Deck 11: Issues of Reporting, Disclosure, and Financial Analysis

Question 1

Governments must combine their discretely presented component units into both the fund and the government-wide statements.

Answer 1

False

Question 2

Which of the following is a necessary characteristic of a component unit?

A)It is fiscally dependent on a primary government.
B)The primary government provides services that are used by both organizations.
C)The primary government can impose its will on the unit or the unit has the potential to provide a financial benefit to or impose a financial burden on the primary government.
D)The primary government appoints a voting majority of the component unit's governing body or a voting majority of the unit's governing body is composed of officials of the primary government.

Answer 2

D

Question 3

Which of the following is necessary for a special-purpose local government to be considered a primary government?

A)It must operate for a single purpose.
B)It must have a separately elected governing body.
C)It must tax its citizens with ad valorem taxes.
D)It must be fiscally dependent on another government.

Answer 3

B

Question 4

The financial reporting entity is composed of

A)The primary government.
B)The primary government and all legally separate governments for which the primary government is financially accountable.
C)The primary government and all legally separate organizations for which the primary government is financially accountable.
D)The primary government, all legally separate organizations for which the primary government is financially accountable, and any organizations whose omission would cause the primary government's financial statements to be misleading or incomplete.

Question 5

It is unacceptable for a special-purpose government that is a component unit of a general-purpose government to issue its own "stand-alone" financial report.

Question 6

Which of the following is necessary for a government to be considered fiscally independent?

A)It must be able to hire its own management.
B)It must be able to issue bonds that are tax-exempt.
C)It must not be subsidized by another government.
D)It must be able to levy taxes and/or set rates for its services.

Question 7

A related organization is a contractual arrangement whereby two or more participants agree to carry out a common activity and share its risks and rewards.

Question 8

Governments must combine their blended component units into both the fund and government-wide statements.

Question 9

The Marigold School District, a legally separate school district that has a separately elected governing body, cannot enter into any debt agreements without the approval of the county commission.Marigold School District would be considered a(n):

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 10

Required notes are an essential element of the basic financial statements.

Question 11

Public colleges and universities must adhere to the same GASB pronouncements as other types of governments.

Question 12

One ratio measure of fiscal effort is Revenue from own sources/Intergovernmental revenues.

Question 13

There are only two government-wide statements: the statement of net position and the statement of activities.

Question 14

When a component unit is blended into the financial statements of a primary government, the resulting fund financial statements will include two general funds.

Question 15

The typical audit is designed to cover all information included in the CAFR.

Question 16

Required supplementary information (RSI)is considered part of the basic financial statements.

Question 17

The comprehensive annual financial report (CAFR)is divided into three main sections: the table of contents section, the auditors' report section, and the financial section.

Question 18

Internal service funds are presented in a single column in the proprietary fund financial statements, even if one or more of them is a major fund.

Question 19

A primary government can impose its will on a potential component unit if it has the authority to modify or approve the unit's budget.

Question 20

Which of the following is NOT a primary government?

A)A state government.
B)A general-purpose local government with the ability to determine its own budget.
C)A general-purpose local government whose tax levies must be approved by the state.
D)A special-purpose local government whose tax levies must be approved by the state.

Question 21

Of the following powers possessed by Government A, which is an indication that Government A can impose its will on Government B? Government A:

A)Can dismiss Government B's chief operating officer.
B)Can review Government B's budget.
C)Can remove appointed members of Government B's governing board only for cause.
D)Issues debt on behalf of Government B.

Question 22

A county commission appoints a voting majority of the members of the board of a particular organization.The county commission cannot impose its will upon the organization.There is no potential for the organization to provide any financial benefit to the county nor is there any potential for the organization to impose any financial burden on the county.The organization is an example of a(n):

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 23

Two cities entered into a contractual agreement to operate a landfill.The cities each contributed the necessary assets to operate the landfill in proportion to their populations.Each city has the ability to appoint two members of the governing body of the landfill.The assets contributed by First City were primarily in the form of property and equipment that had been used in general government activities.In what manner would the landfill be included in First City's fund financial statements?

A)In a governmental fund only.
B)In the schedule of changes in capital assets only.
C)In a proprietary fund only.
D)Not be recognized in the financial statements.

Question 24

The city created a legally separate housing authority to provide low-income housing to residents of the city.The city issues debt for the housing authority in the name of the city, but the housing authority is responsible for repayment of the debt.The housing authority is governed by a board composed of all five members of the city council.The authority can take action based on the affirmative vote of a simple majority of the board.In what manner would the authority be included in the city's basic financial statements?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 25

The city created a legally separate entity to operate a county hospital.The city council appoints a voting majority of the board of the hospital.The city cannot impose its will on the hospital and there is no potential for a financial benefit or financial burden to the city.The county hospital would be a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 26

The city created a legally separate port authority.Members of the board of the port authority are elected in general city elections.The port authority receives no tax dollars; it is supported entirely by user fees.The port authority determines its budget, sets user fees, and has the power to issue bonded debt.In what manner would the port authority be included in the city's basic financial statements?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 27

The city created a legally separate housing authority to provide low-income housing to residents of the city.The city issues debt for the housing authority in the name of the city, but the housing authority is responsible for repayment of the debt.The housing authority is governed by a board composed of all five members of the city council.Actions can be taken by the authority upon receiving an affirmative vote by a simple majority of the board.The housing authority would be considered a(n):

A)Primary Government.
B)Component Unit.
C)Related Organization.
D)Affiliated Organization.

Question 28

The State has a legally separate State Building Authority which has a board appointed by the governor.The authority issues debt in its own name, holds title to buildings in its own name, and leases its building exclusively to the state.In what manner would the authority be included in the State's basic financial statements?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 29

Two cities entered into a contractual agreement to operate a landfill.The cities each contributed the necessary assets to operate the landfill in proportion to their populations.Each city has the ability to appoint two members of the governing body of the landfill, and each has an equity interest in the arrangement.The assets contributed by First City were primarily in the form of property and equipment that had been used in general government activities.In what manner would the landfill be included in First City's government-wide financial statements?

A)As an investment.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 30

The city created a legally separate port authority.Members of the board of the port authority are elected in general city elections.The port authority receives no tax dollars; it is supported entirely by user fees.The port authority determines its budget, sets user fees, and has the power to issue bonded debt.The authority would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 31

The county created a legally separate county hospital authority.Members of the board of the county hospital are elected in county-wide elections.The county must approve the budget of the hospital, but the hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.All revenues of the hospital are user fees.The county hospital would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 32

The State has a legally separate State Building Authority which has a board appointed by the Governor.The authority issues debt in its own name, holds title to buildings in its own name, and leases its building exclusively to the State.The authority would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 33

The State University Foundation is a legally separate, tax-exempt 501(c)(3)entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the State University.The existing university foundation board members elect new members of the board.The foundation provides scholarships to students of the State University, but the foundation receives no financial support from the university.The Foundation is an example of:

A)Primary government.
B)Related organization.
C)Affiliated organization.
D)None of the above.

Question 34

The county created a legally separate county hospital authority.Members of the board of the county hospital are elected in county-wide elections.The hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.All revenues of the hospital are user fees.The county hospital would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 35

Two cities entered into a contractual agreement to operate a landfill.The cities each contributed the necessary assets to operate the landfill in proportion to their populations.First City has the ability to appoint five members of the seven-person governing body of the landfill.The appointees serve for six-year terms, cannot be reappointed, and can be removed only for cause.First City has no obligation to contribute to the landfill if the landfill revenues are insufficient to cover current operating costs.The landfill would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 36

Of the following powers possessed by Government A, which is NOT an indication that Government B should be included as a component unit of Government A?

A)The governing documents state that, if dissolved, the assets of Government B will become the property of Government A.
B)Government A issues revenue bonds in its name backed by the revenues of a project to be undertaken by Government B.Government A is neither legally nor morally liable for repayment.
C)Government A has agreed to provide financial support to Government B if Government B operates at a deficit but in the entire 75 years that Government B has operated, it has never operated at a loss.
D)The governing documents state that once Government B has equity in excess of a certain amount, 50 percent of all future operating profits will be used to reduce bonded debt of Government A.

Question 37

The county created a legally separate county hospital authority.Members of the board of the county hospital are elected in county-wide elections.The county must approve the budget of the hospital, but the hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.All revenues of the hospital are user fees.In what manner would the hospital be included in the county's basic financial statements?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 38

The city created a legally separate entity to operate a county hospital.The city council appoints a voting majority of the board of the hospital.The city cannot impose its will on the hospital and there is no potential for a financial benefit or financial burden to the city.In what manner would the hospital be included in the city's basic financial statements?

A)Blended.
B)Discretely presented.
C)Only by note disclosure of the relationship.
D)Not included in any manner.

Question 39

The county created a legally separate county hospital authority.Members of the board of the county hospital are elected in county-wide elections.The hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.All revenues of the hospital are user fees.In what manner would the hospital be included in the county's basic financial statements?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 40

The governor of the state appoints the members of the Game and Fish Commission.The members of the commission serve ten-year terms and can be removed only for cause.State law prohibits the reappointment of a commissioner.The commission receives no tax dollars.It is supported entirely by licenses and fees paid by hunters and anglers.The only bonds that can legally be issued by the commission are revenue bonds backed by the licenses and fees paid by the sportsmen.The Game and Fish Commission is not a 501(c)(3)organization and does not have separate legal status.The Game and Fish Commission is an example of a:

A)Primary government.
B)Component unit.
C)Related Organization.
D)None of the above.

Question 41

Fund financial statements include which of the following for a governmental fund?

A)Statement of net position and statement of changes in net position.
B)Statement of net position, statement of changes in net position, and statement of cash flows.
C)Balance sheet; statement of revenue, expenditures, and changes in fund balance; and statement of cash flows.
D)Balance sheet; and statement of revenue, expenses, and changes in fund balance.

Question 42

When a government's Unassigned fund balance/Total operating revenues ratio is high

A)It is a sign of fiscal strength.
B)It indicates the government is spending too little.
C)It indicates the government is taxing too much.
D)Any of the above may be indicated.

Question 43

Fund financial statements for fiduciary funds include which of the following?

A)Balance sheet and income statement.
B)Balance sheet, income statement, and a statement of cash flows.
C)Statement of fiduciary net assets and a statement of changes in fiduciary net assets.
D)Statement of fiduciary net assets, statement of changes in fiduciary net assets, and statement of cash flows.

Question 44

The financial section of a CAFR includes:

A)MD&A and other RSI.
B)Statistical section.
C)Letter of transmittal.
D)GFOA certificate of achievement.

Question 45

The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3)entity organized for the purpose of raising funds to provide financial assistance to the library.Members of the board of the foundation are elected by the existing foundation board members.The foundation provides financial assistance to the library, but the foundation receives no financial support from the library.If dissolved, all of the foundation assets would revert to the library.The foundation would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 46

The introductory section of a CAFR includes which of the following?

A)Auditor's opinion on the basic financial statements.
B)Basic financial statements.
C)Letter of transmittal.
D)MD&A and other RSI.

Question 47

A comprehensive annual financial report (CAFR)for Homer City need not include which of the following sections?

A)Condensed summary data.
B)Introductory section.
C)Financial section.
D)Statistical section.

Question 48

The Hospital Foundation is a legally separate, tax-exempt 501(c)(3)entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the Hospital Medical School.Members of the board of the Hospital Foundation are elected by the existing board of trustees.The foundation provides scholarships to students of the Hospital Medical School, but the foundation receives no financial support from the Hospital.In what manner would the Hospital include the foundation in its financial statements?

A)Blended.
B)Discretely presented.
C)Consolidated.
D)Note disclosure only.

Question 49

A city's Revenue from own sources/Median family income ratio is a measure of its

A)Adequacy of revenues
B)Fiscal effort
C)Stability of revenues
D)Liquidity

Question 50

Government-wide financial statements include which of the following?

A)Balance sheet and income statement.
B)Balance sheet, income statement, and statement of cash flows.
C)Statement of net position and statement of activities.
D)Statement of net position, statement of activities, and statement of cash flows.

Question 51

Eland City Council has adopted a policy of aggressively pursuing grants and other resource inflows from other levels of government.Over the past several years, the proportion of total city revenues that comes from other levels of government has steadily increased.As a consequence of these increased revenues, the city has begun offering a number of new services to citizens.In assessing the financial condition of the city, an analyst would conclude which of the following?

A)The increasing reliance on intergovernmental revenues has increased the financial viability of the city.
B)The increasing reliance on intergovernmental revenues can be a negative fiscal characteristic.
C)The increasing reliance on intergovernmental revenues is irrelevant in assessing the financial condition of the city.
D)The increasing reliance on intergovernmental revenues is a sign of poor management on the part of the city council.

Question 52

The auditor's report generally refers to information in which of the following sections of the CAFR?

A)The introductory section, the financial section, and the statistical section.
B)The introductory and the financial sections only.
C)The statistical and the financial sections only.
D)The financial section only.

Question 53

Which of the following is generally considered to be a positive fiscal characteristic for a city?

A)A high, or increasing, ratio of intergovernmental revenues to total revenues.
B)A low percentage of restricted revenues to total revenues.
C)A high proportion of one-time revenues to total revenues.
D)A low ratio of property tax revenues to total revenues.

Question 54

The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3)entity organized for the purpose of raising funds to provide financial assistance to the library.Members of the board of the foundation are elected by the existing foundation board members.The foundation provides financial assistance to the library, but the foundation receives no financial support from the library.If dissolved, all of the foundation assets would revert to the library.In what manner should the foundation be presented in the financial statements of the library?

A)Blended.
B)Discretely presented.
C)Note disclosure only.
D)Not included in any manner.

Question 55

For a government that depreciates infrastructure, RSI likely would not include which of the following?

A)MD&A.
B)Actual to budget comparison.
C)Information about infrastructure condition.
D)Details of pension actuarial valuations.

Question 56

The Hospital Foundation is a legally separate, tax-exempt 501(c)(3)entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the Hospital Medical School.Members of the board of the Hospital Foundation are elected by the existing board of trustees.The foundation provides scholarships to students of the Hospital Medical School, but the foundation receives no financial support from the hospital.The foundation would be considered a(n)

A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Question 57

With regard to combining statements, which of the following statements is true?

A)Combining statements for nonmajor governmental funds are optional.
B)Combining statements for nonmajor governmental funds are required.
C)Combining statements for nonmajor internal service funds are optional.
D)Combining statements for all internal service funds are optional.

Question 58

Which of the following statements is not a required part of the basic financial statements of Carlton City?

A)Government-wide statement of net position.
B)Statement of revenues, expenditures, and changes in fund balances for all governmental funds.
C)Statement of revenues, expenses, and changes in net assets for all fiduciary funds.
D)Statement of cash flows for all proprietary funds.

Question 59

Which of the following is generally considered to be a positive fiscal characteristic for a city?

A)An increasing amount of payroll costs.
B)An increasing amount of expenditures for specific functions.
C)An increasing percentage of nondiscretionary expenditures.
D)An increasing percentage of discretionary expenditures.

Question 60

Which of the following would generally be considered an indication of future economic concern for a city?

A)A decreasing percentage of revenue raised by the city as a proportion of total appraised value of property.
B)A decreasing percentage of revenue raised by the city as a proportion of median family income.
C)An increasing population base.
D)An increasing industrial base in a variety of industries.

Question 61

What are four types of information that must be presented in Management's Discussion and Analysis (MD&A)? From which financial statement, if any, is each type of information derived?

Question 62

A comprehensive annual financial report (CAFR)includes a statistical section.What kinds of information are found in the statistical section? To what use would a reader put the information found in the statistical section? In your opinion, is the statistical section worth the effort put into its preparation?

Question 63

Government colleges and universities have several reporting options under GAAP.What are they? What financial statements would be presented under each? What basis of accounting would be used?

Question 64

A government's financial condition

A)Is another term for its financial position as reported in the government-wide statement of net position.
B)Is its ability to finance its services and satisfy its obligations on a continuing basis.
C)Can adequately be assessed from the financial section of its CAFR.
D)Depends primarily upon the national economy.

Question 65

The state established the State Housing Authority to finance construction of low-income housing.The authority, a state corporation, is governed by an independent board of directors, the members of which are appointed by the governor.They can be removed only for cause.The board of directors has complete control over the authority's operations.The director is hired by the board and reports to the board; the director cannot be removed by the governor.Although the state constitution limits the state to $2 million of bonds outstanding, the authority issued $970 million in bonds to finance construction projects.In earlier years, the authority issued debt that was backed by the taxing power of the state (moral obligation debt).The newer bonds are revenue bonds only.
The authority uses the proceeds of the debt it issues to make loans to finance housing construction.Debt is serviced from monies received in repayment of loans made by the authority.
Do you believe the state should include the authority in its reporting entity? If so, how? Justify your answer using the GASB Financial Reporting Entity criteria.

Question 66

GASB reporting standards require that legally separate component units be included on the face of the financial statements of the primary government.Small City created a legally separate City Utility Service.The Small City council appoints the utility board members, authorizes the bonds of the utility, and approves its budget.Small City's general fund revenues are $58 million; the revenues of the utility are $100 million (the utility owns a generating plant and sells its excess power to other communities).Discuss the appropriate reporting for the City Utility Service.Do you think that this presentation is meaningful? Why or why not?

Question 67

A special-purpose government that engages in more than one program or in both governmental-type and business-type programs

A)May combine fund and government-wide statements into a single statement.
B)Should be reported upon as one or more discretely presented component units of a general-purpose government.
C)May present a government-wide income statement in a business format showing expenses deducted from revenues.
D)Should prepare both government-wide and fund statements, similar to those required of general-purpose governments.

Question 68

A special-purpose government that engages only in a single governmental-type program

A)Need not prepare fund financial statements.
B)May combine fund and government-wide statements into a single statement.
C)May present a government-wide income statement in a business format showing expenses deducted from revenues.
D)Should be reported upon as a blended component unit of a general-purpose government.