Question 1

Not-for-profit organizations obtain their revenues primarily from

Accepted Answer

A) Sales to customers 
B) Contributions from donors 
C) Taxes on personal property 
D) Taxes on real property B

Question 2

(Discussion problem on entity and GAAP hierarchy)
A large private bus company in Empire City went bankrupt.At Empire City's request,the state legislature established a legally separate public benefit corporation named Metro City Bus.In the law establishing Metro City Bus,Empire City was authorized to appoint Metro's entire governing body,and Metro was authorized to issue tax-exempt debt to assume the assets of the private bus company.
When Metro City Bus went to prepare its financial statements,two questions were raised.Was Metro City Bus a government? And if it were a government,how should it prepare its cash flow statement? Research showed that,when the bus company was a private organization,it followed FASB Statement No.95,which required cash flow statements to be prepared using a particular format.However,GASB Statement No.9 did not approve the use of FASB Statement No.95,and instead required governmental enterprises to prepare cash flow statements using a different format.An article published in the Journal of Accountancy suggested that all business-type activities,private or governmental,ought to adopt FASB Statement No.95.
Required:
a.Discuss whether Metro City Bus is or is not a governmental entity.What are the specific factors in this situation that cause Metro to be one or the other?
b.Discuss whether Metro City Bus should prepare its cash flow statements using the FASB format or the GASB format.What are the factors that affect your conclusion?

Accepted Answer

a.Metro City Bus is a governmental entity because it was established by law as a public benefit corporation.Also,its governing board is appointed by government officials and it has the power to issue tax exempt debt.
b.Metro City Bus must prepare its cash flow statements using the format prescribed by the GASB.GASB Statements and Interpretations rank highest in the hierarchy of generally accepted accounting principles for state and local governments.Because the GASB issued a specific Statement for preparing cash flow statements (GASB Statement No.9),that Statement must be followed rather than the FASB statement on cash flows.The Journal of Accountancy article has no standing in this situation.

Question 3

An activity that is unique to governments is

Accepted Answer

A) Budgeting 
B) Cash management 
C) Levying taxes 
D) Advertising C

Question 4

Which basis of accounting is used for the basic governmental functions of state and local governments?

Accepted Answer

A) Cash basis of accounting 
B) Modified accrual basis of accounting 
C) Accrual basis of accounting 
D) Regulatory basis of accounting

Question 5

(Discussion problem on fund accounting)
Discuss the nature and purpose of "fund accounting."

Accepted Answer

The answer of (Discussion problem on fund accounting)
Discuss the nature...

Question 6

Which of the following is not a reason that governmental accounting is different from business accounting?

Accepted Answer

A) Different users of financial reports 
B) Expected long-life of governments 
C) Capital assets are used by governments 
D) Revenues that are unique to governments

Question 7

Which entity establishes financial accounting standards and principles for the federal government?

Accepted Answer

A) FASB 
B) GASB 
C) FASAB 
D) None of the above.

Question 8

A not-for-profit organization performs all of the following activities except

Accepted Answer

A) Charging a fee for services provided 
B) Paying dividends to shareholders 
C) Purchasing long-lived (capital)assets 
D) Paying overtime to employees

Question 9

(Matching organizational characteristics with different types of organizations. )
Listed below are some identifying characteristics of organizations.Indicate with a check mark (Y)in the appropriate column(s)those characteristics that apply to each type of organization.Some characteristics may apply to more than one type of organization.

Accepted Answer

The answer of (Matching organizational characteristics with different types of...

Question 10

To what extent do organizations that use fund accounting also report on the entity as a whole?

Accepted Answer

A) Organizations that use fund accounting are not required to report on the entity as a whole 
B) Organizations that choose to report on the entity as a whole are not permitted to use fund accounting for internal purposes 
C) Organizations that use fund accounting are required to report on the entity as a whole 
D) Organizations that use fund accounting have the option of reporting either on funds or on the organization as a whole

Question 11

For which types of organizations is the Governmental Accounting Standards Board (GASB)responsible for establishing accounting and financial reporting standards?

Accepted Answer

A) All state,local,and Federal organizations 
B) All state and local governmental organizations,except for state and local governmental colleges,universities,health care providers,and utilities 
C) All state and local governmental organizations,including government-sponsored colleges,universities,health care providers,and utilities 
D) All governmental and not-for-profit organizations

Question 12

Which of the following is the most authoritative source of accounting standards for cities and counties?

Accepted Answer

A) Current practices widely used by not-for-profit entities 
B) GASB Statements and Interpretations 
C) AICPA Industry Audit Guides 
D) Implementation guides published by GASB staff

Question 13

Government and nonprofit accounting focuses on which of the following?

Accepted Answer

A) Calculating profit or loss 
B) Protecting investors from fraud 
C) Demonstrating accountability 
D) Reporting to management

Question 14

Which of the following activities is performed by governments but not by not-for-profit organizations?

Accepted Answer

A) Issuing federal tax-free debt 
B) Receiving grants 
C) Preparing budgets 
D) Providing services to constituents

Question 15

Concepts statements issued by the GASB and the FASAB emphasize which of the following objectives of governmental financial reporting?

Accepted Answer

A) It should help the chief executive assess the entity's financial condition. 
B) It should help department heads assess their department's results of operations. 
C) It should help the judiciary determine whether the government has complied with the law. 
D) It should help report users assess accountability.

Question 16

Which of the following is a distinguishing characteristic of a nonbusiness organization?

Accepted Answer

A) Its revenues do not exceed its expenses 
B) There is an absence of ownership interests that can be sold,transferred,or redeemed 
C) It does not depreciate its capital assets 
D) It does not charge fees for any of its services

Question 17

For which types of organizations is the Financial Accounting Standards Board (FASB)responsible for establishing accounting and financial reporting standards?

Accepted Answer

A) Business-type organizations and not-for-profit organizations,including not-for-profit colleges,universities and health care providers 
B) Business-type organizations;not-for-profit organizations;and all colleges,universities and health care providers,whether organized as not-for-profit or governmental entities 
C) Business-type organizations only 
D) All entities,except for those under the jurisdiction of the American Institute of CPAs

Exam 1: Governmental and Not-For-Profit