Deck 9: Financial Reporting of State and Local Governments

Question 1

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

Answer 1

True
Explanation: This one of the reconciling items required in converting governmental fund statements to governmental activities statements as presented in Chapter 9.

Question 2

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.

Answer 2

False
Explanation: GASB standards define a financial reporting entity as a primary government, organizations for which the primary government is financially accountable, and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the financial statements to be misleading.

Question 3

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

Answer 3

True
Explanation: The definition of a primary government does not rely on the scope or purpose of the government. Therefore, either a general purpose or a special purpose government could be considered a primary government if the government meets the criteria of having a separately elected board, being legally separate, and fiscally independent of other state or local governments.

Question 4

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

Question 5

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 6

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 7

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.

Question 8

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

Question 9

GASB Concepts Statement 4 identifies expenditures as a financial statement element.

Question 10

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 11

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

Question 12

In converting from the modified accrual basis of accounting information in a governmental fund to accrual basis for the 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 13

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

Question 14

Other comprehensive bases of accounting (OCBOA)are considered generally accepted accounting principles (GAAP)for state and local governments.

Question 15

Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the governmental 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 16

Which of the following is a primary objective of financial reporting by state and local governments?

A) To provide information that can be used for capital allocation decisions made by external investors.
B) To report on the legal requirements imposed on the government by its elected officials.
C) To provide information that can be used to assess a government's accountability.
D) To fulfill the government's statutory duty to report on cash received and cash disbursed.

Question 17

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

Question 18

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 19

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 20

According to the guidance of GASB Concepts Statement 3,financial information can be communicated by recognition in the financial statements,disclosure in the notes to the financial statements,presentation as required supplementary information,or presentation as supplementary information.

Question 21

The government-wide financial statements required by GASB standards are a

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 22

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 23

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 24

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 25

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 26

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 27

Which of the following is not one of the methods recommended by the GASB for communicating information to external users of government financial reports?

A) Providing information via newsletters.
B) Recognition in the financial statements.
C) Presentation as required supplementary information.
D) Disclosure in the notes to the financial statements.

Question 28

Government-wide financial statements present the government's financial position using

A) Total financial resources measurement focus and the accrual basis of accounting.
B) Economic resources measurement focus and the accrual basis of accounting.
C) Current financial resources measurement focus and the modified accrual basis of accounting.
D) Current financial resources measurement focus and the cash basis of accounting.

Question 29

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

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

Question 30

Which of the following kinds of information 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 31

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 32

Under GASB standards,where are nonmajor funds are 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 33

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 taxes without the approval of the primary government.
C) The budget of the potential component unit must be approved by the primary government.
D) The potential component unit sets user charges with approval of the primary government.

Question 34

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 35

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 36

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 37

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

A) Acquisition of a building to be used by the police department.
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 38

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 A and B.

Question 39

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 40

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 41

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

Question 42

Explain why other comprehensive bases of accounting (OCBOA)may be used by a state or local government instead of GASB standards which are generally accepted accounting principles (GAAP).

Question 43

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 44

The following are key terms in Chapter 9 that relate to the reporting entity:
A.Component units
B.Financial reporting entity
C.Financial accountability
D.Joint venture
E.Other stand-alone governments
F.Primary governments
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition

Question 45

In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would increase the balance of 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 46

Which of the following would be reported as a nonspendable fund balance?

A) Inventory.
B) Restricted assets.
C) Assets whose use is limited.
D) Capital assets.

Question 47

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

Question 48

Describe the objectives of financial reporting by state and local governments.

Question 49

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 whether the reconciliation will A)always be subtracted from fund balances-governmental funds,B)always be added to fund balances-governmental funds,or 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 50

A city received resources that the state indicates can only be used for public works projects,such as road construction.Assuming the resources have not been expended by year end,how would the resources the city received be shown in the city's fund balances?

A) Spendable-Designated Fund Balance.
B) Spendable-Committed Fund Balance.
C) Spendable-Restricted Fund Balance.
D) Spendable-Assigned Fund Balance.

Question 51

Under GASB standards which of the following funds can report a positive amount for unassigned fund balance?

A) Capital projects fund.
B) Special revenue fund.
C) General Fund.
D) All of the above.

Question 52

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 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

"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 58

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.