Question 1

Governments must combine their discretely presented component units into both the fund and the government-wide statements.

Accepted Answer

Governments are required to combine their discretely presented component units only in the government-wide financial statements, not in the fund financial statements.

Question 2

Which of the following is a necessary characteristic of a component unit?
A)It is fiscally dependent on a primary government.
B)The primary government provides services that are used by both organizations.
C)The primary government can impose its will on the unit or the unit has the potential to provide a financial benefit to or impose a financial burden on the primary government.
D)The primary government appoints a voting majority of the component unit's governing body or a voting majority of the unit's governing body is composed of officials of the primary government.

Accepted Answer

D

Question 3

Which of the following is necessary for a special-purpose local government to be considered a primary government?
A)It must operate for a single purpose.
B)It must have a separately elected governing body.
C)It must tax its citizens with ad valorem taxes.
D)It must be fiscally dependent on another government.

Accepted Answer

A special-purpose local government must have a separately elected governing body to be considered a primary government, as this is one of the criteria outlined by the Governmental Accounting Standards Board (GASB). The other options listed are not necessary for a special-purpose local government to be considered a primary government.

Question 4

The financial reporting entity is composed of
A)The primary government.
B)The primary government and all legally separate governments for which the primary government is financially accountable.
C)The primary government and all legally separate organizations for which the primary government is financially accountable.
D)The primary government, all legally separate organizations for which the primary government is financially accountable, and any organizations whose omission would cause the primary government's financial statements to be misleading or incomplete.

Accepted Answer

The financial reporting entity includes the primary government, all legally separate organizations for which the primary government is financially accountable, and any organizations whose exclusion would lead to incomplete or misleading financial statements. This comprehensive approach ensures transparency and accountability in public sector financial reporting.

Question 5

It is unacceptable for a special-purpose government that is a component unit of a general-purpose government to issue its own "stand-alone" financial report.

Accepted Answer

It is acceptable for a special-purpose government that is a component unit of a general-purpose government to issue its own "stand-alone" financial report, as long as it also includes a note or disclosure in the general-purpose government's financial report stating that the special-purpose government's financial report is an integral part of the overall financial reporting entity.

Question 6

Which of the following is necessary for a government to be considered fiscally independent?
A)It must be able to hire its own management.
B)It must be able to issue bonds that are tax-exempt.
C)It must not be subsidized by another government.
D)It must be able to levy taxes and/or set rates for its services.

Accepted Answer

For a government to be considered fiscally independent, it must have the ability to generate revenue through taxes and/or set rates for its services. This allows it to fund its operations and be less reliant on subsidies or external funding. While the ability to hire its own management and issue tax-exempt bonds may contribute to its financial stability, they are not necessary factors for fiscal independence.

Question 7

A related organization is a contractual arrangement whereby two or more participants agree to carry out a common activity and share its risks and rewards.

Accepted Answer

The answer of A related organization is a contractual arrangement...

Question 8

Governments must combine their blended component units into both the fund and government-wide statements.

Accepted Answer

The Governmental Accounting Standards Board (GASB) requires governments to prepare and present both fund financial statements and government-wide financial statements. In order to accurately present a government's financial position and financial performance, the GASB requires that component units be combined into both statements. This ensures that the financial statements provide a complete picture of the government's financial activity.

Question 9

The Marigold School District, a legally separate school district that has a separately elected governing body, cannot enter into any debt agreements without the approval of the county commission.Marigold School District would be considered a(n):
A)Primary government.
B)Component unit.
C)Related organization.
D)Affiliated organization.

Accepted Answer

The answer of The Marigold School District, a legally separate...

Question 10

Required notes are an essential element of the basic financial statements.

Accepted Answer

Required notes, also known as disclosures, provide important additional information about an entity's financial position, performance, and cash flows. They are an integral part of the basic financial statements and are required by accounting standards.

Question 11

Public colleges and universities must adhere to the same GASB pronouncements as other types of governments.

Accepted Answer

Public colleges and universities are considered government entities and are required to follow the same accounting and financial reporting standards set by the Governmental Accounting Standards Board (GASB) as other types of governments.

Question 12

One ratio measure of fiscal effort is Revenue from own sources/Intergovernmental revenues.

Accepted Answer

The answer of One ratio measure of fiscal effort is...

Question 13

There are only two government-wide statements: the statement of net position and the statement of activities.

Accepted Answer

This is true. The statement of net position shows the government's assets, liabilities, and net position at a specific point in time, while the statement of activities shows the revenues, expenses, gains, and losses over a period of time.

Question 14

When a component unit is blended into the financial statements of a primary government, the resulting fund financial statements will include two general funds.

Accepted Answer

When a component unit is blended into the financial statements of a primary government, the resulting fund financial statements will only include one general fund. The component unit's general fund will become part of the primary government's general fund.

Question 15

The typical audit is designed to cover all information included in the CAFR.

Accepted Answer

The answer of The typical audit is designed to cover...

Question 16

Required supplementary information (RSI)is considered part of the basic financial statements.

Accepted Answer

Required supplementary information (RSI) is not considered part of the basic financial statements, but rather is presented in a separate section after the basic financial statements. It provides additional information that is required by accounting standards or by contractual agreements, but is not necessary for users to understand the financial position and performance of an entity.

Question 17

The comprehensive annual financial report (CAFR)is divided into three main sections: the table of contents section, the auditors' report section, and the financial section.

Accepted Answer

The CAFR is divided into three main sections: the introductory section, the financial section, and the statistical section, not as described in the question.

Question 18

Internal service funds are presented in a single column in the proprietary fund financial statements, even if one or more of them is a major fund.

Accepted Answer

Internal service funds are presented in a single column in the proprietary fund financial statements, regardless of whether they are major or non-major funds.

Question 19

A primary government can impose its will on a potential component unit if it has the authority to modify or approve the unit's budget.

Accepted Answer

If the primary government has the authority to modify or approve the unit's budget, it can use that power to enforce its will on the component unit.

Question 20

Which of the following is NOT a primary government?
A)A state government.
B)A general-purpose local government with the ability to determine its own budget.
C)A general-purpose local government whose tax levies must be approved by the state.
D)A special-purpose local government whose tax levies must be approved by the state.

Accepted Answer

Primary governments are typically defined as state governments, general-purpose local governments (regardless of whether their tax levies need state approval), and any other entities that have standalone financial statements. Special-purpose local governments, which serve specific functions and whose tax levies must be approved by the state, do not fit the definition of a primary government as they lack the general governmental powers and autonomy of the entities classified as primary governments.

Quiz 11: Issues of Reporting, Disclosure, and Financial Analysis