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1 Chapter Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations TEST BANK TO ACCOMPANY ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL AND NOTFOR-PROFIT ORGANIZATIONS: TENTH EDITION PREPARED BY: MARY LORETTA MANKTELOW JAMES MADISON UNIVERSITY 1 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations True/False Questions 1. FASAB, GASB and FASB standards are set forth primarily in documents called interpretations. Register to View Answer2. FASAB, GASB and FASB standards are set forth primarily in documents called statements. Register to View Answer3. The FASAB was established to recommend accounting and financial reporting standards for governmental and commercial enterprises. Register to View Answer4. The GASB requires supplementary information to be reported with its financial statements if it is essential to establish appropriate context for the financial statements and notes. Register to View Answer5. The Governmental Accounting Standards Board sets financial reporting standards for all units of government: federal, state, and local. Register to View Answer6. Fund accounting exists primarily to provide assurance that resources are used according to legal or donor restrictions. Register to View Answer7. The Financial Accounting Standards Board sets financial reporting standards for private sector organizations, except nongovernmental, not-for-profit organizations. Register to View Answer8. The Financial Accounting Standards Board sets financial reporting standards for private not-for-profits and investor-owned businesses. Register to View Answer 2 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 9. The Federal Accounting Standards Advisory Board and the Governmental Accounting Standards Board are parallel bodies under the oversight of the Financial Accounting Foundation. Register to View Answer10. An organization is presumed to be governmental if it has the ability to issue directly debt that is exempt from federal taxes. Register to View Answer11. The Federal Accounting Standards Advisory Board requires less extensive reports than does the FASB or GASB. Register to View Answer12. The FASAB requires more financial statements than are typically required of state and local governments. Register to View Answer13. One objective of the Governmental Accounting Standards Board is to help users determine compliance with finance-related laws, rules, and regulations. Register to View Answer14. All Governments must have as many funds as necessary to fulfill legal requirements and sound financial administration but must have at a minimum a General Fund. Register to View Answer15. The Governmental Accounting Standards Board considers the financial reporting entity to include the primary government and its component units. Register to View Answer16. A Management's Discussion and Analysis is required for state and local governmental units, but not the federal government. Register to View Answer 3 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 17. The GASB Concept Statement on Service Efforts and Accomplishments Reporting encourages state and local governments to include inputs of nonmonetary resources in their financial reporting. Register to View Answer18. The GASB Concept Statement on Service Efforts and Accomplishments Reporting requires state and local governments to include inputs of nonmonetary resources in their financial reporting. Register to View Answer19. Although certain supplementary information may not be required, if presented, it must follow GASB guidance regarding its format and content. Register to View Answer20. The format and content of supplementary information which is not required by GASB is up to the discretion of the reporting entity Register to View Answer21. GASB and FASB Concept Statements establish accounting standards that must be complied with to receive an unqualified audit opinion. Register to View Answer22. FASAB, GASB and FASB standards are set forth primarily in documents called statements. Register to View Answer23. Fund-basis statements are presented for three categories of government activities: general, proprietary, and fiduciary. Register to View Answer24. State and local governments may use eleven different fund types. Register to View Answer 4 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 25. Common measurement focus and basis of measurement is an important feature of government-wide financial statements. Register to View Answer26. Governmental activities fund statements must be changed to the accrual basis from the modified accrual basis when preparing government-wide financial statements. Register to View Answer27. Governmental activities fund statements may use modified accrual basis when preparing government-wide financial statements. Register to View Answer28. All funds of a governmental unit use the current financial resources measurement focus and modified accrual basis of accounting Register to View Answer29. The government-wide statements and the fund statements for proprietary funds and fiduciary funds use the economic resources measurement focus and the accrual basis of accounting. Register to View Answer30. Under modified accrual accounting, revenues are recognized when measurable and available to finance expenditures of the current period. Register to View Answer31. General fixed assets of the government are reported both in the government-wide financial statements and the governmental fund financial statements. Register to View Answer32. Comparison of the legally approved budget with actual results of the General Fund is included as part of required supplementary information in the CAFR. Register to View Answer 5 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 33. Comparison of the legally approved budget with actual results of the General Fund is not part of required supplementary information in the CAFR. Register to View Answer34. Long-term debt that is to be paid with tax revenues is reported both in the governmentwide statements and in the governmental fund statements Register to View Answer35. Measurement focus refers to those items, such as current and long-term assets, that are being reported on the financial statements. Register to View Answer36. Infrastructure may or may not be capitalized by state and local governmental units. Register to View Answer37. Fiduciary funds include agency, pension trust, investment trust, and private-purpose trust. Register to View Answer38. The Financial Accounting Standards Board has authority to establish accounting and financial reporting standards for both private and state universities. Register to View Answer39. FASB sets the reporting standards for private and public not-for-for profits Register to View Answer40. Internal Service funds are treated as governmental activities in the government-wide statements if the only buyers are departments within the General Fund. Register to View Answer41. Permanent funds can be either a governmental fund or a fiduciary fund where only income on donated assets may be spent. Register to View Answer 6 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 42. Depreciation on capital assets is included as an expense in the Statement of Activities in the government-wide financial statements Register to View Answer43. Depreciation on capital assets is included as an expense in the Statement of Revenues, Expenses, and Changes in Fund Net Assets in the proprietary fund financial statements Register to View Answer44. Depreciation on capital assets is not included as an expense in the Statement of Revenues, Expenses, and Changes in Fund Net Assets in the proprietary fund financial statements Register to View Answer45. According to GASB standards relating to Budgetary Accounting, an annual budget should be adopted by every governmental unit. Register to View Answer46. According to GASB standards relating to Budgetary Accounting, budgetary comparisons should be included in the appropriate financial statements or schedules for governmental funds for which an annual budget has been adopted. Register to View Answer47. According to GASB standards relating to Budgetary Accounting, budgetary comparisons should not be included in the appropriate financial statements or schedules for governmental funds for which an annual budget has been adopted. Register to View Answer48. According to GASB standards relating to Budgetary Accounting, the accounting system should provide the basis for appropriate budgetary control. Register to View Answer49. According to GASB standards relating to Budgetary Accounting, the budget, when adopted according to procedures specified by state laws, is binding upon the administrators of a governmental unit. Register to View Answer 7 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 50. A fund represents part of the activities of an organization which is separated from other activities in the accounting records to more easily demonstrate compliance with legal restrictions or limitations. Register to View Answer51. The GASB recently published a white paper outlining prohibited transactions for not-forprofit organizations. Register to View Answer52. The GASB recently published a white paper which identifies five environmental differences between governments and for-profit enterprises. Register to View AnswerMultiple Choice Questions 53. The GASB sets accounting standards for all of the following except: A) State and local governments B) Libraries owned or controlled by governments C) Governmentally related not-for-profit universities D) Nongovernmental not-for-profit hospital Register to View Answer54. A government may have multiple funds for each of the following fund types except: A) Permanent B) General C) Special revenue D) Capital projects Register to View Answer55. Which of the following is a fiduciary fund? A) Internal service B) Permanent C) Enterprise D) Investment trust Register to View Answer 8 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 56. Which of the following is not a fiduciary fund? A) Agency B) Pension trust C) Enterprise D) Private-purpose trust Register to View Answer57. Which of the following is a governmental fund? A) Special revenue B) Enterprise C) Agency D) Internal service Register to View Answer58. Which of the following is not one of the objectives of Federal Financial Reporting, as outlined in SAFAC 1, which was issued by the FASAB? A) Financial reporting should enable evaluation of the service efforts, costs and accomplishments of the reporting entity. B) Financial reporting should enable evaluation of the success rate of programs C) Financial reporting should reveal whether financial systems and controls are adequate D) Financial reporting should demonstrate accountability regarding raising and expending money according to budgetary process and laws and regulations Register to View Answer59. The FASAB has the authority to establish accounting and financial reporting standards for: A) Federal government B) Investor owned business C) State and local governments D) Public not-for-profits Register to View Answer60. The FASB has the authority to establish accounting and financial reporting standards for: A) Federal government B) Private not-for-profits C) Public not-for-profits D) State and local governments Register to View Answer 9 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 61. The GASB has the authority to establish accounting and financial reporting standards for: A) Federal government B) Private not-for-profits C) State and local governments D) None of the above Register to View Answer62. In order for a fund to exist, there must be: A) A fiscal entity; assets set aside for a specific purpose B) A double-entry accounting entity C) Both A & B are required D) A & B are optional and not required Register to View Answer63. Which fund category must change from modified accrual to accrual basis when preparing government-wide financial statements? A) Governmental B) Proprietary C) Fiduciary D) B & C only Register to View Answer64. Which of the following use current financial resources measurement focus? A) Fiduciary fund statements B) Governmental fund statements C) Proprietary fund statements D) Enterprise fund statements Register to View Answer65. What is the minimum number of funds to be used by a governmental unit? A) One; the General Fund B) Two; the General Fund and one permanent fund C) As many as necessary to fulfill legal requirements and sound financial administration D) A & C Register to View Answer 10 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 66. Which of the following would not be included in FASB Statement of Financial Accounting Concepts #4, which identifies the information needs of the users of nonbusiness financial statements? A) Format and content of financial statements B) Assessing services provided by a non-business organization and its ability to continue to provide those services C) Assessing managements stewardship and performance D) Evaluation of an organizations resources, obligations and effects of changes in net resources Register to View Answer67. GASB standards contain all of the following in its three-part budgetary principle except: A) An annual budget should be adopted by every governmental unit. B) The accounting system should provide the basis for appropriate budgetary control. C) Budgetary comparisons should be included in the appropriate financial statement and schedules for governmental funds for which an annual budget has been adopted. D) None of the above; all would be included Register to View Answer68. The Governmental Accounting Standards Board has been given authority to establish accounting and financial reporting standards for: A) all governmental units and agencies. B) federal, state, and local governments. C) all governmental units and all not-for-profit organizations. D) state and local governmental entities, and governmentally-owned utilities, authorities, hospitals, and colleges and universities. Register to View Answer69. Which of the following characteristics would not define an organization as governmental? A) The power to enact and enforce a tax levy. B) The potential for unilateral dissolution by a government with the net assets reverting to a government. C) The receipt of grant money from a state or local government for the purpose of providing services to the public. D) All of the above. Register to View Answer 11 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 70. Which of the following characteristics would define an organization as governmental? A) The power to enact and enforce a tax levy. B) The potential for unilateral dissolution by a government with the net assets reverting to a government. C) The receipt of grant money from a state or local government for the purpose of providing services to the public. D) Both A and B Register to View Answer71. Level A GAAP for The University of Virginia, a public institution, would be established by the: A) Financial Accounting Standards Board. B) Governmental Accounting Standards Board. C) American Institute of Certified Public Accountants. D) National Association of College and University Business Officers. Register to View Answer72. Under the modified accrual basis of accounting, revenues should be recognized when they are: A) authorized by the budget ordinance. B) earned and measurable. C) measurable and available to finance expenditures of the current period. D) realized through collection. Register to View Answer73. Fiduciary funds are to use the: A) economic resources measurement focus and accrual basis of accounting. B) current financial resources measurement focus and accrual basis of accounting. C) economic resources measurement focus and modified accrual basis of accounting. D) none of the above, the fiduciary funds have no revenues. Answer A 74. Proprietary funds use the: A) economic resources measurement focus and modified accrual basis of accounting. B) current financial resources measurement focus and modified accrual basis of accounting C) economic resources measurement focus and accrual basis of accounting. D) current financial resources measurement focus and accrual basis of accounting. 12 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations Register to View Answer75. Governmental funds are to use the: A) economic resources measurement focus and accrual basis of accounting. B) current financial resources measurement focus and accrual basis of accounting. C) economic resources measurement focus and modified accrual basis of accounting. D) current financial resources measurement focus and modified accrual basis of accounting Register to View Answer76. Government-wide statements use the: A) current financial resources measurement focus and accrual basis of accounting. B) economic resources measurement focus and accrual basis of accounting. C) economic resources measurement focus and modified accrual basis of accounting. D) none of the above, the fiduciary funds have no revenues. Register to View Answer77. Governmental funds do not include: A) Special revenue funds B) Internal service funds C) Debt service funds D) The General fund Register to View Answer78. Governmental funds include: A) Special revenue funds B) Internal service funds C) Debt service funds D) A and C Register to View Answer79. The Hierarchy of GAAP is established by the: A) Financial Accounting Standards Board. B) Federal Accounting Standards Advisory Board C) Governmental Accounting Standards Board D) All of the above have established a hierarchy Register to View Answer 13 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 80. The term proprietary funds applies to: A) enterprise funds only. B) all funds that use accrual accounting. C) enterprise, internal service, and private-purpose trust funds. D) none of the above answers are correct. Register to View Answer81. The term proprietary funds applies to: A) enterprise and internal service funds. B) pension, investment trust and enterprise funds C) enterprise, internal service, and private-purpose trust funds. D) none of the above answers are correct. Register to View Answer82. Which of the following organizations has authority to establish accounting and financial reporting standards for the federal government? A) Federal Accounting Standards Advisory Board. B) Office of Management and Budget. C) Governmental Accounting Standards Board. D) None of the above; no one has been granted authority to set standards for the federal government Register to View Answer83. Which of the following is most correct with regard to Management's Discussion and Analysis (MD&A)? A) State and local governments are required to provide an MD&A. B) Federal agency financial reports are required to provide an MD&A. C) Both state and local governments and federal agencies are encouraged, but not required to provide an MD&A. D) Both state and local governments and federal agencies are required to provide an MD&A. Register to View Answer84. Which of the following is not true regarding GASB Concepts Statement No. 2, Service Efforts and Accomplishments Reporting: A) It encourages governments to experiment with reporting more complete information about an entity's performance than can be displayed in the traditional financial statements. 14 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations B) It outlines categories of information that might be reported. C) It prescribes detailed standards governing the reporting of service efforts and accomplishments reporting. D) None of the above, all are true. Register to View Answer85. GASB Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports that Contain Basic Financial Statements, states that A) notes to the financial statements may include managements objective explanations. B) required supplementary information must be objective and may not include predictions or subjective assessments. C) disclosure in the notes is not an adequate substitute for recognition in the financial statements. D) All of the above are correct. Register to View Answer86. Under GASB Statement 34, capital assets: A) must be reported in government-wide statements but are not reported in any of the fund financial statements. B) must be reported in government-wide statements and in proprietary fund financial statements. C) are not to be reported in either government-wide or fund financial statements. D) are to be reported but not depreciated in government-wide and fund financial statements. Register to View Answer87. Long-term debt of a governmental unit would be reported in the: A) government-wide financial statements and proprietary fund financial statements. B) government-wide financial statements only. C) debt service funds of governmental fund financial statements and governmentwide financial statements. D) notes to the financial statements only. Register to View Answer 15 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 88. In order for a fund to exist, there must be A) assets set aside for specific purposes. B) a separate revenue stream. C) a double-entry accounting entity. D) A and C are correct. Register to View Answer89. A city government collects local option sales taxes legally restricted to pay for the construction of a new courthouse. Which fund should account for the receipt of the sales taxes? A) Special revenue fund B) Capital projects fund C) Private-purpose trust fund D) General fund Register to View Answer90. A city government collects local option sales taxes legally restricted to pay for the hiring of teachers for hearing impaired school children. Which fund should account for the receipt of the sales taxes? A) Special revenue fund B) Capital projects fund C) Private-purpose trust fund D) General fund Register to View Answer91. A city government makes its semiannual payment of interest on revenue bonds issued to pay for the construction of additional subway stations. Which fund would account for the payment? A) Debt service fund B) Capital projects fund C) Enterprise fund D) Internal service fund Register to View Answer 16 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 92. A city government sells police cars no longer in use. No restrictions have been placed on the proceeds. Which fund should account for the receipt? A) Debt service fund B) Capital projects fund C) Enterprise fund D) General fund Register to View Answer93. Under GASB Statement 34, accrual accounting is used for: A) government-wide financial statements only. B) government-wide financial statements and proprietary fund financial statements only. C) government-wide, proprietary fund, and fiduciary fund financial statements only. D) government-wide and all fund financial statements Register to View Answer94. Under GASB Statement 34, modified accrual accounting would be found in the: A) government-wide financial statements only. B) fund governmental financial statements only. C) governmental and fiduciary fund financial statements only. D) governmental, proprietary, and fiduciary fund financial statements but not in the government-wide financial statements Register to View Answer95. Which of the following is not a fiduciary fund type? A) Agency. B) Expendable trust. C) Private-purpose trust. D) Investment trust. Register to View Answer96. Level "A" GAAP for Cook County Hospital, a public hospital, would be established by the: A) Governmental Accounting Standards Board. B) Financial Accounting Standards Board. C) Hospital Financial Management Association. D) American Institute of Certified Public Accountants. Register to View Answer 17 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 97. Which of the following is true regarding fund classifications? A) Governmental funds include the General, special revenue, debt service, capital projects, and permanent. B) Proprietary funds include enterprise, internal service, and private-purpose. C) Both of the above. D) None of the above. Register to View Answer98. Notre Dame University, a private institution, has level A GAAP established by the: A) American Institute of Certified Public Accountants. B) Governmental Accounting Standards Board. C) Financial Accounting Standards Board. D) National Association of College and University Business Officers Register to View Answer99. Long-term debt paid from proprietary funds is reported as a liability in A) the proprietary fund Statement of Net Assets. B) the government-wide Statement of Net Assets. C) both A and B. D) neither A nor B. Register to View Answer100.Which of the following are the governmental funds? A) General, special revenue, debt service, capital projects, permanent. B) General, special revenue, debt service, capital projects, private purpose. C) General, special revenue, debt service, capital projects, internal service. D) None of the above. Register to View Answer101. Which of the following is an objective of federal financial reporting? A) Budgetary Integrity B) Operating Performance C) Stewardship D) All of the above Register to View Answer 18 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 102. Which of the following funds is considered a Fiduciary Fund? A) Debt Service Fund B) Enterprise Fund C) Internal Service Fund D) Agency Fund Register to View Answer103. Which of the following are included in the GASB standards budgetary principle: A) Accounting systems should provide the basis for appropriate budgetary control. B) Annual budgets should be adopted by every governmental unit. C) Budgetary comparisons should be included in the appropriate financial statements. D) All of the above Register to View Answer104. Which of the following statement(s) are not included in the proprietary funds: A) Statement of Revenues, Expenses, and Changes in Net Assets B) Statement of Cash Flows C) Balance Sheet D) All of the above are included Register to View Answer105. Capitalized fixed assets are reported in which financial statement? A) Agency fund B) Proprietary fund C) Governmental fund D) All of the above Register to View Answer106. Which of the following fund types uses modified accrual accounting? A) Debt Service B) Internal Service C) Investment Trust D) Enterprise Register to View Answer 19 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 107. Which of the following fund types does not use modified accrual accounting? A) Debt Service B) Special Revenue C) Agency D) Permanent Register to View Answer108. A permanent fund classified under governmental funds A) Accounts for most of the basic services provided by the governmental unit. B) Accounts for financial resources intended for major capital projects C) Accounts for services provided by one department of a government to another D) Accounts for resources that are legally restricted so only earnings, not principal, may be expended, and for purposes to benefit the government and its citizenry. Register to View Answer109. Which of the following funds is not a Fiduciary Fund? A) Private Purpose Trust Fund B) Special Revenue Fund C) Pension Fund D) Investment Trust Fund Register to View Answer110. The _______ sets the accounting and financial reporting standards for both state and local governments and public not-for-profits. A) FASAB B) FASB C) GASB D) AICPA Register to View Answer111. The ___________ is the governments official annual report prepared and published as a matter of public record. A) comprehensive annual financial report B) governmental annual financial report C) independent auditors report D) complete audited financial report Register to View Answer 20 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 112. State and local governmental funds are organized into three categories including: A) governmental, proprietary, and restricted B) proprietary, fiduciary, and restricted C) governmental, fiduciary, and restricted D) governmental, proprietary, and fiduciary Register to View Answer113. The ______ Fund accounts for all resources other than those required to be accounted for in other funds. A) Special revenue B) General C) Enterprise D) Agency Register to View Answer114. The ______ Fund accounts for and reports the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purpose other than debt service or capital projects. A) Special revenue B) General C) Enterprise D) Agency Register to View Answer115. The ______ Funds are used when resources are provided primarily through the use of sales and service charges to parties external to the government. A) Special revenue B) General C) Enterprise D) Agency Register to View Answer 21 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 116. The ______ Funds are used to account for situations in which the government is acting as a collecting/disbursing agent. A) Special revenue B) General C) Enterprise D) Agency Register to View Answer117. What basis of accounting would the Enterprise Fund use? A) Accrual B) Modified Accrual C) Cash D) Expended Accrual Register to View Answer118. What are Enterprise funds used for? A) To account for pension and employee benefit funds for which the governmental unit is the trustee. B) To report resources that are legally restricted so only earnings, not principal, may be expended, and for purposes to benefit the government and its citizenry. C) To account for most of the basic services provided by the governmental units. D) To account for resources provided primarily through the use of sales and service charges to parties external to the government. Register to View Answer119. Which of the following is not an environmental difference between governments and for-profit business enterprises? A) Organizational purposes. B) Sources of revenue. C) Role of the budget. D) Donor restrictions Register to View Answer 22 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 120. Which of the following is an environmental difference between governments and forprofit business enterprises? A) Relationship with stakeholders B) Donor restricted assets C) Fiduciary responsibilities D) Private inurement of residual earnings Register to View Answer121. A government may have __________________ General Fund(s) in a given year? A) As many as needed B) Only one. C) The number will vary depending on the needs of the government. D) None of the above. Register to View Answer122. The Financial Accounting Standards Board (FASB) is the standard setting organization for which of the following reporting organizations? A) Private not-for-profits B) Public not-for-profits C) Investor owned businesses D) A and C are both correct. Register to View Answer123. The fund statements for governmental funds are presented using the A) Economic Resources Measurement focus and the Accrual Basis of Accounting B) Current Financial Resources Measurement focus and the Modified Accrual Basis of Accounting C) Current Financial Resources Measurement focus and the Accrual Basis of accounting D) Economic Resources Measurement focus and the Modified Accrual Basis of Accounting Register to View Answer 23 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 124. What type of fund is used when resources are provided mainly through business like transactions to parties external to the government? A) Internal Service Funds B) Capital Projects Funds C) Agency Funds D) Enterprise Funds Register to View Answer125. Why did governmental accounting practices develop with a focus on the sources and uses of expendable funds rather than on net income? A) The government wants to keep the earnings discrete B) Net income is solely for private organizations C) Tax and other non exchange revenues are not equivalent to sales D) Net income is solely for public organizations Register to View Answer126. Financial reports for state and local governments are used for all the following EXCEPT? A) Assess financial condition and results of operations B) Measuring the effectiveness of government services such as police and fire protection C) Compare actual results with the legally adopted budget D) Assist in determining compliance with finance-related laws and regulations Register to View Answer127. What is the significance of a budget to a government? A) Used primarily as a planning resource B) Budgets are not used by governments C) Budgets carry the full authority of the law D) None of the above Register to View Answer 24 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 128. Which of the following funds is used to account for the payment of principal and interest of general long term debt of a government? A) General Fund B) Debt Service Fund C) Agency Fund D) Capital Projects Fund Register to View Answer129. The GASB is under the oversight of: A) GAO. B) FASAB. C) FAF. D) FASB. Register to View Answer130. Which of the following is not of the information needs of users of non-business financial statements according to FASBs Statement of Financial Accounting Concepts No. 4? A) Providing information that is useful to recipients of services provided by the nonbusiness organizations. B) Providing information that is useful to present and potential resource providers in assessing the services that a non-business organization provides and its ability to continue to provide those services. C) Providing information that is useful to present and potential resource providers in assessing managements stewardship and performance D) Providing information that is useful to present and potential resource providers in evaluating an organizations economic resource, obligations and effects of changes in net resources Register to View Answer 25 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 131. Which of the following is not one of the information needs of users of non-business financial statements according to FASBs Statement of Financial Accounting Concepts No. 4? A) Providing information that is useful to present and potential resource providers in making decisions about the allocation of resources. B) Providing information that is useful to present and potential resource providers in assessing the services that a non-business organization provides and its ability to continue to provide those services. C) Providing information that is useful to present and potential resource providers in assessing managements stewardship and performance. D) Providing information that is useful to present and potential resource providers in evaluating an organizations service efforts and accomplishments. Register to View AnswerEssay Questions 132. What are the five environmental factors relating to how governments are different from commercial businesses as described by GASB in a white paper published entitled: Why Governmental Accounting and Financial Reporting Is and Should Be Different: Answer: The five environmental differences are: Organizational Purpose Governments exist for the well being of citizens by providing public services. Unlike businesses, profit is not an objective so a measure other than net income is needed. In addition, the stakeholders and the information they require are very different. Governments report information that is far more disaggregated than a commercial enterprise. Sources of Revenue Governments derive many of their resources from taxes. Individuals and businesses pay taxes because they are legally bound. Since there is no product or service being conveyed at the time of payment, it is difficult determine when to recognize revenue. Potential for Longevity Governments rarely go out of business they have an accounting focus with a long term view of operations and the sustainability of services and the ability of meet future demand. Relationship with Stakeholders Governments have an obligation to demonstrate accountability for public funds. Fund accounting is used by governments to provide assurance that resources are used according to legal or donor restrictions. Role of the Budget Budgets are expressions of public policy and often carry the authority of law. Public officials must stay within their budgets. Required budget vs. actual comparisons indicate the degree of compliance in this area. 26 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 133. Contrast revenue recognition under the accrual and modified accrual bases of accounting. Answer: Under modified accrual accounting, revenues should be recognized when measurable and available to finance expenditures of the current period. Under accrual accounting, revenues are recognized when earned and realizable. 134.Identify the accounting standard setting bodies for U.S. commercial, private not-forprofits, public not-for-profits, state and local governments, and the federal government. Answer: Commercial enterprises: The Financial Accounting Standards Board establishes accounting principles for all commercial enterprises in the U.S. Private Not-for-profits: The Financial Accounting Standards Board establishes accounting principles for all Private Not-for-Profits in the U.S. Public Not-for-profits: The Governmental Accounting Standards Board establishes accounting principles for all governmentally related not-for-profit organizations in the U.S. State and Local Governments: The Governmental Accounting Standards Board establishes accounting principles for all U.S. state and local governments. Federal government: The Federal Accounting Standards Advisory Board establishes accounting principles for the federal government and its agencies. 135.Contrast the economic resources measurement focus and the current financial resources measurement focus with regard to the accounting treatment of capital assets. Answer: Under the economic resources measurement focus, capital assets are capitalized and depreciated. Under the current financial resources measurement focus, capital assets are not capitalized or depreciated, but are charged to expenditures when received. 136. Identify the three basic fund categories, the funds that make up each of them, and the categorys basis of accounting. Answer: 1. 2. Governmental Funds include permanent, debt service, capital project, special revenue, and general. The basis of accounting is modified accrual. Proprietary Funds include internal service and enterprise. The basis of 27 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations 3. accounting is accrual. Fiduciary Funds include private purpose trust, investment trust, pension trust, and agency. The basis of accounting is accrual. 137.Contrast the economic resources measurement focus and the current financial resources measurement focus with regard to the accounting treatment of long-term debt. Answer: Under the economic resources measurement focus, long-term debt is recorded as a liability and payments for principal are treated as a reduction in the liability. Since long-term liabilities do not require current financial resources to settle, they are not recorded under the current financial resources measurement focus. Payments of principal are charged to expenditures. 138. Which organizations have established a hierarchy of GAAP for financial statements preparers? List one category A and one category B item for each organization. Answer: FASAB Statement 162, GASB Statement 55, FASAB (exposure draft) Category A FASAB: FASB Statements & Interpretations FASB Staff Positions AICPA Accounting Research Bulletins and Accounting Principles Board Opinions not superseded by the FASB GASB Statements and interpretations FASAB Statements and interpretations AIACPA and FASB pronouncements specifically made applicable to federal governmental entities by FASAB statements and interpretations FASB Technical Bulletins AICPA Industry Audit and Accounting Guides and Statements Position if cleared by the FASB GASB Technical Bulleting AICPA Industry Audit and Accounting Guides and Statements Position if cleared by the GASB FASAB Technical Bulletins GASB: FASAB: Category B FASAB: GASB: FASAB: 28 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations AICPA Industry Audit and Accounting Guides and Statements Position if specifically made applicable to federal governmental entities by the AICPA and cleared by the FASAB 139. Name three of the six Statements of Federal Financial Accounting concepts (SFFACs) issued by the FASAB: Answer: SFFAC #1 SFFAC #2 SFFAC #3 SFFAC #4 SFFAC #5 SFFAC #6 Objectives of financial reporting Entities and Display Managements Discussion and Analysis Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements Distinguishing Basic Information, Required Supplementary Information and Other Accompanying Information 140. What are the four objectives that should be followed with respect to federal financial reporting according to SFFAC #1 as issued by the FASAB? Answer: Budgetary integrity Financial reporting should demonstrate accountability with regard to raising and expending money in accord with the budgetary process, laws and regulations. Operating performance Financial reporting should enable evaluation of service efforts, costs and accomplishments. Stewardship Financial reporting should enable assessment of the impact on the nation of government operations and investments Systems and controls Financial reporting should reveal whether financial systems and controls are adequate 141. In its Statement of Financial Accounting Concepts #4, the FASB identifies the information needs of the users of non-business financial statements. These include providing information that is useful to present and potential resource providers in which four evaluation areas? Register to View AnswerMaking decisions about the allocation of resources 29 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations B) Assessing services provided by a non-business organization and its ability to continue to provide those services C) Assessing managements stewardship and performance D) Evaluation of an organizations resources, obligations and effects of changes in net resources 142. Provide the definition of the following terms as outlined by GASB Concepts Statement No. 4, Elements of Financial Statements: Assets Liabilities Net position Inflows of resources Outflows of resources Answer: Assets: Resources with present service capacity that the government presently controls. Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoid Net position: The residual of all other elements presented in a statement of financial position Inflows of resources: Acquisitions of net assets by the government that are applicable to the reporting period Outflows of resources: Consumption of net assets by the government that are applicable to the reporting period 143. What are the fund-basis financial statements for each of the following fund categories? Fiduciary Proprietary Governmental Answer: Fiduciary: Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Proprietary: Statement of Net Assets Statement of Revenue, Expenses, and Changes in Net Assets Statement of Cash flows 30 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations Governmental: Balance sheet Statement of Revenues, Expenditures and Changes in Fund Balance 144. List and define the five classifications of governmental funds. Answer: 1. General Fund This fund accounts for most of the basic services provided by the government. It accounts for and reports all financial resources not accounted for and reported in another fund. 2. Capital Projects Fund This fund accounts for and reports financial resources that are committed or assigned to expenditure for capital outlays. It accounts for the purchase or construction of major capital improvements except those purchased or constructed by a proprietary or fiduciary fund 3. Debt Service Fund This fund accounts for and reports financial resources that are restricted, committed or assigned to expenditure for specified purposes other than debt service or capital projects. Included in this category are activities funded by federal or state grants or by taxes specifically restricted to certain activities. 4. Permanent Fund This fund accounts for and reports resources that are restricted to the extent that only earnings, and not principal, may be sued for purposes that support the reporting of government programs. 5. Special Revenue Fund This fund accounts for and reports the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purpose other than debt service or capital projects. 145. What are the definitions of the following elements as outlined by GASB Concepts Statement No. 4, Elements of Financial Statements? Assets Liabilities Net Position Inflows of resources Outflows of resources 31 Chapter 1 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Organizations Answer: Assets: Resources with present service capacity that the government presently controls. Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoid. Net Position: The residual of all other elements presented in a statement of financial position. Inflows of resources: Acquisitions of net assets by the government that are applicable to the reporting period. Outflows of resources: Consumption of net assets by the government that are applicable to the reporting period. 32 ... View Full Document

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