State and Local Government Concepts
Fiduciary funds are accounted for using which of the following? A Accrual basis of accounting B Modified accrual basis of accounting C Flow of economic capital basis of accounting D Accrual or modified approach, whichever is most appropriate
A Accrual basis of accounting Fiduciary funds are accounted for using the accrual basis of accounting.
The measurement focus of governmental fund accounting is on which of the following? A Current financial resources B Economic resources C Cash D Working capital
A Current financial resources The correct answer is (a). Governmental funds measurement focus is current financial resources approach and basis of accounting is modified accrual accounting
Fish Road property owners in Sea County are responsible for special assessment debt that arose from a storm sewer project. If the property owners default, Sea has no obligation regarding debt service, although it does bill property owners for assessments and uses the money it collects to pay debt holders. What fund type should Sea use to account for these collection and servicing activities? A Custodial B Debt service C Expendable trust funds D Capital projects
A Custodial Sea is acting as a custodian of the money collected and the Custodial fund is used to account for the custodial activities of the governmental unit. The debt service fund is used to account for the repayment of the general long-term debt. The capital projects fund accounts for the project itself, not the repayment of debt
The debt service transactions of a special assessment bond issue for which the government is not obligated in any manner should be reported in the A Custodial Fund B Enterprise Fund C Special Revenue Fund D Long-Term Debt Account Group
A Custodial Fund Although the special assessment debt for which the government is not obligated in any manner is not reported as government debt, the government usually acts as a debt service agent for the special assessment district. The government has a fiduciary responsibility to collect the special assessments and to remit the collections to the bondholders when the debt service payments come due. However, if collections are insufficient to cover required debt service payments, the government is not obligated to pay the difference and does not intend to do so. Thus, the government is acting in a custodial capacity with respect to the debt service transactions, and these transactions should be accounted for in a Custodial Fund.
Harland County received a $2,000,000 capital grant to be equally distributed among its five municipalities. The grant is to finance the construction of capital assets. Harland had no administrative or direct financial involvement in the construction. In which fund should Harland record the receipt of cash? A Custodial fund B General fund C Special revenue fund D Private purpose trust fund
A Custodial fund Custodial Funds account for collected amounts that must be transferred to other funds or outsiders. Harland County is collecting and holding the cash temporarily and not obligated, so the cash is reported in the Custodial Fund.
Which of the following local government funds uses the accrual basis of accounting? A Enterprise B Debt service C Capital projects D Special revenue
A Enterprise The basis of accounting used depends on the nature of the fund. The modified accrual basis is used in the governmental fund type statements (i.e., general, special revenue, capital projects, and debt service funds). The accrual basis is used in proprietary fund statements (i.e., internal service and enterprise funds), where revenues and expenses are recorded and net income (loss) is reported. The accrual basis is also used in fiduciary fund statement
Financial reports of governments should allow users to do which of the following? A Evaluate operating results and evaluate the level of service provided B Determine return on capital C Assess the government's ability to generate profit D Calculate the per capita share of capital assets
A Evaluate operating results and evaluate the level of service provided Financial reports of governments should allow users to evaluate operating results and evaluate the level of service provided. Governments are not funded with "owner equity," so the return on capital is not a valid measure for most governmental services. Governments do not generally try to generate a profit like commercial entities.Capital assets are held by the governmental entity, but per capita"shares"are not a normal financial ratio.
The primary authoritative body for determining the measurement focus and basis of accounting standards for state and local governments is: A Governmental Accounting Standards Board (GASB). B Financial Accounting Standards Board (FASB). C Government Accounting and Auditing Committee of the AICPA (GAAC). D National Council on Governmental Accounting (NCGA).
A Governmental Accounting Standards Board (GASB). The GASB sets accounting and financial reporting standards for state and local governments. The FASB sets standards for financial reports published by business and nonprofit enterprises.
Which event(s) is(are) supportive of interperiod equity as a financial reporting objective of a governmental unit? A balanced budget is adopted. Residual equity transfers out equals residual transfers in. A I only B II only C Both I and II D Neither I nor II
A I only Interperiod equity is the idea of using the revenues from one period to pay for the expenditures of that same period and that period only. A balanced budget is a plan for this occurrence. Residual equity transfers are between funds, not between periods.
The orientation of accounting and reporting for all proprietary funds of governmental units is A Income determination. B Project. C Flow of funds. D Program.
A Income determination. Proprietary funds are accounted for essentially as if they were private sector, profit-seeking business enterprises. Therefore, the orientation of these funds is income determination.
Which of the following bases of accounting should a government use for its proprietary funds in measuring financial position and operating results? # Modified accrual basis Accrual basis A No Yes B No No C Yes Yes D Yes No
A No Yes The appropriate basis of accounting for proprietary and fiduciary funds is the accrual basis, under which revenues are recognized in the accounting period in which they are earned and become measurable.
One feature of state and local government accounting and financial reporting is that fixed assets used for general government activities A Often are not expected to contribute to the generation of revenues. B Do not depreciate as a result of such use. C Are acquired only when direct contribution to revenues is expected. D Should not be maintained at the same level as those of businesses so that current financial resources can be used for other government services.
A Often are not expected to contribute to the generation of revenues. Governmental entities invest large amounts of resources in non-revenue producing capital assets such as government office buildings, highways, bridges, and sidewalks.
The mission of the Governmental Accounting Standards Board (GASB) includes which of the following? A Providing a framework to educate users and support public policies, invest-ments, and management by those users B Establishing standards to identify appropriate performance measures and criteria C Outlining best practices for administration of governmental budgets D Providing accounting and reporting standards for federal government agencies
A Providing a framework to educate users and support public policies, invest-ments, and management by those users The GASB's mission includes research and development of standards that will improve accounting and financial reporting for state and local governments. The GASB's mission includes providing a framework to educate users and support public policies, investments, and management by those users.
Which of the following lead(s) to the use of fund accounting by a governmental organization? # Financial control Legal restrictions A Yes Yes B Yes No C No No D No Yes
A Yes Yes In the absence of a profit motive, a net income bottom line, or other uniform objective performance indicators, governments use fund accounting to demonstrate compliance with restrictions and controls.
Which of the following describes revenue recognition using the modified accrual basis of accounting? A Recognized when exchange occurs or when certain conditions are met B Accrued when earned, available, and measurable C Recognized in the period when the fund assets are anticipated D Recognized when received
B Accrued when earned, available, and measurable The modified accrual method of accounting recognizes revenues when they are earned, measurable, and available. The period in which the fund assets are anticipated does not dictate revenue recognition under the modified accrual method. Revenue recognized when received describes cash basis accounting. Amounts recognized when an exchange occurs or when certain conditions are met applies to the recognition of expenses under the accrual basis of accounting.
In which situations(s) should property taxes due to a governmental unit be recorded as deferred revenue? Property taxes receivable are recognized in advance of the year for which they are levied. Property taxes receivable are collected in advance of the year in which they are levied. A I only B Both I and II C II only D Neither I nor II
B Both I and II Revenues are susceptible to accrual at the time they become measurable and available for use under modified accrual basis guidelines. Significant amounts received prior to the normal collection time (such as prepaid property taxes) are recorded as Deferred Revenue..
Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund? A Internal service. B Capital projects. C Nonexpendable trust. D Enterprise.
B Capital projects. General Funds, Special Revenue Funds, Capital Projects Fund, Debt Service Fund, and Permanent Fund use modified accrual accounting. Under the modified accrual basis of accounting, revenue is recognized in the period it is measurable and available to spend. Costs are recorded in the period that the obligation to pay them arises, whether this is before or after the period in which the government is actually using the assets or services. The Capital Projects Fund uses the same basis of accounting as the Special Revenue Fund.
A state government collected income taxes of $8,000,000 for the benefit of one of its cities that imposes an income tax on its residents. The state remitted these collections periodically to the city. The state should account for the $8,000,000 in the A General fund. B Custodial funds. C Internal service funds. D Special assessment funds
B Custodial funds. Custodial Funds are used to account for resources held by a government as an agent for individuals or other governmental units. Taxes, for example, are occasionally collected by one governmental unit on behalf of another. Until the money is physically transferred to the proper authority, it is recorded in a Custodial Fund.
Government-wide statements use which of the following measurement principles? A Modified accrual for governmental activities B Economic resources for all activities C Modified accrual for fiduciary activities D Current financial resources for governmental activities
B Economic resources for all activities The government-wide statements, both the statement of net position and the statement of activities, are prepared using the economic resource measurement focus and accrual accounting to present the long-term perspective of financial position. Modified accrual is only used in the governmental fund statements. Fiduciary activities are not reported in the government-wide statements. Current financial resources measurement focus is only used in the governmental fund statements
Which of the following is the purpose for governmental fund accounting? A Track subsidiary profit centers B Evaluate revenues and expenditures for specific programs and monitor compliance with legal restrictions C Separate revenues and expenditures into as many self-supporting accounts as possible D Identify statutory requirements for budget management
B Evaluate revenues and expenditures for specific programs and monitor compliance with legal restrictions A government's primary mission is the delivery of programs and services. Fund accounting allows governments to track specific functions and ensure that operations comply with any legal restrictions that apply. Governments may have component units that are similar to subsidiaries in the private sector, but there are no profit objectives in governmental financial reporting. The GASB discourages the use of too many funds; the general fund is the only required fund. GASB Statement No. 34 reorganized funds to create a primary focus for each fund category, but statutory identification is not a primary objective for fund organization.
For governmental fund types, which item is considered the primary measurement focus? A Income determination B Flows and balances of financial resources C Capital maintenance D Cash flows and balances
B Flows and balances of financial resources Governmental fund measurement focus is on determination of financial position and changes in financial position (sources, uses, and balances of financial resources), rather than on net income determination.
Property taxes levied in fiscal year 1 to finance the general fund budget of fiscal year 2 should be reported as general fund revenues in fiscal year 2 of governmental funds Financial Statements: A Regardless of the fiscal year in which collected B For the amount collected before the end of fiscal year 2 or shortly thereafter C For the amount collected before the end of fiscal year 2 only D For the amount collected in fiscal year 1 only
B For the amount collected before the end of fiscal year 2 or shortly thereafter Governmental funds use the modified accrual basis of accounting, under which, revenues are recognized when they become measurable and available for use. "Available for use" means that the revenues will be collected within the current period or collected early enough in the next period to be used to pay for expenditures incurred in the current period. Therefore, the property taxes collected before the end of fiscal year 2 or shortly thereafter should be reported as revenues in fiscal year 2.
Which of the following describes the uses of resources in the fiduciary funds? A By the government for any program it chooses B For the purposes designated by the trust agreement or law, or returned to the owners C Only at the end of the year D To pay for pension funds only
B For the purposes designated by the trust agreement or law, or returned to the owners When acting in a fiduciary capacity, the government can spend the fiduciary funds only for specific purposes as spelled out in the law or trust agreement or returned to the owners. Fiduciary funds are restricted for use for specific purposes as described by the trust agreement or law. Fiduciary fund transactions occur all year, not just at the end of the year. Pension funds aren't the only kind of fiduciary funds.
The governmental category in the fund statements includes which of the following? A General fund, special revenue, debt service, and enterprise funds B General fund, special revenue, debt service, capital projects, and permanent funds C General fund, special revenue, fiduciary funds, capital projects, and internal service funds D General fund, special revenue, debt service, and internal service funds
B General fund, special revenue, debt service, capital projects, and permanent funds The governmental category in the fund statements summarizes those programs funded with general types of revenues (generally taxes and grants). This category includes the general fund, special revenue, debt service, capital projects, and permanent funds. Fiduciary funds are not available to support the government's own programs. Proprietary funds include: enterprise funds and internal service funds.
Which of the following is not within the scope of the GASB mission for standard setting? A Conceptual framework for accounting and reporting standards B Goals and objectives of state and local governmental services C External financial reporting D Assist users in assessing the level of services that can be provided by governmental entities
B Goals and objectives of state and local governmental services Goals and objectives for governmental programs and services should be established by management, elected officials, and the government's stake-holders.
The __________ basis of accounting provides the most direct link to the budgeting process. A Accrual B Modified accrual C Cash D Modified cash
B Modified accrual The modified accrual (not accrual) basis of accounting provides the most direct link to the budgeting process and highlights that current focus that still drives the planning process in most governments.
What basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures, and changes in fund balance? A Accrual basis of accounting B Modified accrual basis of accounting C Modified cash basis of accounting D Cash basis of accounting
B Modified accrual basis of accounting The modified accrual basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures, and changes in fund balances. Under the modified accrual basis of accounting, revenue is recognized in the period it is measurable and available to spend. Costs are recorded in the period that the obligation to pay them arises, whether this is before or after the period in which the government is actually using the assets or services.
Sig City used the following funds for financial reporting purposes: General fund Capital projects fund Internal service fund Special revenue fund Airport enterprise fund Debt service fund Pension trust fund How many of Sig's funds use the accrual basis of accounting? A Two B Three C Four D Five
B Three The three funds using the accrual basis of accounting are the (1) internal service fund, (2) airport enterprise fund, and (3) pension trust fund (fiduciary fund). The modified accrual basis of accounting is used by the general fund, capital projects fund, special revenue fund, and debt service fund.
Both Curry City and the state have a general sales tax on all merchandise. Curry City's tax rate is 2 percent and the state's rate is 4 percent. Merchants are required by law to remit all sales tax collected each month to the state by the 15th of the following month. By law, the state has 45 days to process the collections and to make disbursements to the various jurisdictions for which it acts as an agent. Sales tax collected by merchants in Curry total $450,000 in May and $600,000 in June. Both merchants and the state make remittances in accordance with statutes. What amount of sales tax revenue for May and June is included in the June 30 year-end financial statements of the state and Curry? # State Curry A $1,050,000 $0 B $1,050,000 $350,000 C $ 700,000 $350,000 D $ 300,000 $150,000
C $ 700,000 $350,000 Under the modified basis of accounting, governments accrue sales tax revenue when it is measurable and available for use. 'Available for use' means that the revenues will be collected within the current period or early enough in the next period (i.e., within 60 days or so) to be used to pay for expenditures incurred in the current period. All of these revenues will be collected within 60 days. Curry City's portion of the total is not reported as revenues in the state's financial statements. Curry's portion is reported in the state's books in an agency fund (which does not have operating accounts) in an account such as Due to City.[$1,050,000 × (2/3) = $700,000 and $1,050,000 × (1/3) = $350,000]
The following information pertains to property taxes levied by Oak City for the calendar year 1: Collections during year 1 $500,000 Expected collections during the first 60 days of year 2 100,000 Expected collections during the balance of year 2 60,000 Expected collections during January year 3 30,000 Estimated to be uncollectible 10,000 Total levy $700,000What amount should Oak report for year 1 net property tax revenues? A $700,000 B $690,000 C $600,000 D $500,000
C $600,000 Governmental funds use the modified accrual basis of accounting, under which revenues susceptible to accrual (e.g., property taxes) are recognized when they become measurable and available for use. 'Available for use' means that the revenues will be collected within the current period or collected early enough in the next period (i.e., within 60 days or so) to be used to pay for expenditures incurred in the current period. Therefore, for year 1, Oak should report property tax revenues of $600,000, the sum of the of property taxes levied and collected in year 1 and the expected property tax collections during the first 60 days of year 2.
Revenues are recorded in governmental funds when they are both measurable and available for use. Which of the following time periods is typically used when determining if a revenue is available for use? A 30 days after period end B 45 days after period end C 60 days after period end D 90 days after period end
C 60 days after period end The rule of thumb for measuring available revenues in the modified accrual method of accounting is to use revenues received within 60 days after the end of the reporting period.
Which of the following is discussed in GASB Concepts Statement No. 1 as a financial reporting objective for governmental financial statements? A Assisting users in understanding funding objectives for public retirement systems and the potential tax burden on future taxpayers B Assisting users in identifying management's policies for selection of critical programs and services to provide and the annual tax burden to finance those programs C Assisting users in assessing the operating results, level of services provided, and the government's ability to meet cash requirements D Assisting users in determining the annual tax burden per capita for each of the major programs provided by the governmental entity
C Assisting users in assessing the operating results, level of services provided, and the government's ability to meet cash requirements Assisting users with an assessment of the government's operating results, level of services provided, and the ability to meet cash requirements is a broad principle and is the second objective outlined in Concepts Statement No. 1. While assisting users in understanding funding objectives for public retirement systems and the potential tax burden on future taxpayers may be one of the significant elements for any governmental financial report, it is not specifically discussed as a reporting objective. Assisting users in identifying management's policies for selection of critical programs and services to provide and the annual tax burden to finance those programs is an example of a specific reporting issue, not a broad principle. Assisting users in determining the annual tax burden per capita for each of the major programs provided by the governmental entity is an example of specific information that is critical to users, but not discussed as a primary broad objective.
Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they A Are collected. B Are earned and become measurable. C Become available and measurable. D Become available and earned.
C Become available and measurable. The modified accrual basis of accounting for governmental units recognizes revenues in the period they become measurable and available to cover approved expenditures of the period.
In governmental accounting, a fund is The basic accounting unit. Used to assist in ensuring fiscal compliance. A I only B II only C Both I and II D Neither I nor II
C Both I and II A specific governmental unit is not accounted for through a single accounting entity. Instead, the accounts of a government are divided into several funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.
A city received a $9,000,000 federal grant to finance the construction of a homeless shelter. In which fund should the proceeds be recorded? A Permanent B General C Capital projects D Special revenue
C Capital projects The $900,000 the city received as a federal grant to finance the construction of a homeless shelter should be recorded in the capital projects fund. Capital projects fund accounts for major acquisition or construction activities of capital assets. A capital projects fund is used to establish resources to construct or acquire major, long-lived general government facilities. The construction of a homeless shelter via a federal grant is a perfect example.
Governments demonstrate accountability for managing public resources by doing which of the following? A Using a cost-based basis of accounting for the statement of activities B Adjusting property tax rates to reflect the level of services used by taxpayers C Complying with a legally adopted budget that controls appropriations D Charging for services that are structured to recover all the costs of operations
C Complying with a legally adopted budget that controls appropriations Budgets play a key role in managing public funds. Governments adopt a budget with legislative approval providing a legal mandate for the expenditure of public funds.
Which of the following characteristics trigger unique accounting standards for governmental entities? A Governmental ownership of utilities such as water, sewer, or electric services B Democratic structure for state and local governmental entities C Fund accounting and budgetary reporting D Profit motive in governmental funds
C Fund accounting and budgetary reporting Fund accounting and budgetary reporting are key elements for demonstrating accountability for public resources and provide cornerstones for governmental financial reporting. They are the characteristics that trigger unique accounting standards for governmental entities.
Which of the following provide guidance for users trying to understand unique governmental reporting issues? A GASB Interpretations B FASB Statements C GASB Concepts Statements D AICPA Audit Guides
C GASB Concepts Statements GASB Concepts Statements provide the basic building blocks for the specific accounting reporting standards. Users can study the Concepts Statements to understand unique reporting issues and how the GASB addresses their needs in financial reporting. GASB Interpretations provide additional explanations of GASB Statements and may assist users, but do not explain unique governmental reporting issues. FASB Statements that are applicable to governmental entities were incorporated into the GASB Codification with Statement No. 62, but do not explain the conceptual framework. AICPA Audit Guides are useful implementation guidance for auditors, but may be too technical for most users of governmental financial statements.
Which of the following factors influences governmental generally accepted accounting and reporting principles? A The lack of SEC oversight for municipal financial instruments B State statutes that created the Governmental Accounting Standards Board (GASB) C Governmental structure and its mission to provide critical public services D Population levels for individual governments
C Governmental structure and its mission to provide critical public services The essential mission of government is delivering services, financed with taxes. The SEC does have limited oversight for tax-exempt financial instruments, but the GASB is focused on the operating and organizational characteristics to define governmental accounting and reporting standards. The GASB was created by the Financial Accounting Foundation and is not subject to any individual state regulation. While the GASB has sometimes considered "small GAAP" versus "big GAAP," the size of individual state and local governments is not a key factor for the Conceptual Framework.
Which of the following distinguishes the use of a special revenue fund compared to a private-purpose trust fund? A Types of revenues B Types of program costs C Intended beneficiaries D Use of cash basis accounting
C Intended beneficiaries When beneficiaries are the general public, the resources are accounted for and reported in a special revenue fund. When there are specific third-party beneficiaries, a private-purpose trust is more appropriate. Program costs do not affect the type of fund used for governmental activities. Cash basis of accounting is not a factor for determining the type of fund used for a specific activity.
Which of the following is a difference between governmental businesses and commercial enterprises? A User fees structured to recover operating costs, including the costs of capital B Allocation of the costs of capital assets using depreciation based on estimated asset service lives C Mission strategy to improve quality of life for community D Issuance of revenue debt to finance capital expansions and improvements
C Mission strategy to improve quality of life for community Governmental businesses, unlike commercial enterprises, have a mission strategy to improve quality of life for community whereas private sector commercial entities are focused on generating a net profit for shareholders. Both governmental and private sector enterprises aim to charge fees sufficient to recover costs and depreciation based on estimated service lives. Either type of entity would likely issue revenue debt to finance capital expansions.
Which of the following fund types of a governmental unit has (have) income determination as a measurement focus? # General funds Capital project funds A Yes Yes B Yes No C No No D No Yes
C No No The general and capital project funds are governmental-type funds. All governmental-type funds have the fund flow measurement focus. The measurement focus of both these funds on "determination of financial position and changes in financial position, ... rather than on net income determination.".
Which of the following is a significant issue for SEA reporting for governmental entities? A SEA reporting provides authorization for tax initiatives. B SEA reporting will help explain budgetary proposals. C SEA reporting helps bring performance results information to citizens to help with their assessment, program selection, and implementation. D SEA reporting is required by GASB accounting and reporting standards.
C SEA reporting helps bring performance results information to citizens to help with their assessment, program selection, and implementation. SEA reporting emphasizes performance results and is designed to help public policy-makers evaluate which programs are critical for a community.
Fund accounting is used by governmental units with resources that must be A Composed of cash or cash equivalents. B Incorporated into combined or combining financial statements. C Segregated for the purpose of carrying on specific activities or attaining certain objectives. D Segregated physically according to various objectives.
C Segregated for the purpose of carrying on specific activities or attaining certain objectives. Fund accounting is used when there are legal separations between sources and uses of funds. Fund accounting may be used to account for assets aside from cash and cash equivalents. Combined or combining financial statements may be used with or without fund accounting. The resources may be physically in the same account or location.
Which of the following is a governmental fund that uses the current financial resources measurement focus? A Enterprise fund B Internal service fund C Special revenue fund D Private-purpose trust fund
C Special revenue fund Governmental Funds - General Fund, Special Revenue Fund, Capital Projects Fund, Debt Service Fund, and Permanent Fund use modified accrual accounting and current financial resources measurement focus.
Which of the following funds of a governmental unit uses the modified accrual basis of accounting? A Internal service funds B Enterprise funds C Special revenue funds D Private-purpose trust funds
C Special revenue funds The modified accrual basis is the appropriate basis of accounting for governmental funds (i.e., general, special revenue, capital projects, permanent, and debt service).
According to GASB Concepts Statement No. 1, governmental financial reporting objectives are focused on providing accountability because of which of the following for governmental entities? A They are subject to significant oversight by federal laws and regulations. B They cannot change tax rates without public referendum votes. C They derive their revenues in large part from involuntary payers. D They are exempt from federal income tax.
C They derive their revenues in large part from involuntary payers. Governments derive their revenues in large part from involuntary payers. Tax assessments, license fees, permits, even many user fees are imposed in accordance with statutory authority rather than the payer's willingness to participate in the transaction. This authority is vested in the governmental entity to protect the public welfare and promote social and economic development. The federal government does provide oversight for state and local government management of federal grant programs; however, the federal government does not establish reporting standards for state and local governments. State and local government tax-exempt status does not include reporting standards. Governmental reporting requirements are established by the Governmental Accounting Standards Board.
Which of the following indicates why fiduciary funds are presented in the fund statements instead of the note disclosures? A To enhance municipal bond disclosures B To improve budgetary compliance C To provide accountability for these resources D To comply with federal grant reporting requirements
C To provide accountability for these resources The GASB considered using note disclosures to present fiduciary funds, but decided that financial statement presentations would enhance stewardship and accountability for these resources. Municipal bonds are not secured with fiduciary fund resources since these assets are not available for the government's programs. Fiduciary funds are generally not required to adopt budgets. Federal grants are not generally classified as fiduciary funds.
Which of the following is the purpose of using major fund reporting in the fund statements? A To highlight special revenue funds B To distinguish special revenue funds from debt service funds C To report the government's largest funds rather than fund types D To provide more details about governmental funds
C To report the government's largest funds rather than fund types GASB Statement No. 34 shifted away from fund type reporting to highlight the government's larger funds. Users do not have much interest in fund types, but they are focused on the government's larger funds. Major fund reporting concentrates on fewer details and combines the government's smaller funds to simplify reporting and focus on significant activities. While the determination of major funds is based on a mathematical relationship, management does have the ability to include other significant funds.
The following information pertains to Comb City: Year 3 real estate property taxes assessed and collected in year 3 $14,000,000 Year 2 real estate property taxes assessed in year 1 and collected in year 3 1,000,000 Year 3 sales taxes collected by merchants in year 3 but not required to be remitted to Comb until January of year 4 2,000,000 For the year ending December 31, year 3, Comb should recognize revenues of A $14,000,000 B $15,000,000 C $16,000,000 D $17,000,000
D $17,000,000 Five classes of revenue that may be accrued if available for use and measurable are: (1) personal property taxes, (2) real estate property taxes, (3) income taxes, (4) sales taxes, and (5) taxes collected by another governmental unit. ($14,000,000 + $1,000,000 + $2,000,000 = $17,000,000).
Glen County uses governmental fund accounting and is the administrator of a multiple-jurisdiction deferred compensation plan covering both its own employees and those of other governments participating in the plan. This plan is an eligible deferred compensation plan under the U.S. Internal Revenue Code and Income Tax Regulations. Glen has legal access to the plan's $40,000,000 in assets, comprising $2,000,000 pertaining to Glen and $38,000,000 pertaining to the other participating governments. In Glen's balance sheet, what amount should be reported in the custodial fund for plan assets and as a corresponding liability? A $0 B $2,000,000 C $38,000,000 D $40,000,000
D $40,000,000 When a governmental unit is the administrator of a multiple-jurisdiction deferred compensation plan, it should report all of the plan assets and liabilities (e.g., $40,000,000) in Custodial Fund because the governmental unit is acting as an agent for both its own employees and other governments participating in the plan.
Which of the following is the paramount objective of financial reporting by state and local governments? A Reliability B Consistency C Comparability D Accountability
D Accountability Governments are focused on programs and services that will improve the quality of life in their communities. Governmental entities must provide accountability for how they raised resources for those programs and explain how they managed and safeguarded those public resources.
Which basis of accounting is required for a city's government-wide financial statements? A Cash. B Modified Cash. C Modified Accrual. D Accrual.
D Accrual. A city's government-wide financial statements are required to be completed on the accrual basis of accounting.
Which of the following would be reported using the full accrual method of accounting? A Governmental activities B Business-type activities C Neither governmental activities nor business-type activities D Both governmental activities and business-type activities
D Both governmental activities and business-type activities Both governmental activities and business-type activities are included on the face of the government-wide financial statements. The government-wide financial statements use the full accrual method of accounting, which means that D is the correct answer. All amounts on the government-wide financial statements are reported using the accrual method.
What is the measurement focus and the basis of accounting for the government-wide financial statements? # Measurement focus Basis of accounting A Current financial resources Modified accrual B Economic resources Modified accrual C Current financial resources Accrual D Economic resources Accrual
D Economic resources Accrual Government-wide financial statements aggregate information for all governmental and business-type activities. GASB 34 requires an economic resources measurement focus and accrual basis of accounting for all amounts in the government-wide financial statements.
Which of the following is included in the mission of the GASB? A Funding policies for public pension funds B Performance measurement standards C Budgetary strategies for public entities D Educate the public, about governmental financial issues
D Educate the public, about governmental financial issues The GASB has a broad mission to develop standards that provide useful information for users of financial reports as well as educating the public about governmental financial issues. Management, not GASB, determines the funding policies for public pension plans. Performance measurement standards are not within the scope of governmental accounting and reporting guidance. Management, not GASB, selects the appropriate budget strategy for the governmental organization.
What is the basic criterion used to determine the reporting entity for a governmental unit? A Special financing arrangement. B Geographic boundaries. C Scope of public services. D Financial accountability.
D Financial accountability. Governmental reporting model requires financial accounting and disclosures to show (a) operational accountability when the entity is taken as a whole, the extent to which operating objectives have been met (effectively and efficiently) and (b) fiscal accountability for fund financial statements to demonstrate that the entity has been in compliance with public decisions concerning the raising and spending of public funds during a budgetary cycle.
Which of the following funds of a local government would report transfers to other funds as an other financing use? A Enterprise B Internal service C Pension trust D General
D General Interfund transactions appear in the operating statements of the affected funds. In governmental funds, transfers are reported as Other Financing Sources (Uses). In proprietary funds, transfers should be reported as Transfers In (Out). Only the general fund is a governmental fund and would report transfers to other funds as an other financing use. The enterprise and internal service funds are proprietary funds that would report transfers to other funds as transfers out. The pension trust fund is a fiduciary fund that is accounted for in essentially the same manner as proprietary funds.
Which of the following is a unique feature of governmental financial statements? A Demonstrating that the government produces a "bottom line profit" B Highlighting the government's earnings per share for public utilities C The government's relationship with related entities D Identifying how public resources are acquired and used
D Identifying how public resources are acquired and used Governmental financial statements provide accountability for public resources. This objective is not addressed in commercial accounting standards. The "bottom line profit" is not a major focus for the governmental operating statement. Governmental entities, even enterprise utility systems, are not financed with public stock offerings, therefore, earnings per share is not a relevant measure for these governmental entities. Financial reporting standards for both governmental and commercial accounting include provisions for reporting related organizations and disclosing the primary entity's responsibilities for these reporting entities.
Expenditures of a governmental unit for insurance extending over more than one accounting period A Must be accounted for as expenditures of the period of acquisition. B Must be accounted for as expenditures of the periods subsequent to acquisition. C Must be allocated between or among accounting periods. D May be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition.
D May be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition. Expenditures are recorded when fund liabilities are incurred or assets are expended, except in regard to inventory items, interest on general long-term debt, and prepaids such as insurance. This is due to the emphasis on the flow of financial resources in governmental accounting.
Which of the following funds of a governmental unit uses the same basis of accounting as the special revenue fund? A Enterprise funds B Internal service funds C Pension trust funds D Permanent funds
D Permanent funds The special revenue fund and permanent funds are both governmental-type funds and both use modified accrual accounting.
The city accountant for a newly established municipality is setting up the new fund structure for the city's accounting system. How many funds should the accountant establish for the city? A Two, a general fund and a special revenue fund as required by GAAP. B Two, a special revenue fund and a general fund as required by the city manager. C The minimum number of funds consistent with the needs of the city accountant. D The minimum number of funds consistent with legal requirements and sound financial administration.
D The minimum number of funds consistent with legal requirements and sound financial administration. A government unit must have one general fund, but can establish multiple special revenue, capital projects, and permanent funds as needed to account for the various activities that fit these categories. A debt service fund is only needed if the entity issues general obligation debts. The accountant must establish the minimum number of funds consistent with legal requirements and sound financial administration. Option (a) is incorrect because one general fund should be set up and multiple special revenue funds can be set up as needed. Option (b) is incorrect because more than 2 special revenue funds can be set up if required. Option (c) is incorrect because minimum number of funds consistent with GASB 34 should be setup not as per the needs of the accountant.
The measurement focus of governmental-type funds is on the determination of # Flow of financial resources Financial position A Yes No B No Yes C No No D Yes Yes
D Yes Yes The governmental fund measurement focus is on determination of financial position and changes in financial position, rather than on net income determination. In governmental funds, the primary emphasis is on the flow of financial resources.
The basis of accounting for a capital projects fund is the A Cash basis. B Accrual basis. C Modified cash basis. D Modified accrual basis.
The modified accrual basis is the appropriate basis of accounting for governmental funds (i.e., General, Special Revenue, Capital Projects, Permanent, and Debt Service Funds).
