Government

Question 1

Which of the following is voluntary information within a general purpose external financial report?

Answer 1

other SI (other supplemental information)

Question 2

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

Answer 2

Accountability

Question 3

Which event(s) is(are) supportive of interperiod equity as a financial reporting objective of a governmental unit?

I. A balanced budget is adopted.

II. Residual equity transfers out equal residual equity transfers in.

Answer 3

I only

Question 4

Which of the following items is recognized for governmental activities in the government-wide statement of activities and not in the statement of revenues, expenditures, and changes in fund balance for governmental funds?

Answer 4

Property tax revenue for an amount deferred because it was not available

Property tax revenue that is not currently available is not reported at the governmental fund level but is reported in the government-wide statements—this is a very common reconciliation item between governmental fund balance and government-wide net position.

Question 5

Which of the following activities would most likely be accounted for in a proprietary fund?

Answer 5

Wastewater and sewerage services

Question 6

Which of the following statements about the differences between U.S. GAAP and IFRS in determining whether or not to consolidate an entity is/are correct?
IFRS guidelines for determining the eligibility of an entity to be consolidated are more principles-based than are U.S. GAAP guidelines.
In assessing an investor’s level of ownership of an investee, both U.S. GAAP and IFRS consider outstanding securities that are exercisable or convertible into voting shares.
Under both U.S. GAAP and IFRS, there are circumstances under which a majority-owned subsidiary does not have to be consolidated.

Answer 6

I and III

Question 7

Oro County’s Expenditures control account at December 31, 2005 had a balance of $9,000,000.

When Oro’s books were closed, this $9,000,000 Expenditures control balance should have

Answer 7

Been credited to close it

Question 8

For governmental fund types, which item is considered the primary measurement focus?

Answer 8

Flows and balances of financial resources

Question 9

When Rolan County adopted its budget for the year ending June 30, Year 1, $20,000,000 was recorded for Estimated Revenues Control. Actual Revenues for the year ended June 30, Year 1 amounted to $17,000,000.

In closing the budgetary accounts at June 30, Year 1,

Answer 9

When the budgetary accounts are closed at the end of the fiscal year, the estimated revenues control account will be credited for the amount for which it was debited when the budget was recorded, $20,000,000.

Question 10

On January 1, Fonk City approved the following general fund resources for the new fiscal period:

Property taxes	$5,000,000
Licenses and permits	400,000
Intergovernmental revenues	150,000
Transfers in from other funds	350,000
What amount should Fonk record as estimated revenues for the new fiscal year?

Answer 10

Transfers in from other funds are classified as “Other Financing Sources” and are not revenues. The other three amounts are classified as revenues and, for budget purposes, should be included in determining “estimated revenues.”

Question 11

Assuming no outstanding encumbrances at year’s end, closing entries for which of the following situations would increase the unassigned fund balance at year’s end?

Answer 11

Appropriations exceed actual expenditures.

Question 12

Encumbrances outstanding at year’s end in a state’s general fund may be reported as a

Answer 12

Fund balance assigned in the general fund.

Question 13

Encumbrances would not appear in which fund?

Answer 13

Enterprise

Encumbrance accounting is rarely used by Proprietary Funds so the Enterprise Fund (answer D) is the best choice for this question.

Question 14

For state and local governmental units, generally accepted accounting principles typically require that encumbrances outstanding at year’s end be reported as

Answer 14

Assigned or committed fund balance

Question 15

Taxes levied in the Debt Service Fund and due in the Year 20x1 include $200,000 that is not expected to be collected within the first 60 days of the Year 20x2. As of the end of Year 20x1, the $200,000 would be reported as

Answer 15

A deferred inflow of resources.

Since the Debt Service Fund uses the modified accrual basis of accounting, revenues are recognized with measurable and available. The $200,000 is not expected to be available and hence should be reported as a deferred inflow or resources in Year 20x1.

Question 16

A Special Revenue Fund may report a positive amount in each of the following fund balance classifications except:

Answer 16

Unassigned

Only the General Fund can report a positive amount in Unassigned Fund Balance. In all other Governmental Fund types (including a Special Revenue Fund), if expenditures exceed amounts restricted, committed, or assigned, it may be necessary to report a negative Unassigned Fund Balance. Should that occur, the Assigned Fund Balance is reduced to eliminate the deficit. If a deficit remains after eliminating Assigned Fund Balance, the negative residual should be classified Unassigned Fund Balance.

Question 17

As of the end of the fiscal year, a Capital Projects Fund has material balances of supplies inventory. Which fund balance classification would reflect the inventory of supplies?

Answer 17

Nonspendable, inventory is nonspendable

Question 18

Which of the following fund balance classifications is used for budgetary accounting but not for GAAP financial statement reporting?

Answer 18

Unreserved Fund Balance.

GASB Statement No. 54 eliminated the use of “reserve” and “unreserved” fund balances. The appropriate fund balance classifications are Nonspendable, Restricted, Committed, Assigned, and Unassigned.

Question 19

A Capital Projects Fund has outstanding encumbrances of $250,000 as of the end of the fiscal year. Assume that all resources in the Capital Projects Fund are considered to be committed due to the constraints established by the enabling legislation of the governing body of the government. How should the encumbrances be reported in the year-end external financial statements?

Answer 19

The encumbrances would only be reported in the note disclosures.

Question 20

In preparing Chase City’s reconciliation of the Statement of Revenues, Expenditures, and Changes in fund balances to the Government-Wide Statement of Activities, which of the following items should be subtracted from the changes in fund balances?

Answer 20

Book value of capital assets sold during the year.

At the Governmental-Fund level, the entire proceeds from the sale of capital assets is a financial resource of the fund - it is spendable. Only the gain or loss on the sale of capital assets is reported in the Government-Wide Financial Statements. Therefore, the book value of capital assets should be subtracted.

Question 21

A local citizen donated land and an office complex to a city with the stipulation that net income from the office complex be used help finance the operations of a teenage alcohol and drug treatment center. At the time of donation, the property’s fair market value was $800,000. The donor paid $500,000 for the land and house twenty years ago. The city spent $125,000 to upgrade the office complex. The city would capitalize the land and office complex in its permanent fund at:

Answer 21

$925,000

The property should be capitalized at $925,000-fair market value at the time of donation ($800,000) plus the cost of improvements ($125,000) made by the city. Earnings from the office complex would usually be transferred to and expended through a Special Revenue Fund.

Question 22

Shared revenues received by an Enterprise Fund of a local government for operating purposes should be recorded as:

Answer 22

Shared Revenues received by a Proprietary Fund for operating purposes should be recorded as Non-Operating Revenues in the period in which they are earned and become measurable.

Question 23

Which of the following statements is the most significant characteristic in determining the classification of an enterprise fund?

Answer 23

The pricing policies of the activity establish fees and charges designed to recover its cost.

Question 24

The funded ratio of a pension plan compares:

Answer 24

The plan’s fiduciary net position as a percentage of the actuarially determined total pension liability..

According to GASB Statment No. 68 (para 46(b)(1)(d), governmental employers must report as required supplemental information, the pension plan’s fiduciary net position as a percentage of the actuarially determined total pension liability.

Question 25

In a Tax Agency Fund, revenues must be recognized:

Answer 25

None of the above. Revenues are not reported in Agency Funds.

Agency Funds act as intermediaries in the process of disbursing monies from one governmental entity to another. The government has no claim on the resources in the Agency Fund and does not recognize revenues when it receives the monies or recognize expenses when the monies are disbursed

Question 26

A government makes a contribution to its pension plan in the amount of $10,000 for year 1. The actuarially-determined annual required contribution for year 1 was $13,500. The pension plan paid benefits of $8,200 and refunded employee contributions of $800 for year 1. What is the pension expenditure for the general fund for year 1?

Answer 26

Because the question is about the General Fund, which uses the modified accrual basis of accounting, only the $10,000 contribution to the pension plan, which is a use of financial resources in year 1, is recognized as pension expenditure. The Pension Trust Fund would report the $10,000 received from the General Fund as an “Addition” and not as revenue.

Question 27

Harland County received a $2,000,000 capital grant to be equally distributed among its five municipalities. The grant is to finance the construction of capital assets. Harland had no administrative or direct financial involvement in the construction. In which fund should Harland record the receipt of cash?

Answer 27

Agency Funds are used to account for assets received on behalf of and paid to other funds, individuals, or organizations.

Question 28

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.

Answer 28

II and III

Question 29

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

Answer 29

Enterprise fund

Question 30

Through an Internal Service Fund, Wood County operates a centralized data processing center to provide services to Wood’s other governmental units.

In Year 1, this Internal Service Fund billed Wood’s Parks and Recreation Fund $75,000 for data processing services.

What account should Wood’s Internal Service Fund credit to record this $75,000 billing to the Parks and Recreation Fund?

Answer 30

Operating Revenues control.

Question 31

In 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:

Answer 31

Agency Funds

Question 32

Which of the following are reported for a Private-Purpose Trust Fund?

Answer 32

Deductions

Question 33

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?

Answer 33

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

Question 34

The principal of a Private-Purpose Trust Fund:

Answer 34

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).

Question 35

A government-wide statement of net position must include which of the following?

Answer 35

A distinction between governmental and business-type activities.

Question 36

Palm City uses the modified approach for reporting eligible infrastructure assets. In which of the following components of its basic financial statements, if any, would Palm report this information?

Answer 36

Notes to the financial statements.

GASB requires, as “required supplemental information,” information about the use of the modified approach for reporting infrastructure in the notes to the financial statements.

Question 37

Which of the following statements are required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)?

Answer 37

Special-purpose governments engaged in business-type activities follow the reporting standards required for Enterprise Funds, which are a Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; Statement of Cash Flows; and appropriate disclosures in MD&A, and RSI.

Question 38

For general purpose external financial reporting, discrete component unit information:

Answer 38

Is included in the government-wide statements only.

Question 39

The Excel City School District has a separate elected governing body that administers the public school system. The district’s budget must be approved by the city council of Excel City. The school district’s financial activity should be reported in the City’s financial statements by:

Answer 39

Not at all

Excel City would have to appoint a voting majority of Excel ISD’s governing body. The criteria for financial accountability require that, in addition to the primary government being able to impose its will on the component unit (e.g. approve the budget), at least 50% of the governing body of the component unit be appointed by the primary government. In this case, the governing body is independently elected and so does not meet the criteria for inclusion as a component unit

Question 40

The Metro Transportation Authority is governed by a seven-member board. Four of the board members are appointed by the town of Metro and the remaining three are appointed by the governing board of Metro County. Neither the town nor the county share in any profits, nor are they required to fund any deficits, of the Authority. The town, however, does approve the Authority’s proposed budget. The county may make budgetary recommendations to the Authority, but they are not required to approve the proposed budget. The Authority should be reported as:

Answer 40

A discretely presented component unit of the town.

The Authority is a component unit of the town because it is financially accountable to the town, as evidenced by the town approving the Authority’s budget.

Question 41

Excel City’s store supply internal service fund provides services only to general government departments. During 20X1, the internal service fund reported operating revenue of $50,000 and operating expenses of $35,000. What amount of adjustment is needed to convert the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balance to governmental activities in Excel City’s government-wide Statement of Activities?

Answer 41

Decrease expenses by $15,000.

The general government departments have recorded a total of $50,000 in expenditures related to billings from the internal service fund. The conversion to government-wide financial statements requires the elimination of the $15,000 “profit” by decreasing the $50,000 expenditure to $35,000 and reclassifying it as “expense.”

Question 42

The primary adjustment to enterprise fund financial information in preparation of the government-wide financial statements is related to:

Answer 42

Adjustments related to internal service funds

Enterprise funds use the economic resources measurement focus and the accrual basis of accounting, which is also used in government-wide financial statements. Internal service fund activities utilized by enterprise funds are the primary adjustment to enterprise fund financial information.

Question 43

Which of the following items would result in an increase in the reconciliation of governmental funds changes in fund balance to governmental activities changes in net position in the government-wide statement?

Answer 43

Capital outlay expenditures

Capital outlay expenditures in the governmental fund-level financial statements are eliminated in converting to governmental-wide financial statements. The adjustment is an increase in reconciling changes in fund balance, at the governmental fund level, to changes in net position at the government-wide level.

Question 44

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

Answer 44

Current financial resources.

Question 45

The budget for the City of Goodville for the year ending December 31 was adopted and recorded on January 2 of the same year. After recording the budget, the accounting records showed a debit balance of $50,000 in the Budgetary Fund Balance account. What does this indicate?

Answer 45

Appropriations are $50,000 greater than estimated revenues.

When Goodville adopted its budget, estimated revenues are debited and appropriations are credited. A debit or credit to the budgetary fund balance occurs when the budget does not balance. The budgetary fund balance is debited when appropriations are greater than estimated revenues.

Question 46

Taxes collected and held by Eldorado County for a school district would be accounted for in which of the following funds?

Answer 46

Agency

Question 47

The general fund of Karsten City received a $30,000 unrestricted grant from the State on June 12, year 1. The cash was received by the general fund on June 12 and was used to pay for capital expenditures that were incurred on June 29. Accounts payable related to the capital expenditures were paid in July year 1. Karsten City’s fiscal year ends on June 30.

What account should be credited in the general fund on the date the grant was received?

Answer 47

Revenue

Under the modified accrual basis of accounting, the grant was both measurable and available during the year ended June 30, year 1.

Question 48

On December 31, year 1, Madrid Township paid a contractor $2,000,000 for the total cost of a new firehouse built in year 1 on Township-owned land. Financing was by means of a $1,500,000 general obligation bond issue sold at face value on December 31, year 1, with the remaining $500,000 transferred from the general fund. What should be reported on Madrid’s year 1 financial statements for the Capital Project Fund?

Answer 48

Other financing sources, $2,000,000; Expenditures, $2,000,000.

Section 1800 of the GASB Codification, neither proceeds from a general obligation bond nor transfers from the general fund are revenues. Rather they are recognized as “other financing sources” when they become measurable and available as net current assets.

Question 49

Which of the following accounts of a governmental unit is credited when the budget is recorded?

Answer 49

Appropriations

Estimated Revenues xx
Appropriations xx
Budgetary Fund Balance xx (any difference)

Question 50

Albee Township’s fiscal year ends on June 30. Albee uses encumbrance accounting. On April 5, year 1, an approved $1,000 purchase order was issued for supplies. Albee received these supplies on May 2, year 1, and the $1,000 invoice was approved for payment. What journal entry should Albee make on April 5, year 1, to record the approved purchase order?

Answer 50

Encumbrances

    Reserved for Encumbrances

Question 51

Which of the following would be reported as program revenues on a local government’s government-wide statement of activities?

Answer 51

Program revenues include (1) charges for services, (2) operating grants and contributions, and (3) capital grants and contributions.

Question 52

What amount of property tax revenue should Knoxx County report in its entity-wide statement of activities?

Answer 52

Property tax revenue should be equal to the total taxes levied for the year less the estimate of uncollectible amounts, or $1,980,000 [$2,000,000 − ($2,000,000 × 1%)].

Question 53

Which of the following is the measurement focus and basis of accounting for the government-wide financial statements?

Answer 53

Measurement focus-Economic resources

Basis of accounting-Accrual

Question 54

In which of the following funds would it be appropriate to record depreciation of fixed assets?

Answer 54

Internal Service.

Question 55

In accordance with GASB 33, Accounting and Financial Reporting for Nonexchange Transactions, which of the following items is classified as a derived tax revenue?

Answer 55

Motor fuel taxes.

Derived tax revenues result from taxes assessed by governments on exchange transactions. The taxes are “derived” from the underlying exchange transactions.

Question 56

On the government-wide Statement of Activities prepared in accordance with GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, what amount should be reported for property tax revenues for the year ended December 31, year 1?

Answer 56

The use of full accrual accounting in the preparation of the government-wide Statement of Activities results in reporting $690,000 for property tax revenues in year 1. Under full accrual accounting, property tax revenues are reported in the year levied, net of expected refunds and estimated uncollectible taxes. In this question, property tax revenues reported in year 1 would consist of the $700,000 levied minus the $10,000 estimated to be uncollectible. Note that collection of $100,000 of property taxes in year 2 during the first 60 days and the collection of $90,000 during the remainder of year 2 have no effect on the amount of revenue reported in year 1 using full accrual accounting. Under the modified accrual basis of accounting that is used for the governmental fund statements, the date of collection of property tax revenues in the following year had an effect on the amount of revenue reported in the current year.

Question 57

How much revenue should Albury’s Debt Service Funds record for the year ended December 31, year 1, using modified accrual accounting?

Answer 57

The GASB Codification Section 1800, states that transfers from a fund receiving revenue to a fund through which the resources are to be expended is considered another financing source. Interfund transfers of this nature should be distinguished from revenues, expenses, or expenditures in the financial statements.