Question 1

To be reported as a major component unit,a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

Accepted Answer

The criteria for reporting a component unit as a major component unit are not based on the same 10 percent and 5 percent size requirements as major funds. Instead, the determination is based on the nature and significance of the relationship between the component unit and the primary government, among other considerations.

Question 2

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?
A) Adding annual depreciation expense proportionately to functional expense categories.
B) Eliminating interfund payables and receivables between governmental funds.
C) Aggregating fund information.
D) Eliminating receivables and payables between governmental and enterprise funds.

Accepted Answer

Eliminating receivables and payables between governmental and enterprise funds is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements. This is because governmental and enterprise funds are not combined in government-wide financial statements. The other options listed (A, B, and C) are required steps in the conversion process.

Question 3

Combining financial statements for nonmajor funds of a government should be included
A) In the basic financial statements.
B) In the notes to the financial statements.
C) As a part of the financial section of the comprehensive annual financial report (CAFR).
D) As part of the statistical section of the comprehensive annual financial report (CAFR).

Accepted Answer

Combining financial statements for nonmajor funds of a government are typically included as part of the financial section of the Comprehensive Annual Financial Report (CAFR). This section provides detailed financial information beyond the basic financial statements, offering a more comprehensive view of a government's financial activities and balances for nonmajor funds.

Question 4

The GASB requires that interim financial reports be prepared on a semi-annual basis at a minimum.

Accepted Answer

The GASB does not require a specific frequency for interim financial reports, but encourages entities to provide such reports as frequently as is practical and useful for decision-making purposes.

Question 5

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?
A) The potential component unit is precluded from issuing long-term debt.
B) The potential component unit raises taxes without the approval of the primary government.
C) The budget of the potential component unit must be approved by the primary government.
D) The potential component unit sets user charges with approval of the primary government.

Accepted Answer

The ability to raise taxes without approval from the primary government is evidence of fiscal independence, as it suggests that the potential component unit has the ability to generate its own revenue and make decisions about its own finances. None of the other options provide evidence of fiscal independence, as being precluded from issuing debt, having their budget approved by the primary government, or setting user charges with approval of the primary government all suggest a level of dependence on the primary government.

Question 6

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets?
A) Acquisition of a building to be used by the police department.
B) Issuance of long-term debt to be used to acquire equipment for the police department.
C) A gift of land to the city restricted by the donor to be used by the city airport, which is accounted for as an enterprise fund.
D) Recording annual depreciation on capital assets.

Accepted Answer

Acquisition of a building for governmental activities increases the net investment in capital assets, which is a component of the governmental activities balance in Net Position.

Question 7

Which of the following factors would not indicate that a potential component unit (PCU)imposes a financial burden or provides a financial benefit to the primary government?
A) The primary government is entitled to its share of any dividends distributed by the PCU.
B) The primary government is obligated to provide financial support to the PCU.
C) The primary government is obligated for the PCU's debt.
D) The primary government is entitled to the PCU's resources.

Accepted Answer

Factors indicating a financial burden or benefit to the primary government from a potential component unit (PCU) include obligations for the PCU's debt, entitlement to the PCU's resources, and obligations to provide financial support. However, being entitled to a share of any dividends distributed by the PCU does not inherently indicate a financial burden but rather a potential financial benefit.

Question 8

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR)?
A) Expenditure trend information.
B) Revenue capacity information.
C) Demographic and economic information.
D) Debt capacity information.

Accepted Answer

Expenditure trend information is typically found in the financial section of the CAFR, not the statistical section. The statistical section usually includes revenue capacity information, demographic and economic information, and debt capacity information, among others, to provide a broader context of the government's financial health over time.

Question 9

Which of the following is one of the three sections of a comprehensive annual financial report?
A) Statistical section.
B) Single audit section.
C) Supplementary section.
D) Investment section.

Accepted Answer

The three sections of a comprehensive annual financial report are: 1) Introductory section, 2) Financial section, and 3) Statistical section. The Single audit section and Supplementary section are additional sections that may be included in the report but are not part of the three main sections. The Investment section is typically included within the financial section.

Question 10

Under GASB standards,if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare?
A) Five.
B) Six.
C) Seven.
D) Nine.

Accepted Answer

Under GASB standards, a government with both governmental and enterprise funds must prepare a statement of net position and a statement of activities for both types of funds. Additionally, it must prepare a balance sheet, statement of revenues, expenditures, and changes in fund balances, and a reconciliation of the statement of revenues, expenditures, and changes in fund balances for each of its individual governmental funds, as well as a budgetary comparison statement for its general fund. Therefore, the government with six governmental funds and two enterprise funds would prepare a total of seven basic financial statements.

Question 11

Government-wide financial statements present the government's financial position using the:
A) Financial resources measurement focus and the accrual basis of accounting.
B) Economic resources measurement focus and the accrual basis of accounting.
C) Current financial resources measurement focus and the modified accrual basis of accounting.
D) Current financial resources measurement focus and the cash basis of accounting.

Accepted Answer

Government-wide financial statements present the financial position of the government using the economic resources measurement focus and the accrual basis of accounting. This is because the government-wide financial statements are intended to provide users with information about the government's financial position and its ability to provide services to the public. The economic resources measurement focus takes into account all resources that are available to the government, including both financial and nonfinancial assets. The accrual basis of accounting provides a more complete picture of the government's financial position by recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid out.

Question 12

Which of the following is a required program revenue category in the government-wide statement of activities?
A) Special assessments.
B) Operating grants and contributions.
C) Sales taxes.
D) Transfers.

Accepted Answer

Operating grants and contributions are a required program revenue category in the government-wide statement of activities. Special assessments, sales taxes, and transfers are not required program revenue categories in this statement.

Question 13

Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the government financial reporting entity?
A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of the PCU.
D) Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Accepted Answer

The answer of Which of the following circumstances would indicate...

Question 14

Which of the following is a primary objective of financial reporting by state and local governments?
A) To provide information that can be used for capital allocation decisions made by external investors.
B) To report on the legal requirements imposed on the government by its elected officials.
C) To provide information that can be used to assess a government's accountability.
D) To fulfill the government's statutory duty to report on cash received and cash disbursed.

Accepted Answer

The primary objective of financial reporting by state and local governments is to provide information that can be used to assess a government's accountability to its citizens and other stakeholders, including creditors and investors. While reporting on legal requirements is important, it is not the primary objective. Additionally, financial reporting is not solely focused on reporting on cash received and disbursed, but on providing a more comprehensive view of a government's financial health. Capital allocation decisions are typically made by investors in private companies, rather than in state and local governments.

Question 15

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)?
A) Letter of transmittal.
B) Management's discussion and analysis (MD&A).
C) Independent auditor's report.
D) Required supplementary information (RSI).

Accepted Answer

The letter of transmittal is not typically included in the financial section of the CAFR, but rather in the introductory section. The financial section typically includes the management's discussion and analysis (MD&A), independent auditor's report, and required supplementary information (RSI).

Question 16

An example of information found in the statistical section of the comprehensive annual financial report (CAFR)is demographic information such as unemployment rates,and personal income of citizens.

Accepted Answer

The statistical section of the comprehensive annual financial report (CAFR) typically includes demographic data such as population, income levels, employment rates, and other economic indicators.

Question 17

Which of the following kinds of information would not be provided by management's discussion and analysis (MD&A)?
A) A narrative explanation of the contents of the CAFR.
B) A description of the government's financial condition.
C) A forecast of revenues and expenditures for the next three fiscal years.
D) A discussion of economic factors and the budget and tax rates approved for the next year.

Accepted Answer

MD&A typically includes a narrative explanation of financial statements, a description of the financial condition, and discussions of economic factors and budgetary decisions. However, it does not usually provide forecasts for revenues and expenditures for future fiscal years.

Question 18

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

Accepted Answer

The answer of The two methods for presenting component units...

Question 19

A not-for-profit organization could be reported as a component unit of a primary government.

Accepted Answer

Yes, a not-for-profit organization could be reported as a component unit of a primary government if it meets the criteria for being considered a component unit according to Generally Accepted Accounting Principles (GAAP).

Question 20

What constitutes the basic financial statements of a government?
A) Financial section of the comprehensive annual financial report (CAFR).
B) Government-wide financial statements plus notes.
C) Government-wide financial statements plus fund financial statements plus notes.
D) Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).

Accepted Answer

The basic financial statements of a government include government-wide financial statements, fund financial statements, and notes. The financial section of the comprehensive annual financial report (CAFR) and required supplementary information (RSI) are additional components, but not considered part of the basic financial statements.

Quiz 9: Financial Reporting of State and Local Governments

To be reported as a major component unit,a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?

Combining financial statements for nonmajor funds of a government should be included

The GASB requires that interim financial reports be prepared on a semi-annual basis at a minimum.

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets?

Which of the following factors would not indicate that a potential component unit (PCU) imposes a financial burden or provides a financial benefit to the primary government?

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR) ?

Which of the following is one of the three sections of a comprehensive annual financial report?

Under GASB standards,if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare?

Government-wide financial statements present the government's financial position using the:

Which of the following is a required program revenue category in the government-wide statement of activities?

Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the government financial reporting entity?

Which of the following is a primary objective of financial reporting by state and local governments?

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR) ?

An example of information found in the statistical section of the comprehensive annual financial report (CAFR)is demographic information such as unemployment rates,and personal income of citizens.

Which of the following kinds of information would not be provided by management's discussion and analysis (MD&A) ?

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

A not-for-profit organization could be reported as a component unit of a primary government.

What constitutes the basic financial statements of a government?