EXAM 2 TEST BANK QUESTIONS WITH
ACTUAL ANSWERS.
If an entity elects to focus on all economic resources, then it should adopt a modified accrual
basis of accounting ANS -F
The budgetary measurement focus of governments is determined by applicable state or local
laws ANS -T
The revenue-recognition issues facing governments are generally focused on the exchange
transaction earning process, similar to those of businesses. ANS -F
Governmental activities tend to derive the majority of their revenues from exchange
transactions ANS -F
In accounting for property taxes, under the modified accrual basis, existing standards provide that,
except in unusual circumstances, revenues should be recognized only if cash is expected to be collected
within sixty days of year-end ANS -T
Ad valorem taxes are taxes that are based on value ANS -T
Income taxes are classified as ad valorem taxes ANS -F
Sales taxes are taxpayer assessed, that is, parties other than the beneficiary government
determine the tax base. ANS -T
Revenues that cannot be classified as general revenues are by default considered program
revenues ANS -F
,Taxes that are imposed on the reporting government's citizens are considered general
revenues, even if they are restricted to specific programs ANS -T
1. As used in governmental accounting, interperiod equity refers to a concept of
a) providing the same level of services to citizens each year.
b) measuring whether current year revenues are sufficient to pay for current year
services.
c) levying property taxes at the same rate each year.
d) requiring that general fund budgets be balanced each year. ANS -B
2. For fund financial statements, the measurement focus and basis of accounting used by
governmental fund types are
a) current financial resources and modified accrual accounting.
b) economic resources and modified accrual accounting.
c) financial resources and full accrual accounting.
d) economic resources and full accrual accounting. ANS -A
3. The modified accrual basis of accounting is used in presenting the fund financial statements of
the governmental funds because
a) it is the superior method of accounting for the economic resources of any entity.
b) it provides information as to the extent the entity achieved interperiod equity.
c) it is budget oriented while facilitating comparisons among entities.
d) it results in accounting measurements based on the substance of transactions. ANS -C
4. As used in defining the modified accrual basis of accounting, the term "available" means
a) received in cash.
b) will be received in cash within 60 days of year-end.
c) collection in cash is reasonably assured.
,d) collected within the current period or expected to be collected soon enough thereafter to be used to
pay liabilities of the current period. ANS -D
5. Under the modified accrual basis of accounting, derived nonexchange revenues are recognized
when
a) they are earned.
b) they are measurable and available to finance the expenditures of the current period.
c) the underlying exchange transaction occurs.
d) the underlying exchange transaction occurs and they are measurable and available to
finance the expenditures of the current period. ANS -D
6. Under the accrual basis of accounting, property tax revenues are recognized
a) when they are received in cash.
b) in the year for which they were levied.
c) in the year for which they were levied and when collection in cash is reasonably assured.
d) they are available to finance expenditures of the fiscal period. ANS -B
7. Under the modified accrual basis of accounting, the amount of property tax revenues that
should be recognized by a governmental entity in the current year related to the current year
levy will be
a) the total amount of the levy.
b) the expected collectible portion of the levy.
c) the portion of the levy collected.
d) the portion of the levy collected in the current year or within sixty days of the fiscal
period. ANS -D
8. Under the modified accrual basis of accounting, investment revenues for the current period
should include
a) only interest and dividends received.
, b) all interest and dividends received during the period plus all accruals of interest and dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold during the period.
d) all interest and dividends received, all gains and losses on securities sold and all changes in market
values on securities held in the portfolio at year-end. ANS -D
9. Under the accrual basis of accounting used by governments, investment revenues for the
current period should include
a) only interest and dividends received.
b) all interest and dividends received during the period plus all accruals of interest and
dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold
during the period.
d) all interest and dividends received, all gains and losses on securities sold and all
changes in market values on securities held in the portfolio at year-end. ANS -D
10. Under the modified accrual basis of accounting, imposed nonexchange revenues (such as
fines) should be recognized
a) when assessed.
b) when the government has an enforceable legal claim.
c) when collected.
d) when the government has an enforceable legal claim and when the collected within
the current period or soon enough thereafter to be used to pay the liabilities of the
current period. ANS -D
11. Under the accrual basis of accounting, imposed nonexchange revenues (such as fines) should
be recognized
a) when assessed.
b) when the government has an enforceable legal claim.
c) when collected.
ACTUAL ANSWERS.
If an entity elects to focus on all economic resources, then it should adopt a modified accrual
basis of accounting ANS -F
The budgetary measurement focus of governments is determined by applicable state or local
laws ANS -T
The revenue-recognition issues facing governments are generally focused on the exchange
transaction earning process, similar to those of businesses. ANS -F
Governmental activities tend to derive the majority of their revenues from exchange
transactions ANS -F
In accounting for property taxes, under the modified accrual basis, existing standards provide that,
except in unusual circumstances, revenues should be recognized only if cash is expected to be collected
within sixty days of year-end ANS -T
Ad valorem taxes are taxes that are based on value ANS -T
Income taxes are classified as ad valorem taxes ANS -F
Sales taxes are taxpayer assessed, that is, parties other than the beneficiary government
determine the tax base. ANS -T
Revenues that cannot be classified as general revenues are by default considered program
revenues ANS -F
,Taxes that are imposed on the reporting government's citizens are considered general
revenues, even if they are restricted to specific programs ANS -T
1. As used in governmental accounting, interperiod equity refers to a concept of
a) providing the same level of services to citizens each year.
b) measuring whether current year revenues are sufficient to pay for current year
services.
c) levying property taxes at the same rate each year.
d) requiring that general fund budgets be balanced each year. ANS -B
2. For fund financial statements, the measurement focus and basis of accounting used by
governmental fund types are
a) current financial resources and modified accrual accounting.
b) economic resources and modified accrual accounting.
c) financial resources and full accrual accounting.
d) economic resources and full accrual accounting. ANS -A
3. The modified accrual basis of accounting is used in presenting the fund financial statements of
the governmental funds because
a) it is the superior method of accounting for the economic resources of any entity.
b) it provides information as to the extent the entity achieved interperiod equity.
c) it is budget oriented while facilitating comparisons among entities.
d) it results in accounting measurements based on the substance of transactions. ANS -C
4. As used in defining the modified accrual basis of accounting, the term "available" means
a) received in cash.
b) will be received in cash within 60 days of year-end.
c) collection in cash is reasonably assured.
,d) collected within the current period or expected to be collected soon enough thereafter to be used to
pay liabilities of the current period. ANS -D
5. Under the modified accrual basis of accounting, derived nonexchange revenues are recognized
when
a) they are earned.
b) they are measurable and available to finance the expenditures of the current period.
c) the underlying exchange transaction occurs.
d) the underlying exchange transaction occurs and they are measurable and available to
finance the expenditures of the current period. ANS -D
6. Under the accrual basis of accounting, property tax revenues are recognized
a) when they are received in cash.
b) in the year for which they were levied.
c) in the year for which they were levied and when collection in cash is reasonably assured.
d) they are available to finance expenditures of the fiscal period. ANS -B
7. Under the modified accrual basis of accounting, the amount of property tax revenues that
should be recognized by a governmental entity in the current year related to the current year
levy will be
a) the total amount of the levy.
b) the expected collectible portion of the levy.
c) the portion of the levy collected.
d) the portion of the levy collected in the current year or within sixty days of the fiscal
period. ANS -D
8. Under the modified accrual basis of accounting, investment revenues for the current period
should include
a) only interest and dividends received.
, b) all interest and dividends received during the period plus all accruals of interest and dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold during the period.
d) all interest and dividends received, all gains and losses on securities sold and all changes in market
values on securities held in the portfolio at year-end. ANS -D
9. Under the accrual basis of accounting used by governments, investment revenues for the
current period should include
a) only interest and dividends received.
b) all interest and dividends received during the period plus all accruals of interest and
dividends earned.
c) all interest and dividends received plus gains and losses on securities that were sold
during the period.
d) all interest and dividends received, all gains and losses on securities sold and all
changes in market values on securities held in the portfolio at year-end. ANS -D
10. Under the modified accrual basis of accounting, imposed nonexchange revenues (such as
fines) should be recognized
a) when assessed.
b) when the government has an enforceable legal claim.
c) when collected.
d) when the government has an enforceable legal claim and when the collected within
the current period or soon enough thereafter to be used to pay the liabilities of the
current period. ANS -D
11. Under the accrual basis of accounting, imposed nonexchange revenues (such as fines) should
be recognized
a) when assessed.
b) when the government has an enforceable legal claim.
c) when collected.
