ACCOUNTING FOR GOVERNMENTAL AND
NONPROFIT ENTITIES COMPREHENSIVE
EXAM SCRIPT VERIFIED QUESTIONS AND
SOLUTIONS GRADED APLUS
●● Q1-2: Identify the various types of entities that constitute
governmental organizations, and characteristics of other organizations
that, when created by governments, are also considered to governmental
entities.
Answer: Governmental entities include: the federal government;
general-purpose political subdivisions (such as states, counties, cities,
and towns); special-purpose political subdivisions (such as school
districts); and public corporations and bodies corporate and politic (such
as state-operated toll roads and toll bridges).
Other organizations created by governments by statute or under not-for-
profit corporation laws are governmental if they possess one or more of
the following characteristics:
(A) Their officers are popularly elected or a controlling majority of their
governing body is appointed or approved by governmental officials.
(B) They have the power to enact and enforce a tax levy.
(C) They have the power to directly issue debt whose interest is exempt
from federal tax.
,(D) There is a potential for a government to dissolve them unilaterally
and assume their assets and liabilities.
●● Q1-3: Identify and briefly explain three (there are four) major
environmental characteristics of governmental and nonprofit
organizations.
Answer: Major environmental characteristics of governmental and not-
for-profit organizations are:
(1) Organizational purposes- Governmental and not-for-profit entities
exist to provide services to their constituents, not to generate profits.
There is a major focus on accountability to ensure resources are used
properly.
(2) Sources of revenue and relationship with stakeholders- Governments
derive revenues primarily from taxpayers. Individual taxpayers are
involuntary resource providers whose tax payments may or may not bear
a direct relationship to the services they want or need. Not-for-profit
entities obtain significant resources from donors who receive no service
or product in exchange, but who nonetheless are concerned with whether
their donations are achieving the intended purposes.
(3) Potential for longevity- Governments tend to exist in perpetuity
because of the nature of the services they provide. This has caused
governmental accounting standards-setters to take a long-term
perspective regarding certain measurements.
, (4) Role of the budget and legal requirements- Governmental entities are
required by law to provide certain services. Their budgets are legal
documents and generally cannot be exceeded without specific legislative
approval. Their borrowings are also constrained by law as to purpose.
Some not-for-profit entities obtain significant resources from
contributions that are subject to specific restrictions as to how they may
be used. This has led to standards that take account of the need for
demonstrating budgetary and legal compliance.
●● Q1-4: Illustrate the kinds of restrictions placed by laws on the ability
of governments to use resources, and by donors on the ability of
nonprofit entities to use resources.
Answer: Government: Budgets generally cannot be exceeded without
specific legislative approval; borrowings are generally specifically
limited as to the purposes for which they may be used; and grants from
higher level governments are generally specifically limited as to
purpose.
Not-for-profit entities: Donors often place specific restrictions on
contributions as to what they may be used for and when they may be
used.
●● Q1-5: Who are the users of governmental and nonprofit entity
accounting information, and for what purposes might they use that
information?
NONPROFIT ENTITIES COMPREHENSIVE
EXAM SCRIPT VERIFIED QUESTIONS AND
SOLUTIONS GRADED APLUS
●● Q1-2: Identify the various types of entities that constitute
governmental organizations, and characteristics of other organizations
that, when created by governments, are also considered to governmental
entities.
Answer: Governmental entities include: the federal government;
general-purpose political subdivisions (such as states, counties, cities,
and towns); special-purpose political subdivisions (such as school
districts); and public corporations and bodies corporate and politic (such
as state-operated toll roads and toll bridges).
Other organizations created by governments by statute or under not-for-
profit corporation laws are governmental if they possess one or more of
the following characteristics:
(A) Their officers are popularly elected or a controlling majority of their
governing body is appointed or approved by governmental officials.
(B) They have the power to enact and enforce a tax levy.
(C) They have the power to directly issue debt whose interest is exempt
from federal tax.
,(D) There is a potential for a government to dissolve them unilaterally
and assume their assets and liabilities.
●● Q1-3: Identify and briefly explain three (there are four) major
environmental characteristics of governmental and nonprofit
organizations.
Answer: Major environmental characteristics of governmental and not-
for-profit organizations are:
(1) Organizational purposes- Governmental and not-for-profit entities
exist to provide services to their constituents, not to generate profits.
There is a major focus on accountability to ensure resources are used
properly.
(2) Sources of revenue and relationship with stakeholders- Governments
derive revenues primarily from taxpayers. Individual taxpayers are
involuntary resource providers whose tax payments may or may not bear
a direct relationship to the services they want or need. Not-for-profit
entities obtain significant resources from donors who receive no service
or product in exchange, but who nonetheless are concerned with whether
their donations are achieving the intended purposes.
(3) Potential for longevity- Governments tend to exist in perpetuity
because of the nature of the services they provide. This has caused
governmental accounting standards-setters to take a long-term
perspective regarding certain measurements.
, (4) Role of the budget and legal requirements- Governmental entities are
required by law to provide certain services. Their budgets are legal
documents and generally cannot be exceeded without specific legislative
approval. Their borrowings are also constrained by law as to purpose.
Some not-for-profit entities obtain significant resources from
contributions that are subject to specific restrictions as to how they may
be used. This has led to standards that take account of the need for
demonstrating budgetary and legal compliance.
●● Q1-4: Illustrate the kinds of restrictions placed by laws on the ability
of governments to use resources, and by donors on the ability of
nonprofit entities to use resources.
Answer: Government: Budgets generally cannot be exceeded without
specific legislative approval; borrowings are generally specifically
limited as to the purposes for which they may be used; and grants from
higher level governments are generally specifically limited as to
purpose.
Not-for-profit entities: Donors often place specific restrictions on
contributions as to what they may be used for and when they may be
used.
●● Q1-5: Who are the users of governmental and nonprofit entity
accounting information, and for what purposes might they use that
information?
