Select the BEST answer to each question from those given. Each Problem is worth 4 points. 1. What is the objective of financial reporting by state and local governments? A) The same as the objectives of financial reporting by business enterprises. B) To report on the legal requirements imposed on the government by its elected officials. C) To assist governments to discharge their duty to be publicly accountable in a democratic society. D. To fulfill the government's statutory duty to report on cash received and cash disbursed. C 2. Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the governmental financial reporting entity? A) The primary government does not approve the operating budget of the potential component unit. B) Officials of the primary government appoint a majority of the members of the governing board of the PCU. C) The PCU has sufficient operational and financial dependence that the primary government can impose its will on the PCU. D. Both B and C occurring together indicate that the PCU should be included in the reporting entity. D 3. Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)? A) Management's discussion and analysis (MD&A). B) Management's letter of transmittal. C) Independent auditor's report. D. Required supplementary information (RSI). B 4. Which of the following would increase the balance in net assets—invested in capital assets, net of related debt? A) Acquisition of a building to be used by the police department. B) Issuance of long-term debt to be used to acquire equipment for the police department. C) A gift of land to the city restricted by the donor to be used as a park. D) None of the above. Page 1 of 9
A 5. The term that is defined as determining whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided is A) Financial position. B) Financial condition. C) Interperiod equity. D) None of these terms. C 6. Which of the following ratios would be most helpful in assessing the liquidity of a governmental entity? A) Net tax-supported long-term debt/population. B) Own source revenues/total revenues. C) Debt service expenditures/total expenditures. D) Unreserved fund balance/operating revenues. D 7. A recognizable signal of fiscal stress is A) Total revenues from own sources increasing as a percent of total revenues for all sources. B) Increasing population. C) Declining property values. D) An increasing ratio of total revenues to total expenditures. C 8. A measure of the adequacy of the amount of the government's total unrestricted net assets or deficit at the measurement date is A) Unrestricted net assets/total revenues. B) Business-type activities revenues/business-type activities expenses.
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