Deck 1: The Government and Not-For-Profit Environment

Question 1

Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower's credit-worthiness.

Answer 1

True

Question 2

Which of the following is NOT a purpose of external financial reporting by governments? External financial reports should allow users to

A)Assess financial condition.
B)Compare actual results with the budget.
C)Assess the ability of elected officials to effectively manage people.
D)Evaluate efficiency and effectiveness.

Answer 2

C

Question 3

A government's budget may be backed by the force of law.

Answer 3

True

Question 4

Most governments budget on an accrual basis.

Question 5

Governments and not-for-profits may never engage in business-type activities.

Question 6

Financial statements, no matter how prepared, do not directly impact the economic worth of an entity.

Question 7

Which of the following characteristics is NOT a characteristic that may distinguish a governmental or not-for-profit entity from a business entity?

A)There is often no direct link between revenues generated and expenditures/expenses incurred.
B)Capital assets may neither produce revenues nor save costs.
C)Revenues may not be indicative of demand for goods and services.
D)The mission of the entity will determine the goods or services provided.

Question 8

Governments and not-for-profits employ a system of accounting known as fund accounting.

Question 9

In which of the following activities is a not-for-profit entity least likely to engage?

A)Providing educational services.
B)Providing health-care services.
C)Providing for the national defense.
D)Retail sales of cookies.

Question 10

Governmental entities have no need for an accounting system.

Question 11

To obtain a comprehensive understanding of a government's fiscal health, a financial analyst should obtain an understanding of which of the following?

A)All of the resources owned by the governmental entity.
B)All of the resources which may be summoned by a governmental entity.
C)Demographic data about the residents served by the governmental entity.
D)All of the above.

Question 12

A primary characteristic that distinguishes governmental entities from business entities is

A)the need to generate revenues equal to or in excess of expenditures/expenses.
B)the importance of the budget in the governing process.
C)the need to provide goods or services.
D)the correlation between revenues generated and demand for goods or services.

Question 13

The Governmental Accounting Standards Board established generally accepted accounting principles for all state and local government entities, as well as all nongovernment entities.

Question 14

Which of the following is NOT a reason that users of government and not-for-profit external financial statements need to have information to enable them to assess the financial condition of a government?

A)To determine the ability of the entity to meet its obligations.
B)To determine the ability of the entity to continue to provide services.
C)To predict future fiscal developments.
D)To evaluate the overall profitability of the entity.

Question 15

The most significant financial document provided by a governmental entity may be

A)the balance sheet.
B)the operating statement.
C)the operating budget.
D)the cash flow statement.

Question 16

The main objective of a typical governmental entity is to earn a profit.

Question 17

Which of the following is common to both governments and not-for-profit entities but distinguishes these entities from for-profit entities?

A)The budget is generally the most significant financial document.
B)Revenues are not necessarily indicative of demand for goods or services.
C)There is frequently no direct link between revenues and expenses.
D)All of the above are common to both governments and not-for-profit entities but distinguish them from for-profit entities.

Question 18

Which of the following statements is NOT true?

A)All governmental entities engage in similar activities.
B)There are many different types of governments.
C)Governments may engage in activities similar to activities engaged in by for-profit entities.
D)Managers may have a short-term focus and thereby sacrifice the long-term viability of the entity.

Question 19

Which of the following activities is NOT an activity in which a governmental entity might engage?

A)Selling electric power.
B)Operating a golf course.
C)Operating a book store.
D)All of the above are activities that might be carried out by a government.

Question 20

Cash flow statements are governments' paramount financial documents.

Question 21

Under certain circumstances a governmental entity might use standards established by which of the following standard-setting bodies?

A)GASB.
B)FASB.
C)AICPA.
D)All of the above.

Question 22

Which of the following is NOT an objective of financial reporting by governmental entities as established by GASB?

A)Financial reporting should assist users in determining if current period revenues were sufficient to pay for current-period services.
B)Financial reporting should assist users in assessing the management skills of top management.
C)Financial reporting should assist users in evaluating the operating results of the governmental entity for the year.
D)Financial reporting should assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they come due.

Question 23

Given a specific set of data, the basis of accounting selected by or imposed on a governmental entity will least affect which of the following?

A)Determining whether or not the governmental entity has a balanced budget.
B)Determining whether or not the governmental entity has the ability to issue debt.
C)Determining whether or not certain events occurred.
D)Determining the annual payments to a government-sponsored pension plan.

Question 24

Which of the following is NOT an objective of financial reporting for not-for-profit entities as established by FASB? Financial reporting should provide information that is useful to present and potential resource providers and other users in:

A)Making rational decisions about the allocation of resources to those organizations.
B)Assessing the services provided and the entity's ability to continue to provide those services.
C)Assessing the types of services provided and the need for those services.
D)Assessing how managers have discharged their stewardship responsibilities.

Question 25

A regulatory agency would use the external financial statements of a local government for which of the following purposes?

A)To assure that the entity is spending and receiving resources in accordance with laws, regulations or policies.
B)To help assess management's performance.
C)To exercise general oversight responsibility.
D)To do all of the above.

Question 26

Users of financial statements should be interested in information about compliance with laws and regulations for which of the following reasons?

A)To determine if the entity has complied with bond covenants.
B)To determine if the entity has complied with taxing limitations.
C)To determine if the entity has complied with donor restrictions on the use of funds.
D)To determine all of the above.

Question 27

Which of the following is NOT generally considered a main user of government and not-for-profit entity external financial statements?

A)Investors and creditors.
B)Taxpayers.
C)Donors.
D)Management.

Question 28

The primary standard-setting body for accounting and financial reporting by a state-supported college or university is:

A)GASB.
B)FASB.
C)AICPA.
D)All of the above.

Question 29

In descending order, the hierarchy of GAAP applicable to a church-owned college may be:

A)FASB Statements, AICPA Industry Audit Guides, FASB Implementation Guides, GASB Standards.
B)FASB Statements, FASB Technical Bulletins, FASB Implementation Guides, AICPA Practice Bulletins (if cleared by FASB).
C)GASB Statements, AICPA Industry Audit Guides, GASB Implementation Guides, FASB Standards.
D)GASB Statements, GASB Technical Bulletins, GASB Implementation Guides, AICPA Practice Bulletins (if cleared by GASB).

Question 30

As used by GASB, interperiod equity refers to which of the following? Financial reporting should:

A)Demonstrate compliance with finance-related contractual requirements.
B)Provide information to determine whether current-year revenues were sufficient to pay for current-year services.
C)Demonstrate whether resources were obtained and used in accordance with the entity's legally adopted budget.
D)Provide information to assist users in assessing the government's economy, efficiency, and effectiveness.

Question 31

Which of the following objectives is considered to be the cornerstone of financial reporting by a governmental entity?

A)Accountability.
B)Budgetary compliance.
C)Interperiod equity.
D)Service efforts and accomplishments.

Question 32

Which of the following is NOT a probable use a donor would make of the external financial statements of a not-for-profit entity?

A)To determine the creditworthiness of the entity for investment purposes.
B)To determine the proportion of entity resources directed to programs as opposed to fund-raising.
C)To determine the salaries paid to the top officials of the entity.
D)To determine the allocation of resources within the entity.

Question 33

The Governmental Accounting Standards Board is the primary standard-setting body for:

A)All governments.
B)All state and local governmental entities.
C)All governments and all not-for-profit entities.
D)All state and local governments and all not-for-profit entities.