, Question 1
A city's General Fund reports property tax revenue of $10 million on the
budgetary basis, but the government-wide statement of activities reports $10.5
million. The difference is due to a $0.5 million property tax levy expected to be
collected more than 60 days after year-end. Under GASB standards, how
should this difference be reconciled?
A. Add $0.5 million to governmental fund revenue to arrive at
government-wide revenue.
B. Subtract $0.5 million from governmental fund revenue to arrive at
government-wide revenue.
C. The $0.5 million is reported as deferred inflow of resources in the
government-wide statements.
D. The $0.5 million is recognized as revenue in both governmental fund
and government-wide statements.
Correct Answer: A - Add $0.5 million to governmental fund
revenue to arrive at government-wide revenue.
RATIONALE
Governmental funds recognize property tax revenue when available
(collected within 60 days), so the $0.5 million is not recognized in the
fund statements. Government-wide statements accrue revenue when
assessed, so the $0.5 million is added in reconciliation. Option B is
incorrect because the fund statements are lower. Option C is incorrect
because it is recognized as revenue, not deferred. Option D is incorrect
because fund statements do not recognize it.
Question 2
A nonprofit receives a $100,000 grant restricted for a specific research project.
During the year, $60,000 of allowable expenses are incurred. Under FASB
ASC 958, how should the nonprofit report this grant and related expenses?
A. Report $100,000 as revenue with donor restriction and $60,000 as
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, expenses without donor restriction.
B. Report $100,000 as revenue without donor restriction and $60,000 as
expenses with donor restriction.
C. Report $60,000 as revenue without donor restriction and $60,000 as
expenses without donor restriction.
D. Report $100,000 as revenue with donor restriction and release $60,000
from restriction, reporting $60,000 as expenses without donor restriction.
Correct Answer: D - Report $100,000 as revenue with donor
restriction and release $60,000 from restriction, reporting $60,000
as expenses without donor restriction.
RATIONALE
Under FASB ASC 958, contributions with donor restrictions are
initially reported as revenue with donor restrictions. When expenses
are incurred for the restricted purpose, the restriction is released, and
expenses are reported as without donor restriction. Option A fails to
release the restriction. Option B incorrectly classifies revenue as
without restriction. Option C understates revenue.
Question 3
A state government issues $5 million in general obligation bonds at a premium
of $200,000. The bonds are used to finance construction of a new bridge.
Which fund should record the bond proceeds and premium, and how should
they be reported?
A. Capital Projects Fund: Other financing sources-bonds $5,000,000 and
premium $200,000.
B. Debt Service Fund: Other financing sources-bonds $5,200,000.
C. General Fund: Revenue-bonds $5,200,000.
D. Enterprise Fund: Long-term liability $5,200,000.
Correct Answer: A - Capital Projects Fund: Other financing
sources-bonds $5,000,000 and premium $200,000.
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, RATIONALE
Bond proceeds for capital construction are recorded in the Capital
Projects Fund as other financing sources, with any premium also
reported as an other financing source. Option B is incorrect because
debt service funds account for repayment, not issuance. Option C is
incorrect because bonds are not revenue. Option D is incorrect because
enterprise funds are for business-type activities.
Question 4
A county's General Fund has an encumbrance of $50,000 for a purchase order.
The goods are received at a cost of $48,000. Which entry correctly records the
receipt of goods and reversal of encumbrance?
A. Debit Expenditures $48,000; Credit Accounts Payable $48,000; Debit
Encumbrances $50,000; Credit Encumbrances Outstanding $50,000.
B. Debit Expenditures $50,000; Credit Accounts Payable $48,000; Credit
Encumbrances $2,000.
C. Debit Encumbrances $50,000; Credit Expenditures $48,000; Credit
Accounts Payable $2,000.
D. Debit Expenditures $48,000; Credit Accounts Payable $48,000; Debit
Encumbrances Outstanding $50,000; Credit Encumbrances $50,000.
Correct Answer: D - Debit Expenditures $48,000; Credit
Accounts Payable $48,000; Debit Encumbrances Outstanding
$50,000; Credit Encumbrances $50,000.
RATIONALE
The encumbrance is reversed by debiting Encumbrances Outstanding
and crediting Encumbrances for the original amount. Expenditures are
recorded at actual cost. Option A reverses the encumbrance
incorrectly. Option B records expenditure at the encumbered amount.
Option C misstates the accounts.
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A city's General Fund reports property tax revenue of $10 million on the
budgetary basis, but the government-wide statement of activities reports $10.5
million. The difference is due to a $0.5 million property tax levy expected to be
collected more than 60 days after year-end. Under GASB standards, how
should this difference be reconciled?
A. Add $0.5 million to governmental fund revenue to arrive at
government-wide revenue.
B. Subtract $0.5 million from governmental fund revenue to arrive at
government-wide revenue.
C. The $0.5 million is reported as deferred inflow of resources in the
government-wide statements.
D. The $0.5 million is recognized as revenue in both governmental fund
and government-wide statements.
Correct Answer: A - Add $0.5 million to governmental fund
revenue to arrive at government-wide revenue.
RATIONALE
Governmental funds recognize property tax revenue when available
(collected within 60 days), so the $0.5 million is not recognized in the
fund statements. Government-wide statements accrue revenue when
assessed, so the $0.5 million is added in reconciliation. Option B is
incorrect because the fund statements are lower. Option C is incorrect
because it is recognized as revenue, not deferred. Option D is incorrect
because fund statements do not recognize it.
Question 2
A nonprofit receives a $100,000 grant restricted for a specific research project.
During the year, $60,000 of allowable expenses are incurred. Under FASB
ASC 958, how should the nonprofit report this grant and related expenses?
A. Report $100,000 as revenue with donor restriction and $60,000 as
Page 2
, expenses without donor restriction.
B. Report $100,000 as revenue without donor restriction and $60,000 as
expenses with donor restriction.
C. Report $60,000 as revenue without donor restriction and $60,000 as
expenses without donor restriction.
D. Report $100,000 as revenue with donor restriction and release $60,000
from restriction, reporting $60,000 as expenses without donor restriction.
Correct Answer: D - Report $100,000 as revenue with donor
restriction and release $60,000 from restriction, reporting $60,000
as expenses without donor restriction.
RATIONALE
Under FASB ASC 958, contributions with donor restrictions are
initially reported as revenue with donor restrictions. When expenses
are incurred for the restricted purpose, the restriction is released, and
expenses are reported as without donor restriction. Option A fails to
release the restriction. Option B incorrectly classifies revenue as
without restriction. Option C understates revenue.
Question 3
A state government issues $5 million in general obligation bonds at a premium
of $200,000. The bonds are used to finance construction of a new bridge.
Which fund should record the bond proceeds and premium, and how should
they be reported?
A. Capital Projects Fund: Other financing sources-bonds $5,000,000 and
premium $200,000.
B. Debt Service Fund: Other financing sources-bonds $5,200,000.
C. General Fund: Revenue-bonds $5,200,000.
D. Enterprise Fund: Long-term liability $5,200,000.
Correct Answer: A - Capital Projects Fund: Other financing
sources-bonds $5,000,000 and premium $200,000.
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, RATIONALE
Bond proceeds for capital construction are recorded in the Capital
Projects Fund as other financing sources, with any premium also
reported as an other financing source. Option B is incorrect because
debt service funds account for repayment, not issuance. Option C is
incorrect because bonds are not revenue. Option D is incorrect because
enterprise funds are for business-type activities.
Question 4
A county's General Fund has an encumbrance of $50,000 for a purchase order.
The goods are received at a cost of $48,000. Which entry correctly records the
receipt of goods and reversal of encumbrance?
A. Debit Expenditures $48,000; Credit Accounts Payable $48,000; Debit
Encumbrances $50,000; Credit Encumbrances Outstanding $50,000.
B. Debit Expenditures $50,000; Credit Accounts Payable $48,000; Credit
Encumbrances $2,000.
C. Debit Encumbrances $50,000; Credit Expenditures $48,000; Credit
Accounts Payable $2,000.
D. Debit Expenditures $48,000; Credit Accounts Payable $48,000; Debit
Encumbrances Outstanding $50,000; Credit Encumbrances $50,000.
Correct Answer: D - Debit Expenditures $48,000; Credit
Accounts Payable $48,000; Debit Encumbrances Outstanding
$50,000; Credit Encumbrances $50,000.
RATIONALE
The encumbrance is reversed by debiting Encumbrances Outstanding
and crediting Encumbrances for the original amount. Expenditures are
recorded at actual cost. Option A reverses the encumbrance
incorrectly. Option B records expenditure at the encumbered amount.
Option C misstates the accounts.
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