Government and Nonprofit Financial Reporting
Mock Exam
Course Introduction
Government and Nonprofit Financial Reporting explores the principles, standards, and practices specific to the financial reporting and accounting of governmental and nonprofit organizations. The course examines the unique objectives and regulatory frameworks that distinguish these entities from traditional for-profit businesses, including coverage of the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) guidelines. Students will gain an understanding of fund accounting, budgetary control, external financial statements, and the analysis and interpretation of financial information to ensure accountability and transparency in the public and nonprofit sectors. Through case studies and practical exercises, participants learn to prepare and evaluate comprehensive annual financial reports, interpret compliance requirements, and analyze the impact of public policy and donor restrictions on financial disclosures.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 16th Edition by Jacqueline L. Reck Wilson
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17 Chapters
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Page 2
Chapter 1: Introduction to Accounting and Financial
Reporting for Governmental and Not-For-Profit Entities
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Sample Questions
Q1) The body that has been established to recommend accounting and financial reporting standards for the federal government is the
A) Financial Accounting Standards Board (FASB).
B) Governmental Accounting Standards Board (GASB).
C) Government Accountability Office (GAO).
D) Federal Accounting Standards Advisory Board (FASAB).
Answer: D
Q2) Which of the following should be included in the financial section of a comprehensive annual financial report?
A) Transmittal letter.
B) The basic financial statements,including notes thereto.
C) Tables and charts showing demographic and economic data.
D) A description of the government.
Answer: B
Q3) The Federal Accounting Standards Advisory Board (FASAB)recommends accounting principles and standards for the federal government and its agencies and departments.
A)True
B)False
Answer: True
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Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Sample Questions
Q1) 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.
A)True
B)False
Answer: False
Q2) 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.
A)True
B)False
Answer: True
Q3) A deferred inflow is defined as "an acquisition of net assets by the government that is applicable to a future reporting period."
A)True
B)False
Answer: True
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Sample Questions
Q1) Which of the following accounts is a budgetary account of a governmental fund?
A) Encumbrances Outstanding.
B) Estimated Other Financing Uses.
C) Expenditures.
D) Other Financing Sources.
Answer: B
Q2) All decreases in fund financial resources,other than for repayment of fund liabilities,are termed "expenditures."
A)True
B)False
Answer: False
Q3) The Expenditures control account of a government is debited when
A) The budget is recorded.
B) Supplies are ordered.
C) Supplies previously encumbered are received.
D) The invoice is paid.
Answer: C
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Page 5
Chapter 4: Accounting for Governmental Operating
Activities-Illustrative Transactions and Financial Statements
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Sample Questions
Q1) Encumbrances Outstanding is shown on the balance sheet as a restriction on fund balance.
A)True
B)False
Q2) On May 1,Vacca City was notified of approval of a $300,000 federal operating grant,payable on a reimbursement basis as the city expends resources for the intended purpose of the grant.As of May 1,no expenditures had been made for grant purposes.The journal entry to record approval of this grant will include
A) A credit to Revenues in the amount of $300,000.
B) A credit to Deferred Revenues in the amount of $300,000.
C) A debit to Grants Receivable in the amount of $300,000.
D) No journal entry will be made until expenditures for the authorized purpose occurs.
Q3) Vehicles used by the Parks and Recreation Department should be accounted for in the General Fund.
A)True
B)False
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Sample Questions
Q1) Under a service concession arrangement,
A) The transferring government continues to report the transferred asset as a capital asset and any related contractual obligations as liabilities.
B) The operating government will record the transferring government's payment or receivable,a liability for the present value of significant contractual obligations and a corresponding deferred inflow of resources for the difference between the two.
C) Any deferred inflow is recognized as revenue at the time the arrangement takes place.
D) All of the above statements are true.
Q2) If a capital project is financed partially by use of special assessments,should the capital projects fund recognize revenue from the assessments at the time of the levy or at the time that the assessments are collected? Explain your answer.
Q3) At the time a bond issue is legally authorized it is usual practice to make either no entry or a memorandum entry in the capital projects fund general journal.
A)True
B)False
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Sample Questions
Q1) Immediately after making its annual $20,000 lease payment on June 30,2014,the last day of its fiscal year,Capitol City had an unpaid capital lease obligation of $95,000.The interest rate applicable to the lease is 10 percent.When the $20,000 lease payment due on June 30,2015 is made,the journal entry for the governmental activities accounts will include
A) A debit to Capital Lease Obligation Payable in the amount of $10,500.
B) A debit to Capital Lease Obligation Payable in the amount of $20,000.
C) A debit to Cash in the amount of $20,000.
D) A debit to Capital Lease Obligation Payable in the amount of $12,500.
Q2) When a capital lease payment is legally due,an entry is made in the debt service (or appropriate governmental)fund to record an expenditure,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.
A)True
B)False
Q3) How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?
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Page 8
Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Sample Questions
Q1) When a new utility customer submits a deposit,the enterprise fund journal entry will include
A) A credit to Customer Deposits.
B) A debit to Customer Deposits.
C) A debit to Sales of Water.
D) A credit to Sales of Water.
Q2) Explain how governmental entities that use internal service funds to account for risk financing and risk management activities should account for those activities.
Q3) Which of the following items is not required to be included in the segment information that must be reported for a municipality's enterprise funds?
A) Material enterprise fund capital assets.
B) Material enterprise fund operating income or loss.
C) Material enterprise fund tax revenues.
D) Material intergovernmental operating subsidies to an enterprise fund.
Q4) Internal service funds account within the fund for any long-term liabilities to be serviced from revenue derived from fund operations.
A)True
B)False
Page 9
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Chapter 8: Accounting for Fiduciary Activities-Agency and Trust Funds
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Sample Questions
Q1) Pension plans are required to report two schedules,a schedule of funding progress and a schedule of employer contributions as required supplementary information (RSI)in their stand-alone financial reports and in pension plan financial information reported in the CAFR of sponsoring government.
A)True
B)False
Q2) Fiduciary funds are sometimes identified in the annual reports of state and local governments as "Trust and Agency Funds."
A)True
B)False
Q3) Public employee retirement systems should utilize budgetary accounts in the same manner that General Funds and special revenue funds should.
A)True
B)False
Q4) Which of the following is not a fiduciary fund?
A) Agency fund.
B) Investment trust fund.
C) Public-purpose trust fund.
D) Pension trust fund.
Chapter 9: Financial Reporting of State and Local Governments
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Sample Questions
Q1) In converting from the modified accrual basis of accounting information in a governmental fund to accrual basis for the government-wide statements,capital assets acquired by a governmental fund are deducted from fund balance-governmental funds to arrive at net position of governmental activities.
A)True
B)False
Q2) Fiduciary activities are not reported in the government-wide financial statements under GASB standards.
A)True
B)False
Q3) 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.
Q4) Under GASB standards,only proprietary funds prepare a statement of cash flows.
A)True
B)False
11
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Chapter 10: Analysis of Governmental Financial Performance
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Sample Questions
Q1) For which of the following is a low or decreasing value of the item associated with a stronger financial condition of a governmental entity?
A) Unfunded pension liability.
B) Property values.
C) Home ownership.
D) Employment rate.
Q2) "Benchmarking is a simple method for comparing one government to another." Do you agree or disagree with this statement? Explain.
Q3) How do credit analysts assist decision makers in evaluating the credit worthiness of a state or local government?
Q4) Management practices and legislative policies are very relevant in the evaluation of a government's financial performance.
A)True
B)False
Q5) "Financial statements are virtually useless in evaluating a city's financial condition." Do you agree with this statement? Why or why not?
Q6) Explain the importance of evaluating governmental financial performance.
Page 12
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) In which paragraph of the standard audit report does the auditor communicate to the user that certain combining fund information in the financial statements is not part of the basic financial statements,but that such information has been subjected to auditing procedures and,in his or her opinion,is fairly presented in all material respects in relation to the basic financial statements?
A) Explanatory paragraph.
B) Scope paragraph.
C) Opening paragraph.
D) Opinion paragraph.
Q2) The introductory paragraph of an audit report introduces the auditor and his/her background and qualifications to perform the auditor.
A)True
B)False
Q3) When conducting a governmental financial statement audit,how does the auditor determine the appropriate auditing standards for the engagement?
Q4) How is an OMB Circular A-133 audit related to a GAGAS audit? How is an OMB Circular A-133 audit different from a GAGAS audit?
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Chapter 12: Budgeting and Performance Measurement
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Sample Questions
Q1) Explain what is required to develop an effective total quality management (TQM)program for a government.
Q2) Which of the following statements regarding government budgets is not true?
A) A budget should be enacted before the fiscal year begins and be integrated with the financial accounting system so that actual results can be compared to budgeted plans at regular intervals.
B) The budget's role is limited to inclusion in internal financial reports and budgetary compliance monitoring for those funds that have a legally approved budget.
C) Integrating the budget into the accounting system allows management to oversee individual unit performance and react quickly to variances between actual results and budgeted plans.
D) A budget is a plan of financial operation embodying an estimate of proposed expenditures for a given period of time and the proposed means of financing them.
Q3) Despite its initial popularity,service efforts and accomplishments reporting has lost favor in recent years.
A)True
B)False
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Chapter 13: Accounting for Not-For-Profit Organizations
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Sample Questions
Q1) In the current year,the not-for-profit organization Save the Butterflies Foundation received cash of $500 to be used as the Foundation wished and $1,000 to be used for butterfly research.Save the Butterflies also received pledges of $700 that it can use as it wishes and $600 for its building fund.All pledges are expected to be received next year.How much would Save the Butterflies report as temporarily restricted contributions in the current year?
A) $1,000.
B) $1,600.
C) $1,300.
D) $2,300.
Q2) Which of the following characteristics of not-for-profit organizations (NFPs)can be used to distinguish a nongovernmental from a governmental NFP?
A) Contributions by resource providers who do not expect a return on investment.
B) Ability to impose taxes on citizens.
C) Absence of ownership interests.
D) All of the above characteristics are generally different for nongovernmental versus governmental NFPs.
Q3) Describe the difference between fund accounting and the accounting methods required by FASB.
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Page 15
Chapter
14: Not-For-Profit Organizations-Regulatory, Taxation, and Performance Issues
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Sample Questions
Q1) The local Kennel Club is a not-for-profit organization with gross receipts of $23,500 for the current tax year.Under the Internal Revenue Service Code,the Kennel Club would be required to file which of the following forms for the tax year?
A) Form 990-N.
B) Form 990-EZ.
C) Form 990-PF.
D) Since its gross receipts are less that $25,000 it need not file with the Internal Revenue Service.
Q2) The ratio unrestricted net assets as a percent of operating expenses is helpful in determining if the not-for-profit organization can cover its debt service expense.
A)True
B)False
Q3) Describe the process for becoming a tax-exempt organization.Why do you believe it is important for an accountant to understand this process?
Q4) Your client is a nongovernmental not-for-profit museum that operates a gift shop.Explain the unrelated business income tax to your client and suggest ways to avoid this tax.
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Chapter 15: Accounting for Colleges and Universities
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Sample Questions
Q1) Public colleges and universities that use business-type reporting must present segment information in the notes to the financial statements.
A)True
B)False
Q2) The following are key terms in Chapter 15 that relate to accounting for colleges and universities:
A.Term endowments
B.Annuity agreements
C.Collections
D.Pooled life income agreements
E.Spending rate
F.Total return
Q3) A college has collected returnable dormitory room deposits from students.How would these deposits be reported by the college?
A) A current liability.
B) Unrestricted revenue.
C) Restricted revenue.
D) A long-term liability.
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Chapter 16: Accounting for Health Care Organizations
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Q1) Health care is provided by organizations that may be for-profit,not-for-profit,or governmental; although roughly half of all health care is provided by not-for-profit entities.
A)True
B)False
Q2) Congress mandated diagnosis-related groups (DRGs)as a method for recording costs in health care organizations,in part to facilitate Medicare's prospective payment system.Explain what the DRG system is and describe the impact this change may have had on the cost accounting systems of health care organizations.
Q3) Continuing care retirement communities (CCRC)provide residential care in a facility,along with some level of long-term medical care that is less intensive than hospital care.
A)True
B)False
Q4) Contingencies that are unique to health care providers arise from malpractice claims,risk contracting,and payor payment programs,obligations to provide uncompensated care,and contractual agreements with physicians.
A)True
B)False
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Chapter 17: Accounting and Reporting for the Federal Government
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Sample Questions
Q1) By law,federal agencies must incorporate the accounting standards (GAAP)established for the federal government into their financial management systems.
A)True
B)False
Q2) Which of the following is not a part of the FASAB due process for establishing a federal financial accounting standard?
A) Public comment on a discussion memorandum.
B) Issuing an exposure draft.
C) Unanimous approval by the FASAB.
D) Support (or lack of opposition)of the standard by the three principals (Comptroller General,Secretary of the Treasury,and Director of the Office of Management and Budget).
Q3) The federal budgetary term "commitment" is synonymous with "appropriations" as used in state and local government terminology.
A)True
B)False
Q4) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
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