Deck 2: Principles of Accounting and Financial Reporting for State and Local Governments

Question 1

The governmental funds category includes the General Fund,special revenue funds,debt service funds,capital projects funds,and internal service funds.

Answer 1

False
Explanation: The first four fund types are correct. Internal service funds are not governmental funds but rather are included in the proprietary funds category. However, financial information for internal service funds is typically reported in the governmental activities column of the government-wide financial statements.

Question 2

Individual fund financial information is reported in separate columns of governmental and proprietary fund financial statements for only those funds that meet the GASB size-related criteria as major funds.

Answer 2

False
Explanation: While it is true that only major funds are reported in separate columns of the fund financial statements mentioned, funds that do not meet the 10 percent and 5 percent criteria may also be reported as major if government managers feel they are of significant importance to financial statement users.

Question 3

Governments can,in part,demonstrate operational accountability by reporting proprietary and fiduciary fund financial information,as well as all government-wide financial information,using an economic resources measurement focus and the accrual basis of accounting.

Answer 3

True
Explanation: Using an economic resources measurement focus and the accrual basis of accounting contributes to operational accountability by helping assess the cost of government operations. Such information, when combined with nonfinancial information about service outputs and outcomes, facilitates assessment of operational accountability.

Question 4

All capital assets acquired by or used by a fund should be reported in the fund balance sheet or statement of net position.

Question 5

Governments must present three sets of fund financial statements.

Question 6

Because budgetary accounts are used by governments,their financial statements can never be said to be in accord with generally accepted accounting principles.

Question 7

Economic resources are cash or items expected to be converted into cash during the current period,or soon enough thereafter to pay current period liabilities.

Question 8

Expenditures are never recorded in governmental funds.

Question 9

A debt service fund is used to account for financial resources segregated for the purpose of making principal and interest payments on general long-term debt.

Question 10

In accounting for state and local governments the modified accrual basis is required for

A) Proprietary and fiduciary funds.
B) Governmental funds only.
C) Proprietary funds only.
D) All funds.

Question 11

Governmental funds are identical to governmental activities,proprietary funds are identical to business-type activities,and fiduciary funds are identical to fiduciary activities of a government.

Question 12

A deferred inflow is defined as "an acquisition of net assets by the government that is applicable to a future reporting period."

Question 13

The accounting system used by a state or local government must make it possible

A) To present fairly the financial position and results of financial operations of the government as a whole,as well as fund financial activity in conformity with GAAP.
B) To prepare financial statements as required by the Financial Accounting Standards Board.
C) To prepare consolidated accrual basis statements for the government as a whole.
D) To provide Web-based bond offering statements to investment firms.

Question 14

Governmental funds account for assets but not the liabilities.

Question 15

Which of the following is not a characteristic of a fund as defined by GASB standards?

A) An accounting entity.
B) A fiscal entity.
C) A segregated quantity of cash and other financial resources on deposit with a designated trustee.
D) A self-balancing set of accounts.

Question 16

When revenues are legally restricted by external resource providers or committed by enabling legislation for particular operating purposes,a private purpose trust fund is created.

Question 17

Which of the following is a difference between financial reporting for internal service and enterprise funds?

A) Internal service funds are reported in the governmental fund financial statements.
B) Internal service funds are reported in the proprietary fund financial statements.
C) Internal service funds are generally reported in the Business-type Activities column of the government-wide financial statements.
D) Internal service funds are generally reported in the Governmental Activities column of the government-wide financial statements.

Question 18

Governmental funds are further classified as governmental or business-type.

Question 19

An objective of the accounting system for a state or a local government is to make it possible both to present fairly the funds and activities of the government in conformity with generally accepted accounting principles and to demonstrate compliance with finance-related legal and contractual provisions.

Question 20

The types of funds that may be used in governmental accounting are classified into the three categories of governmental,proprietary,and fiduciary.

Question 21

Which of the following funds are governmental funds?

A) General Fund,special revenue funds,capital projects funds,debt service funds,and private-purpose trust funds.
B) General Fund,special revenue funds,private-purpose trust funds.
C) General Fund,special revenue funds,debt service funds,capital projects funds,and permanent funds.
D) General Fund,special revenue funds,capital projects funds,debt service funds,and internal service funds.

Question 22

In which of the following funds would it not be appropriate to record depreciation of capital assets?

A) Special revenue fund.
B) Enterprise.
C) Internal service.
D) Pension trust.

Question 23

Which of the following funds is a governmental fund-type?

A) Private-purpose trust fund.
B) Internal service fund.
C) Permanent fund.
D) Enterprise fund.

Question 24

According to GASB standards transfers should be recognized

A) When earned.
B) When collected in cash.
C) When authorized by the budget ordinance.
D) In the period the interfund receivable and payable arise.

Question 25

The measurement focus and basis of accounting that are most unlike those used by business entities are those used by

A) Governmental funds.
B) Fiduciary funds.
C) Proprietary funds.
D) Contribution funds.

Question 26

The accrual basis of accounting applicable to proprietary fund types requires that exchange revenues be recognized when

A) Earned.
B) Collected in cash.
C) Authorized by the budget ordinance.
D) Measurable and available.

Question 27

Generally accepted accounting principles applicable to state and local governments require that

A) Only governmental funds and proprietary funds should be established.
B) Only those funds required by law,GASB standards,and sound financial administration should be established.
C) Only those funds required by law should be established.
D) All categories of funds must be established.

Question 28

Under the modified accrual basis of accounting,revenues should be recognized when

A) Earned.
B) Collected in cash.
C) Authorized by the budget ordinance.
D) Measurable and available.

Question 29

Which of the following funds are proprietary funds?

A) Enterprise funds,investment trust funds,pension trust funds,and the General Fund.
B) Enterprise funds and internal service funds.
C) Internal service funds,special revenue funds,and enterprise funds.
D) Proprietary funds are not used in governmental accounting.

Question 30

Which of the following is a proprietary fund?

A) Special revenue fund.
B) Investment trust fund.
C) Debt service fund.
D) Internal service fund.

Question 31

Budgetary comparison schedules presenting budgeted versus actual revenues and expenditures are

A) Optional under GASB standards for all funds.
B) Required by GAAP for internal management reports only; not permitted for external financial reporting.
C) Required by GAAP for the General Fund and major special revenue funds for which an annual budget has been legally adopted.
D) Required by GAAP for all governmental fund types.

Question 32

Which of the following funds would be used to account for an activity that provides centralized purchasing and sales of goods or services to other departments or agencies of the governmental,or to other governments,on a cost-reimbursement basis?

A) Enterprise fund.
B) Fiduciary fund.
C) Internal service fund.
D) Permanent fund.

Question 33

Which of the following funds should be used if resources provided by a federal grant must be segregated and used for counseling of youthful offenders?

A) Private-purpose trust fund.
B) Enterprise fund.
C) Internal service fund.
D) Special revenue fund.

Question 34

Capital assets used by departments accounted for by the General Fund of a governmental unit should be accounted for in

A) The General Fund.
B) The governmental activities journal.
C) The business-type activities journal.
D) The general capital assets fund.

Question 35

Reporting fund financial information in separate columns for each major fund and aggregate information for nonmajor funds

A) Means that only those funds that meet the GASB's 10 percent and 5 percent rules are reported in separate columns.
B) Is optional under GAAP,but is generally required by state laws for governments.
C) Is the same manner of reporting used by business organizations.
D) Is required by generally accepted accounting principles for state and local governments.

Question 36

Which of the following is a fiduciary fund?

A) Investment trust fund.
B) Special revenue fund.
C) Debt service fund.
D) Enterprise fund.

Question 37

Capital assets used by an enterprise fund should be accounted for in the

A) Enterprise fund and depreciation on the capital assets should be recorded.
B) Business-type activities journal but no depreciation on the capital assets should be recorded.
C) Governmental activities journal and depreciation on the capital assets should be recorded.
D) Enterprise fund but no depreciation on the capital assets should be recorded.

Question 38

Financial resources set aside to pay principal and interest on general long-term debt may be accounted for in which of the following fund types?

A) Private-purpose trust fund.
B) Debt service fund.
C) Principal and interest trust fund.
D) Internal service fund.

Question 39

Which of the following funds would be most appropriate for accounting for an activity that provides goods or services to the public for a fee that is intended to make the activity self-supporting?

A) Investment trust fund.
B) Enterprise fund.
C) Internal service fund.
D) Special revenue fund.

Question 40

The activities of a water utility department,which offers its services to the general public on a user charge basis,should be accounted for in

A) An enterprise fund.
B) A special revenue fund.
C) The General Fund.
D) An internal service fund.

Question 41

A major governmental fund is one that has one or more elements (e.g.,assets,liabilities,revenues,or expenditures)that is at least:

A) Five percent of the corresponding element(s)of total governmental funds and 10 percent of the corresponding element(s)of total governmental and enterprise funds combined.
B) Ten percent of the corresponding element(s)of total governmental funds and 10 percent of the corresponding element(s)of total governmental and enterprise funds combined.
C) Five percent of the corresponding element(s)of total governmental funds and five percent of the corresponding element(s)of total governmental and enterprise funds combined.
D) Ten percent of the corresponding element(s)of total governmental funds and 5 percent of the corresponding element(s)of total governmental and enterprise funds combined.

Question 42

The basis of accounting that should be used in preparing fund financial statements is:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 43

"The primary purpose of an accounting system for a state or a local government is to make it possible for financial statements to demonstrate compliance with finance-related legal and contractual provisions." Explain why you believe this statement to be correct or incorrect.

Question 44

Describe the comprehensive annual financial report (CAFR)described in the Annual Financial Reports principle.What are the sections of the report and which components of the organization should it include? Is a CAFR required?

Question 45

Explain the difference between measurement focus and basis of accounting.Also,explain the difference between the economic resources measurement focus and the current financial resources measurement focus as well as the difference between the accrual and modified accrual bases of accounting.Which funds and government-wide activities use each focus and each basis?

Question 46

List the seven fund financial statements that are required as part of the basic financial statements by GASB standards.What measurement focus and basis of accounting should be used in preparing each of these statements?

Question 47

Which of the following must be reported as a major fund?

A) The General Fund.
B) A fund having total assets,liabilities,revenues,or expenditures/expenses equaling at least 10 percent of the total governmental or enterprise fund amount for the same element (assets,liabilities,and so forth),as applicable,and at least 5 percent of the combined governmental and enterprise fund total amount for the same element.
C) Both a and b.
D) Neither a nor b.

Question 48

Describe the basic financial statements required by GASB standards and briefly explain their purposes.

Question 49

Explain the nature of the three major activity categories of a state or local government: governmental activities,business-type activities,and fiduciary activities.Provide examples of each.

Question 50

"Because budgetary accounts are used by governments,their financial statements can never be said to be in accord with generally accepted accounting principles." Comment.