Question 1

A fund is
A)A separate legal entity.
B)A separate fiscal and accounting entity.
C)A separate self-balancing set of accounts for inventory purposes.
D)None of the above.

Accepted Answer

A fund is a separate fiscal and accounting entity, as it has its own set of accounts and financial statements that are distinct from those of the organization that created it. However, it is not a separate legal entity and does not have its own inventory accounts.

Question 2

A government may report some of its funds on a full accrual basis.

Accepted Answer

A government may choose to report some of its funds on a full accrual basis, which means that they record transactions as soon as they occur, regardless of when the actual payment is made. This allows for a more accurate reflection of the government's financial position and performance. However, not all funds may be reported on a full accrual basis, as some may be subject to specific accounting standards or regulations.

Question 3

In accounting for costs incurred on a major construction project in a capital projects fund,the construction outlays are reported as expenditures,not capital assets.

Accepted Answer

Costs incurred on a major construction project in a capital projects fund are reported as expenditures, not capital assets. This is because the fund is established for the specific purpose of financing capital projects and the expenditures are considered to be part of the cost of those projects.

Question 4

Fund accounting promotes control and accountability over restricted resources.

Accepted Answer

Fund accounting is designed to ensure that specific resources are used only for their intended purposes and to promote transparency and accountability in their use. This is achieved through the use of separate accounting systems for each fund or program, which allows for easier tracking of revenues, expenditures, and balances. By providing detailed reports on how restricted resources are being used, fund accounting helps to ensure that nonprofits and government agencies are meeting their fiduciary responsibilities and are acting in the best interests of their donors and constituents.

Question 5

General funds are established to account for resources legally restricted for specified purposes.

Accepted Answer

General funds are not established to account for resources legally restricted for specified purposes. Instead, they are established to account for financial resources that are not restricted to a particular purpose.

Question 6

Fiduciary activities only benefit parties other than the government itself.

Accepted Answer

Fiduciary activities involve holding and managing resources on behalf of others, such as trust funds or retirement funds. Therefore, the benefits of fiduciary activities accrue to those whose resources are being managed, not to the government itself.

Question 7

The Financial Accounting Standards Board requires all nongovernmental not-for-profit entities to use fund accounting.

Accepted Answer

The Financial Accounting Standards Board (FASB) does not require all nongovernmental not-for-profit entities to use fund accounting. While fund accounting is a common practice among not-for-profits for internal tracking of designated funds, FASB standards focus on financial statement presentation and do not mandate the use of fund accounting.

Question 8

If an entity adopts a full accrual basis of accounting,its measurement focus will automatically be on all economic resources.

Accepted Answer

The full accrual basis of accounting requires the measurement of all economic resources and obligations, hence the measurement focus will automatically be on all economic resources.

Question 9

Which of the following accounts would you least expect to see in a debt service fund?
A)Principal payments.
B)Interest charges.
C)Interest earned.
D)Outstanding balance of the debt being serviced.

Accepted Answer

The answer of Which of the following accounts would you...

Question 10

In addition to preparing fund financial statements,governments should also prepare consolidated financial statements to provide information on the financial position and operating results of the government as a single economic entity.

Accepted Answer

Consolidated financial statements provide an overall view of the financial position and operating results of the government as a single economic entity, including all funds and component units.

Question 11

Funds divide a government into functional departments.

Accepted Answer

Funds are financial resources set aside for specific purposes, while the division of a government into functional departments is an organizational structure decision, not directly related to funds.

Question 12

Basis of accounting determines which of the following?
A)When transactions and events are recognized.
B)What transactions and events will be reported.
C)Where transactions and events will be reported.
D)Why transactions and events will be reported.

Accepted Answer

Basis of accounting determines when transactions and events are recognized, such as cash basis recognizing only actual cash inflows and outflows, and accrual basis recognizing revenue and expenses when they are earned or incurred, regardless of when cash is received or paid.

Question 13

When a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that excludes long-lived assets and liabilities in its governmental fund types:
A)It is in violation of the law.
B)It is in violation of GAAP.
C)It has reported in accordance with GAAP for governmental fund financial statements.
D)It has the ability to better measure the results of operations.

Accepted Answer

The answer of When a governmental entity adopts a basis...

Question 14

What is the primary reason that governmental entities use fund accounting?
A)Fund accounting is required by law.
B)Fund accounting is required by GAAP.
C)Fund accounting promotes control and accountability over restricted resources.
D)Fund accounting promotes better control over operating activities.

Accepted Answer

The primary reason that governmental entities use fund accounting is to promote control and accountability over restricted resources. It allows for the tracking of funds with limited use criteria, ensuring that they are spent in accordance with their intended purpose. While fund accounting may also be required by law or GAAP, these are not the primary reasons for its use in governmental entities. Improved control over operating activities may be a secondary benefit of fund accounting, but it is not the primary reason for its use.

Question 15

The basis of accounting determines when transactions and events are recognized.

Accepted Answer

The basis of accounting, such as accrual basis or cash basis, determines when transactions and events are recognized, making statement A true.

Question 16

A city receives a donation from a citizen who specifies that the principal must be invested and the earnings must be used to support operations of a city-owned recreational facility.The principal of this gift should be accounted for in which of the following funds?
A)Trust fund.
B)Special revenue fund.
C)Permanent fund.
D)Internal service fund.

Accepted Answer

The principal must be invested permanently and only the earnings can be used for the specified purpose, which makes it a permanent fund. Trust funds are typically used for holding assets for the benefit of another entity or individual, special revenue funds are used for specific revenue sources, and internal service funds are used for activities that provide goods or services to other departments within the government entity.

Question 17

Which of the following funds is a fiduciary fund?
A)Permanent fund.
B)Agency fund.
C)Capital projects fund.
D)Debt service fund.

Accepted Answer

An agency fund is a fiduciary fund, meaning it holds assets in trust for others and does not have a direct financial interest in those assets. A permanent fund is an endowment-type fund that is also classified as a fiduciary fund, but it is not listed as an option. Capital projects and debt service funds are governmental funds used for specific purposes, such as constructing or maintaining assets or paying off debt.

Question 18

At first glance,the government-wide statement of activities bears little resemblance to the income statement of a business.

Accepted Answer

The government-wide statement of activities is prepared on the full accrual basis, includes non-operating revenues and expenses, and is presented in a different format than the income statement of a business.

Question 19

Which of the following is NOT a governmental fund?
A)City hall debt service fund.
B)City utilities enterprise fund.
C)Gasoline tax special revenue fund.
D)City hall capital projects fund.

Accepted Answer

City utilities enterprise fund is not a governmental fund, it is an example of a proprietary fund which is used to account for operations that are financed and operated in a manner similar to private business enterprises. The other options are all examples of governmental funds.

Question 20

Fiduciary activities should be reported in fund statements,but should be excluded from the government-wide statements.

Accepted Answer

Fiduciary activities are those in which the government acts as a trustee or administrator of funds held in trust for the benefit of others. These activities should be reported only in fund statements, as they are not part of the government's own financial position, and should be excluded from the government-wide statements which represent the government's financial position as a whole.

Quiz 2: Fund Accounting

A fund is

A government may report some of its funds on a full accrual basis.

In accounting for costs incurred on a major construction project in a capital projects fund,the construction outlays are reported as expenditures,not capital assets.

Fund accounting promotes control and accountability over restricted resources.

General funds are established to account for resources legally restricted for specified purposes.

Fiduciary activities only benefit parties other than the government itself.

The Financial Accounting Standards Board requires all nongovernmental not-for-profit entities to use fund accounting.

If an entity adopts a full accrual basis of accounting,its measurement focus will automatically be on all economic resources.

Which of the following accounts would you least expect to see in a debt service fund?

In addition to preparing fund financial statements,governments should also prepare consolidated financial statements to provide information on the financial position and operating results of the government as a single economic entity.

Funds divide a government into functional departments.

Basis of accounting determines which of the following?

When a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that excludes long-lived assets and liabilities in its governmental fund types:

What is the primary reason that governmental entities use fund accounting?

The basis of accounting determines when transactions and events are recognized.

A city receives a donation from a citizen who specifies that the principal must be invested and the earnings must be used to support operations of a city-owned recreational facility.The principal of this gift should be accounted for in which of the following funds?

Which of the following funds is a fiduciary fund?

At first glance,the government-wide statement of activities bears little resemblance to the income statement of a business.

Which of the following is NOT a governmental fund?

Fiduciary activities should be reported in fund statements,but should be excluded from the government-wide statements.