FAR GOVT

Question 1

Which of the following is one of the three standard sections of a governmental comprehensive annual financial report?
Investment.
Actuarial.
Statistical.
Single audit.

Answer 1

Statistical

The CAFR contains three sections: (1) Introductory, (2) Financial, and (3) Statistical.

Question 2

The Statement of Activities of the Government-Wide Financial Statements is designed primarily to provide information to assess which of the following?
Operational accountability.
Financial accountability.
Fiscal accountability.
Functional accountability.

Answer 2

Operational accountability

The Government-Wide Statement of Activities is organized by function, divided into Governmental Activities and Business-Type Activities.

It is designed to show the extent to which the operational expenses of each function are covered by related fees and grants and the extent to which general revenues must be used to cover the expenses. That is, operational accountability.

Question 3

Which of the following is true?
A government can issue its CAFR without its basic financial statements, management’s discussion and analysis, and other required supplementary information.
A government can issue its basic financial statements, management’s discussion and analysis, and other required supplementary information without its CAFR.
Both A and B are possible.
Neither A nor B is permitted.

Answer 3

A government can issue its basic financial statements, management’s discussion and analysis, and other required supplementary information without its CAFR.

The minimum reporting requirement for a government is a General Purpose Financial Statement, which has three main components: (1) management’s discussion and analysis, (2) basic financial statements, and (3) required supplementary information.

Question 4

Which of the following should be included in the introductory section of a local government’s comprehensive annual financial report?
Auditor’s report.
Management letter.
Engagement letter.
Letter of transmittal.
You Answered Incorrectly.
This answer is incorrect because it is not part of the introductory section of a comprehensive annual financial report.

Answer 4

Letter of transmittal.
This Answer is Correct
This answer is correct because the introductory section includes a letter of transmittal, organization chart, and list of principal officers.

Question 5

The General Fund makes a short-term loan to an Enterprise Fund. The General Fund should record the loan as a(n):
Operating Transfer.
Due from Enterprise Fund.
Advance to Enterprise Fund.
Accounts Receivable.

Answer 5

Due from Enterprise Fund.

Short-term interfund loans are recorded in accounts titled “Due from” (receivable) and “Due to” (payable).

General Fund journal entry: dr. Due from Enterprise Fund, cr. Cash, and Enterprise Fund, dr. Cash, cr. Due to General Fund

Question 6

The billings for water services provided to other governmental units are recorded in the Enterprise Fund as:
Intergovernmental transfers.
Estimated Revenues.
Reimbursements.
Operating Revenues.

Answer 6

Operating Revenues.
This Answer is Correct
Services provided by one governmental unit to other units within the government in exchange for a fee are referred to as “quasi-external transactions.” They result in recognizing revenues and expenditures or expenses by the funds involved. The Water Utility Enterprise Fund will recognize revenues for the water services billed to other units in the government. The units receiving water services will recognize expenditures (in the case of Governmental Fund types) or expenses (in the case of Proprietary and Fiduciary Funds).

Enterprise Fund journal entry: dr. Accounts Receivable, cr. Revenue

Question 7

The General Fund pays an invoice for telecommunications that includes charges owed by the Water Utility Enterprise Fund. The Enterprise Fund subsequently remits its share of the telecommunications charges to the General Fund. The General Fund records the amount received from the Enterprise Fund as:
An increase to revenue.
An increase to Operating Transfers In.
A decrease in expenses.
A decrease in Expenditures.

Answer 7

A decrease in Expenditures.
This Answer is Correct
Interfund Reimbursements are Nonreciprocal Transactions in which a government determines that an expenditure or expense was initially recorded in one fund and should be accounted for and reported as an expenditure or expense in another fund. In this example, the General Fund paid and recorded as an expenditure all of an invoice that included a portion that pertained to another fund. The reimbursement from the Enterprise Fund should be recorded as a decrease in expenditures in the General Fund, to offset that portion previously recognized as an expenditure in the General Fund that was attributable to the Enterprise Fund. The Enterprise Fund should record an increase in expense at the time the reimbursement is made.

Question 8

Gem City’s Internal Service Fund received a residual equity transfer of $50,000 cash from the General Fund.

This $50,000 transfer should be reported in Gem’s Internal Service Fund as a credit to:

Revenues.
Other Financing Sources.
Accounts Payable.
Transfers.

Answer 8

Transfers.
This Answer is Correct
A residual equity transfer of $50,000 to the Internal Service Fund should be recorded as a debit to Cash and a credit to Transfers.

Transfers are reported on a separate line in the Statement of Revenues and Expenses for the fund, immediately after the line item: Operating Income/Loss before Transfers and Additions.

Internal Service Fund journal entry: dr. Cash, cr. Transfer-in, and General Fund journal entry: dr. Transfer out, cr. Cash

Question 9

Layton City received a $20,000,000 federal grant to finance the construction of Charley's Place, a residential treatment center for the rehabilitation of drug and alcohol addicts. The proceeds for this grant should be accounted for in the:
General Fund.
Permanent Trust Fund.
Special Revenue Fund.
Capital Projects Fund.

Answer 9

Capital Projects Fund.
This Answer is Correct
Capital Project Funds are used to account for the receipt and disbursement of resources restricted to the acquisition of major capital facilities through purchase or construction other than those financed by Proprietary (e.g., utilities) or Trust Funds.

Question 10

An Enterprise Fund would be used when the government body requires that:

I. Accounting for the financing of an agency’s services to other government departments be on a cost-reimbursement basis.

II. User charges cover the costs of general public services.

III. Net position information be provided for an activity.

I only.
I and II.
I and III.
II and III.

Answer 10

II and III.
This Answer is Correct
An Enterprise Fund is a Proprietary Fund. Its measurement focus is on income determination and its customers are the general public.

“I” is incorrect because services provided by one governmental unit to other governmental units on a cost-reimbursement basis are accounted for in an Internal Service Fund.

Question 11

Which of the following fund types or account group should account for fixed assets in a manner similar to a "for profit" organization?
Special Revenue Fund.
Capital Projects Fund.
General fixed assets account group.
Enterprise Fund.

Answer 11

Enterprise Fund.
This Answer is Correct
Proprietary Funds account for the activities of government that are similar to those found in the private sector. These funds use accrual accounting in measuring financial position and operating results. Proprietary Funds account for their own fixed assets in a manner similar to a “for profit” organization.

Question 12

Rock County has acquired equipment through a noncancelable lease-purchase agreement dated December 31, Year 1.

This agreement requires no down payment and the following minimum lease payments:

December 31	Principal	Interest	Total
Year 2	$50,000	$15,000	$65,000
Year 3	50,000	10,000	60,000
Year 4	50,000	5,000	55,000
If the equipment is used in internal service fund operations and the lease payments are financed with internal service fund revenues, what account or accounts should be debited in the internal service fund for the December 31, Year 2 lease payment of $65,000?

Expenditures control $65,000
Expenses control $65,000
Capital lease payable $50,000

Expenses control 15,000

Expenditures control $50,000

Expenses control 15,000

Answer 12

Capital lease payable $50,000

Expenses control 15,000

Internal service funds follow FASB ASC 840 – Leases in accounting for capital lease. When a lease payment is made, both the liability and expenses are debited.

Capital lease payable 50,000
Expenses control 15,000
Cash 65,000

Question 13

Hill City’s Water Utility Fund held the following investments in U.S. Treasury securities at June 30, 20X5:

Investment Date purchased Maturity date Carrying amount
3-month T-bill 5/31/X5 7/31/X5 $ 30,000
3-year T-note 6/15/X5 8/31/X5 50,000
5-year T-note 10/1/X1 9/30/X6 100,000
In the fund’s balance sheet, what amount of these investments should be reported as cash and cash equivalents at June 30, 20X5?

$0
$30,000
$80,000
$180,000

Answer 13

$80,000

A government entity considers an investment a cash equivalent if it matures within three months of the date it was purchased.

Both the 3-month T-bill and the 3-year T-note meet this criterion; therefore, $80,000 of the investments should be reported as Cash and Cash Equivalents.

Question 14

Which of the following bases of accounting should a government use for its Proprietary Funds in measuring financial position and operating results?
Modified accrual basis
Accrual basis
No
Yes
No
No
Yes
Yes
Yes
No

Answer 14

no - modified
yes - accrual

Proprietary Funds account for the activities of government that are similar to those found in the private sector. These funds use accrual accounting in measuring financial position and operating results.

The modified accrual basis of accounting is used in Governmental Funds to measure financial position and changes in financial position.

Question 15

n 2005, 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.
Agency Funds.
Internal Service Funds.
Special Assessment Funds.

Answer 15

Agency Funds.

An Agency Fund accounts for assets held by a government unit acting as an agent for individuals, private organizations, other governmental units, and/or other funds. The state government is simply acting as a collection agent for the city.

It has no right to the monies collected, and simply passes the taxes collected along to the city.

Question 16

The City of Scarmont manages $200,000 in securities given to it in trust by the Citizens for City Beautification (CCB), a not-for-profit organization. Each year, the CCB receives proposals for beautification projects from various individuals and groups and selects two to three projects for funding. The City is responsible for managing the investment and disbursing the funds in accordance with the CCB request. The City accounts for the securities in a separate fund.

During the year, the City received $10,000 in investment earnings on the securities, $1,000 of which was related to earnings from the previous year, which were not received 60 days after the fiscal year end. At the end of the year, the market value of the securities was $208,000. How much revenue should be recognized in the fund in conjunction with these activities?

$18,000
$17,000
$10,000
$9,000

Answer 16

$17,000

The endowment securities should be maintained in a Private-Purpose Trust Fund and would therefore be measured on the full accrual basis.

Under the full accrual basis, only the $9,000 in investment earnings earned this year would be recognized in the current period (the $1,000 from the previous year would have been accrued and recognized in the prior year).

GASB also requires that the $8,000 appreciation in the endowment investment be recognized as income during the period of the appreciation.

Question 17

Maple City has cash available for investments in several different accounting funds. Maple’s policy is to maximize its financial resources.

How may Maple pool its investments?

Maple may not pool its investments.
Maple may pool all investments, but it must equitably allocate realized and unrealized gains and losses among participating funds.
Maple may pool only unrestricted investments, but it must equitably allocate realized and unrealized gains and losses among participating funds.
Maple may pool only restricted investments, but it must equitably allocate realized and unrealized gains and losses among participating funds.

Answer 17

Maple may pool all investments, but it must equitably allocate realized and unrealized gains and losses among participating funds.

Maple may pool all the cash available from all the different accounting funds, irrespective of whether or not they are restricted or unrestricted funds. Realized and unrealized gains and losses must be equitably allocated among the participating funds.

Question 18

McCallum County pools any excess cash from its governmental and Proprietary Funds and invests the monies in marketable securities. The County also permits other governmental entities within the county limits to invest their resources in the pool.

The market value of its investments at the beginning of the year was $2,000,000; with $1,500,000 of the investment attributable to County funds and the $500,000 balance attributable to other governmental entities. The market value at the end of the year was $2,200,000.

During the year, the county had received $100,000 in earnings on these investments. None of the earnings had been distributed, and no additions or withdrawals occurred during the year.

What amount should McCallum report as total assets in its Investment Trust Fund?

$2,300,000
$2,100,000
$575,000
$525,000

Answer 18

$575,000

The County reports the $500,000 in resources contributed by external entities plus both the $50,000 in unrealized appreciation on the investments ($200,000 total increase × 25% of the total assets invested in the pool, which are attributable to external entities) and the $25,000 in investment earnings ($100,000 total increase × 25% of total assets invested in the pool, which are attributable to external entities) in its Investment Trust Fund.

Question 19

The principal of a Private-Purpose Trust Fund:
Must be nonexpendable in nature.
Must be expendable in nature.
Must never fall below a pre-determined threshold that is determined by generally accepted accounting principles.
May be expendable or nonexpendable in nature.

Answer 19

May be expendable or nonexpendable in nature.
This Answer is Correct
A Private-Purpose Trust Fund may be either expendable or nonexpendable. It is expendable if the principal of the trust gift, as well as the earnings, is expendable. A nonexpendable Private-Purpose Trust occurs when the principal must be maintained intact and only the earnings are expendable, or neither the principal nor the earnings are expendable (e.g., loan funds