Financial Reporting (30% - 40%) - III

Question 1

What is the accounting basis used by state and local governments?

Answer 1

Modified Accrual

Question 2

What is the definition of a fund (used by state and local governments)?

Answer 2

A separate acounting entity that performs specific activites or objectives and has a self-balancing set of accounts

Question 3

When are revenues recognized by state and local governments?

Answer 3

Revenues are recognized in the period in which they become measureable and available to finance that period’s expenditures

“Available to finance” - resources are legally available in the period, collected in the period, or collected early enough in the next period to pay the liabilities of the period

“Early enough” - within 60 days of the following period

Question 4

Who are the primary user groups of the external reports of state and local governments?

Answer 4

1. Citizens who the government is accountable
2. Legislative or oversite bodies
3. Investors and creditors

Question 5

What is the definition of a government entity?

Answer 5

1. Body corporate or politic
2. Power to enact and enforce a tax levy

Question 6

What basis of accounting are government-wide financial statements presented?

Answer 6

Full accrual basis of accounting

Question 7

When is an organization considered a government?

Answer 7

A controlling majority of its governing board are appointed by state government officials

Question 8

What is a general fund?

Answer 8

(Government fund) accounts for the financial resources and activities not required to be accounted for in another fund

Question 9

What is a special revenue fund?

Answer 9

(Government fund) accounts for and reports revenues restricted for specified purposes other than debt service and capital projects

Question 10

What is a debt service fund?

Answer 10

(Government fund) accounts for the accumulation of resources to pay principal and interest payments on government debt

Question 11

What is a capital project fund?

Answer 11

Government fund) accounts for and reports funds restricted to capital outlays

Question 12

What is a permanent fund?

Answer 12

(Government fund) donations held in perpetuity with the income restricted to a specific purpose

Question 13

What is an enterprise fund?

Answer 13

(Proprietary fund) accounts for operations that are financed similar to for-profit entities

Question 14

What is an internal service fund?

Answer 14

(Proprietary fund) accounts for the financing of goods and services provided by one department of the government to other departments on a cost reimbursement basis

Question 15

What is a pension trust fund?

Answer 15

(Fiduciary fund) accounts for resources held in a trust for government retirement plans

Question 16

What is an investment trust fund?

Answer 16

(Fiduciary fund) reports external portion of investment pools

Question 17

What is private purpose trust fund?

Answer 17

(Fiduciary fund) trust arrangement in which the beneficiaries are individuals, private organizations, or other governments

Question 18

What is a custodial fund?

Answer 18

(Fiduciary fund) resources held by the government purely in a custodian capacity

Question 19

How is basic EPS calculated?

Answer 19

(Net Income - Preferred Dividends) / Weighted Average Shares Outstanding

Question 20

How do stock splits and stock dividends effect the WACSO computation?

Answer 20

Stock dividends and stock splits are applied as if they occurred at the beginning of the year

Question 21

How do convertible bonds impact EPS?

Answer 21

Covertible bonds can potentially dilute EPS. Interest savings is added to net income (net of tax) and converted common shares are added to WACSO

Question 22

What are the three types of SEC filiers and when must they file Form 10-K and Form 10-Q?

Answer 22

10-K 10-Q
Large Acclerated ($700M +) 60 40
Accelerated ($75M - $700M) 75 40
Non-Accelerated (less than $75M) 90 45

Question 23

What is Form 10-K?

Answer 23

Form 10-K is filed annually and provides a comprehensive report of a company’s financial position including audited financial statements

Question 24

What is Form 10-Q?

Answer 24

Form 10-Q is filed quarterly (3x per year) and contains un-audited financial statements, discussion from management, and a list of material events that have occured within the company during the quarter

Question 25

What is the primary goal of interim financial statements?

Answer 25

Timleness over faithful representation

Question 26

What is form 8-K?

Answer 26

Form 8-K is filed with the SEC to report material current events allowing investors to obtain information more timely

Question 27

What is form S-K?

Answer 27

Form S-K provides instruction for filing non-financial statement forms

Question 28

How are convertible bonds issued at a premium or discount impact EPS?

Answer 28

Convertible bonds may dilute EPS. The interest expense (net of tax) is added to net income and the converted shares are added to WACSO. Interest expense is the difference between the interest payment (face x interest) and amortization.

Question 29

Which governing body has the authority to establish standards?

Answer 29

The SEC has the authority to establish standards, however standard setting is deferred to FASB