Question 1

The governmental funds category includes the General Fund,special revenue funds,debt service funds,capital projects funds,and internal service funds.

Accepted Answer

The first four fund types are correct. Internal service funds are not governmental funds but rather are included in the proprietary funds category. However, financial information for internal service funds is typically reported in the governmental activities column of the government-wide financial statements.

Question 2

Individual fund financial information is reported in separate columns of governmental and proprietary fund financial statements for only those funds that meet the GASB size-related criteria as major funds.

Accepted Answer

While it is true that only major funds are reported in separate columns of the fund financial statements mentioned, funds that do not meet the 10 percent and 5 percent criteria may also be reported as major if government managers feel they are of significant importance to financial statement users.

Question 3

Governments can,in part,demonstrate operational accountability by reporting proprietary and fiduciary fund financial information,as well as all government-wide financial information,using an economic resources measurement focus and the accrual basis of accounting.

Accepted Answer

Using an economic resources measurement focus and the accrual basis of accounting contributes to operational accountability by helping assess the cost of government operations. Such information, when combined with nonfinancial information about service outputs and outcomes, facilitates assessment of operational accountability.

Question 4

All capital assets acquired by or used by a fund should be reported in the fund balance sheet or statement of net position.

Accepted Answer

Proprietary and fiduciary funds report their capital assets in their respective statement of net position. Capital assets used by or acquired by governmental funds, however, are called general capital assets and are not reported in the balance sheet of governmental funds. Rather, general capital assets are reported in the Governmental Activities column of the government-wide financial statements.

Question 5

Governments must present three sets of fund financial statements.

Accepted Answer

In addition to government-wide statements, governments must also present three sets of fund financial statements - one set for each of the three fund categories: governmental, proprietary, and fiduciary.

Question 6

Because budgetary accounts are used by governments,their financial statements can never be said to be in accord with generally accepted accounting principles.

Accepted Answer

The Budgeting and Budgetary Control principle requires the accounting system to provide the basis for budgetary control, as described in the Appendix to Chapter 2. The Budgetary Reporting principle also requires that budgetary comparisons be presented as required supplementary information (RSI) for the General Fund and each major special revenue fund that has a legally adopted annual budget. Thus, to utilize budgetary accounts and include budgetary comparisons in financial statements is to be in conformity with GAAP.

Question 7

Economic resources are cash or items expected to be converted into cash during the current period,or soon enough thereafter to pay current period liabilities.

Accepted Answer

The definition provided describes current financial resources, not economic resources. Governmental type funds report on the inflows and outflows of current financial resources; proprietary and fiduciary funds report on the inflows and outflows of economic resources.

Question 8

Expenditures are never recorded in governmental funds.

Accepted Answer

Under the modified accrual basis of accounting, expenditures are recorded in governmental funds, but expenses are not.

Question 9

A debt service fund is used to account for financial resources segregated for the purpose of making principal and interest payments on general long-term debt.

Accepted Answer

When revenues are legally restricted by external resource providers or committed by enabling legislation for particular operating purposes, such as the operation of a library or maintenance of roads and bridges, a special revenue fund is created.

Question 10

In accounting for state and local governments the modified accrual basis is required for
A) Proprietary and fiduciary funds.
B) Governmental funds only.
C) Proprietary funds only.
D) All funds.

Accepted Answer

The modified accrual basis is required for accounting for state and local governmental funds only. This includes the general fund, special revenue funds, debt service funds, capital projects funds, and permanent funds. Proprietary and fiduciary funds use the full accrual basis.

Question 11

Governmental funds are identical to governmental activities,proprietary funds are identical to business-type activities,and fiduciary funds are identical to fiduciary activities of a government.

Accepted Answer

There is a similarity among these pairs of terms; however, they are not a one-to-one match. For example, activities and funds may use different measurement focuses and bases of accounting; and the internal service fund is a proprietary fund, but most often will be reported along with governmental activities, not business-type activities.

Question 12

A deferred inflow is defined as "an acquisition of net assets by the government that is applicable to a future reporting period."

Accepted Answer

This definition is consistent with that found in Chapter 2.

Question 13

The accounting system used by a state or local government must make it possible
A) To present fairly the financial position and results of financial operations of the government as a whole,as well as fund financial activity in conformity with GAAP.
B) To prepare financial statements as required by the Financial Accounting Standards Board.
C) To prepare consolidated accrual basis statements for the government as a whole.
D) To provide Web-based bond offering statements to investment firms.

Accepted Answer

The accounting system for a state or local government must be in compliance with Generally Accepted Accounting Principles (GAAP) and should provide a fair presentation of the financial position and the results of the financial operations of the government as a whole and fund financial activity. Other options mentioned in the choices such as preparing financial statements required by the Financial Accounting Standards Board or providing web-based bond offering statements are not the primary objectives of the accounting system for a state or local government.

Question 14

Governmental funds account for assets but not the liabilities.

Accepted Answer

Under the modified accrual basis of accounting, governmental funds account for current assets and liabilities but not long-term assets or liabilities.

Question 15

Which of the following is not a characteristic of a fund as defined by GASB standards?
A) An accounting entity.
B) A fiscal entity.
C) A segregated quantity of cash and other financial resources on deposit with a designated trustee.
D) A self-balancing set of accounts.

Accepted Answer

While the other choices are characteristics of a fund as defined by GASB standards, a segregated quantity of cash and other financial resources on deposit with a designated trustee is actually a definition of a trust. A fund is a fiscal and accounting entity that is self-balancing and includes a set of accounts and related records.

Question 16

When revenues are legally restricted by external resource providers or committed by enabling legislation for particular operating purposes,a private purpose trust fund is created.

Accepted Answer

When revenues are legally restricted by external resource providers or committed by enabling legislation for particular operating purposes, such as the operation of a library or maintenance of roads and bridges, a special revenue fund is created.

Question 17

Which of the following is a difference between financial reporting for internal service and enterprise funds?
A) Internal service funds are reported in the governmental fund financial statements.
B) Internal service funds are reported in the proprietary fund financial statements.
C) Internal service funds are generally reported in the Business-type Activities column of the government-wide financial statements.
D) Internal service funds are generally reported in the Governmental Activities column of the government-wide financial statements.

Accepted Answer

Internal service funds are typically reported in the Governmental Activities column of the government-wide financial statements, while enterprise funds are reported in the Business-type Activities column.

Question 18

Governmental funds are further classified as governmental or business-type.

Accepted Answer

At the government-wide level, activities are classified as governmental or business-type.

Question 19

An objective of the accounting system for a state or a local government is to make it possible both to present fairly the funds and activities of the government in conformity with generally accepted accounting principles and to demonstrate compliance with finance-related legal and contractual provisions.

Accepted Answer

This is consistent with the discussion in Chapter 2.

Question 20

The types of funds that may be used in governmental accounting are classified into the three categories of governmental,proprietary,and fiduciary.

Accepted Answer

Funds are classified as governmental, proprietary, and fiduciary.

Quiz 2: Principles of Accounting and Financial Reporting for State and Local Governments