Question 1

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

Accepted Answer

Proprietary and fiduciary funds report their capital assets in their respective statement of net assets. 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 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

Under the modified accrual basis of accounting,revenues should be recognized when
A)Earned.
B)Collected in cash.
C)Authorized by the budget ordinance.
D)Measurable and available.

Accepted Answer

Under the modified accrual basis of accounting, revenues are recognized when they are both measurable and available to finance the expenditures of the current period. This approach is commonly used in governmental accounting.

Question 4

A fund is an accounting but not a fiscal entity.

Accepted Answer

Each fund has its own chart of accounts, general journal, general ledger from which trial balances and financial statements are prepared so it is considered an accounting entity. However, funds are also fiscal entities since they have inflows and outflows of resources, a balance of resources, and liabilities that will be settled with fund resources.

Question 5

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 6

According to GASB standards transfers should be recognized
A)When earned.
B)When collected in cash.
C)When authorized by the budget ordinance.
D)In the period the interfund receivable and payable arise.

Accepted Answer

GASB standards state that transfers should be recognized in the period that the interfund receivable and payable arise. This means that transfers should be recorded when one fund owes money to another fund, or when one fund is owed money by another fund. This helps ensure that financial statements accurately reflect the transactions and balances between funds, and helps prevent misstatements or omissions of important information.

Question 7

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 8

Which of the following is a proprietary fund?
A)Special revenue fund.
B)Investment trust fund.
C)Debt service fund.
D)Internal service fund.

Accepted Answer

Internal service funds are a type of proprietary fund, which means they are used to account for any activity that provides goods or services to other funds, departments, or agencies of the primary government and its component units, or to other governments, on a cost-reimbursement basis.

Question 9

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 Budgetary, Budgetary Control, and Budgetary Reporting principle requires the accounting system to provide the basis for budgetary control, as described in the Appendix to Chapter 2. Part c of the 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 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 governmental funds only in accounting for state and local governments. Proprietary and fiduciary funds should use the accrual basis of accounting.

Question 11

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 statement accurately reflects the objective of the accounting system for a state or local government.

Question 12

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,and to demonstrate compliance with finance-related legal and contractual provisions.
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 used by a state or local government must be able to present a fair financial position and results of financial operations of the government as a whole and fund financial activity in conformity with GAAP (Generally Accepted Accounting Principles). It should also demonstrate compliance with finance-related legal and contractual provisions. Other options such as B, C, and D might be necessary but not sufficient to meet the requirements of a government accounting system.

Question 13

Which of the following funds is a governmental fund-type?
A)Private-purpose trust fund.
B)Internal service fund.
C)Permanent fund.
D)Enterprise fund.

Accepted Answer

The permanent fund is a governmental fund-type that is used to account for resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs. Private-purpose trust funds are fiduciary funds that account for assets held in a trustee capacity for the benefit of individuals, private organizations, or other governments. Internal service funds and enterprise funds are proprietary funds used to account for government services provided to other departments or to the public, respectively.

Question 14

The accrual basis of accounting applicable to proprietary fund types requires that exchange revenues be recognized when
A)Earned.
B)Collected in cash.
C)Authorized by the budget ordinance.
D)Measurable and available.

Accepted Answer

The accrual basis of accounting requires that revenues be recognized when earned, which means when the goods or services have been provided to customers or when the requirements for revenue recognition have been met. Collection of cash or authorization by budget ordinance are not the determinants of revenue recognition. Measurability and availability may be prerequisites for recognition, but earning the revenue is the primary criterion for accrual basis accounting.

Question 15

Financial resources set aside to pay principal and interest on general long-term debt may be accounted for in which of the following fund types?
A)Private-purpose trust fund.
B)Debt service fund.
C)Principal and interest trust fund.
D)Internal service fund.

Accepted Answer

Financial resources set aside to pay principal and interest on general long-term debt are accounted for in a debt service fund. This fund is used for the payment of principal, interest and related costs on long-term general obligation debt.

Question 16

Generally accepted accounting principles applicable to state and local governments require that
A)Only governmental funds and proprietary funds should be provided.
B)Only those funds required by law,GASB standards,and sound financial administration should be provided.
C)Only those funds required by law should be provided.
D)All categories of funds must be provided.

Accepted Answer

Generally accepted accounting principles applicable to state and local governments require that only those funds required by law, GASB standards, and sound financial administration should be provided. This means that not all categories of funds must be provided but rather only those that are necessary and mandated by law or accounting standards.

Question 17

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 18

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 19

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

Accepted Answer

This statement is true. Governments use three categories of funds in their accounting: governmental funds, proprietary funds, and fiduciary funds.

Question 20

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 a fund must be an accounting entity, a fiscal entity, and a self-balancing set of accounts, it does not necessarily have to be a segregated quantity of cash and other financial resources on deposit with a designated trustee. Funds can also consist of other types of resources, such as investments or property.

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

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

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.

Under the modified accrual basis of accounting,revenues should be recognized when

A fund is an accounting but not a fiscal entity.

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.

According to GASB standards transfers should be recognized

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.

Which of the following is a proprietary fund?

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

In accounting for state and local governments the modified accrual basis is required for

The accounting system used by a state or local government must make it possible

Which of the following funds is a governmental fund-type?

The accrual basis of accounting applicable to proprietary fund types requires that exchange revenues be recognized when

Financial resources set aside to pay principal and interest on general long-term debt may be accounted for in which of the following fund types?

Generally accepted accounting principles applicable to state and local governments require that

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

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.

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

Which of the following is not a characteristic of a fund as defined by GASB standards?