Chapter 29 & 30

Question 1

Which of the following may be included in the notes to the financial statements?

A. Assessments concerning the effect of reported information on future financial position
B. Predictions concerning the effect of future information on future financial position
C. Both A and B
D. Neither A nor B

Answer 1

The notes should exclude both “subjective assessments of the effects of reported information on the reporting unit’s future financial position” and “predictions about the effects of future events on future financial position.” [Correct response = D]

Question 2

To be included in the notes to the financial statements, information should:
A. Have a clear and demonstrable relationship to information in the financial statements
B. Be essential to a user’s understanding of the financial statements
C. Both A and B
D. Neither A nor B

Answer 2

The contents of the notes should be limited to information that has a “clear and demonstrable relationship to information in the financial statements to which they pertain and is essential to a user’s understanding of these financial statements.” [Correct response = C]

Question 3

Which of the following statements is true?
A. Since the notes to the financial statements are an integral part of the basic financial statements, presentation in the notes sometimes may be a substitute for mandated display on the face of the financial statements.
B. GAAP sometimes permit governments to choose whether to display information on the face of the financial statements or to disclose it in the notes to the financial statements.
C. The notes should never duplicate information displayed on the face of the financial statements.
D. All of the above

Answer 3

Although the notes to the financial statements are an integral part of the basic financial statements, disclosure can never be a substitute for display on the face of the financial statements for items for which display is mandated. In certain instances, GAAP provides governments the option to either display or disclose information. While the notes should generally not duplicate information displayed on the face of the financial statements, there are situations in which GAAP mandates both display and disclosure. [Correct response = B

Question 4

Which of the following statements is true regarding the presentation of note disclosures for discretely presented component units in the reporting entity’s financial statements?
A. The same disclosures should be presented as in the component unit’s separate report.
B. The same disclosures should be presented as in the component unit’s separate report, but the information should be kept separate from similar information of the primary government.
C. Disclosures should be presented based on their relevance to the financial reporting entity.
D. Disclosures for discretely presented component units should be excluded

Answer 4

The notes to the financial statements should incorporate information specific to discretely presented component units only to the extent that the information is considered essential to the fair presentation of the financial statements of the financial reporting entity. [Correct response = C]

Question 5

5. When authoritative standards prescribe a disclosure that is not relevant to a government’s circumstances, the notes should explain that fact.
   A. True
   B. False

Answer 5

When management asserts that financial statements are prepared in conformity with GAAP, the reader may reasonably presume that all necessary disclosures have been made. Accordingly, a government normally should refrain from “negative disclosure.” [Correct response = B]

Question 6

6. Which of the following is a true statement regarding the appropriate application of the concept of materiality to note disclosure?
   A. Note disclosure should focus on quantitative materiality.
   B. Note disclosure should focus on qualitative materiality.
   C. The concept of materiality applies to display rather than disclosure.
   D. Both A and B

Answer 6

A disclosure is considered to be material if financial statement users would consider its omission important because of its size (quantitative materiality) or inherent interest (qualitative materiality). [Correct response = D]

Question 7

7. The requirement to disclose deficits in individual funds applies to:
   A. All funds
   B. Only nonmajor funds
   C. Only major funds
   D. Only funds with legally adopted budgets

Answer 7

B

Question 8

8. Which of the following statements is true concerning custodial credit risk?
   A. It is relevant to all deposits
   B. It is relevant to all investments
   C. Both A and B
   D. Neither A nor B

Answer 8

A

Question 9

9. Which of the following constitutes a policy for purposes of deposit and investment disclosure?
   A. Past practice (if consistent)
   B. Managerial directives
   C. Applicable state law
   D. All of the above
   E. None of the above

Answer 9

E

Question 10

10. Disclosures for pension benefits and OPEB are virtually identical except for:
    A. Pensions have one less “sensitivity” disclosure than OPEB.
    B. OPEB employers must discuss cost-sharing provisions of retiree health premiums
    C. OPEB does not require detailed disclosure of the change in the liability
    D. GASB uses a different approach for OPEB and pension cost-sharing employers.
    E. Both A and B

Answer 10

E

Question 11

11. Which of the following note disclosures may require information for both the reporting period and for one or more preceding periods?
    A. Pensions and OPEB
    B. Claims and judgments
    C. Both A and B
    D. Neither A nor B

Answer 11

B

Question 12

The disclosure for short-term debt is required only if short-term debt is outstanding as of the reporting date.
A. True
B. False

Answer 12

B

Question 13

The schedule of changes in capital assets must report:
A. Capital assets by major asset class, and accumulated depreciation in total
B. Capital assets and accumulated depreciation by major asset class
C. Capital assets and accumulated depreciation in total
D. Either A or B

Answer 13

B

Question 14

The schedule of changes in long-term liabilities must report:
A. All long-term liabilities for which separate disclosure is not required, not just debt
B. Accrued interest on bonds payable
C. Only bonds and notes payable
D. Both A and B

Answer 14

A

Question 15

Segment reporting in the public and private sectors is essentially identical.
A. True
B. False

Answer 15

B

Question 16

A condensed statement of cash flows is required for:
A. Major discretely presented component units
B. Segments
C. Both A and B
D. Neither A nor B

Answer 16

B

Question 17

When disclosing debt service requirements to maturity on variable-rate debt, which interest rate should be used to calculate future interest payments?
A. The maximum rate permitted by the terms of the contract
B. The weighted average rate for the preceding five years
C. The rate in effect as of the financial reporting date
D. The rate in effect at the time the financial statements are issued

Answer 17

C

Question 18

For purposes of note disclosure, the portion of the liability for vacation leave that is considered to be due within one year is:
A. The entire amount (vacation is considered to be payable on demand)
B. None (vacation is not considered due until it is taken)
C. The amount expected to be taken within one year

Answer 18

C

Question 19

Tax abatement disclosures are:
A. Only required to be made for agreements over a specified quantitative threshold
B. Only required to be made for a government’s own programs
C. Only required to be made in the year a government initially enters into an agreement
D. None of the above

Answer 19

D

Question 20

Subsequent events disclosures apply only to transactions and events that affect assets and liabilities recognized as of the reporting date.
A. True
B. False

Answer 20

B

Question 21

Which of the following must be described in the SSAP?
A. A selection among GAAP alternatives
B. The application of professional judgment
C. Specialized practices characteristic of the government’s environment
D. All of the above
E. Both A and C

Answer 21

D

Question 22

A description of the scope of the government-wide financial statements is:
A. Always required
B. Required when certain excluded activities exist
C. Never required
D. Only required for general purpose governments such as states, counties, and cities

Answer 22

B

Question 23

The description of the financial reporting entity should:
A. Provide a generic description of the criteria used to identify component units
B. Discuss the specific criteria that justify the incorporation of each component unit
C. Discuss the criteria for inclusion of only the separately presented component units
D. Discuss the criteria for inclusion of only the blended component units

Answer 23

B

Question 24

For which of the following columns may it be necessary to provide a description of the specific activities reported in that column?
A. Major fund columns
B. Fund-type columns
C. Nonmajor fund columns
D. All of the above
E. A and B

Answer 24

E

Question 25

Which of the following should be disclosed for property taxes?
A. Levy date
B. Due date
C. Revenues related to prior years but recognized in the current year
D. All of the above
E. A and B

Answer 25

E

Question 26

Which of the following is true regarding the allocation of indirect expense among functions or programs:
A. It is never allowed.
B. It is completely permitted but must be disclosed.
C. If done, a separate column disclosing the allocation must be included.
D. No separate column is required for indirect costs included in charges from internal service funds.
E. C and D

Answer 26

E

Question 27

The definition of cash equivalents is only required when:
A. The government is using a definition that is different than the definition offered in the GASB literature.
B. The focus of the cash flow statement is cash only.
C. The focus of the cash flow statement is both cash and cash equivalents

Answer 27

C

Question 28

Which of the following is a required disclosure for governmental funds?
A. Flow assumption for restricted fund balance v. unrestricted components of fund balance
B. Flow assumption within the unrestricted components of fund balance
C. Both A and B
D. Neither A nor B

Answer 28

C

Question 29

Which of the following would need to be part of the SSAP?
A. Method used to calculate depreciation expense
B. Flow assumption used for inventory
C. Method used to account for supplies inventories in governmental funds
D. All of the above
E. None of the above

Answer 29

D

Question 30

Authoritative accounting standards do not prescribe the specific contents of the disclosure required when a network or subsystem of infrastructure is accounted for using the modified approach; however, such disclosures typically should state:
A. That the government is committed to preserve and maintain a given network or subsystem of infrastructure assets at a specific condition level
B. The party or parties responsible for selecting that condition level
C. That no depreciation expense is reported for that network or subsystem
D. That periodic condition assessments are performed
E. All of the above

Answer 30

E