ACCT 4421 Exam 3 Review UPDATED
ACTUAL Exam Questions and CORRECT
Answers
In both the fund statements and the government-wide statements, business-type activities and
internal service funds are on a full accrual basis, and their measurement focus is on all economic
resources - CORRECT ANSWER -T
The operating statement required as one of the three basic financial statements for proprietary
funds is called the statement of revenues, expenditures, and changes in net position - CORRECT
ANSWER -F
The amounts reported in proprietary fund statements are generally the same as those reported in
the government-wide statements because both sets of statements are on a full accrual basis of
accounting - CORRECT ANSWER -T
Governments are required to prepare a statement of cash flows for proprietary funds, but not for
governmental funds - CORRECT ANSWER -T
GASB Statement No. 34 mandates that governments report their cash flows from operations
using the indirect method - CORRECT ANSWER -F
The FASB mandates that entities report their cash flows from operations using the direct method
- CORRECT ANSWER -F
Governments generally do not have to get formal legislative approval for enterprise fund budgets
or incorporate them into their accounting systems - CORRECT ANSWER -T
In accounting for closure and postclosure landfill costs in an enterprise fund, a government does
not necessarily have to "fund" the costs during the landfill's useful life; it merely has to report
both an expense and a liability for them - CORRECT ANSWER -T
,The revenues of an internal service fund are the expenditures and expenses of other funds of that
government - CORRECT ANSWER -T
The proprietary fund operating statement includes ALL changes in net position including capital
contributions - CORRECT ANSWER -T
Governments must account for an activity in an enterprise fund only if local laws specifically
require use of an enterprise fund - CORRECT ANSWER -F
Governments are not required to incorporate proprietary fund budgets into the accounting system
- CORRECT ANSWER -T
GASB standards require that governments advance fund landfill closure and postclosure costs on
an actuarial basis similar to the advance funding of pension plans - CORRECT
ANSWER -F
The costs of cleaning up toxic substances seeping out from an abandoned county dump into the
town water supply may be accounted for in either a governmental fund or an enterprise fund -
CORRECT ANSWER -T
Internal service funds should be consolidated with other governmental funds in the government-
wide statements - CORRECT ANSWER -F
Governments may choose whether to account for internal service fund activities on an accrual
basis or a modified accrual basis - CORRECT ANSWER -F
The appropriate measurement focus for the business-type activities of the Raymond City is
A. Current financial resources
B. Economic resources
C. Both (a) and (b)
,D. None of the above - CORRECT ANSWER -B
Which of the following is not a proprietary fund?
A. City Water Enterprise Fund
B. City Motor Pool Internal Service Fund
C. City Hall Capital Projects Fund
D. None of the above. They are all proprietary funds - CORRECT ANSWER -C
The appropriate basis of accounting for the proprietary funds of a government is
A. Cash basis
B. Modified accrual
C. Full accrual
D. None of the above - CORRECT ANSWER -C
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 ANSWER -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 ANSWER -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
ANSWER -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 ANSWER -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 ANSWER -D
ACTUAL Exam Questions and CORRECT
Answers
In both the fund statements and the government-wide statements, business-type activities and
internal service funds are on a full accrual basis, and their measurement focus is on all economic
resources - CORRECT ANSWER -T
The operating statement required as one of the three basic financial statements for proprietary
funds is called the statement of revenues, expenditures, and changes in net position - CORRECT
ANSWER -F
The amounts reported in proprietary fund statements are generally the same as those reported in
the government-wide statements because both sets of statements are on a full accrual basis of
accounting - CORRECT ANSWER -T
Governments are required to prepare a statement of cash flows for proprietary funds, but not for
governmental funds - CORRECT ANSWER -T
GASB Statement No. 34 mandates that governments report their cash flows from operations
using the indirect method - CORRECT ANSWER -F
The FASB mandates that entities report their cash flows from operations using the direct method
- CORRECT ANSWER -F
Governments generally do not have to get formal legislative approval for enterprise fund budgets
or incorporate them into their accounting systems - CORRECT ANSWER -T
In accounting for closure and postclosure landfill costs in an enterprise fund, a government does
not necessarily have to "fund" the costs during the landfill's useful life; it merely has to report
both an expense and a liability for them - CORRECT ANSWER -T
,The revenues of an internal service fund are the expenditures and expenses of other funds of that
government - CORRECT ANSWER -T
The proprietary fund operating statement includes ALL changes in net position including capital
contributions - CORRECT ANSWER -T
Governments must account for an activity in an enterprise fund only if local laws specifically
require use of an enterprise fund - CORRECT ANSWER -F
Governments are not required to incorporate proprietary fund budgets into the accounting system
- CORRECT ANSWER -T
GASB standards require that governments advance fund landfill closure and postclosure costs on
an actuarial basis similar to the advance funding of pension plans - CORRECT
ANSWER -F
The costs of cleaning up toxic substances seeping out from an abandoned county dump into the
town water supply may be accounted for in either a governmental fund or an enterprise fund -
CORRECT ANSWER -T
Internal service funds should be consolidated with other governmental funds in the government-
wide statements - CORRECT ANSWER -F
Governments may choose whether to account for internal service fund activities on an accrual
basis or a modified accrual basis - CORRECT ANSWER -F
The appropriate measurement focus for the business-type activities of the Raymond City is
A. Current financial resources
B. Economic resources
C. Both (a) and (b)
,D. None of the above - CORRECT ANSWER -B
Which of the following is not a proprietary fund?
A. City Water Enterprise Fund
B. City Motor Pool Internal Service Fund
C. City Hall Capital Projects Fund
D. None of the above. They are all proprietary funds - CORRECT ANSWER -C
The appropriate basis of accounting for the proprietary funds of a government is
A. Cash basis
B. Modified accrual
C. Full accrual
D. None of the above - CORRECT ANSWER -C
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 ANSWER -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 ANSWER -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
ANSWER -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 ANSWER -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 ANSWER -D
