Accounting for Governmental and Nonprofit Entities 17th Edition By Reck and Lowensohn Test Bank

Chapter 01 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities True / False Questions 1. Special purpose governments generally provide a wider range of services to their residents than do general purpose governments. True False 2. Examples of general purpose governments include cities, towns, and public schools that receive tax revenue to finance the services they provide. True False 3. The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all state and local governments, both general purpose and special purpose. True False 4. The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all government entities. True False 5. The Financial Accounting Standards Board (FASB) is the body authorized to establish accounting principles for all colleges and universities and health care entities. True False 6. Neither governmental nor not-for-profit entities have residual equity that can be distributed to owners. True False 7. A characteristic common to governmental and not-for-profit organizations is that they do not exist to provide goods or services at a profit or profit equivalent. True False 8. The needs of users of government financial reports are the same as those of users of business entity financial reports. True False 9. The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles and standards for the federal government and its agencies and departments. True False 10. The FASB, GASB, and FASAB identify primarily external users as the focus of their financial reports. True False 11. Interperiod equity refers to the concept that current-year revenues are sufficient to pay for services provided during the year, so that future taxpayers will not be required to assume the burden for services previously provided. True False 12. The minimum requirements for general purpose external financial reporting are (1) management's discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the financial statements, and (3) combining and individual fund financial statements. True False 13. The Financial Accounting Foundation has oversight over both FASB and GASB. True False 14. In addition to financial statements and notes, GASB requires governments to provide information on service efforts and accomplishments (SEA) in their reports to the public. True False 15. Providing information on accountability is the primary financial reporting objective for both governmental and not-for-profit entities. True False 16. A difference in the financial reporting objectives for governmental entities and not-for-profit entities is that governmental entities report on compliance with laws, regulations, and rules that impact financial reports. True False 17. Since neither governmental nor not-for-profit entities have investors, the financial reporting objectives are the same for both types of entities. True False 18. The GASB provides optional guidance for those entities providing service efforts and accomplishments (SEA) reports to the public. True False 19. The Office of Management and Budget (OMB) requires major federal departments and agencies to prepare an annual performance report. True False 20. The FASB standards require not-for-profit entities to report net assets in three categories: unrestricted, restricted, and net investment in capital assets. True False 21. The FASB standards require not-for-profit entities to separately report program expenses and support expenses. True False 22. The governmental fund financial statements are intended to report on fiscal accountability. True False 23. The governmental fund financial statements are useful in assessing operational accountability. True False 24. Government-wide financial statements are prepared using the accrual basis of accounting. True False 25. Both the GASB and the FASB require entities to include a management discussion and analysis in the financial reports. True False Multiple Choice Questions 26. The Governmental Accounting Standards Board is assigned responsibility for setting accounting and financial reporting standards for A. Governments such as federal agencies, states, cities, counties, villages, and townships. B. State and local government entities and governmentally-related units and agencies, such as utilities, authorities, hospitals, and colleges and universities. C. Not-for-profit organizations. D. State and local governments and all not-for-profit organizations. 27. The body that has been established to recommend accounting and financial reporting standards for the federal government is the A. Financial Accounting Standards Board (FASB). B. Governmental Accounting Standards Board (GASB). C. Federal Accounting Foundation (FAF). D. Federal Accounting Standards Advisory Board (FASAB). 28. The Financial Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A. All not-for-profit organizations that are nongovernmental and business entities. B. All not-for-profit organizations and business entities. C. All not-for-profit organizations. D. Special purpose governments with a business purpose. 29. You are trying to decide if an entity you are reviewing is a government or a not-for-profit. Which of the following would indicate it is a government rather than a not-for-profit entity? A. Absence of profit motive. B. A primary source of revenues is taxes. C. Resource providers do not expect benefits proportional to the resources provided. D. Absence of a defined ownership interest that can be sold, transferred, or redeemed. 30. Which of the following is identified by the GASB as the "cornerstone" of all financial reporting in government? A. Decision usefulness. B. Stewardship. C. Accountability. D. Interperiod equity. 31. Which of the following organizations issue standards that focus on both internal and external financial reporting? A. Federal Accounting Standards Advisory Board. B. Governmental Accounting Standards Board. C. Financial Accounting Standards Board. D. American Institute of CPAs. 32. Which of the following is identified by the FASAB as the foundation for federal financial reporting? A. Decision usefulness. B. Accountability. C. Understandability. D. Budget integrity. 33. Which of the following is not an objective of financial reporting by state and local governments? A. To assist users in assessing the adequacy of systems and controls. B. To assist users in assessing financial condition and results of operations. C. To assist financial report users in comparing actual financial results with the legally adopted budget. D. To assist in determining compliance with finance-related laws, rules, and regulations. 34. Which of the following groups is considered a primary user of a state or local government's general-purpose external financial statements? A. Citizens. B. Managers and administrators. C. Employees. D. Special interest groups. 35. One of the minimum requirements for general purpose external financial reporting by governments is: A. Management's discussion and analysis (MD&A). B. Transmittal letter. C. Combining and individual fund statements. D. Statistical information. 36. A comprehensive annual financial report (CAFR) prepared in conformity with GASB recommendations should include which of the following sections? A. Letter of transmittal, management's discussion and analysis (MD&A), and financial. B. Introductory, financial, and statistical. C. Introductory, MD&A, and financial. D. Letter of transmittal, financial, and supplementary. 37. Which of the following would be included in a properly prepared comprehensive annual financial report (CAFR), but not in the minimum requirements for general purpose financial reporting specified by GASB standards? A. Management's discussion and analysis (MD&A). B. Government-wide financial statements. C. Notes to the financial statements. D. Combining and individual fund financial statements. 38. A statistical section should be included in A. A comprehensive annual financial report (CAFR). B. The basic financial statements. C. The notes to the financial statements. D. Required supplementary information, other than MD&A. 39. Which of the following would typically not be included in the introductory section of a comprehensive annual financial report? A. Title and contents page. B. Letter of transmittal. C. A description of the government. D. Summary of the government's current financial position and results of financial activities. 40. The section of the comprehensive annual financial report that presents tables and charts showing social and economic data in addition to financial trends, fiscal capacity, and operating information of the government is the: A. Introductory section. B. Management's discussion and analysis section. C. Statistical section. D. Financial section. 41. Which of the following should be included in the financial section of a comprehensive annual financial report? A. Transmittal letter. B. The basic financial statements, including notes thereto. C. Tables and charts showing demographic and economic data. D. A description of the government. 42. On what do the government-wide financial statements report? A. Operational accountability. B. Fiscal accountability. C. The cost of government services. D. Budgetary compliance. 43. Which of the following standard-setting bodies requires a management’s discussion and analysis as a part of the financial report? A. GASB. B. FASB. C. FASAB. D. Both A and C. 44. On what should the governmental fund financial statements report? A. Net position and results of financial operations of the government as a whole. B. Fiscal accountability. C. Operational accountability. D. Cost of government services. 45. Which of the following sections is not considered a part of a federal agency’s performance and accountability report? A. Basic financial statements. B. Annual performance report. C. Statistical section. D. Management's discussion and analysis. 46. Which of the following statements is prepared by all not-for-profit organizations? A. Statement of financial position. B. Statement of functional expenses. C. Statement of revenues, expenses, and changes in net position. D. Both A and B. 47. Recognizing revenues when measurable and available for paying current obligations and expenditures when incurred describes which basis of accounting? A. Accrual. B. Modified accrual. C. Modified cash. D. Budgetary. 48. The FASB requires that a statement of functional expenses be prepared by which of the following entities? A. Colleges and universities. B. Health care entities. C. Voluntary health and welfare entities. D. Religious entities. 49. Which of the following is not a net asset category reported by not-for-profit entities? A. Unrestricted net assets. B. Temporarily restricted net assets. C. Restricted net assets. D. Permanently restricted net assets. 50. Which of the following is not an example of a support expense reported by not-for-profit entities? A. Fund-raising expenses. B. Program expenses. C. Management expenses. D. General expenses of operating the not-for-profit entity. Essay Questions 51. Explain the essential differences between general purpose and special purpose governments and give several examples of each. 52. Identify and explain the characteristics that distinguish government and not-for-profit entities from business entities. 53. GASB and FASB standards are concerned only with external financial reporting; whereas, FASAB standards are concerned with both internal and external financial reporting. Do you agree with this statement? Why or why not? 54. Why should persons interested in reading financial reports of government and not-for-profit entities be familiar with standards set by the GASB and FASB? 55. Explain in your own words why accountability is the cornerstone of all financial reporting in government. 56. In your own words state the primary uses the GASB believes external users have for financial reports of state and local governments. For contrast, state the uses the FASB believes external users have for the financial reports of not-for-profit organizations. 57. Describe the difference between a comprehensive annual financial report (CAFR) and GASB general purpose external financial reporting for state and local governments. 58. Identify and briefly explain the four sections of the performance and accountability report (PAR) that the Office of Management and Budget requires major federal departments and agencies to prepare. 59. Explain the concepts fiscal and operational accountability and the basis of accounting used to capture each concept. 60. Describe the comprehensive annual financial report (CAFR). What are the sections of the report and which components of the organization should it include? Is a CAFR required?   Chapter 01 Introduction to Accounting and Financial Reporting for Governmental and Not-for-Profit Entities Answer Key True / False Questions 1. Special purpose governments generally provide a wider range of services to their residents than do general purpose governments. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1Easy Learning Objective: 1-1 Topic: Special purpose government 2. Examples of general purpose governments include cities, towns, and public schools that receive tax revenue to finance the services they provide. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1Easy Learning Objective: 1-1 Topic: General purpose government 3. The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all state and local governments, both general purpose and special purpose. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 4. The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all government entities. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 5. The Financial Accounting Standards Board (FASB) is the body authorized to establish accounting principles for all colleges and universities and health care entities. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 6. Neither governmental nor not-for-profit entities have residual equity that can be distributed to owners. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 7. A characteristic common to governmental and not-for-profit organizations is that they do not exist to provide goods or services at a profit or profit equivalent. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-1 Topic: Differences between governmental and not-for-profit organization 8. The needs of users of government financial reports are the same as those of users of business entity financial reports. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-1 Topic: Differences between governmental and for-profit organization 9. The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles and standards for the federal government and its agencies and departments. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 10. The FASB, GASB, and FASAB all focus their standards on both internal and external financial reporting. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 11. Interperiod equity refers to the concept that current-year revenues are sufficient to pay for services provided that year, so that future taxpayers will not be required to assume the burden for services previously provided. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Interperiod equity 12. The minimum requirements for general purpose external financial reporting are (1) management's discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the financial statements, and (3) combining and individual fund financial statements. FALSE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reports 13. The Financial Accounting Foundation has oversight over both FASB and GASB. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 14. In addition to financial statements and notes, GASB requires governments to provide information on service efforts and accomplishments (SEA) in their reports to the public. FALSE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: General purpose external financial reports 15. Providing information on accountability is the primary financial reporting objective for both governmental and not-for-profit entities. FALSE AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Accountability 16. A difference in the financial reporting objectives for governmental entities and not-for-profit entities is that governmental entities report on compliance with laws, regulations, and rules that impact financial reports. TRUE AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Differences between governmental and not-for-profit organizations 17. Since neither governmental nor not-for-profit entities have investors, the financial reporting objectives are the same for both types of entities. FALSE AACSB: Knowledge application AICPA: FN Financial reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Differences between governmental and not-for-profit organizations 18. The GASB provides optional guidance for those entities providing service efforts and accomplishments (SEA) reports to the public. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reports 19. The Office of Management and Budget (OMB) requires major federal departments and agencies to prepare an annual performance report. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-5 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 20. The FASB standards require not-for-profit entities to report net assets in three categories: unrestricted, restricted, and net investment in capital assets. FALSE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 21. The FASB standards require not-for-profit entities to separately report program expenses and support expenses. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Reporting of expenses 22. The governmental fund financial statements are intended to report on fiscal accountability. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reports 23. The governmental fund financial statements are useful in assessing operational accountability. FALSE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reports 24. Government-wide financial statements are prepared using the accrual basis of accounting. TRUE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reports 25. Both the GASB and the FASB require entities to include a management discussion and analysis in the financial reports. FALSE AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations Multiple Choice Questions 26. The Governmental Accounting Standards Board is assigned responsibility for setting accounting and financial reporting standards for A. Governments such as federal agencies, states, cities, counties, villages, and townships. B. State and local government entities and governmentally-related units and agencies, such as utilities, authorities, hospitals, and colleges and universities. C. Not-for-profit organizations. D. State and local governments and all not-for-profit organizations. AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-2 Topic: Primary source of reporting standards 27. The body that has been established to recommend accounting and financial reporting standards for the federal government is the A. Financial Accounting Standards Board (FASB). B. Governmental Accounting Standards Board (GASB). C. Federal Accounting Foundation (FAF). D. Federal Accounting Standards Advisory Board (FASAB). AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 28. The Financial Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A. All not-for-profit organizations that are nongovernmental and business entities. B. All not-for-profit organizations and business entities. C. All not-for-profit organizations. D. Special purpose governments with a business purpose. AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-2 Topic: Primary source of reporting standards 29. You are trying to decide if an entity you are reviewing is a government or a not-for-profit. Which of the following would indicate it is a government rather than a not-for-profit entity? A. Absence of profit motive. B. A primary source of revenues is taxes. C. Resource providers do not expect benefits proportional to the resources provided. D. Absence of a defined ownership interest that can be sold, transferred, or redeemed. AACSB: Knowledge application AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-1 Topic: Differences between governmental and not-for-profit organization 30. Which of the following is identified by the GASB as the "cornerstone" of all financial reporting in government? A. Decision usefulness. B. Stewardship. C. Accountability. D. Interperiod equity. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Accountability 31. Which of the following organizations issue standards that focus on both internal and external financial reporting? A. Federal Accounting Standards Advisory Board. B. Governmental Accounting Standards Board. C. Financial Accounting Standards Board. D. American Institute of CPAs. AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 32. Which of the following is identified by the FASAB as the foundation for federal financial reporting? A. Decision usefulness. B. Accountability. C. Understandability. D. Budget integrity. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 33. Which of the following is not an objective of financial reporting by state and local governments? A. To assist users in assessing the adequacy of systems and controls. B. To assist users in assessing financial condition and results of operations. C. To assist financial report users in comparing actual financial results with the legally adopted budget. D. To assist in determining compliance with finance-related laws, rules, and regulations. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 34. Which of the following groups is considered a primary user of a state or local government's general-purpose external financial statements? A. Citizens. B. Managers and administrators. C. Employees. D. Special interest groups. AACSB: Knowledge application AICPA: BB Industry Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 35. One of the minimum requirements for general purpose external financial reporting by governments is: A. Management's discussion and analysis (MD&A). B. Transmittal letter. C. Combining and individual fund statements. D. Statistical information. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: General purpose external financial reporting 36. A comprehensive annual financial report (CAFR) prepared in conformity with GASB recommendations should include which of the following sections? A. Letter of transmittal, management's discussion and analysis (MD&A), and financial. B. Introductory, financial, and statistical. C. Introductory, MD&A, and financial. D. Letter of transmittal, financial, and supplementary. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 37. Which of the following would be included in a properly prepared comprehensive annual financial report (CAFR), but not in the minimum requirements for general purpose financial reporting specified by GASB standards? A. Management's discussion and analysis (MD&A). B. Government-wide financial statements. C. Notes to the financial statements. D. Combining and individual fund financial statements. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: General purpose external financial reporting 38. A statistical section should be included in A. A comprehensive annual financial report (CAFR). B. The basic financial statements. C. The notes to the financial statements. D. Required supplementary information, other than MD&A. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 39. Which of the following would typically not be included in the introductory section of a comprehensive annual financial report? A. Title and contents page. B. Letter of transmittal. C. A description of the government. D. Summary of the government's current financial position and results of financial activities. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 40. The section of the comprehensive annual financial report that presents tables and charts showing social and economic data in addition to financial trends, fiscal capacity, and operating information of the government is the: A. Introductory section. B. Management's discussion and analysis section. C. Statistical section. D. Financial section. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 41. Which of the following should be included in the financial section of a comprehensive annual financial report? A. Transmittal letter. B. The basic financial statements, including notes thereto. C. Tables and charts showing demographic and economic data. D. A description of the government. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 42. On what do the government-wide financial statements report? A. Operational accountability. B. Fiscal accountability. C. The cost of government services. D. Budgetary compliance. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Operational accountability 43. Which of the following standard-setting bodies requires a management’s discussion and analysis as a part of the financial report? A. GASB. B. FASB. C. FASAB. D. Both A and C. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 44. On what should the governmental fund financial statements report? A. Net position and results of financial operations of the government as a whole. B. Fiscal accountability. C. Operational accountability. D. Cost of government services. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-4 Topic: Accountability 45. Which of the following sections is not considered a part of a federal agency’s performance and accountability report? A. Basic financial statements. B. Annual performance report. C. Statistical section. D. Management's discussion and analysis. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-5 Topic: Required sections of PAR 46. Which of the following statements is prepared by all not-for-profit organizations? A. Statement of financial position. B. Statement of functional expenses. C. Statement of revenues, expenses, and changes in net position. D. Both A and B. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-5 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 47. Recognizing revenues when measurable and available for paying current obligations and expenditures when incurred describes which basis of accounting? A. Accrual. B. Modified accrual. C. Modified cash. D. Budgetary. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 48. The FASB requires that a statement of functional expenses be prepared by which of the following entities? A. Colleges and universities. B. Health care entities. C. Voluntary health and welfare entities. D. Religious entities. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-5 Topic: Reporting of expenses 49. Which of the following is not a net asset category reported by not-for-profit entities? A. Unrestricted net assets. B. Temporarily restricted net assets. C. Restricted net assets. D. Permanently restricted net assets. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 50. Which of the following is not an example of a support expense reported by not-for-profit entities? A. Fund-raising expenses. B. Program expenses. C. Management expenses. D. General expenses of operating the not-for-profit entity. AACSB: Knowledge application AICPA: FN Reporting Bloom's: Remember Difficulty: 1 Easy Learning Objective: 1-3 Topic: Reporting of expenses Essay Questions 51. Explain the essential differences between general purpose and special purpose governments and give several examples of each. General purpose governments are those that provide many categories of services to residents. These include states, counties, municipalities, and townships. Special purpose governments provide only a single or, at most, a few functions. Examples of special purpose governments are special political subdivisions or districts that provide education, drainage and flood control, irrigation, soil and water conservation, fire protection, and water supply. Public colleges and universities are another example. AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 52. Identify and explain the characteristics that distinguish government and not-for-profit entities from business entities. Governmental and not-for-profit entities (nonbusiness entities) do not have owners who expect a return on their investment. Resource providers to these entities do not expect to be repaid or to receive economic benefits in proportion to the resources provided. Government and not-for-profit entities do not operate to make a profit on goods or services provided. On the other hand, business entities do have owners whose interests can be transferred to others and who expect a share of the profits from operating the business and a residual distribution of the net assets in the case of liquidation of the organization (see FASB Concepts Statements). AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-1 Topic: Differences between governmental and for-profit organization 53. GASB and FASB standards are concerned only with external financial reporting; whereas, FASAB standards are concerned with both internal and external financial reporting. Do you agree with this statement? Why or why not? Agree. Both the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) issue standards for external users of financial information—those who lack the authority to prescribe information they want and who must rely on the information management communicates to them. By contrast, the Federal Accounting Standards Advisory Board (FASAB) has identified users who are both internal and external to the government: citizens, the Congress, executives, and program managers. Not surprisingly, then, its standards address both internal and external financial information needs. AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 54. Why should persons interested in reading financial reports of government and not-for-profit entities be familiar with standards set by the GASB and FASB? Financial reports can be read intelligently only by persons who understand the real meaning of the terms used in the reports, and who understand the standards that guide the presentation of financial information. AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 55. Explain in your own words why accountability is the cornerstone of all financial reporting in government. Accountability is based on the belief that the citizenry has a "right to know" about public resources raised during a fiscal period and the purposes for which the resources were used. In a democratic society, public officials have an obligation to be accountable to the public. AACSB: Communication AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Accountability 56. In your own words state the primary uses the GASB believes external users have for financial reports of state and local governments. For contrast, state the uses the FASB believes external users have for the financial reports of not-for-profit organizations. External users of government financial reports, GASB believes, need to (1) compare actual financial results with the legally adopted budget; (2) assess financial condition and results of financial operations; (3) assist in determining compliance with finance-related laws, rules, and regulations; and (4) assist in evaluating efficiency and effectiveness. FASB believes that financial reports of not-for-profit organizations should provide information (1) useful in making resource allocation decisions, (2) useful in assessing services and ability to provide services, (3) useful in assessing management stewardship and performance, and (4) about economic resources, obligations, net resources, and changes in them. AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations 57. Describe the difference between a comprehensive annual financial report (CAFR) and GASB general purpose external financial reporting for state and local governments. By definition, the comprehensive annual financial report (CAFR) is more inclusive than the general purpose external financial information described in GASB standards. The CAFR presents three types of information: (1) introductory material from the entity's management, such as transmittal letters, organizational charts, and awards; (2) financial statements (including the financial information required by GASB); and (3) statistical information, such as demographic information about the entity and summaries of tax rates and property assessed values over time. By contrast, GASB standards require (1) management discussion & analysis (MD&A), (2) government-wide financial statements, (3) fund financial statements, (4) notes to those statements, and (5) other required supplementary information (RSI). AACSB: Communication AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: General purpose external financial report 58. Identify and briefly explain the four sections of the performance and accountability report (PAR) that the Office of Management and Budget requires major federal departments and agencies to prepare. The four parts and an explanation of their content are: 1. The management’s discussion and analysis – it serves as a brief overview of the entire PAR and clearly describes the department or agency’s mission and organizational structure; its performance goals, objectives, and results; analysis of its financial statements; and analysis of information about internal controls and legal compliance. 2. The annual performance report (APR) (or performance section) – it provides information about the agency’s performance and progress in achieving its performance goals. 3. Basic financial statements – these include a balance sheet, statement of net cost (essentially an operating statement format that places expenses over revenues—program costs minus earned revenues = net cost), statement of changes in net position (similar to changes in owners’ equity in business accounting), statement of budgetary resources, statement of custodial activity, and statement of social insurance. 4. Other accompanying information – this includes information such as perspectives on the tax burden, size of the tax gap, challenges facing management, and revenue forgone. AACSB: Communication AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-5 Topic: Required sections of a PAR 59. Explain the concepts fiscal and operational accountability and the basis of accounting used to capture each concept. Fiscal accountability focuses on the short-term flow of resources, or how government has used its resources in the short-term; whereas, operational accountability focuses on the efficient and effective use of resources by the government. To help capture these different types of accountability different bases of accounting are used. Fiscal accountability is captured using the modified accrual basis of accounting where revenues are recognized in the period they are measurable and available for spending and expenditures (not expenses) are recognized when they create an obligation to be paid from current financial resources. Operational accountability is captured using accrual accounting. Under accrual accounting the focus is on the flow of economic resources allowing revenues and expense to be recognized when an exchange of economic resources occurs. AACSB: Communication AICPA: FN Reporting Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-3 Topic: Accountability 60. Describe the comprehensive annual financial report (CAFR). What are the sections of the report and which components of the organization should it include? Is a CAFR required? The CAFR is recommended, but not required. The CAFR is comprised of three sections: (1) introductory section, (2) financial section, and (3) statistical section. All activities of the primary government and its component units should be included in the reporting entity covered by the CAFR. The minimum financial reporting requirements include (1) MD&A, (2) basic financial statements, and (3) required supplementary information other than the MD&A. AACSB: Communication AICPA: BB Industry Bloom's: Understand Difficulty: 2 Medium Learning Objective: 1-4 Topic: Overview of financial reporting for state and local governments, the federal government, and not-for-profit organizations Chapter 03 Governmental Operating Statement Accounts; Budgetary Accounting True / False Questions 1. Fund-based financial statements are intended to provide detailed financial information about the governmental, proprietary, and fiduciary activities of the primary government. True False 2. Government-wide financial statements include financial information for all governmental, proprietary, and fiduciary funds. True False 3. The government-wide statement of net position displays the net expense or revenue for each function or program of the government. True False 4. Program revenues are distinguished from general revenues on the government-wide statement of activities under GASB standards. True False 5. Three categories of program revenues are reported in the statement of activities: charges for services, operating grants and contributions, and capital grants and contributions. True False 6. All purchases of goods and services and all interfund transfers of the General Fund are recorded as Expenditures. True False 7. On the government-wide statement of activities, depreciation expense for assets that essentially benefit all functions, such as the city hall, may be reported as a separate line item or on the same line as the General Government or similar function. True False 8. Expenses represent the costs to purchase goods or services, whereas expenditures represent the costs of goods or services consumed or expired during the period. True False 9. Other financing sources increase fund balance in the same manner as revenues. True False 10. Budgetary accounts used in the General Fund include Estimated Revenues, Estimated Other Financing Sources, Appropriations, Estimated Other Financing Uses, and Encumbrances. True False 11. All encumbrances must be closed at year-end. True False 12. An encumbrance represents the estimated future liability for goods or services resulting from placing a purchase order or signing a contract. True False 13. GASB standards require that all state and local governments present a statement of revenues, expenditures, and changes in fund balances—budget and actual for the General Fund and major special revenue funds for which annual budgets have been legally adopted. True False 14. Available means that a revenue or other financing source is expected to be collected during the current fiscal period or within one month of the fiscal year end. True False 15. The legal level of budgetary control represents the administrative level at which expenditures may not exceed appropriations without a formal budgetary amendment. True False 16. "Available appropriation" is calculated as the difference between appropriations and the sum of expenditures and encumbrances. True False 17. When goods for which an encumbrance has been recorded are received at an invoiced amount that varies from the amount encumbered, the encumbrance is reversed in the amount of the actual invoiced cost of the goods. True False 18. An allotment may be described as an internal allocation of funds on a periodic basis usually agreed upon by the department heads and the chief executive. True False 19. In the GASB reporting model, extraordinary items and special items must be reported as separate line items below General Revenues in the statement of activities to distinguish these nonrecurring items from normal recurring general revenues. True False 20. The numerical difference between (1) current assets and deferred outflows and (2) current liabilities and deferred inflows recorded in governmental funds is denoted as net position. True False 21. Encumbrance accounting is required in the accounting for payroll of governmental funds. True False 22. When an activity accounted for by the General Fund results in issuance of purchase orders or contracts for goods or services a record must be kept, but no journal entries in the General Fund are necessary. True False 23. An interim schedule comparing the detail of appropriations, expenditures, and encumbrances should be prepared on an appropriate periodic basis to determine whether appropriations are being expended at the expected rate for the period and for the budget year to date. True False   Multiple Choice Questions 24. Which of the following best describes the recommended format for the government-wide statement of activities? A. Program revenues minus expenses minus other revenues and expenses equals change in net position. B. Program revenues plus general revenues minus expenses equals change in net position. C. Program revenues minus expenses plus general revenues equals change in net position. D. Expenses minus program revenues plus general revenues equals change in net position. 25. Which of the following statements is not a true statement about expenses that are directly related to a government function or program? A. They are reported in the government-wide statement of activities at the government-wide level. B. They include expenses that are specifically associated with a function or program. C. They include interest on general long-term liabilities. D. They include depreciation expense on capital assets that are clearly identified with a function or program. 26. Which of the following is not a category of program revenue reported on the statement of activities at the government-wide level? A. General program revenues. B. Charges for services. C. Operating grants and contributions. D. Capital grants and contributions. 27. Extraordinary items and special items are reported on the government-wide statement of activities A. With normal recurring general revenues. B. As separate line items in the Function/Programs section of the statement of activities. C. As separate line items below General Revenues in the statement of activities. D. As separate line items above General Revenues. 28. Which of the following items would not appear in a statement of revenues, expenditures, and changes in fund balances prepared for a governmental fund? A. Depreciation expense. B. Interfund transfers in. C. Revenues from property taxes. D. Expenditures for employee salaries. 29. Which of the following would always be classified as a general revenue? A. Grant proceeds. B. Special assessment charges for snow removal. C. Library fines. D. Fuel taxes earmarked for maintenance of roads and bridges. 30. Which of the following is not a budgetary account? A. Encumbrances. B. Encumbrances Outstanding. C. Estimated Revenues. D. Appropriations. 31. When the budget for the General Fund is recorded, the required journal entry will include: A. A credit to Estimated Revenues. B. A debit to Encumbrances. C. A credit to Appropriations. D. A credit to Fund Balance. 32. When the budget of a government is recorded and Appropriations exceeds Estimated Revenues, the Budgetary Fund Balance account is A. Credited at the beginning of the year and debited at the end of the year. B. Credited at the beginning of the year and no entry is made at the end of the year. C. Debited at the beginning of the year and no entry is made at the end of the year. D. Debited at the beginning of the year and credited at the end of the year. 33. Which of the following accounts is a budgetary account of a governmental fund? A. Encumbrances Outstanding. B. Appropriations. C. Expenditures. D. Other Financing Sources. 34. The Estimated Revenues control account of a government is credited when Budgetary accounts are closed Revenues are recorded A) Yes No B) No No C) No Yes D) Yes Yes A. Choice A. B. Choice B. C. Choice C. D. Choice D. 35. Under the modified accrual basis of accounting used by the General Fund, financial resources are considered available if the revenue or other financing source is expected to be collected: A. Within 60 days after year-end. B. Within 90 days after year-end. C. During the current fiscal period. D. During the current fiscal period or a reasonable time after year-end defined by each individual government. 36. Which of the following accounts of a government is credited when a purchase order is approved? A. Encumbrances. B. Encumbrances Outstanding. C. Vouchers Payable. D. Appropriations. 37. The Expenditures control account of a government is debited when: A. The supplies budget is recorded. B. Supplies are ordered. C. Supplies previously encumbered are received. D. The invoice for supplies is paid. 38. Which of the following is true regarding other financing sources and other financing uses? A. Both must be reported separately from revenues and expenditures in the statement of revenues, expenditures, and changes in fund balances. B. These terms are used to distinguish program revenues or expenses from general revenues or expenses. C. These terms are used for minor revenue or expenditure items that are peripheral to the government's mission. D. Other financing sources are equivalent to gains and other financing uses are equivalent to losses. 39. Under which basis of accounting for a government should revenues be recognized in the period when they are measurable and available? Accrual basis Modified accrual basis A) Yes No B) No No C) No Yes D) Yes Yes A. Choice A. B. Choice B. C. Choice C. D. Choice D. 46. Which of the following depict the typical order of steps in the acquisition of goods and services by an activity accounted for by the General Fund generally occurs first? A. Appropriation, disbursement, encumbrance, expenditure. B. Appropriation, encumbrance, expenditure, disbursement. C. Encumbrance, appropriation, expenditure, disbursement. D. Encumbrance, appropriation, expenditure, disbursement. 47. When equipment that is to be used by the General Fund is received, how should it be recorded? A. Capital Asset. B. Appropriation. C. Encumbrances. D. Expenditure. 48. The journal entry to record budgeted revenues will include A. A debit to Estimated Revenues. B. A credit to Estimated Revenues. C. A debit to Revenues Receivable. D. Only a memorandum entry is necessary. 49. The County Commission of Seminole County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $13,200,000 and appropriations of $12,900,000. Seminole County utilizes the budgetary accounts required by GASB standards. The journal entry to record budgeted appropriations will include: A. A credit to Appropriations, $12,900,000. B. A credit to Encumbrances, $12,900,000. C. A debit to Estimated Expenditures, $12,900,000. D. A credit to Budgetary Fund Balance, $12,900,000. 50. One characteristic that distinguishes other financing sources from revenues is that other financing sources: A. Arise from debt issuances or interfund transfers in. B. Increase fund balances when they are closed at year-end. C. Provide financial resources for the recipient fund. D. Have a normal credit balance. 51. The process by which a legal valuation is placed on taxable property is called: A. An appropriation. B. A property tax levy. C. Property assessment. D. Ad valorem determination. 52. The County Commission of Canyon County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $13,200,000 and appropriations of $12,900,000. The budgeted excess of estimated revenues over appropriations will be recorded as A A credit to Surplus Revenues, $300,000. B. A debit to Estimated Excess Revenues, $300,000. C. A credit to Budgetary Fund Balance, $300,000. D. A memorandum entry only. 53. When the budget for the General Fund is recorded, the required journal entry will include: A. A credit to Estimated Revenues. B. A debit to Encumbrances. C. A debit to Appropriations. D. Either a debit or credit to Budgetary Fund Balance, as appropriate. 54. Fund balance may be classified as all of the following except: A. Restricted. B. Committed. C. Uncommitted. D. Assigned. 55. Which of the following neither increases nor decreases fund balance of the General Fund during the current period? A. Deferred inflows of resources. B. Revenues. C. Expenditures. D. Other financing sources. 56. The expenditure classification "Current Expenditures" is an example of which of the following types of classifications? A. Activity. B. Character. C. Function. D. Object. 57. Which of the following statements is true regarding the required disclosure of budgetary information? A. All budgetary disclosures should be presented in the notes to the financial statements. B. There is one specific format for presenting the budgetary comparison statement. C. Budgetary comparisons may be presented as a statement or as required supplementary information (RSI). D. The budgetary reconciliation must focus on the operating statement, but not the statement of position. 58. The Encumbrances control account of a city is decreased when Goods are ordered Goods are received A) Yes No B) No No C) No Yes D) Yes Yes A. Choice A. B. Choice B. C. Choice C. D. Choice D. 59. Under the modified accrual basis of accounting, expenditures generally are not recognized until: A. They are paid in cash. B. An obligation is incurred that will be paid from currently available financial resources. C. Goods or services are ordered. D. They are approved by the legislative body. 60. Which of the following fund types uses the current financial resources measurement focus and modified accrual basis of accounting? A. Enterprise fund. B. Special revenue fund. C. Investment trust fund. D. Pension trust fund. 61. Which of the following will increase the fund balance of a government at the end of the fiscal year? A. The sum of revenues and other financing sources is more than the sum of expenditures and other financing uses. B. Expenditures are more than the difference between revenues and the excess of other financing sources over other financing uses. C. Revenues are less than the sum of expenditures, other financing sources, and other financing uses. D. The sum of fund balance, revenues, and other financing sources is more than the sum of expenditures and other financing uses. 62. A liability is recorded in governmental funds when: A. Goods or services are ordered. B. Goods or services are received and the invoice is vouchered. C. Invoices are paid. D. The appropriation is reduced. 63. Which of the following terms refers to an actual cost rather than an estimate? A. Budget. B. Encumbrance. C. Expenditure. D. Appropriation. 64. For what funds do budgetary comparisons need to be presented in connection with the basic financial statements? A. General Fund. B. General Fund and all major funds. C. All governmental funds with legally adopted annual budgets. D. General Fund and major special revenue funds for which a budget is legally adopted.   65. When computers are ordered by the mayor's office, the purchase order should be recorded in the General Fund as a debit to: A. Encumbrances. B. Equipment. C. Expenditures. D. Appropriations. 66. If supplies that were ordered by a department financed by the General Fund are received at an actual price that is less than the estimated price on the purchase order, the department’s available balance of appropriations for supplies will be: A. Decreased. B. Increased. C. Unaffected. D. Either a or b, depending on the department’s specific budgetary control procedures. 67. The Appropriations account of a governmental fund is credited when: A. The budgetary accounts are closed. B. The budget is recorded. C. Supplies are purchased. D. Expenditures are recorded. 68. If a state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by generally accepted accounting principles (GAAP): A. The actual amounts in the budgetary comparison schedule should be reported using the government's budgetary basis. B. The actual amounts in the budgetary comparison schedule should be reported on the GAAP basis. C. Both the budgeted and actual amounts in the budgetary comparison schedule should be reported on the GAAP basis; a separate budget-basis comparison schedule should be prepared for the appropriate state oversight body. D. Only a budgetary comparison schedule prepared for the appropriate state oversight body is required.   69. The Expenditures control account of a government is credited when: A. Supplies are ordered. B. Supplies previously encumbered are received. C. The budget is recorded. D. Temporary accounts are closed out at the end of the year. 70. The Encumbrances account is properly termed a A. Long-term liability. B. Reservation of unassigned fund balance. C. Budgetary account. D. Current liability if paid within a year; otherwise, long-term debt. Short Answer Questions 71. GASB standards suggest the following classification scheme for expenditures: A. Function B. Program C. Organization unit D. Activity E. Character F. Object For each of the following expenditure items, indicate its correct classification by placing the appropriate letter in the blank space next to the item. ____ 1.Streetlight repair ____ 2.City clerk ____ 3.Salaries and wages ____ 4.Transportation ____ 5.Current operating expenditures 72. The revenue classifications recommended by GASB standards are listed below: A. Taxes B. Licenses and permits C. Intergovernmental revenue D. Charges for services E. Fines and forfeits F. Miscellaneous For each revenue source listed below indicate its correct classification by placing the appropriate letter in the blank space next to the item. ____ 1. Capital grant received by a city from a state ____ 2. Property tax levied by city ____ 3. Library use fees ____ 4. Building permit ____ 5. Speeding ticket 73. The Fort Worth city council approved and adopted its budget for FY 2017. The budget for the General Fund contained the following amounts: Estimated revenues $1,900,000 Appropriations 1,860,000 Authorized transfer to the debt service fund 30,000 When the General Fund budget for FY 2017 is recorded, indicate whether each of the following accounts should be debited (D), credited (C), or is not affected (N). _____ 1. Estimated revenues _____ 2. Budgetary Fund balance _____ 3. Appropriations _____ 4. Estimated other financing uses _____ 5. Expenditures 74. The City of Timberline recorded its FY 2017 property tax levy in the General Fund. It was estimated that $60,000 would be uncollectible. When the tax levy is recorded, indicate whether each of the following acco