test 2

Question 1

Which of the following statements is true?
A. Debt limit represents the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time.
B. Overlapping debt is a calculation of the difference between the amount of debt limit calculated as prescribed by law and the net amount of outstanding indebtedness subject to limitation.
C. Debt margin is reported in the governmental activities column of the government-wide statements.
D. All of the above statements are true.

Answer 1

A. Debt limit represents the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time.

Question 2

General obligation bonds issued for the benefit of enterprise funds, with the intent of paying bond principal and interest from revenues of the enterprise fund, should be reported as a liability in the balance sheet of the
A. Enterprise fund.
B. Governmental activities.
C. Both the enterprise fund and the governmental activities accounts. D. Enterprise fund and a disclosure is added to the financial statement notes explaining the contingent liability of the general government if enterprise funds are insufficient to pay principal and interest.

Answer 2

D. Enterprise fund and a disclosure is added to the financial statement notes explaining the contingent liability of the general government if enterprise funds are insufficient to pay principal and interest.

Question 3

Pollution remediation obligations should be recognized if which of the following obligating events has occurred?
A. A violation of a pollution prevention permit has occurred.
B. The government is named or will be named as the responsible or potentially responsible party to a remediation.
C. The government is compelled to take remediation action due to imminent endangerment to the public health.
D. All of the above items are obligating events that would require recognition of a pollution remediation obligation.

Answer 3

D. All of the above items are obligating events that would require recognition of a pollution remediation obligation.

Question 4

Interest expenditures on bonds payable should be recorded in a debt service fund
A. When bonds are issued.
B. At the end of the fiscal period if the interest due date does not coincide with the end of the fiscal period.
C. When the interest is legally payable.
D. When the interest is paid.

Answer 4

C. int is legally payable

Question 5

When bonds are sold at a premium for a capital project, the premium amount generally
A. Is ignored by both the capital projects fund and any other fund.
B. Is transferred to the debt service fund.
C. Is transferred to the General Fund.
D. Increases the cash available to the capital projects fund.

Answer 5

B. transferred to a debt service fund

Question 6

Which of the following is a true statement regarding in-substance defeasance of bonds?
A. The government must agree to maintain sufficient unrestricted cash and investments in its governmental funds to cover all interest and principal payments for the debt being defeased.
B. The government must place cash or other assets in an irrevocable trust sufficient to pay all future interest and principal payments for the debt being defeased.
C. The government must agree to maintain sufficient cash and investment balances in its debt service fund to cover all interest and principal payments for the debt being defeased.
D. The government must pledge to transfer amounts to an escrow agent prior to the due date for each interest and principal payment for the debt being defeased.

Answer 6

B

Question 7

The General Fund of the city of Castle Rock transfers $115,000 to the debt service fund for a $100,000 principal and $15,000 interest payment. The recording of this transaction would include
A. A credit to Other Financing Sources – Interfund Transfers In in both the debt service fund and governmental activities accounts.
B. A credit to Other Financing Sources – Interfund Transfers In in the debt service fund only.
C. A debit to Interest Expenditures in the General Fund.
D. A debit to Interest Expenditures in the governmental activities accounts.

Answer 7

B

Question 8

Which of the following financial statements are required for a Debt Service Fund?
A. Balance sheet, statement of revenues, expenditures, and changes in fund balance, and statement of cash flows.
B. Statement of net position only.
C. Balance sheet and statement of revenues, expenditures, and changes in fund balance.
D. Statement of revenues, expenditures, and changes in fund balances only.

Answer 8

c

Question 9

In which of the following funds or activities general journals would it not be appropriate to record depreciation of capital assets?
 A. Governmental activities.	
 B. Capital projects fund.	
 C. Internal service fund.	
 D. Business-type activities.

Answer 9

B

Question 10

At the government-wide level, net position related to capital assets should be reported as
A. Net investment in capital assets.
B. Net equity in capital assets.
C. Restricted or unrestricted financial assets, as appropriate.
D. General capital assets, preceding general long-term liabilities.

Answer 10

A

Question 11

Which of the following is one of the requirements that must be met to elect the “modified approach” to reporting certain eligible infrastructure assets?
A. The government gets the permission of the Government Accounting Standards Board.
B. The government omits the cost of the assets from the government-wide statement of net assets.
C. The government manages the assets using an asset management system that meets specific criteria.
D. The government maintains the assets at a condition level equal to or greater than 75 percent of the condition of a new asset.

Answer 11

C

Question 12

Premiums received on tax-supported bonds are generally transferred to what fund?
 A. Debt service.	
 B. Internal service fund.	
 C. Special revenue.	
 D. General.

Answer 12

A

Question 13

A city recorded an asset impairment to a Public Works facility. Which of the following is correct concerning the recording of the amount of the asset impairment?
A. The General Fund would record a debit to Other Financing Uses—Loss due to Impairment.
B. The General Fund would record a debit to Expenditures.
C. The governmental activities accounts would record a debit to Loss due to Impairment.
D. The governmental activities accounts would record a debit to Expenses—Public Works.

Answer 13

D

Question 14

Which of the following statements is correct concerning interest expenditures incurred during the period of construction of capital projects?
A. Interest expenditures must be capitalized as part of the cost of general capital assets reported in the capital projects fund.
B. Interest expenditures may not be capitalized as part of the cost of general capital assets reported in governmental activities.
C. Interest expenditures may be capitalized as part of the cost of general capital assets reported in the governmental activities accounts at the government-wide level.
D. The capitalization of interest expenditures as part of the cost of general capital assets reported in the capital projects fund is optional.

Answer 14

B

Question 15

Which of the following may properly be reported as a component of net position in the proprietary fund statement of net position?
 A. Restricted net position.	
 B. Contributed capital.	
 C. Retained earnings.	
 D. Designated equity.

Answer 15

A

Question 16

Which of the following properly portrays the components of net position for proprietary funds?
A. Net investment in capital assets, Reserved, Unreserved.
B. Designated, Undesignated, Restricted, Unrestricted.
C. Net investment in capital assets, Restricted, Unrestricted.
D. Contributed capital, Net investment in capital assets, Reserved, Unreserved.

Answer 16

C

Question 17

Internal service funds should be used only if
A. The reporting government is the predominant participant in the activity.
B. The reporting government provides services to other departments at a charge that covers the full cost of operations.
C. The reporting government provides services primarily to other departments of the same government.
D. The reporting government provides services primarily to external participants.

Answer 17

C

Question 18

Under GASB standards, an internal service fund should prepare all of the following financial statements except for a
A. Statement of revenues, expenditures, and changes in fund balance.
B. Statement of revenues, expenses, and changes in net position.
C. Statement of net position.
D. Statement of cash flows.

Answer 18

A

Question 19

To establish a new internal service fund with a transfer of funds (not to be repaid), which account would be credited in the internal service fund?
 A. Cash.	
 B. Estimated Revenues.	
 C. Interfund Transfer out.	
 D. Interfund Transfer In.

Answer 19

D

Question 20

GASB accounting and financial reporting standards for risk financing activities provide that an internal service fund should recognize claims expense and a related liability when a claim has been asserted and
A. A municipal court has awarded a judgment to a claimant fund (e.g., the General Fund).
B. A loss has been incurred, but the amount cannot be reasonably estimated.
C. It is reasonably possible that a loss has been incurred and the amount can be reasonably estimated.
D. It is probable that a loss has been incurred and the amount can be reasonably estimated.

Answer 20

D

Question 21

Which of the following account balances would only be reported if a city-owned utility followed regulatory accounting principles?
A. Pumping expense.
B. Depreciation expense.
C. Restricted Assets—Cash.
D. Utility Plant Acquisition Adjustments.

Answer 21

D

Question 22

Which of the following is not a true statement about the Allowance for Funds Used During Construction (AFUDC)?
A. The amount credited to AFUDC may exceed the amount of interest paid during the period on bonds issued for construction.
B. AFUDC may be credited for an imputed amount of interest on the utility’s own funds used for construction.
C. AFUDC may include the total amount of borrowing during construction.
D. AFUDC may have either a debt component or an equity component.

Answer 22

C

Question 23

A municipal solid waste landfill (MSWLF) accounted for by an enterprise fund should recognize an expense and liability for the year in the amount of
A. A portion of the estimated total current costs for closure and postclosure of the MSWLF, determined at the time the landfill is placed into initial operation, equal to the ratio of landfill used during the year to its total capacity.
B. The estimated total current costs for closure and postclosure of the MSWLF as reevaluated at the end of each fiscal year divided by the remaining estimated number of years the landfill will be operated.
C. A portion of the estimated total current costs for closure and postclosure of the MSWLF, as reevaluated at the end of the fiscal year, equal to the ratio of landfill used during the year to its total capacity.
D. The estimated total current costs for closure and postclosure of the MSWLF determined at the time the landfill is placed into initial operation divided by the estimated number of years the landfill will be operated.

Answer 23

C

Question 24

Under utility regulatory accounting principles (RAP), the account “Utility Plant Acquisition Adjustment” reflects
A. The difference between the amount paid for utility plant and the amount originally paid by the utility that first placed the plant into public service, less accumulated depreciation.
B. The difference between the amount paid for the utility plant less the fair market value of its tangible plant assets.
C. The difference between the amount paid for the utility plant less its current replacement cost.
D. The difference between the fair market value of the utility plant and the amount paid for it, less accumulated depreciation.

Answer 24

A

Question 25

Each of the following are reported as fiduciary funds except
 A. An agency fund.	
 B. A permanent fund.	
 C. An investment trust fund.	
 D. A private-purpose trust fund.

Answer 25

B

Question 26

Which of the following statements is true regarding termination benefits?
A. Voluntary termination benefits occur when employers provide an incentive to hasten an employee’s voluntary termination of employment, such as a one-time payout.
B. Expenses related to voluntary terminations may be avoided by hiring replacement employees within 60 days of the terminations.
C. Voluntary terminations relate to layoffs or reductions in workforce.
D. Employers incur expenses related to voluntary terminations but not to involuntary terminations.

Answer 26

A

Question 27

Which of the following activities would be accounted for by a trust fund?
A. Assets held for special assessment bondholders for which the city has no liability.
B. Assets passed-through the state government to the local government.
C. Deposits held for customers of a city-owned electric utility.
D. Assets which are used to assist in the preservation of a private residence that is of historical significance to the city.

Answer 27

D

Question 28

In which of the following circumstances would it be inappropriate to report the assets in the fiduciary fund financial statements?
A. When assets are held for other governments in an investment pool.
B. When assets are held for the families of the government’s police officers killed in the line of duty.
C. When assets are held for other funds of the same government.
D. When assets are held for Internal Revenue Code Section 457 deferred compensation plans.

Answer 28

C

Question 29

A donor contributed $100,000 to the city stipulating that the money be invested and that the earnings thereon be used for maintenance of the city municipal swimming pool. The $100,000 would most appropriately be recorded in a(an)
 A. Private-purpose trust fund.	
 B. Agency fund.	
 C. Permanent fund.	
 D. Endowment fund.

Answer 29

C

Question 30

The financial position of the Policemen’s Pension Fund administered by a city should be reported in the city’s basic financial statements as a column in the
A. Statement of assets, liabilities, and fund balances.
B. Government-wide statement of net position.
C. Statement of fiduciary net position.
D. Balance sheet—governmental funds.

Answer 30

C

Question 31

Which of the statements concerning agency funds is true?
A. Agency funds use the same basis of accounting as permanent funds.
B. Agency funds never receive cash.
C. Agency funds are reported only on the statement of fiduciary net position.
D. Agency funds use the temporary accounts Additions and Deductions.

Answer 31

C

Question 32

The cash and investment pool of Lake City allocates dividends, interest, and capital gains and losses on a periodic basis. When the cash and investment pool accrues interest earned on investments in debt securities, pending allocation to participating funds, it would credit which of the following accounts?
A. Interfund Receivables.
B. Interfund Loans.
C. Revenues.
D. Undistributed Earnings on Pooled Investments.

Answer 32

D

Question 33

Which of the following is a valid reason for establishing a tax agency fund and charging a collection fee to other governments?
A. To help eliminate a General Fund deficit.
B. To increase the total amount of taxes levied.
C. To realize administrative efficiencies from centralizing tax billing and collection activities.
D. To avoid overlapping taxes.

Answer 33

C

Question 34

Which of the following is the most reliable means of distinguishing a trust relationship from an agency relationship for purposes of deciding which type of fiduciary fund should be used?
A. Examine the length of time assets will be held; agency relationships are generally in existence longer than trust relationships.
B. Examine the wording of any agreements to determine if the word “trust” or “agency” is used.
C. Examine the amount of money involved; agency relationships generally involve smaller amounts.
D. Examine the aggregate of factors, such as the enactment that brought the relationship into existence, statutes, regulations, etc, that help define the nature of the relationship.

Answer 34

D

Question 35

An auditor performing nonaudit work for a client may be in danger of violating the independence rules in Government Auditing Standards when he or she
A. Provides the client with benchmarking information.
B. Provides advice on establishing or improving internal controls.
C. Conducts a search and recommends a particular person for a management position for the client.
D. Answers technical questions for the client.

Answer 35

C

Question 36

Which of the following statements regarding generally accepted government auditing standards (GAGAS) is not true?
A. GAGAS cover both financial and performance audits.
B. GAGAS incorporate AICPA auditing standards and specifie additional general, performance, and reporting standards.
C. GAGAS must be used on all audits of governmental entities.
D. GAGAS are issued by the Government Accountability Office.

Answer 36

C

Question 37

Which of the following best describes the relationship between generally accepted auditing standards (GAAS) and generally accepted government auditing standards (GAGAS)?
A. Audits done in accordance with GAAS must also be done in accordance with GAGAS.
B. Audits of state and local governments always required that the audit be conducted in accordance with both GAAS and GAGAS.
C. GAAS apply to independent CPA auditors; GAGAS apply to governmental auditors.
D. Audits conducted in conformity with GAGAS may also require the auditor to conform to GAAS.

Answer 37

D

Question 38

Generally accepted government auditing standards (GAGAS)
A. Establish more standards that are broader in scope than those found in GAAS.
B. Establish standard wording of auditor’s reports on governmental financial statements.
C. Are set forth in the Federal Government Compliance Supplement.
D. Establish the same scope as GAAS, but use wording appropriate to governmental entities instead of business organizations.

Answer 38

A

Question 39

Typical objectives of a performance audit include
A. Judging the appropriateness of an entity’s program goals.
B. Determining whether financial statements fairly present the entity’s operational results.
C. Assessing effectiveness and results, economy and efficiency, and internal controls and compliance with laws and regulations.
D. Determining whether financial statements fairly present in conformity with GAAP.

Answer 39

C

Question 40

Threats to independence include all of the following except
 A. Bias threat.	
 B. Undue influence threat.	
 C. Familiarity threat.	
 D. Management representation threat.

Answer 40

D

Question 41

A condition whereby the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis is called a(an)
 A. Unacceptable reportable condition.	
 B. Deficiency.	
 C. Audit alert item.	
 D. System design weakness.

Answer 41

B

Question 42

Which of the following statements concerning the Single Audit Act of 1984 (with 1996 Amendments) is correct?

A. Those entities expending under $500,000 a year in federal awards are exempt from single audit requirements.
B. The Single Audit Act only applies if an entity has high risk programs.
C. Only those entities receiving over $500,000 a year in federal financial assistance are required to have a single audit.
D. The single audit is optional for all entities receiving federal awards.

Answer 42

A

Question 43

Under a single audit
A. An annual audit must be performed encompassing the nonfederal entity’s financial statements and schedule of expenditures of federal awards.
B. The audit must be conducted by an independent auditor in accordance with generally accepted government auditing standards (GAGAS) and cover the operations of the entire nonfederal entity.
C. For each major program, the auditor must obtain an understanding of the internal controls pertaining to the compliance requirements for the program, assess control risk, and perform tests of controls, unless the controls are deemed to be ineffective.
D. All of the above statements regarding a single audit are true.

Answer 43

D

Question 44

When conducting a single audit
A. All federal grant programs must be audited.
B. All major programs must be audited.
C. At a minimum, all Type A major programs not identified as low risk and certain high-risk Type B programs must be considered for audit.
D. All programs not identified as low risk must be audited.

Answer 44

C

Question 45

The GASB “Budgeting Principle” states that an annual budget should be adopted by (for) every
A. Government.
B. Fund of a government.
C. Governmental fund type except capital projects funds.
D. Governmental fund type.

Answer 45

A

Question 46

Which of the following budgetary approaches starts with line-item expenditures and applies a factor approximating the inflation rate to most items, unless specific information is available to suggest a different factor be applied?
 A. Zero-based budgeting.	
 B. Incremental budgeting.	
 C. Performance budgeting.	
 D. Program budgeting.

Answer 46

B

Question 47

In budgeting revenues, state and local government administrators should
A. Ensure that at least the amount of revenues needed to meet spending needs are raised, even if authorized ceilings on some revenue sources must be exceeded.
B. Utilize all authorized revenues sources and at the maximum amount allowed by law.
C. Ignore “other financing sources” since these resource inflows are not available for appropriation.
D. Be careful not to utilize unauthorized sources or exceed authorized ceilings on revenues from specific sources.

Answer 47

D

Question 48

Effective capital budgeting for general capital assets of a government requires
A. Nonfinancial information on physical measures and service condition of capital assets of component units.
B. Information about the capital asset needs of a motor pool accounted for as an internal service fund.
C. Intermediate and long-range capital improvement plans for general capital assets.
D. Consideration of how proprietary fund capital projects will be financed.

Answer 48

C

Question 49

Which of the following statements regarding government budgets is not true?
A. The budget’s role is limited to inclusion in internal financial reports and budgetary compliance monitoring for those funds that have a legally approved budget.
B. A budget is a plan of financial operation embodying an estimate of proposed expenditures for a given period of time and the proposed means of financing them.
C. A budget should be enacted before the fiscal year begins and be integrated with the financial accounting system so that actual results can be compared to budgeted plans at regular intervals.
D. Integrating the budget into the accounting system allows management to oversee individual unit performance and react quickly to variances between actual results and budgeted plans.

Answer 49

A

Question 50

Which of the following might appropriately be termed an outcome indicator for a police department that reports service efforts and accomplishments (SEA) indicators?
A. Value of property lost due to crime.
B. Number of crimes investigated.
C. Hours of patrol.
D. Number of personnel hours expended.

Answer 50

A

Question 51

Which of the following statements is not true?
A. Total quality management (TQM) seeks to continuously improve the government’s ability to meet or exceed demands from customers who might be external, such as taxpayers and service recipients, or internal, such as the customers of an internal service fund.
B. Customer relationship management (CRM)systems create an integrated view of a customer to coordinate services from all channels of the organization with the intent to improve the long-term relationship the organization has with its customer.
C. A balanced scorecard is an integrated set of performance targets, both financial and nonfinancial, that are derived from an organization’s strategies about how to achieve its goals.
D. Service efforts and accomplishments (SEA) reporting links customer (taxpayer and other resource provider) satisfaction to improvements in the operating systems and processes used to provide goods and services.

Answer 51

D

Question 52

Service efforts and accomplishments (SEA) information
A. Includes indicators of a government’s actual performance in providing services to its citizens.
B. Aids users in assessing the economy, efficiency, and effectiveness of government.
C. Is required for all governments that issue a CAFR.
D. Both A and B are true.

Answer 52

D

Question 53

Efficiency measures, as the term is used in the service efforts and accomplishments (SEA) literature, can be described as:
A. Measures that relate the quantity or cost of resources used to units of output.
B. Measures that relate to the amount of financial and nonfinancial resources used in a program or process.
C. Measures that relate costs to outcomes.
D. Measures that reflect either the quantity or quality of a service provided.

Answer 53

A

Question 54

The GASB identifies which of the following three broad categories of service efforts and accomplishments (SEA) measures:
A. Measures of service efforts, measures of service accomplishments, and measures of efficiency.
B. Measures of service efforts, measures of service accomplishments, and measures of the costs of service efforts and accomplishments.
C. Measures of service efforts, measures of service accomplishments, and measures that relate efforts to accomplishments.
D. Measures of service efforts and accomplishments, measures of service efficiency, and measures of service effectiveness.

Answer 54

C

Question 55

Which of the following is required by OMB Circular A-136 in the basic financial statements?
A. Statement of changes in net position.
B. Statement of financing.
C. Statement of net assets.
D. Statement of revenues, expenditures, and changes in fund balances.

Answer 55

A

Question 56

Which of the following describes the usual flow of budgetary authority through the budgetary accounts of a federal agency?
A. Allotment, commitment, obligation, expended appropriation, apportionment.
B. Appropriation, apportionment, allotment, commitment, obligation, expended appropriation.
C. Apportionment, allotment, appropriation, commitment, obligation, expended appropriation.
D. Commitment, obligation, appropriation, apportionment, allotment, expended appropriation.

Answer 56

B

Question 57

Which of the following is an accurate list of the three perspectives from which the federal government can be viewed, as described in SFFAS No. 2 "Entity and Display"?
 A. Organization, budget, and program.	
 B. Budget, program, and line-item.	
 C. Function, department, and program.	
 D. Fund, activity, and account.

Answer 57

A

Question 58

The Comptroller General of the United States is the head of the:
A. Government Accountability Office.
B. Federal Accounting Standards Advisory Board.
C. Congressional Budget Office.
D. Office of the Management and Budget.

Answer 58

A

Question 59

Which of the following officials has shared responsibility under federal law for establishing and maintaining a sound financial structure for the federal government?
A. Secretary of the Treasury.
B. Chief Financial Officer of the Congressional Budget Office.
C. Chair of the Federal Accounting Standards Advisory Board.
D. Chair of the Governmental Accounting Standards Board.

Answer 59

A

Question 60

One of the purposes of the Federal Financial Management Improvement Act of 1996 was to
A. Rebuild the credibility and restore public confidence in the federal government.
B. Establish generally accepted federal accounting principles.
C. Improve the effectiveness of programs receiving federal funds.
D. Establish a requirement that the financial statements of the federal government as a whole be audited.

Answer 60

A

Question 61

Which of the following accounts used in state and local government accounting is most like the federal budgetary account "Undelivered Orders"?
 A. Appropriations.	
 B. Reserve for Encumbrance.	
 C. Encumbrances.	
 D. Expenditures.

Answer 61

C

Question 62

A certain federal agency placed an order for office supplies at an estimated cost of $14,400. Later in the same fiscal year these supplies were received at an actual cost of $14,800. Assume commitment accounting is not used by this agency. When the order is placed the required journal entry (or entries) will affect the accounts shown in what net amounts?
A. Budgetary accounts: $14,400; Proprietary accounts: $14,400.
B. Budgetary accounts: $14,400; Proprietary accounts: $0.
C. Budgetary accounts: $14,400; Proprietary accounts: $14,800.
D. Budgetary accounts: $0; Proprietary accounts: $0.

Answer 62

B

Question 63

In federal government accounting, recording the estimated amount of equipment prior to actually placing an order or entering into a contract is called a(an)
 A. Obligation.	
 B. Commitment.	
 C. Apportionment.	
 D. Allotment.

Answer 63

B

Question 64

Which of the following is not an objective identified in FASAB Statement of Accounting and Reporting Concepts No. 1?
A. To assist report users in evaluating budgetary integrity.
B. To assist report users in evaluating stewardship.
C. To assist report users in evaluating the extent to which tax burdens have changed.
D. To assist report users in evaluating operating performance.

Answer 64

C