Deck 16: Federal Government Accounting

Question 1

The unified budget of the federal government excludes Social Security, which is considered "off-budget."

Answer 1

True

Question 2

Proprietary accounts are used to report the business-type activities of the federal government.

Answer 2

False

Question 3

Military assets are required to be capitalized and depreciated until war is declared.

Answer 3

False

Question 4

The AICPA has granted the FASAB exclusive authority to established GAAP for federal entities.

Question 5

Which of the following is a function of the U.S. Department of the Treasury?

A) Adjudicating claims for and against the federal government.
B) Monitoring the execution of the federal budget.
C) Overseeing the central accounting and reporting systems.
D) Apportioning federal appropriations.

Question 6

Natural disasters, such as hurricanes, may result in recognized liabilities of the federal government.

Question 7

Pronouncements of the IFAC's International Public Sector Accounting Standards Board (IPSASB) state that third-world governments should prepare cash-basis financial statements..

Question 8

Which of the following is a unique characteristic of the federal government that necessitates special accounting and reporting practices?

A) The types of its expenditures.
B) The size of its obligations.
C) The extent of its powers.
D) The range of its influence.

Question 9

The CFO of the United States is

A) A position within OMB.
B) A position within GAO.
C) A position in the Department of the Treasury.
D) A cabinet position reporting to the U.S. president.

Question 10

All members of the FASAB are federal employees.

Question 11

FASAB requires nonexchange revenues to reported on both the accrual and the cash basis of accounting.

Question 12

The federal agency balance sheet and statement of net cost are prepared on the full accrual basis of accounting.

Question 13

Which of the following is a responsibility of the Office of Management and Budget?

A) Assisting the president in preparing the federal budget.
B) Resolving bid protests that challenge government contract awards.
C) Keeping track of monetary assets and liabilities.
D) Arranging for audits of federal agencies

Question 14

Federal operations consist of five fund types-the general fund, special funds, trust funds, capital funds, and revolving funds.

Question 15

Stewardship assets are long-lived assets that are not given balance sheet recognition by the federal government.

Question 16

Federal agencies recognize the cost of loan guarantees when it is probable that borrowers will default on their payments.

Question 17

If the U.S. Department of the Treasury, GAO, or OMB objects to a FASAB standard, it is returned to the FASAB for reconsideration.

Question 18

FASAB standards preclude disclosure of investments in human capital in federal financial reports.

Question 19

The amount of its budgeted resources that a federal agency currently has available for spending is its

A) Appropriation.
B) Apportionment.
C) Cash balance.
D) Unencumbered obligations.

Question 20

The federal government recognizes social insurance commitments (e.g. social security) to beneficiaries as liabilities only when payments are due.

Question 21

The unified budget of the federal government was originally intended to include which of the following fund types?

A) General fund, all special funds, all trust funds, and all revolving funds.
B) General fund, all special funds, some trust funds, and all revolving funds.
C) General fund, some special funds, some trust funds, and all revolving funds.
D) General fund, all special funds, and all revolving funds.

Question 22

Which of the following federal fund types is most similar to a state or local government's enterprise fund?

A) General fund.
B) Special funds.
C) Trust funds.
D) Revolving funds.

Question 23

Federal government accounting standards are the responsibility of which federal government agency?

A) The Department of the Treasury.
B) The Office of Management and Budget.
C) The Government Accountability Office.
D) All of the above.

Question 24

The U.S. Postal Service is accounted for in which of the following fund types?

A) General fund.
B) Special fund.
C) Trust fund.
D) Revolving fund.

Question 25

Which of the following federal government accounting terms is most similar to an appropriation, as that term is used in state and local government accounting?

A) Apportionment.
B) Allotment.
C) Commitment.
D) Obligation.

Question 26

Which of the following funds is/are included in the category federal trust funds?

A) Old-Age and Survivors Insurance Fund (Social Security).
B) Supplementary Medical Insurance Fund (Medicare).
C) Neither (a) nor (b).
D) Both (a) and (b).

Question 27

Federal government capital expenditures can be accounted for in which of the federal funds?

A) General fund
B) Special funds.
C) Trust funds.
D) All of the above.

Question 28

Which of the following has the responsibility for auditing all federal agencies and programs?

A) OMB.
B) FASAB.
C) GAO.
D) The Department of the Treasury.

Question 29

Which of the following is NOT a criterion for a federal government "component" to be considered a reporting entity and therefore required to issue a financial report?

A) There is a management responsible for controlling and deploying the component's outputs and outcomes and for executing its budget. It is held accountable for its performance.
B) The component is of sufficient size and significance that its financial statements would provide a meaningful representation of its operations and financial condition.
C) The component is of sufficient cohesiveness of operations that its financial statements would provide a meaningful representation of a specific program or type of activity.
D) Users are interested in the information to be reported in its financial statements and could use it to make resource allocation and related decisions.

Question 30

Federal government trust funds are

A) Composed of funds restricted by the donor/contributor.
B) Like endowment funds-only the income, not the principal, can be expended.
C) Any funds designated by law as trust funds.
D) Composed of funds that by law are dedicated to certain activities or programs.

Question 31

Federal operations are accounted for in four types of funds. Which of the following is one of the types of funds used?

A) Capital funds.
B) Revolving funds.
C) Special revenue funds.
D) Fiduciary funds.

Question 32

Which of the following federal government accounting terms is most similar to an encumbrance, as that term is used in state and local government accounting?

A) Apportionment.
B) Allotment.
C) Commitment.
D) Obligation.

Question 33

Which of the following types of expenditures are not accounted for in the federal government's general fund?

A) Operating expenditures.
B) Capital expenditures.
C) Medicare.
D) Interest on public debt.

Question 34

Which of the following categories is included in the Objectives of Federal Financial Reporting?

A) Operating performance.
B) Congressional performance.
C) Executive performance.
D) Audit performance.

Question 35

The Government Accountability Office (GAO) is part of which branch of the federal government?

A) Executive branch.
B) Judicial branch.
C) Legislative branch.
D) None of the above; it is independent of all three branches of the federal government.

Question 36

Which of the following is a false statement about federal special funds?

A) They are maintained primarily to account for resources that are designated for specific programs or activities.
B) They are typically financed by dedicated fees.
C) They account for resources used to pay for national defense.
D) They are included in the unified budget of the federal government.

Question 37

The Federal Accounting Standards Advisory Board is responsible for

A) Reviewing FASB and GASB standards.
B) Setting federal accounting standards.
C) Implementing federal accounting standards.
D) Developing federal auditing standards.

Question 38

Which of the following is a true statement about the Federal Accounting Standards Advisory Board?

A) It is a sub-agency of the OMB.
B) It is a shared jurisdiction board created following an agreement by three federal agencies.
C) It is an executive office function.
D) It was created by and reports to Congress.

Question 39

Which of the following is a role that GAO plays in the accounting and information management policy of the United States?

A) Prescribing standards for auditing and evaluating government programs.
B) Developing integrated accounting systems that comply with applicable accounting standards.
C) Apportioning federal appropriations.
D) Reviewing federal agencies' spending plans.

Question 40

The Financial Report of the United States Government is prepared on which of the following bases of accounting?

A) Cash.
B) Modified accrual.
C) Budgetary.
D) Accrual.

Question 41

The United States Government Combined Statement of Receipts, Outlays, and Balances is prepared on which of the following bases of accounting?

A) Cash.
B) Modified accrual.
C) Budgetary.
D) Accrual.

Question 42

The Government Performance and Results Act of 1993 requires federal agencies to do which of the following?

A) Develop strategic plans and operational objectives.
B) Develop measures of performance.
C) Report on the extent to which they have met their objectives.
D) All of the above.

Question 43

The federal government is required to recognize liabilities from nonexchange transactions

A) When an exchange takes place.
B) When the event occurs and the anticipated outflows of resources are both probable and measurable.
C) When due.
D) When formally acknowledged and an amount is due and payable as a result.

Question 44

The allowance for unrealized holding gains that appears in the cost of goods sold section of a federal financial statement effectively does which of the following?

A) Adjusts the latest acquisition cost inventory valuation to the historical cost valuation.
B) Increases the cost of goods sold by the increase in market value of the inventory.
C) Decreases the cost of goods sold by the increase in market value of the inventory.
D) Adjusts the historical cost valuation to the latest acquisition cost inventory valuation.

Question 45

Under FASAB standards, nonexchange revenues do NOT include

A) Taxes and duties.
B) Fines and penalties.
C) Sales to other government entities.
D) Donations received by federal museums.

Question 46

Which of the following is NOT a basic financial statement for a federal agency?

A) Balance sheet.
B) Statement of budgetary esources.
C) Statement of financing.
D) Statement of stewardship assets.

Question 47

The International Public Sector Accounting Standards Board has issued standards calling for which of the following?

A) The capitalization and depreciation of governments' infrastructure assets.
B) The expensing of borrowing costs no earlier than when cash is disbursed.
C) The recognition of inventories as an expense using the purchases method.
D) The preparation of budgets on the accrual basis.

Question 48

FASAB requires that federal agencies capitalize certain assets. Which of the following assets should be capitalized?

A) Stewardship assets such as national parks and national forests.
B) Assets such as weapons systems and space exploration equipment.
C) Heritage assets that have only historical, artistic, or cultural significance.
D) Human capital.

Question 49

Which of the following is a NOT a true statement with regard to accounting and reporting for federal government agencies versus accounting and reporting for state and local governments?

A) In their respective government-wide statements, state and local governments use the accrual basis of accounting whereas federal agencies use the cash basis of accounting.
B) State and local governments record appropriations whereas federal agencies record apportionments.
C) Federal agencies use a dual-track method of accounting for proprietary accounts and budgetary accounts; state and local governments use both budgetary and proprietary accounts only in governmental funds.
D) The budget is recorded in the general ledger of a state or local government, but not in the general ledger of a federal agency.

Question 50

Amounts due to social security beneficiaries should be "booked" (recorded as a liability)

A) As beneficiaries earn benefits.
B) When beneficiaries reach the eligibility age for benefits..
C) When benefits become due and payable.
D) When the government formally acknowledges that benefits are due and payable.

Question 51

The FASAB requires that federal government agencies accrue nonexchange revenues when a specifically identifiable, legally enforceable claim to resources arises, to the extent that collection is probable and the amount is measurable. Thus, fines and penalties should be accrued

A) Upon expiration of the period during which the offender may contest a court summons.
B) When the offender pays the fine before a court date.
C) When the court imposes a fine.
D) Any of the above would meet the criteria.

Question 52

Which of the following is NOT one of the basic government-wide federal financial statements?

A) Balance sheet.
B) Statement of operations and changes in net position.
C) Statement of net cost
D) Statement of custodial assets.

Question 53

When the federal government makes a direct loan at an interest rate below the prevailing Treasury rate (a subsidized loan), an asset should be recorded for which of the following amounts?

A) The face amount of the loan.
B) The present value of the future principal and interest payments discounted at the stated rate.
C) The present value of the future principal and interest payments discounted at the comparable Treasury rate.
D) No asset should be recorded.

Question 54

Which of the following is NOT a main section of the Financial Report of the United States Government?

A) Introductory section including letter of transmittal and MD&A.
B) Other stewardship information section.
C) Required supplemental information section.
D) Statistical section.

Question 55

Which of the following statements is true of the International Public Sector Accounting Standards Board?

A) It has been authorized by the United Nations to set accounting and financial reporting standards for all countries with representation in the U.N.
B) It has indicated that a country's financial statements should be on a cash basis or a modified accrual basis of accounting, consistent with the country's tradition, until all countries' accounting systems are more advanced.
C) It has indicated that the public sector standards promulgated by the GASB are broadly consistent with IPSASB standards.
D) It has shown little interest in convergence of its standards for governments with those promulgated by the International Accounting Standards Board for businesses.

Question 56

The FASAB allows entities to value inventories held for sale at which of the following values?

A) Historical cost, using FIFO.
B) Historical cost, using weighted average.
C) Latest acquisition cost.
D) All of the above.

Question 57

When the federal government makes a direct loan at an interest rate below the prevailing Treasury rate (a subsidized loan), an expense should be recorded for which of the following amounts?

A) The difference between the face value of the loan and the present value of the estimated net cash receipts.
B) The difference between the present value of the estimated net cash receipts at the stated rate of interest and the present value of the net cash receipts at the prevailing interest rate.
C) The fair value of the loans.
D) No expense is recognized.

Question 58

The federal government has declared a specific area a "natural disaster" area, making residents of the area eligible for payments from the federal government. When should the liability for such payments be recorded?

A) When an exchange takes place.
B) When the event occurs and the anticipated outflows of resources can be estimated.
C) When anticipated outflows of resources are both probable and measurable.
D) When formally acknowledged and an amount is due and payable as a result.

Question 59

When the federal government guarantees a loan made by a private lender, the federal government should record a liability for which of the following amounts?

A) The face amount of the loan.
B) The present value of the anticipated payments to the private lender discounted at the government agency's rate.
C) The present value of the anticipated payments to the private lender discounted at the lender's rate.
D) No liability should be recorded.

Question 60

Under FASAB standards, government agencies should recognize liabilities for grants

A) When Congress passes the related legislation.
B) When the grant announcement is made.
C) When the announcement is formally acknowledged by the grantee.
D) When payments are due.

Question 61

Why is the FASAB named an "advisory board"? What happens if the GAO or the OMB rejects one of its standards?

Question 62

One of the more difficult issues to address in state and local government accounting is the reporting entity. A similar issue exists at the federal level. Discuss the financial reporting entity issue at the federal level.

Question 63

The FASAB has explained that government liabilities are attributable to "events." What are "events"? What types of events has FASAB identified? Give some examples of each type. When should liabilities be recognized for each type of event?

Question 64

The federal government's general fund reports the following transactions during 2017.
REQUIRED:
Prepare journal entries to record each of these transactions. If no entry is required, write "No entry required."
a. The general fund contracts with a construction firm to build an Afghan and Iraqi war memorial based on a design selected by the Afghan and Iraqi War Veterans Commission. The estimated cost of the project is $3.5 million.
b. The general fund makes a $750,000 progress payment on the Afghan and Iraqi War Memorial contract.
c. The general fund purchases new window treatments for the living areas of the White House. The cost is $650,000.
d. The general fund reviews and accepts a design for the 2018 White House Christmas ornament and is billed $500,000 for the design cost.
e. The general fund contracts for the manufacture of 1.5 million 2018 Christmas ornaments. The manufacturing cost for each ornament is $2.00. The ornaments are paid for and will be available for sale in the White House beginning in August 2018.
f. The general fund elects to record its inventory of assets held for sale at historical cost.

Question 65

The federal government maintains a dual system of accounts. What are the two types of accounts? Why does the federal government keep two types?

Question 66

A federal agency established to provide direct loans for older Americans enrolled in school or college made a three-year, 3 percent direct loan of $3,000 to be repaid in three equal annual installments of $1,060.59. The prevailing Treasury rate on short- and intermediate-term securities is 6 percent.
REQUIRED:
Prepare journal entries to record the loan and the three payments. If no entry is required, write "No entry required."
Present value factors, if needed
Present value of an annuity for 3 periods @ 6% = 2.67301
Present value of an annuity for 3 periods @ 3% = 2.82861
Present value of $1, @ 6%, 3 periods = .83962
Present value of $1, @ 3%, 3 periods = .91513

Question 67

What is meant by a "unified budget"? Why are Social Security and Postal Service receipts and disbursements not included in the unified budget?

Question 68

A federal agency was established to provide loan guarantees for students. At the beginning of Year 1 the agency guarantees $100,000 of student loans. The payments that the agency estimates it will have to make to lenders as a result of student defaults are as listed below. The agency uses a discount rate of 6 percent.
REQUIRED:
Prepare the necessary journal entries to record the loan guarantee expense in Year 1 and the payment to the lenders in Year 2 of $400 on defaulted loans. If no entry is required, write "No entry required."

Question 69

One of the major problems encountered by the FASAB in setting standards for the federal government-wide financial statements is how to classify future benefit payments to social security beneficiaries. What are the underlying issues related to social security? How has the FASAB resolved the issues? How is social security information presented in federal financial statements?

Question 70

When should federal entities recognize liabilities for natural disasters?

A) When the disaster occurs.
B) When the financial effect of the disaster is known or can be estimated.
C) When the government acknowledges financial responsibility and an amount is due and payable.
D) Never. The federal government does not accept responsibility for Acts of God.
ANSWERS TO MULTIPLE CHOICE (CHAPTER 16)

Question 71

A federal environmental agency engaged in the following transactions during a particular year.
1. It billed corporations for which it provided services $160 million. Of this, it collected $140 million.
2. It levied $150 million in fines and penalties against corporations. Of this, $90 million was collected in cash. Of the balance, the protest period has expired on $35 million, which the agency expects to collect in the following year. The remaining $25 million is in dispute and court dates have not yet been set.
3. It collected an additional $20 million in fines and penalties that had been assessed by federal courts in the previous period.
4. It received cash donations of $3 million and pledges of an additional $2 million. The agency's counsel advises that the pledges are not legally enforceable.
REQUIRED:
a. Prepare journal entries to record the revenues and collections.
b. Show how the revenues and related receivables would be reported on the agency's balance sheet and statement of net cost (i.e., an operating statement).