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4 Chapter Recognizing Revenue in Governmental Funds TRUE/FALSE (CHAPTER 4) 1. If an entity elects to focus on all economic resources, then it should adopt a modified accrual basis of accounting. The budgetary measurement focus of governments is determined by applicable state or local laws. The revenue- recognition issues facing governments are generally focused on the exchange transaction earning process, similar to those of businesses. Governmental activities tend to derive the majority of their revenues from exchange transactions. In accounting for property taxes, under the modified accrual basis, existing standards provide that, except in unusual circumstances, revenues should be recognized only if cash is expected to be collected within sixty days of year-end. Ad valorem taxes are taxes that are based on value. Income taxes are classified as ad valorem taxes. Sales taxes are taxpayer assessed, that is, parties other than the beneficiary government determine the tax base. 2. 3. 4. 5. 6. 7. 8. 9. Revenues that cannot be classified as general revenues are by default considered program revenues. 10. Taxes that are imposed on the reporting government s citizens are considered general revenues, even if they are restricted to specific programs. ch04 Page 1 MULTIPLE CHOICE (CHAPTER 4) 1. As used in governmental accounting, interperiod equity refers to a concept of a) providing the same level of services to citizens each year. b) measuring whether current year revenues are sufficient to pay for current year services. c) levying property taxes at the same rate each year. d) requiring that general fund budgets be balanced each year. 2. For fund financial statements, the measurement focus and basis of accounting used by governmental fund types are a) current financial resources and modified accrual accounting. b) economic resources and modified accrual accounting. c) financial resources and full accrual accounting. d) economic resources and full accrual accounting. 3. The modified accrual basis of accounting is used in presenting the fund financial statements of the governmental funds because a) it is the superior method of accounting for the economic resources of any entity. b) it provides information as to the extent the entity achieved interperiod equity. c) it is budget oriented while facilitating comparisons among entities. d) it results in accounting measurements based on the substance of transactions. 4. As used in defining the modified accrual basis of accounting, the term available means a) received in cash. b) will be received in cash within 60 days of year-end. c) collection in cash is reasonably assured. d) collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period. 5. Under the modified accrual basis of accounting, derived nonexchange revenues are recognized when a) they are earned. b) they are measurable and available to finance the expenditures of the current period. c) the underlying available to finance the expenditures of the current period.... View Full Document

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