Government and Nonprofit Financial Reporting Exam Bank
Course Introduction
This course explores the principles and practices of financial reporting for governmental and nonprofit organizations, focusing on the unique accounting standards and regulatory requirements these entities face. Students will examine the framework established by the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB), learning to prepare, analyze, and interpret financial statements in accordance with applicable guidelines. Key topics include fund accounting, budgeting, financial statement preparation, compliance, accountability, and the role of financial reporting in decision-making processes for public and nonprofit entities. The course emphasizes practical applications of theory through case studies and real-world examples.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 15th Edition by Jacqueline Reck
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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) Which of the following would be included in a properly prepared comprehensive annual financial report (CAFR),but not in the minimum requirements for general purpose financial reporting specified by GASBS 34?
A)Management discussion and analysis (MD&A).
B)Government-wide financial statements.
C)Notes to the financial statements.
D)Combining and individual fund financial statements.
Answer: D
Q2) The Governmental Accounting Standards Board (GASB)is the body authorized to establish accounting principles for all state and local governments,both general purpose and special purpose.
A)True
B)False
Answer: True
Q3) The statement of net assets and the statement of activities are the two government-wide financial statements required by GASBS 34.
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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Q1) Explain the nature of the three major activity categories of a state or local government: governmental activities,business-type activities,and fiduciary activities.Provide examples of each.
Answer: Governmental activities are those core governmental services,together with general administrative support.Examples include public safety,public works (e.g.,road and bridge maintenance),parks and recreation,cultural,and social services.Business-type activities are those that are self-supporting through user charges for services they receive,although operating subsidies from general tax revenues are not uncommon.Typical examples include public utilities,such as water and sewer,transportation systems,golf courses,and swimming pools.Fiduciary activities are those in which the government acts in a fiduciary capacity,either as an agent or trustee,for parties outside the government.Examples include trust funds that benefit individuals and organizations outside of the government.
Q2) Which of the following is a fiduciary fund?
A)Investment trust fund.
B)Special revenue fund.
C)Debt service fund.
D)Enterprise fund.
Answer: A
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) The Appropriations account of a governmental fund is credited when
A)The budgetary accounts are closed.
B)The budget is recorded.
C)Supplies are purchased.
D)Expenditures are recorded.
Answer: B
Q2) Under which basis of accounting for a government should revenues be recognized in the period when they are measurable and available?
A)Accrual basis: No; Modified accrual basis: No
B)Accrual basis: Yes; Modified accrual basis: No
C)Accrual basis: Yes; Modified accrual basis: Yes
D)Accrual basis: No; Modified accrual basis: Yes
Answer: D
Q3) Encumbrances outstanding at year-end in the General Fund should be reported as a
A)Fund balance designation in the General Fund.
B)Liability in the General Fund.
C)Reservation of fund balance in the General Fund.
D)Liability in the governmental activities column on the government-wide statement of net assets.
Answer: C
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Which of the following would properly be reported in the operating statement of a governmental fund?
A)Interest on a tax anticipation note issued and repaid during the period.
B)Amortization expense.
C)Depreciation expense.
D)A grant that is intended to finance activities of the following period.
Q2) During January 2011 General Fund supplies ordered in the previous fiscal year and encumbered at an estimated amount of $2,000 were received at an actual cost of $2,200.The entry to record this transaction will require a debit to
A)Expenditures-2011 in the amount of $2,200.
B)Expenditures-2010 in the amount of $200.
C)Expenditures-2011 in the amount of $200.
D)Expenditures-2010 in the amount of $2,200.
Q3) Describe the difference between exchange and nonexchange transactions and discuss the rules for recognition of revenues and expenses/expenditures for each type of transaction.
Q4) Distinguish between interfund loans and interfund transactions that recognize a flow of financial resources in governmental fund operating statements.
Page 6
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) "Infrastructure assets (e.g.,roads,bridges,curbs and gutters,streets,etc.)need not be capitalized since they are immovable and not likely to be stolen." Do you agree or disagree? Explain your answer.
Q2) If a bond sale occurs between interest dates,accrued interest sold should be credited to Proceeds of Bonds.
A)True
B)False
Q3) "Capital projects funds are established by a government to account for all plant or equipment acquired by construction." Do you agree? Why or why not?
Q4) Equipment in general governmental service that had been acquired several years ago by a capital projects fund at a cost of $40,000 was sold for $15,000 cash.Accumulated depreciation of $30,000 existed at the time of the sale.The journal entry to be made in the governmental activities journal will include all of the following except
A)A debit to Cash for $15,000.
B)A debit to Accumulated Depreciation for $30,000.
C)A credit to Equipment for $40,000.
D)A credit to Other Financing Sources for $5,000.
Page 7
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) Which of the following statements is always true concerning the reporting of debt service funds?
A)Debt service funds are reported in a separate column in the governmental fund financial statements.
B)Debt service funds are reported in a separate column in the government-wide financial statements.
C)Debt service funds are reported in the Other Governmental Funds column in the governmental fund financial statements.
D)Debt service funds are reported in the Governmental Activities column in the government-wide financial statements.
Q2) Bonds and other debt of enterprise funds may legally,at least contingently,have the status of tax-supported debt.In the event that enterprise fund resources are insufficient for debt service on such debt,why might the government as a whole find it necessary or desirable to assume responsibility for debt service? How would assumption of responsibility for such debt by the government as a whole be accounted for in the governmental activities accounts in the enterprise fund?
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) To facilitate the combination of utility financial statements with the statements of other enterprise funds,GAAP permits utilities to follow the customary format used by nonutility business organizations.
A)True
B)False
Q2) To establish a new internal service fund with a transfer of funds (not to be repaid),which account would be credited in the internal service fund?
A)Cash.
B)Interfund Transfer In.
C)Interfund Transfer Out.
D)Estimated Revenues.
Q3) Which of the following is (are)an appropriate basis of accounting for an internal service fund?
A)Modified accrual basis: Yes; accrual basis: No:
B)Modified; Accrual basis: No; accrual basis: Yes
C)Modified accrual basis: Yes; accrual basis: Yes
D)Modified accrual basis: No; accrual basis: No
Q4) The Supplies Fund,an internal service fund,of a certain city recorded the following journal entry:
Page 9
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Chapter 8: Accounting for Fiduciary Activities Agency and Trust Funds
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Q1) Which of the following is a valid reason for establishing a tax agency fund and charging a collection fee to other governments?
A)To help eliminate a General Fund deficit.
B)To increase the total amount of taxes levied.
C)To avoid overlapping taxes.
D)To realize administrative efficiencies from centralizing tax billing and collection activities.
Q2) An agency fund accounts for assets held by a government for the long-term in the capacity of a trustee for an individual,organization,other fund,or other government.
A)True
B)False
Q3) Employer contributions to a public employees retirement system (PERS)should be reported as
A)An expense of the General Fund for employees paid by the General Fund.
B)An other financing use of a proprietary fund for employees paid by a proprietary fund.
C)A revenue of the PERS.
D)An addition to net assets of the PERS.
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Page 10
Chapter 9: Financial Reporting of State and Local Governments
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Q1) Which of the following is not one of the methods recommended by the GASB for communicating information to external users of government financial reports?
A)Providing information via newsletters.
B)Recognition in the financial statements.
C)Presentation as required supplementary information.
D)Disclosure in the notes to the financial statements.
Q2) Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the governmental financial reporting entity?
A)The primary government does not approve the operating budget of the potential component unit.
B)Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C)The PCU has sufficient operational and financial dependence that the primary government can impose its will on 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.
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) One of the most important reasons to evaluate the financial performance of a government is to
A)Determine if property taxes and other revenue sources should be increased.
B)Assign responsibility for success or failure of the government to certain parties.
C)Determine whether the government is accomplishing its mission.
D)Have an early warning of impending financial difficulty for a diverse set of decision makers.
Q2) "Financial statements are virtually useless in evaluating a city's financial condition." Do you agree with this statement? Why or why not?
Q3) After financial ratios are calculated,the results should be compared to any of the following except
A)The same indicator from prior years.
B)Budgeted information for the government for the upcoming year.
C)A comparative benchmark value,such as those from Moody's Medians.
D)Any credit market or other red flag indicators.
Q4) Describe some ratios that can be calculated using the basic financial statements that will help a decision maker assess the financial position of the government.
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
Q2) One of the purposes of the Federal Financial Management Improvement Act of 1996 was to
A)Establish a requirement that the financial statements of the federal government as a whole be audited.
B)Improve the effectiveness of programs receiving federal funds.
C)Establish generally accepted federal accounting principles.
D)Rebuild the credibility and restore public confidence in the federal government.
Q3) The Chief Financial Officer Act of 1990 establishes an office of federal financial management within the OMB,headed by a controller appointed by the President,establishes a chief financial officer position within each major federal department and agency,requires the development of a 5-year financial plan by OMB,and requires some federal agencies to provide audited financial statements.
A)True
B)False
Q4) What is the difference between entity assets and nonentity assets?
Q5) Explain the components of net position.
Page 13
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Chapter 12: Budgeting and Performance Measurement
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Q1) Only state and local governments and their component units must have single audits; colleges and universities and other not-for-profit organizations that expend federal financial awards are not required to have single audits.
A)True
B)False
Q2) All of the following reports are included in the reporting package resulting from the single audit except
A)Financial statements and schedule of expenditures of federal awards.
B)Summary schedule of prior audit findings.
C)Report on efficiency and effectiveness.
D)Corrective action plan.
Q3) Why should persons interested in public administration and persons interested in working as accountants for governments have an understanding of audit objectives and standards?
Q4) What are the objectives of the Single Audit Act Amendments of 1996 (and original Single Audit Act of 1984),and to whom is it applicable?
Q5) Contrast and compare a financial audit to a performance audit,as defined in the GAO's Government Auditing Standards (yellow book).
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) A major disadvantage of activity-based costing in a governmental setting is the very limited number of activities for which it can be used.
A)True
B)False
Q2) Balanced scorecards integrate all of the following into a document that can be shared with employees and stakeholders except
A)GASB financial reporting standards.
B)Internal business processes measures.
C)Nonfinancial measures,such as customer satisfaction.
D)Financial performance measures.
Q3) A generally unallowable cost may be allowable under certain circumstances.
A)True
B)False
Q4) Explain the relevance of process cost accounting to governmental financial management.
Q5) Describe what is meant by the direct costs of a program (for example,a fire prevention program)and why it is important to distinguish direct costs from indirect costs.
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Chapter 14:
Not-For-Profit Organizations Regulatory, taxation, and Performance Issues
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Q1) Not-for-profit organizations should be conservative and record pledges as support (contributions)only when received in cash.
A)True
B)False
Q2) Unrealized gains on the investment portfolio of a not-for-profit organization are
A)Not recognized.
B)Reported in the net asset section of the balance sheet.
C)Depends on whether the gains relate to trading,available-for-sale,or held-to-maturity assets.
D)Reported on the statement of activities.
Q3) Describe the difference between fund accounting and the accounting methods required by SFAS Nos.116 and 117.
Q4) A not-for-profit organization that follows GAAP must display the changes in all classes of net assets on the
A)Statement of activities.
B)Statement of financial position.
C)Statement of cash flows.
D)Statement of functional expenses.
Page 16
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Chapter 15: Accounting for Colleges and Universities
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Q1) Many states have worked closely to have uniform policies relating to not-for-profit organizations in the areas of not-for-profit incorporation,charitable solicitation,investing funds,and protecting volunteers.
A)True
B)False
Q2) The unrelated business income tax could be a significant cost and therefore should be of concern to tax-exempt organizations.
A)True
B)False
Q3) Explain why Congress enacted the "intermediate sanctions" legislation in 1996.
Q4) Which of the following is a not a true statement about tax-exempt organizations?
A)They must be organized to serve the charitable needs of the public at large.
B)They must first become a not-for-profit corporation or charitable trust.
C)They are permitted to do some political lobbying if guidelines are met.
D)Their unrelated business income is taxed at corporate income tax rates.
Q5) Describe the process for becoming a tax-exempt organization.Why is it important for an accountant to understand this process?
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Page 17
Chapter 16: Accounting for Health Care Organizations
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Q1) Nongovernmental (private)colleges and universities follow FASB standards; governmental (public)colleges and universities should follow GASB standards.
A)True
B)False
Q2) Are public and private colleges and universities required to report depreciation expense in their financial statements?
A)Public: No; Private: No
B)Public: Yes; Private: Yes
C)Public: Yes; Private: No
D)Public: No; Private: Yes
Q3) Public colleges and universities that use business-type reporting must present segment information in the notes to the financial statements.
A)True
B)False
Q4) The sale of bonds for construction of a college residence hall would always result in a credit to proceeds of bonds in the accounts.
A)True
B)False
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) If the equity/net assets section of the balance sheet (or statement of net assets)is comprised of unrestricted net assets,temporarily restricted net assets,and permanently restricted net assets,then the health care organization is
A)Public,governmental.
B)Private,nongovernmental.
C)Commercial or proprietary.
D)Cannot be determined.
Q2) In accounting for health care entities,the provision for bad debt should always be recorded as a revenue deduction,rather than as an expense.
A)True
B)False
Q3) Assets whose use is limited by contracts or agreements with outside parties other than donors or grantors are labeled
A)Temporarily restricted net assets.
B)Designated net assets.
C)Assets limited as to use.
D)Restricted assets.
Q4) What auditing issues are of particular significance to the health care industry?
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