Deck 9: Financial Reporting of State and Local Governments

Question 1

Both a general purpose and a special purpose government could be considered examples of primary governments under GAAP.

Answer 1

True

Question 2

Under GASB standards, the financial statements that report on business-type activities at the government-wide level include the statement of net position, statement of activities, and statement of cash flows.

Answer 2

False

Question 3

Fiduciary activities are not reported in the government-wide financial statements under GASB standards.

Answer 3

True

Question 4

Similar in purpose to the International Accounting Standard Board (IASB) is the International Public Sector Accounting Standards Board.

Question 5

Under GASB standards, only proprietary funds prepare a statement of cash flows.

Question 6

A discretely presented component unit is presented as a major fund on the governmental fund financial statements.

Question 7

A financial reporting entity is defined as a primary government, as well as all other organizations that have an operational relationship with the primary government.

Question 8

Statistical tables included in comprehensive annual financial reports should provide social and economic data, in addition to financial data, to assist financial statement users in better understanding the activities and condition of the government.

Question 9

State and local governments should prepare only those financial reports required by law-generally year-end financial statements.

Question 10

The accounting system used by a state or local government must make it possible to prepare financial statements as required by the Financial Accounting Standards Board.

Question 11

The GASB defines a component unit as any organization for which the primary government is financially accountable.

Question 12

The General Fund data for a blended component unit should be reported as a special revenue fund of the primary government.

Question 13

Similar to for-profit entities, the GASB requires governments to prepare quarterly interim financial reports.

Question 14

One of the required reconciliations in converting governmental fund financial statements to governmental activities statements at the government-wide level is an adjustment for internal service funds' assets, liabilities, operating income (loss), and transfers.

Question 15

The three sections of the comprehensive annual financial reports of state and local governments are (1) an introductory section, (2) a financial section, and (3) a supplemental section.

Question 16

A government is financially accountable for another entity if it appoints the voting majority of the entity's governing board.

Question 17

In reconciling between the governmental fund and government-wide statements, capital assets acquired by a governmental fund are deducted from fund balance-governmental funds to arrive at net position of governmental activities.

Question 18

In accordance with GASB standards, both a general purpose government and a special purpose government can be considered primary governments if certain criteria are met.

Question 19

Popular reports provide condensed financial information that can be used by governments to communicate financial results to citizens.

Question 20

Special purpose accounting frameworks are considered generally accepted accounting principles (GAAP) for state and local governments.

Question 21

Which of the following factors would not indicate that a potential component unit (PCU) imposes a financial burden or provides a financial benefit to the primary government?

A) The primary government is entitled to its share of any dividends distributed by the PCU.
B) The primary government is obligated to provide financial support to the PCU.
C) The primary government is obligated for the PCU's debt.
D) The primary government is entitled to the PCU's resources.

Question 22

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR)?

A) Expenditure trend information.
B) Revenue capacity information.
C) Demographic and economic information.
D) Debt capacity information.

Question 23

A not-for-profit organization could be reported as a component unit of a primary government.

Question 24

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets?

A) Use of tax revenues to acquire a police department building.
B) Issuance of long-term debt to be used to acquire equipment for the police department.
C) A gift of land to the city restricted by the donor to be used by the city airport, which is accounted for as an enterprise fund.
D) Recording annual depreciation on capital assets.

Question 25

According to the Bureau of Census, which of the following would be considered a special district?

A) Colyer Township.
B) Milborne Independent School District.
C) Hieher City.
D) Johnston Building Authority.

Question 26

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)?

A) Letter of transmittal.
B) Management's discussion and analysis (MD&A).
C) Independent auditor's report.
D) Required supplementary information (RSI).

Question 27

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?

A) Adding annual depreciation expense proportionately to functional expense categories.
B) Eliminating interfund payables and receivables between governmental funds.
C) Aggregating fund information.
D) Eliminating receivables and payables between governmental and enterprise funds.

Question 28

Which of the following would not be provided by management's discussion and analysis (MD&A)?

A) A narrative explanation of the contents of the CAFR.
B) A description of the government's financial condition.
C) A forecast of revenues and expenditures for the next three fiscal years.
D) A discussion of economic factors and the budget and tax rates approved for the next year.

Question 29

The GASB requires that interim financial reports be prepared on a semiannual basis at a minimum.

Question 30

Which of the following is one of the three sections of a comprehensive annual financial report?

A) Statistical section.
B) Single audit section.
C) Supplementary section.
D) Investment section.

Question 31

An example of information found in the statistical section of the comprehensive annual financial report (CAFR) is demographic information such as unemployment rates, and personal income of citizens.

Question 32

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?

A) The potential component unit is precluded from issuing long-term debt.
B) The potential component unit raises its own taxes without the approval of the primary government.
C) The potential component unit names its board of directors without the approval of the primary government.
D) The potential component unit sets user charges with the approval of the primary government.

Question 33

Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the government financial reporting entity?

A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of the PCU.
D) Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Question 34

Which of the following is a required program revenue category in the government-wide statement of activities?

A) Special assessments.
B) Operating grants and contributions.
C) Sales taxes.
D) Transfers.

Question 35

What constitutes the basic financial statements of a government?

A) Financial section of the comprehensive annual financial report (CAFR).
B) Government-wide financial statements plus notes.
C) Government-wide financial statements plus fund financial statements plus notes.
D) Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).

Question 36

Which of the following statements or schedules is most likely to be prepared by a government as an interim financial report?

A) A government-wide statement of activities.
B) A governmental funds balance sheet.
C) A schedule of budgeted and actual expenditures.
D) A schedule of cash flows for governmental funds.

Question 37

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

Question 38

To be reported as a major component unit, a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

Question 39

Under GASB standards, if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare?

A) Five.
B) Six.
C) Seven.
D) Nine.

Question 40

Combining financial statements for nonmajor funds of a government should be included:

A) In the basic financial statements.
B) In the notes to the financial statements.
C) As a part of the financial section of the comprehensive annual financial report (CAFR).
D) As part of the statistical section of the comprehensive annual financial report (CAFR).

Question 41

For the following items that require reconciliation between governmental funds financial statements and governmental activities financial statements at the government-wide level according to GASB standards, indicate which is the best appropriate terms.
(A) Always be subtracted from fund balances-governmental funds.
(B) Always be added to fund balances-governmental funds.
(C) May be added to or subtracted from fund balances-governmental funds in arriving at net position of governmental activities.
________ 1. Capital assets used in governmental activities
________ 2. Long-term liabilities that are not payable in the current period
________ 3. Net position of internal service funds that are primarily governmental in nature
________ 4. Accrued interest payable not due in the current period

Question 42

Which of the following statements concerning the reporting of expenses on the statement of activities is True?

A) Expenses are reported after program revenues.
B) Expenses are reported after general revenues.
C) Expenses are reported after program and general revenues.
D) Expenses are reported before program and general revenues.

Question 43

For each of the following definitions, indicate the key term from the list that best matches by placing the appropriate terms.
A. Component unit
B. Financial reporting entity
C. Financial accountability
D. Joint venture
E. Other stand-alone government
F. Primary government
________ 1. A separate government or agency that is combined for purposes of reporting on the whole entity
________ 2. The responsibility that exists when a primary government appoints a voting majority of an organization's governing board and it is able to (a) impose its will on the organization or (b) there is a potential for the organization to provide financial benefits or impose a financial burden on the primary government
________ 3. A state government, general purpose local government, or special purpose government that is independent of other state or local governments
________ 4. A legally separate governmental organization that does not have a separately elected government body
________ 5. Primary government and all related component units

Question 44

Which of the following items are typically reported differently between the governmental fund statements and the Governmental Activities column of the government-wide statements?

A) Capital outlays.
B) Cash collected on property taxes receivable.
C) Accounts payable and other accrued expenses.
D) Inventories.

Question 45

Which of the following statements concerning the reporting of internal balances by a government at the end of its fiscal year is True?

A) The internal balances amounts reported in the balance sheet columns represent activity among governmental funds.
B) The internal balances amounts reported in the statement of net position columns represent activity between governmental activities and business-type activities.
C) The internal balances amounts are reported in both the asset and liability sections on the statement of net position.
D) The internal balances amounts reported represent the difference between interfund transfers in and interfund transfers out.

Question 46

On the statement of revenues, expenditures, and changes in fund balance for governmental funds, how are capital outlays reported?

A) As a separate line item in the expenditures section of the statement.
B) Capital outlays are allocated to the functional areas, much like depreciation.
C) As a separate line item in the other financing sources (uses) section of the statement.
D) Below net change in fund balances, but before beginning fund balance.

Question 47

Balsam City's library board is appointed by the city council, which has agreed to subsidize the operating costs of the library at a material amount to be determined each year. In addition, the city is paying debt service on general obligation bonds issued to construct the library. Based on generally accepted accounting principles (GAAP) criteria for defining the reporting entity:

A) The library is a component unit.
B) The library is a special purpose government.
C) The library is a joint venture.
D) The library is a jointly governed organization.

Question 48

Under GASB standards, where are nonmajor funds reported?

A) In the management's discussion and analysis preceding the financial statements.
B) In aggregate amounts in a single column in the fund financial statements.
C) In a note disclosure following the financial statements.
D) In the government-wide financial statements.

Question 49

Some governments provide to their citizens highly condensed financial information, budget summaries, and narrative descriptions. This report is called a(an)

A) Comprehensive annual financial report.
B) Basic financial statements.
C) Required supplementary information.
D) Popular report.

Question 50

Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported?

A) Letter of transmittal.
B) Fund financial statements.
C) Management's discussion and analysis.
D) Government-wide financial statements.

Question 51

The comprehensive annual financial report (CAFR) of a government should contain a statement of revenues, expenses, and changes in net position for:

A) Both proprietary and governmental funds.
B) Governmental but not proprietary funds.
C) Proprietary but not governmental funds.
D) Both proprietary and fiduciary funds.

Question 52

In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would be added to the change in net position of governmental activities?

A) Issuance of long-term debt.
B) Construction of capital assets.
C) Accrual of interest expense.
D) Depreciation expense.

Question 53

Which of the following statements concerning interfund transfers is True?

A) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds.
B) Interfund transfers are reported in the statement of activities when transfers occur among governmental funds.
C) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance and the statement of activities when transfers occur among governmental funds.
D) Interfund transfers are reported as internal balances on the statement of net position when activity occurs among governmental activities and business-type activities.

Question 54

GASB standards require that governmental fund financial statements include which of the following?

A) Balance sheet.
B) Statement of activities.
C) Statement of cash flows.
D) Both Balance sheet and Statement of activities.

Question 55

Which of the following asset amounts would be classified as restricted fund balance on the governmental funds balance sheet?

A) Cash related to a federal grant for the Public Works department.
B) Supplies inventory in the General Fund.
C) Cash in the debt service fund that the city has set aside to pay a long-term note.
D) A cash contribution that must be maintained in perpetuity.

Question 56

Which of the following would decrease the governmental activities balance in Net Position-Net Investment in Capital Assets?

A) An increase in accumulated depreciation.
B) Acquisition of a capital lease.
C) Sale of a fully depreciated capital asset.
D) Receipt of a capital grant that has not been expended at fiscal year-end.

Question 57

Which of the following are government-wide financial statements required by GASB standards?

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

Question 58

In reconciling the total fund balances of the governmental funds to the net position of governmental activities, which of the following would be added to the net position of governmental activities?

A) Accumulated depreciation.
B) Premium on bonds payable.
C) Construction work in progress.
D) Bond interest payable.

Question 59

"Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?

Question 60

The following transactions relate to the City of Middleton, which has a fiscal year end of December 31. The city adopts budgets for the General Fund and the debt service fund. NOTE: for simplicity, and contrary to GASB standards, assume straight-line amortization for this problem.
1. The City of Middleton sells a $2,000,000, 3%, 16-year general obligation bond issue on January 2 at par. The bond pays interest semiannually on July 1 and January 2, with the first principal payment scheduled for next year on January 2. A city hall annex must be constructed with the bond proceeds. The bond premium must be used to pay interest on the debt.
2. Budgets are adjusted to account for the sale of the bond. The debt service fund budget should be adjusted to accommodate the new debt issue. If the debt service fund does not have sufficient resources to pay expenditures, the needed funds will be provided by the General Fund.
3. On February 1, $1,000,000 of the cash from the sale of the bonds is invested for one year at a rate of 1.26%. Earnings on the investment are available for construction of the city hall annex.
4. July 1 the first interest payment is due.
5. December 31 adjusting entries are prepared.
Required:
For the five related transactions provided, prepare all necessary journal entries for the affected funds and at the governmental activities level. Clearly indicate the fund journal or the government-wide journal in which the entry is being recorded. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Question 61

In your own words, describe the relationships between a component unit and a primary government. Provide some examples and describe the financial reporting for a component unit.

Question 62

Explain why special purpose frameworks (also known as other comprehensive bases of accounting) may be used by a state or local government instead of GASB standards, which are generally accepted accounting principles (GAAP).

Question 63

Describe some items requiring adjustments when modified accrual basis accounting information must be converted to accrual basis accounting in preparation of government-wide statements.

Question 64

Describe the alternative processes for capturing the financial accounting information required for government-wide financial statements.

Question 65

What is meant by the term "reporting entity" in accounting for state and local governments?

Question 66

Describe what the government-wide statements are intended to convey to readers and contrast with the intent of the fund financial statements.