ACCT 3050: Chapter 2

Question 1

In its more recent pronouncements, GASB refers to core governmental services, together with general administrative support activities, as simply ______.

*governmental activities

*business-type activities

*fiduciary activities

*public works

Answer 1

governmental activities

Question 2

Which of the following statements about proprietary funds is correct?

*Special revenue funds provide goods or services to the public, whereas internal service funds mainly serve departments of the same government.

*Enterprise funds and internal service funds are distinguished primarily by the kinds of customers they serve.

*General funds and internal service funds are distinguished primarily by the kinds of customers they serve.

Answer 2

Enterprise funds and internal service funds are distinguished primarily by the kinds of customers they serve.

Question 2

In most cases only ______ funds are reported as business-type activities in the government-wide financial statements.

*proprietary

*governmental

*fiduciary

*enterprise

Answer 2

enterprise

Question 3

The General Fund, special revenue funds, debt service funds, capital projects funds, and permanent funds are in the ______ funds category.

*governmental

*fiduciary

*proprietary

Answer 3

governmental

Question 4

Fiduciary fund financial statements ______. (choose 2)

*use the accrual basis of accounting

*use the modified accrual basis of accounting

*focus on the flow of economic resources

*use the cash basis of accounting

Answer 4

use the accrual basis of accounting

focus on the flow of economic resources

Question 5

What type of fund will be created to account for endowments created when a donor stipulates that the principal amount of a contribution must be invested and preserved, but earnings on amounts so invested can be used for some public purpose?

*endowment

*permanent

*trust

*special revenue

Answer 5

permanent

Question 6

Match the element of a financial statement with its description.

The acquisition of net assets by the government in the current reporting period.

Answer 6

inflow of resources

Question 7

Match the element of a financial statement with its description.

The acquisition of net assets by the government that applies to a future reporting period.

Answer 7

deferred inflows of resources

Question 8

Match the element of a financial statement with its description.

The consumption of net assets by the government that applies to a future reporting period.

Answer 8

deferred outflows of resources

Question 9

Match the element of a financial statement with its description.

The consumption of net assets by the government in the current reporting period (e.g., expenses, expenditures, and other uses of resources).

Answer 9

outflow of resources

Question 10

Match the element of a financial statement with its description.

The resources with present service capacity that the government presently controls.

Answer 10

assets

Question 11

Match the element of a financial statement with its description.

The present obligations to sacrifice resources that the government has little or no discretion to avoid.

Answer 11

liabilities

Question 12

Match the element of a financial statement with its description.

The residual when assets + deferred outflows of resources – liabilities – deferred inflows of resources is calculated.

Answer 12

net position

Question 13

Government-wide financial statements present all information using the ______.

*economic resources measurement focus

*cash basis measurement focus

*fair value measurement focus

*historical cost measurement focus

Answer 13

economic resources measurement focus

Question 14

Private-purpose ______ funds can be created to benefit private individuals, organizations or other governments.

*governmental

*trust

*permanent

*proprietary

Answer 14

trust

Question 15

GASB standards require that financial statements prepared for governmental funds and enterprise funds include a separate column for each ______ fund.

*nonmajor

*major

*custodial

*fiduciary

Answer 15

major

Question 16

Match the type of fund balance with its description.

Amounts that are not in spendable form or legally or contractually required to be maintained intact.

Answer 16

nonspendable

Question 17

Match the type of fund balance with its description.

Amounts that can be spent only for the specific purposes designated by external providers, constitutionally, or through enabling legislation.

Answer 17

restricted

Question 18

Match the type of fund balance with its description.

Amounts that can only be used for the specific purposes determined by a formal action of a government’s highest level of decision-making authority.

Answer 18

committed

Question 19

Match the type of fund balance with its description.

Amounts intended to be used by the government for specific purposes that are neither restricted nor committed.

Answer 19

assigned

Question 20

Match the type of fund balance with its description.

The residual amount for the General Fund; technically available for any purpose.

Answer 20

unassigned

Question 21

The formal definition of a fund states that a fund ______. (choose 3)

*is a fiscal and accounting entity with a self-balancing set of accounts

*has accounts that are segregated for the purpose of carrying on specific activities

*has accounts recording cash (but not other financial resources), liabilities, and residual equities or balances and changes therein

*has accounts that are segregated to attain certain objectives in accordance with special regulations, restrictions, or limitations

Answer 21

is a fiscal and accounting entity with a self-balancing set of accounts

has accounts that are segregated for the purpose of carrying on specific activities

has accounts that are segregated to attain certain objectives in accordance with special regulations, restrictions, or limitations

Question 22

To account for tax or grant revenues or bond proceeds earmarked for a building, highway or bridge, as well as payments to architects, engineers, construction contractors and suppliers, a ______ fund is typically created.

*debt service

*capital projects

*special revenue

Answer 22

capital projects

Question 23

A government’s proprietary funds follow accounting and financial reporting principles that are similar to those for ______.

*governmental funds

*not-for-profit entities

*commercial business entities

Answer 23

commercial business entities

Question 24

The proprietary funds category includes which of the following types of funds? (choose 2)

*agency

*enterprise

*internal service

*general fund

Answer 24

enterprise

internal service

Question 25

GASB standards require that information be provided on legally adopted budgets to address which of the following needs?

*Industry analysis of debt-to-equity ratio.

*Comparative information on profitability.

*Objective information on compliance.

Answer 25

Objective information on compliance.

Question 26

According to GASB Concepts Statement No. 1, governmental-type activities are composed of ______. (choose 2)

*core governmental support

*general administrative support

*core governmental services

*general administrative services

Answer 26

general administrative support

core governmental services

Question 27

When a donor stipulates that the principal amount of a contribution must be invested and preserved, but earnings on amounts so invested can be used for some public purpose, which type of fund is created?

*debt service fund

*special revenue fund

*permanent fund

*capital projects fund

Answer 27

permanent fund

Question 28

Which of the following are required characteristics to make information useful in meeting objectives identified by GASB in Concept Statement No. 1? (choose 3)

*relevant

*verifiable

*comparable

*understandable

Answer 28

relevant

comparable

understandable

Question 29

For those liabilities for which the timing and amount of payments may be uncertain (e.g., compensated absences), Concept Statement No. 6 indicates they should be recorded and presented at ______.

*historical cost

*a remeasurement amount

*replacement value

*the initial measurement amount

Answer 29

a remeasurement amount

Question 30

Business-type activities of governmental organizations include ______. (choose 3)

*public utilities

*public works

*parking garages

*social services

*golf courses

Answer 30

public utilities

parking garages

golf courses

Question 32

When tax or grant revenues or private gifts are restricted by external resource providers or committed by enabling legislation for particular operating purposes, such as the operation of a library or maintenance of roads and bridges, a(n) ______ fund is created.

*permanent

*special revenue

*internal services

*debt service

Answer 32

special revenue

Question 33

A fund is ______. (choose 2)

*a joint accounting entity

*a separate accounting entity

*a combined fiscal entity

*a separate fiscal entity

Answer 33

a separate accounting entity

a separate fiscal entity

Question 34

Governments that have bond obligations outstanding may be required by law or bond covenants to create a(n) ______.

*debt service fund

*capital projects fund

*permanent fund

*special revenue fund

Answer 34

debt service fund

Question 34

The current standard-setting body for governmental accounting is ______.

*GASB

*NCGA

*FASB

*AICPA

Answer 34

GASB

Question 35

Budget to actual schedules are included ___.

*as financial statements

*in supplementary information

*in notes to the financial statements

*in required supplementary information (RSI)

Answer 35

in required supplementary information (RSI)

Question 36

Which of the following are basic financial statements required by GASB? (choose 2)

*Proprietary

*Fiduciary

*Government-wide

*Fund

Answer 36

Government-wide

Fund

Question 37

The main operating fund of local governments is the ______.

*permanent fund

*special revenue fund

*General Fund

*debt service fund

Answer 37

General Fund

Question 38

Most governments have adopted a ______ day policy for all governmental fund revenues, although some governments have other policies that can range from ______ days to one year.

*90; 30

*60; 90

*60; 30

*30; 60

Answer 38

60; 30

Question 39

Central purchasing and self-insurance pools are examples of which type of funds?

*internal service

*custodial

*enterprise

*debt service

Answer 39

internal service

Question 39

The fiduciary funds category includes which types of funds?

*trust

*permanent

*special revenue

*enterprise

Answer 39

trust

Question 40

Financial statements for proprietary funds include which of the following? (choose 3)

*balance sheet

*statement of revenues, expenses, and changes in fund net position

*statement of net position

*statement of cash flows

*statement of activities

*statement of revenues, expenses, and changes in cash flows

Answer 40

statement of revenues, expenses, and changes in fund net position

statement of net position

statement of cash flows

Question 41

Although internal service funds are included in the ______ funds category, their financial information usually is included as part of ______ activities in the government-wide financial statements.

*governmental; fiduciary

*proprietary; governmental

*fiduciary; business-type

*business-type; proprietary

Answer 41

proprietary; governmental

Question 42

The concept of a(n) _____ is fundamental to governmental accounting and reporting.

*agency

*fund

*fiscal period

*journal

Answer 42

fund

Question 43

The governmental funds category includes which types of funds? (choose 2)

*trust

*internal service

*debt service

*permanent

Answer 43

debt service

permanent

General Fund

special revenue

capital projects

Question 44

Which of the following statements about fiduciary fund financial information is correct?

*Fiduciary funds account for resources that the government is holding or managing as an agent or trustee for an internal party.

*Fiduciary fund financial information is reported in only two fund financial statements.

*GASB standards require that financial information about fiduciary activities be included in the government-wide financial statements.

Answer 44

Fiduciary fund financial information is reported in only two fund financial statements.

Question 45

To be categorized as a ______ fund, there must be an agreement or equivalent arrangement in place, or the activity must be a pension or other post-retirement benefit arrangement.

*proprietary

*governmental

*permanent

*trust

Answer 45

trust

Question 46

Government financial reports should be useful in assessing a government’s accountability. Three objectives of government financial reporting identify how financial reporting can be useful in assessing a government’s accountability. Which of the following is not related to one of the objectives?

Providing information on operating results for the current period.

Providing information on meeting current year service performance goals.

Providing information related to the provision of services in accordance with legally adopted budgets.

Providing information on ability of the government to meet obligations as they come due.

Answer 46

Providing information on meeting current year service performance goals.

Question 47

Which of the following statements is true regarding the basic financial statements of a state or local government?

Separate columns should be provided in the government-wide financial statements for governmental activities and business-type activities.

Governmental fund and proprietary fund financial statements should provide a separate column for each major fund.

Aggregate information about all nonmajor governmental funds should be reported in a single column of the governmental fund financial statements and all nonmajor enterprise funds should be reported in a single column of proprietary fund financial statements.

All these answer choices are correct.

Answer 47

All these answer choices are correct.

Question 48

A member of the city council does not understand why governments need to use funds. He believes it makes reporting too complex and that funds should be eliminated. What explanation would you use to help explain why funds are needed?

Funds are necessary to allow the government to provide information about governmental activities separate from business-type activities.

Funds are necessary to allow the city council to have increased budgetary control over the amounts spent by the government.

Funds are necessary to help increase transparency by showing that legal constraints on spending certain revenues for the specific purpose for which the revenues were intended are being met.

The city council person is correct: There is no required reason for fund accounting, it increases difficulty in understanding financial reports, and the city should consider eliminating funds.

Answer 48

Funds are necessary to help increase transparency by showing that legal constraints on spending certain revenues for the specific purpose for which the revenues were intended are being met.

Question 49

The measurement focus and basis of accounting that should be used for the government-wide financial statements are

Measurement Focus/Basis of Accounting
a. Current financial resources Modified accrual
b. Current financial resources Accrual
c. Economic resources Modified accrual
d. Economic resources Accrual

Option A

Option B

Option C

Option D

Answer 49

Option D

Question 50

Which of the following amounts that are identified at the end of the fiscal year would be classified as an assigned fund balance?

Resources the city manager has set aside for a major street repair.

A federal grant that is to be used for playground equipment.

Significant amounts of inventory.

Endowment resources that the city must maintain in perpetuity.

Answer 50

Resources the city manager has set aside for a major street repair.

Question 51

Which of the following statements about major funds is true?

Major funds are determined based on the size of the fund or management discretion.

Major funds are reported only in governmental fund financial statements.

Major funds are reported on the fund and government-wide financial statements.

A fund that is at least 10 percent of the total revenues of all governmental and proprietary funds would be considered a major fund.

Answer 51

Major funds are determined based on the size of the fund or management discretion.

Question 52

Under the modified accrual basis of accounting:

Revenues are recognized at the time an exchange transaction occurs.

Expenditures are recognized as the cost of an asset expires or is used up in providing government services.

Revenues are recognized when current financial resources become measurable and available to pay current-period obligations.

Expenses are recognized when an obligation occurs for costs incurred in providing services.

Answer 52

Revenues are recognized when current financial resources become measurable and available to pay current-period obligations.

Question 53

Financial information about an internal service fund should be reported in the proprietary fund financial statements and the:

Governmental Activities column of the government-wide financial statements.

Business-type Activities column of the government-wide financial statements.

Either governmental activities or business-type activities column of the government-wide financial statements, depending on whether the internal service fund predominantly serves governmental activities or business-type activities.

None of the answer choices are correct.

Answer 53

Either governmental activities or business-type activities column of the government-wide financial statements, depending on whether the internal service fund predominantly serves governmental activities or business-type activities.

Question 54

A certain city reports the following year-end total assets:

General Fund $ 18,400,000
Library Fund (a special revenue fund) 2,900,000
Debt Service Fund 2,600,000
Total governmental funds 26,300,000
Total governmental and enterprise funds combined 51,250,000

Based on this information, which funds should be reported as major funds?

General Fund only.

General Fund and Library Fund.

General Fund and Debt Service Fund.

General, Library and Debt Service funds should be reported as major funds.

Answer 54

General Fund and Library Fund.

Question 55

On the government-wide statement of net position, which of the following statements is false?

Governmental funds are reported under the Governmental Activities column.

Enterprise funds are reported under the Business-type Activities column.

Some types of component units are reported as a separate column.

Fiduciary funds are reported as a separate column.

Answer 55

Fiduciary funds are reported as a separate column.

Question 56

Under modified accrual accounting, revenues are recognized when management defines them as available for paying current-period obligations. Management considers its definition of the term available to be essential to the financial statement users’ understanding of revenues recognized on the statement. How would management communicate to users its definition of available?

As a note to the financial statements.

As required supplementary information.

As other supplementary information.

As a disclosure on the face of the financial statement.

Answer 56

As a note to the financial statements.

Question 57

How does the GASB recommend governments report budgetary information?

As a required financial statement.

As a note disclosure.

As required supplementary information.

As other supplementary information.

Answer 57

As required supplementary information.

Question 58

Where should a deferred inflow of resources be reported on the financial statements?

The liabilities section on the statement of net position.

After the liabilities section on the statement of net position.

After the general revenues on the statement of activities.

As a note disclosure in the financial statements because it is deferred.

Answer 58

After the liabilities section on the statement of net position.

Question 59

Which of the following fund(s) will generally be the only fund(s) that can report a positive unassigned fund balance?

General Fund

General Fund and special revenue funds.

General Fund and capital projects funds.

All governmental funds.

Answer 59

General Fund