ACCT 4421 Exam 3 Review Questions and
Answers Verified by Experts
Which of the following is a valid reason for governments to engage in business-type activities?
A. The government does not want control over the activity
B. The activity competes with general government activities
C. The government does not want to subsidize the activity
D. The government can provide the services more cheaply or efficiently than can a private firm
Correct Answ_D
Which of the following is a valid argument for separate accounting principles for proprietary
activities?
A. Two separate measurement focuses and bases for accounting within the same set of financial
statements are confusing
B. There are no clear-cut distinctions between business and non-business activities
C. The measurement focus on all economic resources is more consistent with the GASB's
objectives that financial reporting should provide information to help determine whether current-
year revenues were sufficient to pay for current-year services
D. Surveys of statement users indicate that information on depreciation is not of high priority to
government decision makers Correct Answ_C
,Which of the following is a key reason for using business-type accounting to account for
proprietary fund activities?
A. The modified accrual basis of accounting captures all the resources and obligations associated
with an activity
B. Depreciation is not recognized in business-type accounting in governments and surveys of
statement users indicate that information on depreciation is not of high priority to government
decision makers
C. The measurement focus on all economic resources is more consistent with the GASB's
objectives that financial reporting should provide information to help determine whether current-
year revenues were sufficient to pay for current-year services
D. Business-type accounting facilitates comparisons with governmental activities Correct
Answ_C
Which of the following is NOT a budget typically prepared for an activity accounted for in a
proprietary fund?
A. Appropriation budget
B. Cash budget
C. Capital budget
D. Flexible budget Correct Answ_A
,A government reports the utility services it provides to citizens in a proprietary fund. Which
accounting standards must the proprietary fund apply?
A. All FASB pronouncements, unless a FASB pronouncement conflicts with or contradicts a
GASB pronouncement
B. All FASB pronouncements issued prior to November 30, 1989, as well as any post-November
30, 1989 pronouncements specifically adopted by GASB
C. All GASB pronouncements
D. All FASB and AICPA standards incorporated into GASB Statement No. 62, as well as any
FASB pronouncements issued after November 30, 1989 that have been specifically adopted by
the GASB Correct Answ_D
A proprietary fund of a government has some donor-restricted assets. Which of the following
best describes where and how those assets will generally be displayed in the fund's financial
statements?
A. In a separate restricted asset category on the statement of net position
B. Intermingled with other assets on the statement of net position
C. Intermingled with other assets on the statement of net position, but footnoted
D. In a separate restricted fund Correct Answ_A
, Bowdon City voted to establish an internal service fund to account for its printing services. The
city transferred $500,000 cash from the general fund to the newly created internal service fund.
The appropriate entry in the general fund to account for this transfer is a credit to cash for
$500,000 and a debit for $500,000 to
A. Due from internal service fund
B. Nonreciprocal transfer-out
C. Expenditures
D. Investment in internal service fund Correct Answ_B
Bowdon City voted to establish an internal service fund to account for its printing services. The
city transferred $500,000 cash from the general fund to the newly created internal service fund.
The appropriate entry in the internal service fund is a debit to cash for $500,000 and a credit for
$500,000 to
A. Due to general fund
B. Nonreciprocal transfer-in
C. Capital contribution (Revenues)
D. Investment provided by the general fund Correct Answ_B
Answers Verified by Experts
Which of the following is a valid reason for governments to engage in business-type activities?
A. The government does not want control over the activity
B. The activity competes with general government activities
C. The government does not want to subsidize the activity
D. The government can provide the services more cheaply or efficiently than can a private firm
Correct Answ_D
Which of the following is a valid argument for separate accounting principles for proprietary
activities?
A. Two separate measurement focuses and bases for accounting within the same set of financial
statements are confusing
B. There are no clear-cut distinctions between business and non-business activities
C. The measurement focus on all economic resources is more consistent with the GASB's
objectives that financial reporting should provide information to help determine whether current-
year revenues were sufficient to pay for current-year services
D. Surveys of statement users indicate that information on depreciation is not of high priority to
government decision makers Correct Answ_C
,Which of the following is a key reason for using business-type accounting to account for
proprietary fund activities?
A. The modified accrual basis of accounting captures all the resources and obligations associated
with an activity
B. Depreciation is not recognized in business-type accounting in governments and surveys of
statement users indicate that information on depreciation is not of high priority to government
decision makers
C. The measurement focus on all economic resources is more consistent with the GASB's
objectives that financial reporting should provide information to help determine whether current-
year revenues were sufficient to pay for current-year services
D. Business-type accounting facilitates comparisons with governmental activities Correct
Answ_C
Which of the following is NOT a budget typically prepared for an activity accounted for in a
proprietary fund?
A. Appropriation budget
B. Cash budget
C. Capital budget
D. Flexible budget Correct Answ_A
,A government reports the utility services it provides to citizens in a proprietary fund. Which
accounting standards must the proprietary fund apply?
A. All FASB pronouncements, unless a FASB pronouncement conflicts with or contradicts a
GASB pronouncement
B. All FASB pronouncements issued prior to November 30, 1989, as well as any post-November
30, 1989 pronouncements specifically adopted by GASB
C. All GASB pronouncements
D. All FASB and AICPA standards incorporated into GASB Statement No. 62, as well as any
FASB pronouncements issued after November 30, 1989 that have been specifically adopted by
the GASB Correct Answ_D
A proprietary fund of a government has some donor-restricted assets. Which of the following
best describes where and how those assets will generally be displayed in the fund's financial
statements?
A. In a separate restricted asset category on the statement of net position
B. Intermingled with other assets on the statement of net position
C. Intermingled with other assets on the statement of net position, but footnoted
D. In a separate restricted fund Correct Answ_A
, Bowdon City voted to establish an internal service fund to account for its printing services. The
city transferred $500,000 cash from the general fund to the newly created internal service fund.
The appropriate entry in the general fund to account for this transfer is a credit to cash for
$500,000 and a debit for $500,000 to
A. Due from internal service fund
B. Nonreciprocal transfer-out
C. Expenditures
D. Investment in internal service fund Correct Answ_B
Bowdon City voted to establish an internal service fund to account for its printing services. The
city transferred $500,000 cash from the general fund to the newly created internal service fund.
The appropriate entry in the internal service fund is a debit to cash for $500,000 and a credit for
$500,000 to
A. Due to general fund
B. Nonreciprocal transfer-in
C. Capital contribution (Revenues)
D. Investment provided by the general fund Correct Answ_B
