financial reporting.

Similarly designated governments perform the same functions.

Differences between financial reports should be due to substantive differences in underlying transactions or the governmental structure.

Selection of different alternatives in accounting procedures or practices account for the differences between financial reports.

Answer 31

Differences between financial reports should be due to substantive differences in underlying transactions or the governmental structure.

GASB Concepts Statement 1 states at paragraph 68: “Comparability implies that differences between financial reports should be due to substantive differences in the underlying transactions or the governmental structure rather than due to selection of different alternatives in accounting procedures or practices.”

Question 32

For governmental fund types, which of the following does not identify the primary characteristics of the structure?

The representative form of government and the separation of powers

Flows and balances of financial resources

The federal system of government and the prevalence of intergovernmental revenues

The relationship of taxpayers to services received

Answer 32

Flows and balances of financial resources

According to the summary of GASB Concept Statement 1, the primary characteristics of governmental structure are as follows:

“(1) The representative form of government and the separation of powers

“(2) The federal system of government and the prevalence of intergovernmental revenues

“(3) The relationship of taxpayers to services received

“These are the primary characteristics that affect financial reporting of governmental-type activities and must be considered in establishing financial reporting objectives.”

Question 33

Which of the following accounts of a governmental unit is credited when taxpayers are billed for property taxes?

Revenues

Taxes receivable—current

Appropriations

Estimated revenues

Answer 33

Revenues
Property taxes of a governmental unit can be accrued and recorded as a receivable and revenue when the property taxes are measurable and available. These revenues are considered measurable at the time the levy is approved by the legislative body. (The billing may occur immediately upon approval of the levy.)

The availability criterion requires that the taxes be collected within the current period or soon enough thereafter to be used to pay liabilities of the current period. The length of time used to define available, often 60 days, should be disclosed in the notes to the financial statements. This problem assumes that the availability criterion is met. Therefore, the entry to record property taxes billed would credit revenues.

Question 34

For governmental fund types, which answer describes their primary measurement focus?

Capital maintenance

Cash flows and balances

Income determination

Flows and balances of financial resources

Answer 34

Flows and balances of financial resources
GASB 1300.102.a states: “The governmental fund reporting focuses primarily on the sources, uses, and balances of financial resources.” The financial statements for governmental funds use the current financial resources measurement focus.

Question 35

Which of the following bases of accounting is required to be used in the government-wide financial statements?

Modified accrual basis for both governmental activities and business-type activities

Accrual basis for business-type activities and modified accrual basis for governmental activities

Modified cash basis for both governmental activities and business-type activities

Accrual basis for both governmental activities and business-type activities

Answer 35

Accrual basis for both governmental activities and business-type activities

Question 36

Kenn City obtained a municipal landfill and passed a local ordinance that required the city to operate the landfill so that the costs of operating the landfill, as well as the capital costs, are to be recovered with charges to customers. Which of the following funds should Kenn City use to report the activities of the landfill?

Special revenue

Permanent

Internal service

Enterprise

Answer 36

enterprise. An enterprise fund is a proprietary fund that should be used to account for the landfill because fees are charged to external users and the city ordinance requires that all costs are recovered from the fees. The permanent fund is a governmental fund used to hold resources held by the government that are restricted such that only earnings may be used. A special revenue fund is a governmental fund used to track resources that are limited as to use. An internal service fund is a proprietary fund whose activities are limited to providing services to other funds and departments within the governmen

Question 37

How should financial reporting assist users in evaluating operating results of the governmental entity?

Provide information about sources and uses of resources

Provide information about how it financed its activities

Provide information necessary to determine whether its financial position improved or deteriorated

All of the answer choices are correct.

Answer 37

All of the answer choices are correct.
GASB Concepts Statement 1 states that financial reporting should assist users in evaluating the operating results of the governmental entity for the year by:

“(1) Providing information about sources and uses of financial resources

“(2) Providing information about how it financed its activities and met its cash requirements

“(3) Providing information necessary to determine whether its financial position improved or deteriorated as a result of the year’s operations”

Question 38

Which of the following local government funds uses the accrual basis of accounting?

Debt service

Special revenue

Enterprise

Capital projects

Answer 38

Enterprise
The enterprise fund uses the economic resources measurement focus and the accrual basis of accounting. All of the other listed funds are governmental funds that use the current financial resources measurement focus and the modified accrual basis of accounting.

Question 39

Answer 39

0
Blair County would not record either of these sources of monies in its special revenue funds. The proceeds of short-term notes to be used for advances to private-purpose trust funds would be in a private-purpose trust fund and the amount received from the long-term debt to be used for a major capital project would be in a capital projects fund

Question 40

A municipality that uses modified accrual and encumbrance accounting would use the general fund to account for:

property tax revenues.

revenues from earmarked sources to finance designated activities.

major construction activities.

payment of interest and principal on tax supported debt.

Answer 40

property tax revenues.

The general fund is defined as the fund that should be used to account for all financial resources except those that are required to be accounted for in another fund. While at first this may seem like the General Fund is “residual” in nature, actually, as its name implies, the General Fund typically is the dominant fund within a city’s financial structure.

The General Fund is normally used to account for many of a city’s general government activities. In most jurisdictions, property tax revenues are considered “general revenues” and so should be accounted for in the General Fund.

(In contrast, major construction activities would be accounted for in Capital Projects Funds, payment of interest and principal on tax-supported debt would normally be accounted for in a Debt Service Fund, and revenues from earmarked sources to finance designated activities would be accounted for in a Special Revenue Fund.)

Question 41

In the current year, a state government collected income taxes of $8,000,000 for the benefit of one of its cities that imposes an income tax on its residents. The state remitted these collections periodically to the city. The state should account for the $8,000,000 in the:

general fund.

custodial fund.

special assessment funds.

internal service funds.

Answer 41

custodial fund.
When one governmental entity collects revenues for another and has the responsibility to remit the funds to the other entity, the first entity acts as a fiduciary for the second. The state must record the collected taxes in a custodial fund. This is a fund which allows the collection and subsequent remission of the monies to be recorded without affecting the funds with which the state itself operates. (GASB 1300.114)

Question 42

A city received a $9,000,000 federal grant to finance the construction of a homeless shelter. In which fund should the proceeds be recorded?

General

Permanent

Special revenue

Capital project

Answer 42

Capital project

Capital projects funds are used to account for and report financial resources (including federal grants) that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets.

Permanent funds are used only if the principal of the trust is required to be maintained intact. The General Fund is the primary governmental fund and is used to account for most routine general government operations. Special revenue funds are used to account for resources raised from revenues for specific general government purposes other than capital outlay or debt service.

Question 43

The measurement focus of governmental fund accounting is on which of the following?

Current financial resources

Cash

Working capital

Economic resources

Answer 43

Current financial resources

Governmental funds specifically address current financial resources. While similar to the concept of working capital, which covers current assets and liabilities, it is different. The accounting in governmental funds typically follows a budget. The assets that can be spent are grouped with the appropriate liabilities

Question 44

How would a municipality that uses modified accrual and encumbrance accounting record the transaction of property taxes collected in advance?

Credit budgetary fund balance—unreserved

Credit other financing sources

Credit deferred revenues

Debit deferred revenues

Answer 44

Credit deferred revenues
In order to prevent property taxes collected in advance from increasing the fund balance in a period before the related assets can legally be expended, a deferred revenue account (a liability like Unearned Revenue) is credited (with corresponding debit to cash).

Question 45

What measurement focus and basis of accounting should be used by a local government’s private-purpose trust fund?

Measurement focus: current financial resources; Basis of accounting: accrual

Measurement focus: economic resources; Basis of accounting: modified accrual

Measurement focus: current financial resources; Basis of accounting: modified accrual

Measurement focus: economic resources; Basis of accounting: accrual

Answer 45

Measurement focus: economic resources; Basis of accounting: accrual
The private-purpose trust fund is a type of fiduciary fund. Fiduciary funds follow the economic resources measurement focus and accrual basis of accounting. The current financial resources measurement focus and modified accrual basis of accounting are used for governmental funds, not fiduciary funds.

Question 46

Which of the following is a required financial statement for an investment trust fund?

Statement of changes in fiduciary net position

Statement of revenues, expenses, and changes in fiduciary net position

Statement of revenues, expenditures, and changes in fiduciary net position

Statement of activities

Answer 46

Statement of changes in fiduciary net position

Investment trust funds are one of the fiduciary fund types for state and local governments. Two financial statements are required for fiduciary funds—a statement of fiduciary net position and a statement of changes in fiduciary net position

Question 47

GASB standards require governmental entities to issue which two sets of financial statements?

The statement of net position and the statement of activities

The statement of net position and the statement of cash flows

The balance sheet and the statement of owner’s equity

The income statement and the statement of cash flows

Answer 47

The statement of net position and the statement of activities

1. The GASB requires the issuance of two financial statements:
2. The balance sheet or statement of net position
   The statement of revenue and expenses or statement of activities

Question 48

It is inappropriate to record depreciation expenses in:

a private-purpose trust fund.

a capital projects fund.

an internal service fund.

an enterprise fund.

Answer 48

a capital projects fund.
Depreciation expense is not recorded in any governmental fund since governmental funds account for neither depreciable assets nor expenses (the measurement focus of governmental funds is on expenditures, not expenses). Capital assets and related depreciation expenses are accounted for in proprietary funds and fiduciary funds. The only governmental fund type listed in the responses to this question is the capital projects fund, so this is the appropriate response.

Question 49

Which of the following accounts should Moon City close at the end of its fiscal year?

Vouchers payable

Fund balance

Expenditures

Fund balance—reserved for encumbrances

Answer 49

Expenditures is a nominal (operating statement) account used in periodically measuring outflows of financial resources, and as such is closed at the end of the fiscal year. Vouchers Payable, Fund Balance, and Fund Balance—Reserved for Encumbrances are all balance sheet (real) accounts. Balance sheet accounts are not closed at fiscal year-end.

Question 50

Tang City received $250,000 from a donor who stipulated that the resources must be invested and must remain intact, but any income generated may be used for general government services. In which fund should Tang City record the donation?

Private-purpose trust

Permanent

Special revenue

Custodial

Answer 50

A permanent fund, a governmental fund–type, is used when resources are restricted such that principal must be maintained indefinitely but earnings may be used to support the reporting government’s own programs. This contrasts with the special revenue fund, also a governmental fund-type, which is used when revenue streams are restricted as to use or when the principal may eventually be expended. A private-purpose trust fund, a fiduciary fund, is used to account for principal and disbursal of earnings for beneficiaries other than the reporting government itself.

Question 51

Which of the following fund types of a governmental unit have the income determination orientation?

Neither general funds nor fiduciary funds

General funds

Fiduciary funds

Both general funds and fiduciary funds

Answer 51

Neither general funds nor fiduciary funds

The measurement focus of the general fund and other governmental-type funds is flow of current financial resources. This focus provides a measure of the change in current financial resources. The measurement focus of trust funds, including fiduciary funds, is economic resources. The purpose of measurement is change in trust net position reported as additions and deductions. Net income is not determined for governmental or fiduciary fund types.

Question 52

The City of Windemere decided to construct several large windmills to generate electrical power. The construction was financed through a general residential property tax levy for the next 10 years. Utility revenues are intended to offset all expenses associated with the windmills. The land for the windmills was donated to the city by a local farmer. The land from the farmer should be reported in which fund type?

Permanent

Enterprise

Capital projects

Special revenue

Answer 52

An enterprise fund must be used to report any activity for which a fee is charged to external users for goods or services and the pricing of the good or service is designed to cover the expenses of operating the service. The revenues generated by the electrical power delivered to the customers is designed to offset all expenses, requiring enterprise fund classification of the land associated with the operation of the windmills.

Permanent funds restrict part of the fund resources from use. There is no such stipulation for the city. Special revenue funds use their funds for a specific purpose (i.e., building a library). Capital project funds are used to account for financial resources restricted, committed, or assigned to specific capital outlays. There is no mention of purchasing additional capital resources in this problem.

Question 53

The billings for transportation services provided to other governmental units are recorded by the internal service fund as:

other financing sources.

operating revenues.

transportation appropriations.

nonoperating revenues.

Answer 53

operating revenues.
Internal service funds are established to account for activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case) and (2) (sometimes) other governments, at prices approximating their external exchange value. This question illustrates an exchange-like reciprocal interfund activity. Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds (GASB 1800.102).

Other financing sources are used to record operating transfers-in for governmental funds. Nonoperating revenues include earnings tangential to the purpose of the fund, e.g., interest and miscellaneous revenue. Transportation appropriations is a budgetary account.

Question 54

The primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements is the:

Government Accounting and Auditing Committee of the AICPA (GAAC).

National Council on Governmental Accounting (NCGA).

Governmental Accounting Standards Board (GASB).

Financial Accounting Standards Board (FASB).

Answer 54

Governmental Accounting Standards Board (GASB).

The Governmental Accounting Standards Board (GASB) was created by the Financial Accounting Foundation (FAF) to specifically address the needs of governmental accounting. The Financial Accounting Standards Board (FASB) is recognized as the proper rule-setting authority for all other types of financial statements, including nonprofits, but no longer for governmental accounting

Question 55

The basis for defining the governmental financial reporting entity is:

financial autonomy.

administrative autonomy.

public accountability.

legal autonomy.

Answer 55

public accountability
According to GASB 2100.109, “The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions.”

Question 56

A government contributed $100,000 to its defined benefit pension plan during the year and had no current amounts due to the plan at year-end. During the year, the net pension liability related to the plan increased by $200,000 and the total pension liability increased by $350,000. What amount of pension expenditure would the government recognize for the year?

$200,000

$100,000

$350,000

$0

Answer 56

100,000
While a government’s full accrual financial statements recognize pension expense primarily based upon changes in the pension liability during the year, the modified accrual financial statements recognize pension expenditures primarily based upon a funding approach. Therefore, the government would recognize the full $100,000 contribution as pension expense for the year.

Question 57

Monies held in trust for the benefit of parties who are not a part of government are accounted for in which type of fund?

Custodial funds

Special revenue funds

Private-purpose trust funds

Permanent funds

Answer 57

Private-purpose trust funds represent resources held in trust for the benefit of parties that are not a part of the government, rather than for the benefit of government programs.

Question 58

Expenditures of a governmental unit for insurance extending over more than one accounting period:

must be allocated between or among accounting periods.

must be accounted for as expenditures of the period of acquisition.

must be accounted for as expenditures of the periods subsequent to acquisition.

may be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition

Answer 58

may be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition.

GASB 1600.127.b states: “Expenditures for insurance and similar services (prepaid items) extending over more than one accounting period need not be allocated between or among accounting periods, but may be accounted for as expenditures of the period of acquisition.” (Emphasis added)

Question 59

A municipality that uses modified accrual and encumbrance accounting would use the permanent fund to account for:

major construction activities.

contributions made with the purpose of using the earnings from the invested contributions to support a contributor-designated purpose.

payment of principal and interest on long-term borrowings.

all activities except those that are required to be accounted for using another fund.

Answer 59

contributions made with the purpose of using the earnings from the invested contributions to support a contributor-designated purpose

Permanent funds are used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs—that is, for the benefit of the government or its citizenry.
Major construction activities would be accounted for in capital projects funds. Payment of interest and principal on tax-supported debt would normally be accounted for in a debt service fund. The general fund is used to account for all financial resources except those that are required to be accounted for in another fund.

Question 60

The GASB is to establish accounting and reporting standards for activities and transactions of state and local governmental entities. These include:

states, counties, cities, towns, and independent school districts.

hospitals and other health care organizations, and charitable and other not-for-profit organizations that are government organizations.

state and local government educational institutions (colleges and universities).

All of the answer choices are correct.

Answer 60

All of the answer choices are correct.
When the Financial Accounting Foundation (FAF) established the GASB in a brother-sister relationship with the FASB, the FAF established the following jurisdiction policy:

-The GASB is to establish accounting and reporting standards for activities and transactions of state and local governmental entities, which include states, counties, cities, and towns; independent school districts; state and local government educational institutions (colleges and universities); hospitals and other health care organizations; and not-for-profit organizations that are eligible to adopt GASB standards.
-The FASB is to establish accounting and reporting standards for activities and transactions of all other entities, such as most commercial and not-for-profit organizations.

Question 61

By definition, a fund is:

a single entity reporting on all government activities.

composed of a self-balancing set of accounts.

a “government-type” entity through which all governmental functions are financed.

interchangeable and interdependent with the general fund.

Answer 61

composed of a self-balancing set of accounts

Under fund accounting, each fund is a separate “fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.” (Emphasis added) (GASB 1100.102)

A government’s activities are not captured in a single fund but are divided into several separate funds to account for specific revenue sources and activities.

A fund can be one of three categories: (1) governmental, (2) proprietary, or (3) fiduciary.

A fund is not interchangeable and interdependent with the general fund. Each fund is a separate fiscal and accounting entity

Question 62

Fund accounting is used by governmental units with resources that must be:

composed of cash or cash equivalents.

segregated for the purpose of carrying on specific activities or attaining certain objectives.

incorporated into combined or combining financial statements.

segregated physically according to various objectives.

Answer 62

segregated for the purpose of carrying on specific activities or attaining certain objectives

This question refers to the basic definition of a “fund,” included as one of the fundamental governmental accounting and financial reporting principles in GASB 1300. “A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources…which are segregated for the purpose of carrying on specific activities or attaining certain objectives….” (Emphasis added)

Question 63

According to the principles concerning the use of fund accounting, a governmental entity should have only one:

general fund.

internal service fund.

capital projects fund.

pension trust fund.

Answer 63

General fund
According to the principles concerning the use of fund accounting specified by GASB 1300.116, “a government shall report only one general fund.”

Although “the general rule is to establish the minimum number of funds consistent with legal specifications, operational requirements, and the principles of fund accounting,” a governmental entity could have a need for more than one pension trust fund, internal service fund, or capital projects fund.

Question 64

The County of Kipling collects taxes for the City of Grant and two school districts located within the county in addition to its own property taxes. The county has no control over the use of the assets in the fund, and the fund meets the criteria established in GASB Statement 84 to qualify as a fiduciary fund. What type of fiduciary fund would be used to record this activity?

General fund

Exchange fund

Custodial fund

Investment trust fund

Answer 64

A custodial fund is a type of fiduciary fund that is used to report fiduciary activities that are not required to be reported in pension/OPEB trust funds, investment trust funds, or private-purpose trust funds. For custodial funds, the government is collecting and remitting property taxes, but has no discretion over the use of the funds.

The general fund records the taxes receivable and tax revenue for the county. Each of the other governments—city and school districts—would record their own tax revenue and receivable in a general or special revenue fund. Both the general fund and the special revenue fund are governmental funds. With the adoption of GASB Statement 84, the term “agency fund” is no longer used. Since the cash in the fund is remitted to the respective governments and not held for investment, it is not an investment trust fund.

Question 65

The governmental fund measurement focus is on the determination of:

economic resources.

income, economic resources, and flow of financial resources.

flow of financial resources.

income and flow of financial resources.

Answer 65

flow of financial resources.
Financial statements for governmental funds should be prepared and presented utilizing the flow of current financial resources measurement focus. This hybrid basis of accounting is called the modified accrual basis of accounting

Question 66

Which of the following should be considered part of one of the three primary user groups of the external financial reports of a state government?

Bond rating agencies

Taxpayers

Members of a county commission

All of the answer choices are primary user groups of governmental external reports.

Answer 66

All of the answer choices are primary user groups of governmental external reports.
There are three groups of primary users of a government’s external financial reports:
(1) the citizenry to whom the government is primarily accountable, including taxpayers, voters, service recipients, the media, advocate groups, and public finance researchers;
(2) legislative and oversight bodies, including members of state legislatures, county commissions, city councils, boards of trustees and school boards, and executive branch officials with oversight responsibility over other levels of government; and
(3) investors and creditors, including individual and institutional investors and creditors, municipal security underwriters, bond rating agencies, bond insurers, and financial institutions

Question 67

Rus City purchased the local water and sewer utility and intends to operate the utility and charge user fees to the current customers for the services. In order to bring the utility up to current Environmental Protection Agency (EPA) standards, Rus City issued bonds that would be backed solely by the fees charged. In which fund should Rus City record the utility’s activities?

Special revenue

Enterprise

Debt service

Internal service

Answer 67

Enterprise funds can be used to report any activity for which a fee is charged to external users for goods or services provided. They are required to be used to report such activity if the activity is financed solely by a pledge of the net revenues from fees charged related to the activity.

Because the Rus City utility bonds are backed solely by the fees charged for the utility usage, Rus City is required to report the activity as an enterprise fund.

Question 68

Which of the following fund types of a government reports a statement of net position?

Enterprise funds

Permanent funds

Capital project funds

Special revenue funds

Answer 68

Enterprise funds
The statement of net position reports the financial position of proprietary funds. Enterprise funds are a type of proprietary fund. Capital projects funds, special revenue funds, and permanent funds are all types of governmental funds that report financial position on a balance sheet. The net assets of proprietary funds are called net position. The net assets of a governmental fund are represented by Fund Balance

Question 69

Answer 69

$600,000
Oak City’s net property taxes for 20X1 would be $600,000. This is the collections during 20X1 and the amount expected to be collected in the first 60 days of 20X2. Amounts expected to be collectible during the first 60 days of the following year can be recorded as revenues of the current year if they are legally usable to pay current liabilities of the current year; that is, if they are available.

Question 70

Old Town added a water and sewer department to its municipal services. The department provided the services to the residents of Old Town and issued quarterly billings to customers. In which of the following types of funds would this activity be recorded?

Enterprise

Capital projects

Special revenue

Permanent

Answer 70

Enterprise

Question 71

On what accounting basis does the GASB recommend that governmental fund budgets be prepared?

Cash

Modified accrual

Modified cash

Accrual

Answer 71

Modified accrual

The GASB Codification notes at Section 1700.116 that, ideally, the budget should be consistent with the accounting basis used, so it is recommended that a government’s budgetary accounting basis be prepared in the modified accrual accounting basis used for financial reporting. This section states: “It is recommended that governmental fund annual budgets be prepared on the modified accrual basis.”

Question 72

Cal City maintains several major fund types. The following were among Cal’s cash:

-Unrestricted state grant: $1,000,000
-Interest on bank accounts held for employees’ pension plan: $200,000
What amount of these cash receipts should be accounted for in Cal’s general fund?

$1,200,000

$0

$200,000

$1,000,000

Answer 72

$1,000,000
The general fund is the primary fund in governmental accounting and reports items that do not meet specific restrictions for the other type of funds. The unrestricted state grant of $1,000,000 in cash would meet the criteria for the general fund.

Fiduciary funds are used to report assets and liabilities held in trust for the benefit of another. A common example of a fiduciary fund would be employees’ pensions, thereby eliminating the bank account interest of $200,000 from being accounted for in the general fund. As a result, $1,000,000 is the proper answer

Question 73

Which of the following is the paramount objective of financial reporting by state and local governments?

Accountability

Reliability

Consistency

Comparability

Answer 73

Accountability
The characteristics of governmental activities result in reporting objectives for these units. These characteristics include:

-the separation of powers embodied in the representative form of government,
-the existence of intergovernmental revenues in -the federal government,
-the relationship of services to the taxpayers receiving the services,
-budgets as a control mechanism, and
-fund accounting as another control mechanism.
Consequently, the GASB has determined that accountability is the cornerstone of financial reporting for governmental entities.

Question 74

Texas A&M University, a publicly held institution, is required to report under the standards of which of the following bodies?

Primarily APB

None of the answer choices are correct.

Primarily GASB

Primarily FASB

Answer 74

Primarily GASB

Question 75

How would a municipality that uses modified accrual and encumbrance accounting record the condition of an excess of estimated inflows over estimated outflows?

Credit appropriations control

Credit budgetary fund balance

Credit other financing sources

Debit appropriations control

Answer 75

Credit budgetary fund balance

Question 76

Powell City purchased a piece of equipment to be used by a department financed by the general fund. How should Powell report the acquisition in the general fund?

Capitalize, depreciation is required

Capitalize, depreciation is not permitted

As an expenditure

Capitalize, depreciation is optional

Answer 76

As an expenditure
The acquisition of capital assets with general fund financial resources should be recorded as a general fund expenditure. The capital asset itself is not recorded in the general fund (or any other governmental fund). Because the general fund uses the current financial resources measurement focus, long-lived assets are not recorded or capitalized. Because the general fund recognizes expenditures when a fund liability occurs, depreciation is not recorded

Question 77

Where should receipts from a special tax levy to retire and pay interest on general obligation bonds be recorded?

General fund

Permanent fund

Capital projects fund

Debt service fund

Answer 77

Debt service fund

Debt service funds are used to account for payments of the maturing principal and related interest of general government long-term debt and the accumulation of financial resources for these payments. The resources for these payments may be accumulated from tax levies specifically designated for debt service and/or by transfers from other funds

Question 78

The fiduciary funds of a government should include:

pension trust funds, custodial funds, and permanent funds.

pension trust funds.

custodial funds.

pension trust funds and custodial funds.

Answer 78

pension trust funds and custodial funds.
Four types of fiduciary funds are used in governmental accounting systems: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Permanent funds are a type of governmental fund.

Question 79

GASB Statement 28 states that a government that(1) loans securities to a broker-dealer and (2) receives collateral in the form of other securities that the government cannot pledge or sell without borrower default should report:

I. the securities lent as assets.
II. the collateral received as assets.
III. a liability for the government’s obligation to return the collateral securities.

I only

I and III

I, II, and III

II and III

Answer 79

I only
GASB Statement 28 states: “Governmental entities should report securities lent (the underlying securities) as assets in their balance sheets.” Further, GASB Statement 28 states that “securities lending transactions collateralized by letters of credit or by securities that the governmental entity does not have the ability to pledge or sell unless the borrower defaults should not be reported as assets and liabilities in the balance sheet.”

Question 80

To determine the accounting treatment for a transaction, a governmental entity must first refer to:

AICPA Practice Bulletins.

Implementation Guides published by the GASB staff.

GASB Technical Bulletins.

GASB Statements.

Answer 80

The answer choice “GASB Statements” is correct. GASB standards only recognize two categories (A and B) of GAAP for governmental entities, with Category A being more authoritative than Category B. GASB Statements are in Category A of the governmental GAAP hierarchy.

GASB Technical Bulletins, AICPA Practice Bulletins, and Implementation Guides represent Category B guidance and are referred to after Category A guidance

Question 81

Which of the following types of funds use the economic resources measurement focus and the accrual basis of accounting?

Governmental funds

Fiduciary and proprietary funds

Fiduciary, governmental, and proprietary funds

Fiduciary and governmental funds

Answer 81

Fiduciary and proprietary funds
The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. Proprietary funds consist of enterprise and internal service funds. GASB 1300.102.b indicates both enterprise and internal service funds use accrual accounting. The pension trust fund is a fiduciary fund. GASB 1300.102.b details that fiduciary funds use the accrual basis of accounting.
The current financial resources measurement focus and the modified accrual basis of accounting are used for governmental funds. The general fund, capital projects fund, special revenue fund, and debt service fund are all governmental funds.

Question 82

Which of the following lead(s) to the use of fund accounting by a governmental organization?

Financial control: Yes; Legal restrictions: Yes

Financial control: No; Legal restrictions: Yes

Financial control: No; Legal restrictions: No

Financial control: Yes; Legal restrictions: No

Answer 82

Financial control: Yes; Legal restrictions: Yes

A governmental accounting system must make it possible both (a) to present fairly and with full disclosure the financial position and results of financial operations of funds and account groups of the governmental unit in conformity with GAAP and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions (GASB 1100.101).

Question 83

Answer 83

Question 84

Dale City is accumulating financial resources that are legally restricted to payments of general long-term debt principal and interest maturing in future years. At December 31, $5,000,000 has been accumulated for principal payments and $300,000 has been accumulated for interest payments. These restricted funds should be accounted for in the:

Debt service fund, $300,000; General fund, $5,000,000.

Debt service fund, $5,300,000; General fund, $0.

Debt service fund, $5,000,000; General fund, $300,000.

Debt service fund, $0; General fund, $5,300,000.

Answer 84

Debt service fund, $5,300,000; General fund, $0.

The debt service fund is a reserve used to account for and report payments of the maturing principal and interest of general government short- and long-term debt. These liabilities are recorded in the General Capital Assets and General Long-Term Liabilities accounts, which are subaccounts of the debt service fund.

Question 85

In governmental accounting, a fund is:

I. an independent, self-balancing set of accounts.
II. used to assist in ensuring fiscal compliance.

Neither I nor II

I only

Both I and II

II only

Answer 85

Both I and II
GASB 1300 defines a fund “as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations…”

Question 86

Which of the following subobjectives of accountability is “interperiod equity”?

Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity.

Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity’s legally adopted budget.

Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

None of the answer choices are correct.

Answer 86

Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

Question 87

Prairie City is building a new law and justice center. A capital projects fund for a new facility recorded a receivable of $1,930,000 for a federal grant for which all eligibility requirements have been met. Prairie City also recorded a $375,000 transfer from the general fund. What amount should be reported as revenue by the capital projects fund?

$375,000

$0

$1,930,000

$2,305,000

Answer 87

$1,930,000

Transfers are other financing sources and are never recognized as revenues. If the receivable is associated with an unrestricted grant or with a restricted grant for which all eligibility requirements have been met, the state grant should be reported as revenues. The amount of revenue to be reported is $1,930,000

Question 88

Reporting of general infrastructure assets by all public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities is:

required beginning with fiscal years ending after June 15, 2006.

required using the special provisions of GASB Statement 35 for phase 3 public institutions.

encouraged but not required.

required using the full governmental model.

Answer 88

required using the full governmental model.

Public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report infrastructure using the provisions of GASB Statement 34 codified as GASB Sp20.104. These provisions include the reporting of capital assets that are defined in GASB 1400.103 to include infrastructure.

Question 89

Greenburg’s finance staff is preparing the statement of activities by checking classification of all expenses. The staff has been told that governments should report all expenses by function. They interpret this to mean that expenses that are required to be reported by function include:

I. direct operating expenses.
II. special and extraordinary expenses.
III. indirect operating expenses.

I and II

I, II, and III

I only

I and III

Answer 89

I only
The government-wide statement of activities should present direct operating expenses by function. Special and extraordinary items are reported separately at the bottom of the statement of activities. Extraordinary items, per GASB 2200.143, are transactions or other events that are both unusual in nature and infrequent in occurrence. Governments may allocate indirect expenses to benefiting functions, but they are not required to do so.

Question 90

Which of the following is not a type of fiduciary fund?

Custodial fund

Permanent fund

Investment trust fund

Private-purpose trust fund

Answer 90

Permanent fund
Fiduciary funds include pension trust funds, investment trust funds, private-purpose trust funds and custodial funds. Permanent funds are a type of governmental fund.

Question 91

An entity having which of the following characteristics may not be a governmental organization?

Body corporate and politic

Power to enact and enforce a tax levy

Body corporate and politic or exempt from federal taxation

Exempt from federal taxation

Answer 91

Exempt from federal taxation

Entities having status as bodies corporate and politic and entities with the power to enact and enforce a tax levy are each considered governmental organizations (joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments, paragraph 1.01). However, many nongovernmental organizations are exempt from federal taxation.

Question 92

The city accountant for a newly established municipality is setting up the new fund structure for the city’s accounting system. How many funds should the accountant establish for the city?

The minimum number of funds consistent with the needs of the city accountant

Two: a general fund and a special revenue fund as required by GAAP

Two: a special revenue fund and a general fund as required by the city manager

The minimum number of funds consistent with legal requirements and sound financial administration

Answer 92

Governmental accounting is only required to have one fund, the general fund. Other funds can be added to meet budgetary and legal requirements.

Therefore, the answer choices, “a general fund and a special revenue fund as required by GAAP” and “a special revenue fund and a general fund as required by the city manager,” are obviously wrong as two funds are never required. The answer choice, “the minimum number of funds consistent with the needs of the city accountant,” while logical, as the city accountant may determine the appropriate number of funds, is ignoring potential legal requirements of various budgetary needs.

Question 93

Which characteristic of information in the statistical tables included in an annual comprehensive financial report differentiates it from information contained in the financial statements?

Data covering financial trends

Both data covering financial trends and fiscal years

Fiscal years

Neither data covering financial trends nor fiscal years

Answer 93

Both data covering financial trends and fiscal years

An annual comprehensive financial report (ACFR) includes an introductory section, financial section, and statistical section. The financial section includes the financial statements, auditor’s report, and required supplementary information for the financial statements prepared for the required fiscal years. The statistical section includes financial, economic, and demographic information and their associated trends over the fiscal years presented in the financial statements and data not confined to the fiscal-year approach required of the financial statements.