Public Financial Management (Final
Exam) Questions And Answers
Basis of Accounting - CORRECT - ANSWERS WHEN transactions and events are recognized.
Cash Basis
Modified Accrual
Full Accrual
Full Accrual (Basis of Accounting) - CORRECT - ANSWERS Used on government-wide statements.
Takes into account ALL assets and liabilities, both current and non-current (includes long-term assets
and liabilities).
Modified Accrual (Basis of Accounting) - CORRECT - ANSWERS Used on governmental fund
statements. Includes short-term financial assets and liabilities (NOT capital assets or long-term
liabilities).
Measurement focus - CORRECT - ANSWERS WHAT is being reported on
Current economic resources
All economic resources
Value Added Taxes - CORRECT - ANSWERS Consumption taxes, such as the VAT are generally
considered regressive relative to income taxes since the wealthy spend a smaller portion of their income
than the poor. The VAT is most transparent when it is explicitly added to the price of the goods, ensuring
that the ultimate taxpayers are aware that they are paying the tax. Similar to a sales tax, just collected at
different stages.
, Property Taxes - CORRECT - ANSWERS IMPOSED, non-exchange tax revenue. Recognized at the time
during which the government first has an enforceable claim to the assets or when they first receive the
assets. Not as progressive as income tax but not as regressive as sales tax.
Substantive Due Date for Property Tax - CORRECT - ANSWERS Date on which interest and penalties
begin to accrue or a lien is imposed.
Sales Tax - CORRECT - ANSWERS DERIVED, non-exchange tax revenue. Recognized at the time the
underlying exchange transaction takes place. "Available" criterion applies to fund statements.
Income Tax - CORRECT - ANSWERS DERIVED non-exchange tax revenue. Recognize taxes as revenue
during the period in which the income is earned. Largest form of revenue for U.S. government
(adequate form of revenue)
Grants - CORRECT - ANSWERS Unrestricted with Time Requirement: should be recognized in the
period in which the time requirement takes place.
Grant with Purpose Restriction: restriction doesn't matter - we should recognize when received.
Reimbursement = government can only recognize grant as it incurs allowable costs, NOT when grant is
announced.
Pledges - CORRECT - ANSWERS In fund statements, we must delay recognition until funds are
available to meet current obligations.
Nonprofits should measure the pledges at the present value of estimated future cash flows using a
discount rate as applicable. These future pledges are "temporarily restricted" (the restriction is time -
restricted until payment is received)
Regressive Tax - CORRECT - ANSWERS Effective rates are lower in high-ability groups than in low-
ability groups (e.g. sales tax)
Exam) Questions And Answers
Basis of Accounting - CORRECT - ANSWERS WHEN transactions and events are recognized.
Cash Basis
Modified Accrual
Full Accrual
Full Accrual (Basis of Accounting) - CORRECT - ANSWERS Used on government-wide statements.
Takes into account ALL assets and liabilities, both current and non-current (includes long-term assets
and liabilities).
Modified Accrual (Basis of Accounting) - CORRECT - ANSWERS Used on governmental fund
statements. Includes short-term financial assets and liabilities (NOT capital assets or long-term
liabilities).
Measurement focus - CORRECT - ANSWERS WHAT is being reported on
Current economic resources
All economic resources
Value Added Taxes - CORRECT - ANSWERS Consumption taxes, such as the VAT are generally
considered regressive relative to income taxes since the wealthy spend a smaller portion of their income
than the poor. The VAT is most transparent when it is explicitly added to the price of the goods, ensuring
that the ultimate taxpayers are aware that they are paying the tax. Similar to a sales tax, just collected at
different stages.
, Property Taxes - CORRECT - ANSWERS IMPOSED, non-exchange tax revenue. Recognized at the time
during which the government first has an enforceable claim to the assets or when they first receive the
assets. Not as progressive as income tax but not as regressive as sales tax.
Substantive Due Date for Property Tax - CORRECT - ANSWERS Date on which interest and penalties
begin to accrue or a lien is imposed.
Sales Tax - CORRECT - ANSWERS DERIVED, non-exchange tax revenue. Recognized at the time the
underlying exchange transaction takes place. "Available" criterion applies to fund statements.
Income Tax - CORRECT - ANSWERS DERIVED non-exchange tax revenue. Recognize taxes as revenue
during the period in which the income is earned. Largest form of revenue for U.S. government
(adequate form of revenue)
Grants - CORRECT - ANSWERS Unrestricted with Time Requirement: should be recognized in the
period in which the time requirement takes place.
Grant with Purpose Restriction: restriction doesn't matter - we should recognize when received.
Reimbursement = government can only recognize grant as it incurs allowable costs, NOT when grant is
announced.
Pledges - CORRECT - ANSWERS In fund statements, we must delay recognition until funds are
available to meet current obligations.
Nonprofits should measure the pledges at the present value of estimated future cash flows using a
discount rate as applicable. These future pledges are "temporarily restricted" (the restriction is time -
restricted until payment is received)
Regressive Tax - CORRECT - ANSWERS Effective rates are lower in high-ability groups than in low-
ability groups (e.g. sales tax)
