2009 F-9 Class Questions Preview

2009 F-9 Class Questions Preview - Financial Accounting...

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Unformatted text preview: Financial Accounting & Reporting 9 Class Questions 1. CPA-00975 The statement of activities of the government-wide financial statements is designed primarily to provide information to assess which of the following? a. b. c. d. Operational accountability. Financial accountability. Fiscal accountability. Functional accountability. Explanation CPA-00975 Rule: The focus of government-wide financial statements is the government's responsibility to report the extent to which they have met their operating objectives efficiently and effectively, using all resources available for that purpose, and the extent to which they can continue to meet their objectives for the future. Choice "a" is correct. Government-wide financial statements focus on operational accountability per above rule. Choice "b" is incorrect. Although all financial statements serve to demonstrate financial accountability is some way, the government-wide financial statements most specifically focus on operational accountability. Choice "c" is incorrect. Fund financial statements focus on fiscal accountability. Fund financial statement accountability objectives complement government-wide financial statement accountability objectives. Choice "d" is incorrect. Functional accountability is a distracter. 2. CPA-00995 Which of the following statements about the statistical section of the Comprehensive Annual Financial Report (CAFR) of a governmental unit is true? a. b. c. d. Statistical tables may not cover more than two fiscal years. Statistical tables may not include non-accounting information. The statistical section is not part of the basic financial statements. The statistical section is an integral part of the basic financial statements. Explanation CPA-00995 Choice "c" is correct. A comprehensive annual financial report is divided into three sections: an introductory section, the basic financial statements and the statistical section. The statistical section, definition is not part of the basic financial statements. Choice "a" is incorrect. Statistical tables generally provide ten years of historical financial information. There is no limitation with regard to presenting two years or less of data. Choice "b" is incorrect. Statistical tables include a variety of accounting and non-accounting data including property values, tax rates on overlapping governments, demographic statistics, etc. Choice "d" is incorrect. The statistical tables are not viewed as an integral part of the basic financial statements. 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 3. CPA-01141 South City School District has a separately elected governing body that administers the public school system. The district's budget is subject to the approval of the city council. The district's financial activity should be reported in the City's financial statements by: a. b. c. d. Blending only. Discrete presentation. Inclusion as a footnote only. Either blending or inclusion as a footnote. Explanation CPA-01141 Choice "b" is correct. South City School District meets the test of component unit of the City: It is financially accountable to the City. Thus, its financial data needs to be reported with the City's financial data. However, since the school district is not substantively the same as the City because it is a legally separate entity, and since the school district does not exclusively service or benefit the City itself, the financial data should be reported using the discrete presentation method. Choice "a" is incorrect. Since South City School District meets the test of component unit, its financial data needs to be reported with the City's financial data. The financial data would not be blended since the school district does not meet the tests for blending-the school district is not substantively the same as the City and the school district does not exclusively service or benefit the City itself. Choice "c" is incorrect. South City School District meets the test of component unit of the City: It is financially accountable to the City. Thus, its financial data needs to be reported with the City's financial data. However, since the school district is not substantively the same as the City and since the school district does not exclusively service or benefit the City itself, the financial data should be reported using the discrete presentation method. The discrete presentation is either in condensed financial statements with the notes to the reporting entity's financial statements, or in combining statements in its general purpose financial statement. In this response, the word only made this response incorrect. Choice "d" is incorrect. Since South City School District meets the test of component unit, its financial data needs to be reported with the City's financial data. The financial data would not be blended since the school district does not meet the tests for blending-the school district is not substantively the same as the City and the school district does not exclusively service or benefit the City itself. 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 4. CPA-01044 A municipality preparing its basic financial statements and required supplementary information in accordance with GASB #34 would introduce the basic financial statements and provide analytical overview of the government's financial statements in: a. A section titled Management's Discussion and Analysis only in the event that the basic financial statements are issued in connection with a public bond offering. b. A section titled Management's Discussion and Analysis included as part of the city's required supplementary information following the financial statements. c. A section titled Management's Discussion and Analysis included as part of the city's optional supplementary information immediately following the notes to the financial statements but before the required supplementary information. d. A section titled Management's Discussion and Analysis included as part of the city's required supplementary information before the basic financial statements. CPA-01044 Explanation Choice "d" is correct. Management's Discussion and Analysis is a required component of the required supplementary information preceding the basic financial statements for general-purpose governments. Choice "a" is incorrect. Preparation of Management's Discussion and Analysis is not limited to instances in which a government issues publicly offered debt. Choice "b" is incorrect. Management's Discussion and Analysis is considered to be required supplementary information but is placed before the basic financial statements. Choice "c" is incorrect. Management's Discussion and Analysis is not optional, it is mandatory. 5. CPA-01171 The portion of special assessment debt maturing in 5 years, to be repaid from general resources of the government, should be reported in the: a. b. c. d. General fund. Government-wide statement of net assets. Agency fund. Capital projects fund. Explanation CPA-01171 Choice "b" is correct. When special assessment debt is to be repaid from general resources of the government, the debt should be recorded as general long-term liabilities in the governmental activities column of the government-wide statement of net assets as is any debt that is to be repaid from general resources. Choice "a" is incorrect. Since the measurement focus of governmental funds is the flow of financial resources, the general fund does not report long-term debt. Choice "c" is incorrect. The agency fund reports special assessment debt that will be repaid by collections from third parties, not by general resources of the government. Choice "d" is incorrect. The capital projects fund accounts for resources used in the acquisition and construction of major fixed assets. 3 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 6. CPA-00960 Tree City reported a $1,500 net increase in fund balance for governmental funds. During the year, Tree purchased general capital assets of $9,000 and recorded depreciation expense of $3,000. What amount should Tree report as the change in net assets for governmental activities? a. b. c. d. ($4,500) $1,500 $7,500 $10,500 Explanation CPA-00960 Choice "c" is correct. The reconciliation of the change in fund balances in governmental fund financial statements to the change in net assets for governmental activities in the government-wide financials is computed using the GOES BARE mnemonic. The fact pattern only describes measurement focus (GOES) issues computed as follows: G O E S Change in Governmental Fund Balance Capital Outlay (net of depreciation) Expenditured Principal Payments on Debt - Proceeds from New Debt Internal Service Fund Net Income Change in Net Assets in government-wide financial statements $1,500 9,000 (3,000) 0 0 $7,500 Choice "a" is incorrect. Capital outlay is added back to the change in fund balance and depreciation is subtracted as per above. Choice "b" is incorrect. The change in fund balance is not equal to the change in net assets after consideration of the reconciling items described above. Choice "d" is incorrect. The change in fund balance reconciles to the change in net assets as a result of not only adding back the capital outlay expenditure but also from subtraction of the depreciation expense not included in governmental fund financial statements. 4 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 7. CPA-00989 Dogwood City's water enterprise fund received interest of $10,000 on long-term investments. How should this amount be reported on the Statement of Cash Flows? a. b. c. d. Operating activities. Non-capital financing activities. Capital and related financing activities. Investing activities. Explanation CPA-00989 Choice "d" is correct. Cash receipts associated with interest income are reported as investing activities for purposes of enterprise fund Statement of Cash Flow reporting. Choice "a" is incorrect. Although cash receipts associated with interest income are frequently classified as operating activities for purposes of commercial Statement of Cash Flow reporting, enterprise funds report these cash inflows as investing activities. Choice "b" is incorrect. Non-capital financing activities anticipate the cash flows associated with borrowing and lending related to sustaining operations. Choice "c" is incorrect. Capital financing activities anticipate the cash flows associated with borrowing and lending related to long-lived assets. 8. CPA-00980 According to GASB 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, certain budgetary schedules are required supplementary information. What is the minimum budgetary information required to be reported in those schedules? a. A schedule of unfavorable variances at the functional level. b. A schedule showing the final appropriations budget and actual expenditures on a budgetary basis. c. A schedule showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis. d. A schedule showing the proposed budget, the approved budget, the final amended budget, actual inflows and outflows on a budgetary basis, and variances between budget and actual. CPA-00980 Explanation Rule: Budgetary comparison schedules should be prepared for the general fund and each major special revenue fund, which requires a budget and display the original budget, final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis. Choice "c" is correct. The minimum budgetary information presented in governmental financial statements, typically as required supplementary information, would include the schedule described in the rule above. Choice "a" is incorrect. Presentations of variances are optional. Choice "b" is incorrect. Budgetary presentation must display original as well as final amended budgets in comparison to each other as well as actual results displayed on a budgetary basis. Choice "d" is incorrect. Budgetary presentations need not include originally proposed budgets, only the originally approved budgets along with other items as described in the rule. In addition, variance presentations are optional. 5 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 9. CPA-01222 Pharm, a non-governmental not-for-profit organization, is preparing its year-end financial statements. Which of the following statements is required? a. b. c. d. Statement of changes in financial position. Statement of cash flows. Statement of changes in fund balance. Statement of revenue, expenses and changes in fund balance. Explanation CPA-01222 • • • Rule: Not-for-profit corporations are required to produce the following financial statements: Statement of Financial Position Statement of Activities Statement of Cash Flows Not-for-profit corporations are generally encouraged, but not required, to produce a Statement of Functional Expenses. Voluntary Health and Welfare organizations, a subset of all not-for-profit entities, are required to present a Statement of Functional Expenses. Choice "b" is correct. Not-for-profit organizations are required to present a statement of cash flows along with other financial statements, as described in the rule above. Choice "a" is incorrect. The Statement of Changes in Financial Position is no longer used by not-for-profit corporations. Choice "c" is incorrect. Not-for-profits do not account of fund balances in financial statements issued for external use and therefore do not produce a Statement of Changes in Fund Balance. Choice "d" is incorrect. Not-for-profits do not account of fund balances in financial statements issued for external use and therefore do not produce a Statement of Revenues, Expenses and Changes in Fund Balance. 6 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 10. CPA-01220 Stanton College, a not-for-profit organization, received a building with no donor stipulations as to its use. Stanton does not have an accounting policy implying a time restriction on donated assets. What type of net assets should be increased when the building was received? I. Unrestricted. II. Temporarily restricted. III. Permanently restricted. a. b. c. d. I only. II only. III only. II or III. Explanation CPA-01220 Choice "a" is correct. Assets received by a not-for-profit organization that are not restricted either permanently or temporarily as regards to purpose, time or acquisition are classified as unrestricted. Long-lived assets would be recognized as unrestricted unless there was an accounting policy relative to time restrictions. Accounting policies implying time restrictions would result in classification of the asset as temporarily restricted and releasing the asset from restriction as it depreciates. Choice "b" is incorrect. Classification of assets as temporarily restricted account for donor imposed restrictions that can be satisfied as to purpose, timing or asset acquisition requirements. Absent these requirements or an accounting policy implying a time restriction, the contribution of assets is classified as unrestricted. Choice "c" is incorrect. Classification of assets as permanently restricted account for permanent donor imposed restrictions that can never be satisfied. Typically a corpus or principal is donated and permanently restricted and the income from the asset is either temporarily restricted or is unrestricted. The building received by Stanton College is not subject to any such restriction. Choice "d" is incorrect. Classification of a contribution as temporary OR permanent is usually impossible and, in any case, is inappropriate in this case. 11. CPA-01255 The Jackson Foundation, a not-for-profit organization, received contributions in 1996 as follows: − Unrestricted cash contributions of $500,000. − Cash contributions of $200,000 to be restricted to acquisition of property. Jackson's statement of cash flows should include which of the following amounts? Operating activities $700,000 $500,000 $500,000 $0 Investing activities $0 $200,000 $0 $500,000 Explanation Financing activities $0 $0 $200,000 $200,000 a. b. c. d. CPA-01255 Choice "c" is correct. The unrestricted cash contributions totaling $500,000 are reported as increases in operating activities in the statement of cash flows. The $200,000 restricted cash contributions are reported as increases in financing activities since the restriction is the acquisition of property, not general operations. 7 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 12. CPA-01212 State University received two contributions during the year that must be used to provide scholarships. Contribution A for $10,000 was collected during the year, and $8,000 was spent on scholarships. Contribution B is a pledge for $30,000 to be received next fiscal year. What amount of contribution revenue should the university report in its statement of activities? a. b. c. d. $8,000 $10,000 $38,000 $40,000 Explanation CPA-01212 Rule: Cash contributions and unconditional pledges are recognized as contribution revenue in the year in which the cash or pledge is received. Choice "d" is correct. State University would account for cash contributions and pledged contributions as contribution revenue in the year the collection or pledge was made. Note that the question asks for "contribution" revenue without reference to classification. Contribution A Contribution B Total Total $10,000 30,000 $40,000 Choice "a" is incorrect. The $8,000 in contributions represents only the extent to which money has been expended in accordance with restrictions. Choice "b" is incorrect. The $10,000 in contributions excludes the pledge receivable of $30,000. Choice "c" is incorrect. The combination of expended contributions and the uncollected pledges is incorrect. 8 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 13. CPA-01225 During 1997, Jones Foundation received the following support: A cash contribution of $875,000 to be used at the board of directors' discretion; A promise to contribute $500,000 in 1998 from a supporter who has made similar contributions in prior periods; Contributed legal services with a value of $100,000, which Jones would have otherwise purchased. At what amounts would Jones classify and record these transactions? Unrestricted revenue a. $1,375,000 b. $875,000 c. $975,000 d. $975,000 CPA-01225 Temporarily restricted revenue $0 $500,000 $0 $500,000 Explanation Choice "d" is correct. Board discretionary funds are unrestricted. Contributed services are unrestricted. To be restricted, the donation must be restricted by the donors, creditors, grantors or laws or regulations. A promise to contribute is restricted until conditions (collection) or eligibility requirements (date, etc.) have been satisfied. Classification of revenues is computed as follows: Unrestricted 875,000 − 100,000 975,000 Temporary Restricted − 500,000 − 500,000 Cash Contribution Promise to Contribute Donated Services 14. CPA-01229 At the beginning of the year, the Baker Fund, a non-governmental not-for-profit corporation, received a $125,000 contribution restricted to youth activity programs. During the year, youth activities generated revenues of $89,000 and had program expenses of $95,000. What amount should Baker report as net assets released from restrictions for the current year? a. b. c. d. $0 $6,000 $95,000 $125,000 Explanation CPA-01229 Choice "c" is correct. Restricted donations are released from restriction when conditions or eligibility requirements have been satisfied. The Baker Fund has complied and satisfied the restriction on $95,000, by spending the money on program expenses. 9 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Accounting & Reporting 9 Class Questions 15. CPA-01257 In its fiscal year ended June 30, 1995, Barr College, a large private institution, received $100,000 designated by the donor for scholarships for superior students. On July 26, 1995, Barr selected the students and awarded the scholarships. How should the July 26 transaction be reported in Barr's statement of activities for the year ended June 30, 1996? a. b. c. d. As both an increase and a decrease of $100,000 in unrestricted net assets. As a decrease only in unrestricted net assets. By footnote disclosure only. Not reported. Explanation CPA-01257 Choice "a" is correct. The tuition fees from students should be recognized as revenue (an increase in unrestricted net assets), while scholarships to the students are considered expenses, or a reduction in unrestricted net assets. The exchange transaction of providing credit hours for tuition is usually recognized at gross revenue, with reductions in tuition being recognized as expenses. 16. CPA-01287 In April 1995, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of $5,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta. Delta should record this donation of medicines as: a. b. c. d. A memorandum entry only. A $5,000 credit to non-operating expenses. A $5,000 credit to operating expenses. Other operating revenue. Explanation CPA-01287 Choice "d" is correct. Donations of medicines are included as other operating revenue at the fair value of the medicine, since the medicine constitutes part of the ongoing major operation of the hospital. 10 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. ...
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This note was uploaded on 02/19/2011 for the course BMGT 360 taught by Professor Spina during the Spring '07 term at Maryland.

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