CPFO ACCOUNTING EXAM QUESTIONS
AND CORRECT ANSWERS AND
EXPLANATIONS 100% GUARANTEED
PASS
How should any portion of the proceeds of capital-related debt that is set aside for debt
service be reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- D - Upon completion of a capital project, all of the remaining debt
(including any portion used to fund restricted debt service accounts) would be
considered to be capital-related and included as part of future calculations of net assets
invested in capital assets net of related debt (page 161) (chapter 10)
Net assets invested in capital assets net of related debt should reflect which of the
following?
A. An insignificant portion of capital-related debt
B. An interest in a joint venture that reflects an interest in the joint venture's capital
assets
C. Debt issued to finance a capital grant to another government
D. All of the above - Answer- A - It is common for a small portion of the proceeds of
capital-related debt to be expended on items that are ultimately not capitalized. Such
amounts need not be deducted from the amount treated as capital-related debt. A
government's equity interest in a joint venture is not properly classified as capital for this
purpose, even if it reflects an interest in the joint venture's capital assets. Instead such
amounts should be classified as unrestricted net assets. Debt that is unrelated to either
capital assets or restricted assets (e.g., debt issued by a state to finance a capital grant
to local governtments) should be included in the calculation of unrestricted net assets
(pages 161-162 & 164) (chapter 10)
How should resources generated by enabling legislation NORMALLY be reflected in net
assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. A or C - Answer- B - Unless there is cause for reconsideration (e.g., the subsequent
diversino of resources to some other purpose), it may reasonably be presumed that
enabling legislation is tantamount to an implicit contrcat with taxpayers, thereby
,justifying the reporting of such amounts as restricted net assets. (pages 162-163)
(chapter 10)
What is the MINIMUM level of detail at which business-type activities must be reported
in the government-wide statement of activities?
A.Segments
B. Functions
C. Programs
D. Different identifiable activities - Answer- D - For a government's business-type
activities, direct expenses should be presented separately, at a minimum, for different
identifiable activities (page 165) (chapter 10)
Which of the following statements BEST describes the amount that must always be
reported as basic functional expense in the government-wide statement of activities?
A. Direct and indirect costs
B. At least direct costs
C. All and only direct costs
D. Full cost - Answer- C - Each function included in governmental activities should
report all its direct costs and only its direct costs (page 165) (chapter 10)
Where must depreciating capital assets be distinguished from capital assets that are not
being depreciated if the latter are significant?
A. On the face of the statement of net assets
B. In the notes to the financial statements
C. Either A or B
D. Both A and B - Answer- D - Capital assets that are being depreciated must be
reported separately on the face of the statement of net assets from those that are not
being depreciated. Not disclosure is required as well (pages 160 and 226) (chapter 10)
If a government has a capital asset, but that asset is not reported on the statement of
net assets (e.g., certain assets acquired prior to implementation of the new reporting
model), how should related debt be reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- A - Outstanding debt related to these unreported capital assets still
should be considered to be capital-related. (page 161) (chapter 10)
How should the unspent proceeds of debt to be used to finance capital acquisition be
reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- D - The unspent proceeds of debt are not considered to be a capital
asset until they are actually spent. Therefore, only construction-in-progress and a
portion of debt equal to that amount should be part of the calculation of net assets
,invested in capital assets net of related debt until construction is actually completed.
Meanwhile, unspent debt proceeds would be incuded in the calculation of restricted net
assets or unrestricted net assets, as appropriate. (pages 161-164) (chapter 10)
Which of the following statements BEST describes The treatment of depreciation
expense in the government-wide statement of activities?
A. Sometimes a direct cost
B. Always a direct cost
C. Never a direct cost
D. Only a direct cost in business-type activities - Answer- A - Direct expenses include
depreciation on capital assets that are clearly associated with a given functional activity.
It would not be appropriate, however, to allocate depreciation expense on capital assets
that serve assentially all of the government's functional activities. Instead, depreciation
on such overhead capital assets should be reported either as part of the general
government functional activity, or as a seperate line item. (page 165) (chapter 10)
Which of the following statements BEST describes the treatment of interest expense
within governmental activities in the government-wide statement of activities?
A. Sometimes a separate line item
B. Normally a separate line item
C. Always a separate line item
D. Never a separate line item - Answer- B - In almost all cases, interest on debt
associated with governmental activities cannot meaningfully be associated with
individual functions, and so should be reported as a separate line within governmental
activities on the government-wide statement of activities. Nonetheless, in those rare
instances "when borrowing is essential to the creation of continuing existence of a
program and it would be misleading to exclude the interest from direct expenses of that
program" it should be treated as a functional expense. (chapter 10)
Which of the following groups normally would NOT be considered a primary user of
state or local government's general-purpose external financial statements?
A. Citizens
B. Legislative and oversight bodies
C. Management
D. Investors and creditors - Answer- C - The primary users of general-purpose external
financial statements are those who, unlike management, do not have direct access to
accounting information. (page 6) (Chapter 1)
Which of the following groups took the lead in setting generally accepted accounting
principles (GAAP) for business enterprises?
A. Businesses themselves
B. State governments
C. Federal government
D. Independent auditors - Answer- D - Independent auditors took the lead in codifying
GAAP in the private sector, whereas financial statement preparers took the lead in
codifying GAAP in the public sector. (page 6) (Chapter 1)
, Which organization appoints the members of the Governmental Accounting Standards
Board (GASB)
A. Financial Accounting Foundation (FAF)
B. Governmental Accounting Standards Advisory Council (GASAC)
C. American Institute of Certified Public Accountants (AICPA)
D. Securities and Exchange Commission (SEC) - Answer- A - The FAF appoints the
members of both the FASB and the GASB (page 7) (Chapter 1)
Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA interpretations
C. GASB Concept Statements
D. The AICPA's audit and accounting guide for State and Local Governments - Answer-
C - A GASB Concepts Statement is not part of the GAAP hierarchy as such, but rather
constitutes an "other source" of GAAP. (page 14) (Chapter 1)
Which of the following entities is NEVER subject to GASB jurisdiction?
A. A hospital
B. A college or university
C. A utility
D. None of the above - Answer- D - In 1989, the FAF categorically affirmed the GASB's
jurisdiction over all entities operating in the public sector, including utilities, hospitals,
colleges, and universities (page 9) (Chapter 1)
Which of the following types of guidance has the HIGHEST stand on the GAAP
hierarchy
A. GASB Technical Bulletins
B. GASB Concept Statements
C. GASB implementation Guides
D. GASB Interpretations - Answer- D - GASB Interpretations qualify as "level 1" GAAP
on the GAAP hierarchy. (page 14) (Chapter 1)
Which of the following statements is TRUE?
A. Both the Financial Accounting Standards Board (FASB) and the GASB are supported
in their work by advisory councils
B. Both the FASB and the GASB have 7 members
C. Both the FASB and the GASB can approve pronouncements by a simple majority
vote
D. All of the above - Answer- D - All four statements are true. (page 7) (Chapter 1)
Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
AND CORRECT ANSWERS AND
EXPLANATIONS 100% GUARANTEED
PASS
How should any portion of the proceeds of capital-related debt that is set aside for debt
service be reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- D - Upon completion of a capital project, all of the remaining debt
(including any portion used to fund restricted debt service accounts) would be
considered to be capital-related and included as part of future calculations of net assets
invested in capital assets net of related debt (page 161) (chapter 10)
Net assets invested in capital assets net of related debt should reflect which of the
following?
A. An insignificant portion of capital-related debt
B. An interest in a joint venture that reflects an interest in the joint venture's capital
assets
C. Debt issued to finance a capital grant to another government
D. All of the above - Answer- A - It is common for a small portion of the proceeds of
capital-related debt to be expended on items that are ultimately not capitalized. Such
amounts need not be deducted from the amount treated as capital-related debt. A
government's equity interest in a joint venture is not properly classified as capital for this
purpose, even if it reflects an interest in the joint venture's capital assets. Instead such
amounts should be classified as unrestricted net assets. Debt that is unrelated to either
capital assets or restricted assets (e.g., debt issued by a state to finance a capital grant
to local governtments) should be included in the calculation of unrestricted net assets
(pages 161-162 & 164) (chapter 10)
How should resources generated by enabling legislation NORMALLY be reflected in net
assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. A or C - Answer- B - Unless there is cause for reconsideration (e.g., the subsequent
diversino of resources to some other purpose), it may reasonably be presumed that
enabling legislation is tantamount to an implicit contrcat with taxpayers, thereby
,justifying the reporting of such amounts as restricted net assets. (pages 162-163)
(chapter 10)
What is the MINIMUM level of detail at which business-type activities must be reported
in the government-wide statement of activities?
A.Segments
B. Functions
C. Programs
D. Different identifiable activities - Answer- D - For a government's business-type
activities, direct expenses should be presented separately, at a minimum, for different
identifiable activities (page 165) (chapter 10)
Which of the following statements BEST describes the amount that must always be
reported as basic functional expense in the government-wide statement of activities?
A. Direct and indirect costs
B. At least direct costs
C. All and only direct costs
D. Full cost - Answer- C - Each function included in governmental activities should
report all its direct costs and only its direct costs (page 165) (chapter 10)
Where must depreciating capital assets be distinguished from capital assets that are not
being depreciated if the latter are significant?
A. On the face of the statement of net assets
B. In the notes to the financial statements
C. Either A or B
D. Both A and B - Answer- D - Capital assets that are being depreciated must be
reported separately on the face of the statement of net assets from those that are not
being depreciated. Not disclosure is required as well (pages 160 and 226) (chapter 10)
If a government has a capital asset, but that asset is not reported on the statement of
net assets (e.g., certain assets acquired prior to implementation of the new reporting
model), how should related debt be reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- A - Outstanding debt related to these unreported capital assets still
should be considered to be capital-related. (page 161) (chapter 10)
How should the unspent proceeds of debt to be used to finance capital acquisition be
reflected in net assets?
A. Net assets invested in capital assets net of related debt
B. Restricted net assets
C. Unrestricted net assets
D. B or C - Answer- D - The unspent proceeds of debt are not considered to be a capital
asset until they are actually spent. Therefore, only construction-in-progress and a
portion of debt equal to that amount should be part of the calculation of net assets
,invested in capital assets net of related debt until construction is actually completed.
Meanwhile, unspent debt proceeds would be incuded in the calculation of restricted net
assets or unrestricted net assets, as appropriate. (pages 161-164) (chapter 10)
Which of the following statements BEST describes The treatment of depreciation
expense in the government-wide statement of activities?
A. Sometimes a direct cost
B. Always a direct cost
C. Never a direct cost
D. Only a direct cost in business-type activities - Answer- A - Direct expenses include
depreciation on capital assets that are clearly associated with a given functional activity.
It would not be appropriate, however, to allocate depreciation expense on capital assets
that serve assentially all of the government's functional activities. Instead, depreciation
on such overhead capital assets should be reported either as part of the general
government functional activity, or as a seperate line item. (page 165) (chapter 10)
Which of the following statements BEST describes the treatment of interest expense
within governmental activities in the government-wide statement of activities?
A. Sometimes a separate line item
B. Normally a separate line item
C. Always a separate line item
D. Never a separate line item - Answer- B - In almost all cases, interest on debt
associated with governmental activities cannot meaningfully be associated with
individual functions, and so should be reported as a separate line within governmental
activities on the government-wide statement of activities. Nonetheless, in those rare
instances "when borrowing is essential to the creation of continuing existence of a
program and it would be misleading to exclude the interest from direct expenses of that
program" it should be treated as a functional expense. (chapter 10)
Which of the following groups normally would NOT be considered a primary user of
state or local government's general-purpose external financial statements?
A. Citizens
B. Legislative and oversight bodies
C. Management
D. Investors and creditors - Answer- C - The primary users of general-purpose external
financial statements are those who, unlike management, do not have direct access to
accounting information. (page 6) (Chapter 1)
Which of the following groups took the lead in setting generally accepted accounting
principles (GAAP) for business enterprises?
A. Businesses themselves
B. State governments
C. Federal government
D. Independent auditors - Answer- D - Independent auditors took the lead in codifying
GAAP in the private sector, whereas financial statement preparers took the lead in
codifying GAAP in the public sector. (page 6) (Chapter 1)
, Which organization appoints the members of the Governmental Accounting Standards
Board (GASB)
A. Financial Accounting Foundation (FAF)
B. Governmental Accounting Standards Advisory Council (GASAC)
C. American Institute of Certified Public Accountants (AICPA)
D. Securities and Exchange Commission (SEC) - Answer- A - The FAF appoints the
members of both the FASB and the GASB (page 7) (Chapter 1)
Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA interpretations
C. GASB Concept Statements
D. The AICPA's audit and accounting guide for State and Local Governments - Answer-
C - A GASB Concepts Statement is not part of the GAAP hierarchy as such, but rather
constitutes an "other source" of GAAP. (page 14) (Chapter 1)
Which of the following entities is NEVER subject to GASB jurisdiction?
A. A hospital
B. A college or university
C. A utility
D. None of the above - Answer- D - In 1989, the FAF categorically affirmed the GASB's
jurisdiction over all entities operating in the public sector, including utilities, hospitals,
colleges, and universities (page 9) (Chapter 1)
Which of the following types of guidance has the HIGHEST stand on the GAAP
hierarchy
A. GASB Technical Bulletins
B. GASB Concept Statements
C. GASB implementation Guides
D. GASB Interpretations - Answer- D - GASB Interpretations qualify as "level 1" GAAP
on the GAAP hierarchy. (page 14) (Chapter 1)
Which of the following statements is TRUE?
A. Both the Financial Accounting Standards Board (FASB) and the GASB are supported
in their work by advisory councils
B. Both the FASB and the GASB have 7 members
C. Both the FASB and the GASB can approve pronouncements by a simple majority
vote
D. All of the above - Answer- D - All four statements are true. (page 7) (Chapter 1)
Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
