CGFM EXAM 2 2026 EXAMPREP STUDY
GUIDE COMPLETE QUESTIONS AND
SOLUTIONS
⫸ I 2.In financial reporting, consistency of communication means
Answer: Correct Answer: if accounting principles have changed or if the
financial reporting entity has changed, the nature and reason for the
change, as well as the effect of the change, should be disclosed.
⫸ I 3.Budgeting is an element of which policy? Answer: Correct
Answer: fiscal
⫸ I 4.Another term for the federal government baseline budget is
Answer: Correct Answer: a current level of service budget.
⫸ I 5.As described by FASAB, the four groups of people to whom the
government is accountable and are, therefore, potential users of federal
financial statements are Answer: Correct Answer: citizens, Congress,
executives, and program managers.
⫸ I 6.When establishing an allowance for doubtful accounts, the journal
entry required is a debit to Answer: Correct Answer: Bad Debts Expense
and a credit to the Allowance for Doubtful Accounts.
⫸ I 7.Street resurfacing is a type of which budget element? Answer:
Correct Answer: program
,⫸ I 8.Which of the following is a correct accounting entry when one
government agency receives a grant from another government agency?
Answer: Correct Answer: The grantor agency recognizes liability and
the recipient agency recognizes non-exchange revenue when the
recipient agency meets all eligibility requirements.
⫸ I 9.Which of the following sources of accounting principles is at the
top of the GASB hierarchy? Answer: Correct Answer: Generally
Accepted Accounting Principles
⫸ I 10.The role of the International Public Sector Accounting Standards
Board is to Answer: Correct Answer: set standards for the general
purpose financial statements of international public sector entities.
⫸ I 11.A state needs to determine its indirect cost rate for fringe benefits
as a function of direct salaries costs of $3 million. Based on the
information shown on the left, the indirect cost is Answer: Correct
Answer: 10.8%
⫸ I 12.Non-exchange revenue includes inflows of resources arising
from Answer: Correct Answer: taxes, fines and penalties from the
private sector.
⫸ I 13.A group of activities within a function are known as Answer:
Correct Answer: a program.
,⫸ I 14.In financing capital projects, special assessments are used to
ensure that Answer: Correct Answer: the individuals benefiting from the
project are the ones who pay for it.
⫸ I 15.The organizations that establish the standards used by their
constituents for external reporting purposes include FASB, FASAB,
GASB and Answer: Correct Answer: International Public Sector
Accounting Standards Board.
⫸ I 16.Which of the following terms describes costs an agency incurs
on behalf of another agency? Answer: Correct Answer: inter-entity
⫸ I 17.State and local governments need cost information to receive
reimbursements for allowable costs for federal grants, while federal
agencies are required to have cost accounting concepts in the preparation
of what type of statements? Answer: Correct Answer: financial
statements
⫸ I 18.State and local governments use encumbrances as the major
budgetary control tool to ensure availability of funds prior to entering
agreements, while the federal government instills budgetary control
using Answer: Correct Answer: commitments and obligations.
⫸ I 19.The equipment department of a municipality rents out equipment
to other departments and wants to set a fee that will recover expenses.
The department estimates 10,000 rentals per year, with the annual
operating costs shown on the left. The department has $5,000 in annual
interest payments and $15,000 in annual debt service payments for the
, loan they took out to purchase the equipment. The annual depreciation
on the equipment is $7,500. Based on this information, the user fee
should be set at Answer: Correct Answer: $91.25 per rental.
⫸ I 20.Apportionments and allotments are used by agencies to ensure
Answer: Correct Answer: that outlays do not exceed appropriations.
⫸ I 21.Departments and agencies submit their apportionment requests
for future expenditures during which budget phase? Answer: Correct
Answer: execution
⫸ I 22.Which element of the budget structure is represented by license
and permit revenue? Answer: Correct Answer: category or source
⫸ I 23.Agencies generally submit their budget requests during the
Answer: Correct Answer: budget preparation phase.
⫸ I 24.In United States governments, what is the cornerstone of
financial reporting? Answer: Correct Answer: accountability
⫸ I 25.Unlike governments, businesses establish priorities for the
services and products they provide, based on the concept that Answer:
Correct Answer: shareholders provide financing and expect the business
goals and objectives to be profit-driven.
GUIDE COMPLETE QUESTIONS AND
SOLUTIONS
⫸ I 2.In financial reporting, consistency of communication means
Answer: Correct Answer: if accounting principles have changed or if the
financial reporting entity has changed, the nature and reason for the
change, as well as the effect of the change, should be disclosed.
⫸ I 3.Budgeting is an element of which policy? Answer: Correct
Answer: fiscal
⫸ I 4.Another term for the federal government baseline budget is
Answer: Correct Answer: a current level of service budget.
⫸ I 5.As described by FASAB, the four groups of people to whom the
government is accountable and are, therefore, potential users of federal
financial statements are Answer: Correct Answer: citizens, Congress,
executives, and program managers.
⫸ I 6.When establishing an allowance for doubtful accounts, the journal
entry required is a debit to Answer: Correct Answer: Bad Debts Expense
and a credit to the Allowance for Doubtful Accounts.
⫸ I 7.Street resurfacing is a type of which budget element? Answer:
Correct Answer: program
,⫸ I 8.Which of the following is a correct accounting entry when one
government agency receives a grant from another government agency?
Answer: Correct Answer: The grantor agency recognizes liability and
the recipient agency recognizes non-exchange revenue when the
recipient agency meets all eligibility requirements.
⫸ I 9.Which of the following sources of accounting principles is at the
top of the GASB hierarchy? Answer: Correct Answer: Generally
Accepted Accounting Principles
⫸ I 10.The role of the International Public Sector Accounting Standards
Board is to Answer: Correct Answer: set standards for the general
purpose financial statements of international public sector entities.
⫸ I 11.A state needs to determine its indirect cost rate for fringe benefits
as a function of direct salaries costs of $3 million. Based on the
information shown on the left, the indirect cost is Answer: Correct
Answer: 10.8%
⫸ I 12.Non-exchange revenue includes inflows of resources arising
from Answer: Correct Answer: taxes, fines and penalties from the
private sector.
⫸ I 13.A group of activities within a function are known as Answer:
Correct Answer: a program.
,⫸ I 14.In financing capital projects, special assessments are used to
ensure that Answer: Correct Answer: the individuals benefiting from the
project are the ones who pay for it.
⫸ I 15.The organizations that establish the standards used by their
constituents for external reporting purposes include FASB, FASAB,
GASB and Answer: Correct Answer: International Public Sector
Accounting Standards Board.
⫸ I 16.Which of the following terms describes costs an agency incurs
on behalf of another agency? Answer: Correct Answer: inter-entity
⫸ I 17.State and local governments need cost information to receive
reimbursements for allowable costs for federal grants, while federal
agencies are required to have cost accounting concepts in the preparation
of what type of statements? Answer: Correct Answer: financial
statements
⫸ I 18.State and local governments use encumbrances as the major
budgetary control tool to ensure availability of funds prior to entering
agreements, while the federal government instills budgetary control
using Answer: Correct Answer: commitments and obligations.
⫸ I 19.The equipment department of a municipality rents out equipment
to other departments and wants to set a fee that will recover expenses.
The department estimates 10,000 rentals per year, with the annual
operating costs shown on the left. The department has $5,000 in annual
interest payments and $15,000 in annual debt service payments for the
, loan they took out to purchase the equipment. The annual depreciation
on the equipment is $7,500. Based on this information, the user fee
should be set at Answer: Correct Answer: $91.25 per rental.
⫸ I 20.Apportionments and allotments are used by agencies to ensure
Answer: Correct Answer: that outlays do not exceed appropriations.
⫸ I 21.Departments and agencies submit their apportionment requests
for future expenditures during which budget phase? Answer: Correct
Answer: execution
⫸ I 22.Which element of the budget structure is represented by license
and permit revenue? Answer: Correct Answer: category or source
⫸ I 23.Agencies generally submit their budget requests during the
Answer: Correct Answer: budget preparation phase.
⫸ I 24.In United States governments, what is the cornerstone of
financial reporting? Answer: Correct Answer: accountability
⫸ I 25.Unlike governments, businesses establish priorities for the
services and products they provide, based on the concept that Answer:
Correct Answer: shareholders provide financing and expect the business
goals and objectives to be profit-driven.
