Fund Accounting Exam Bank
Course Introduction
Fund Accounting is a specialized area of accounting that focuses on recording and reporting resources whose use is limited by donors, grant authorities, governing agencies, or by specific regulations. This course introduces students to the principles, techniques, and regulations related to fund accounting, with an emphasis on its application in nonprofit organizations, governmental entities, and educational institutions. Topics include the classification of funds, the accounting cycle for different fund types, budgetary control, financial reporting requirements, and the analysis and interpretation of financial statements within fund-based entities. By the end of the course, students will develop a strong understanding of the unique challenges and responsibilities associated with managing funds ethically and efficiently within organizations that operate for purposes other than profit.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 15th Edition by Jacqueline Reck
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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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Q1) Why should persons interested in reading financial reports of governmental and not-for-profit entities be familiar with standards set by the GASB and FASB?
Answer: Financial reports can be read intelligently only by persons who understand the real meaning of the terms used in the reports,and who understand the standards that guide the presentation of financial information.
Q2) Enterprise funds are primarily distinguished from internal service funds by the: A)Type of customers they serve.
B)Different basis of accounting they use.
C)Different kinds of financial statements used to present their financial information.
D)Different budgeting approaches used.
Answer: A
Q3) The needs of users of governmental financial reports are the same as those of users of business financial reports.
A)True
B)False
Answer: False
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3
Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Q1) Distinguish between a blended presentation of financial data for a component unit and a discrete presentation.
Answer: A blended presentation is the method of reporting in which the financial data of component units are combined in the same columns with that of the primary government.Discrete presentation means that the financial data of the component units are reported in one or more separate columns from that of the primary government.Current GASB reporting entity standards require that most component units be reported by discrete presentation.
Q2) Describe why a combining balance sheet might be prepared for governmental funds of a government.
Answer: The government may want to present supplementary information about funds.GASB standards permit governments the choice of presenting a combining balance sheet that would contain columns of financial information for each nonmajor fund and a column for total nonmajor governmental funds.
Q3) A fund is an accounting but not a fiscal entity.
A)True
B)False
Answer: False
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) If a state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by generally accepted accounting principles (GAAP)
A)The actual amounts in the budgetary comparison schedule should be reported using the government's budgetary basis.
B)The actual amounts in the budgetary comparison schedule should be reported on the GAAP basis.
C)Both the budgeted and actual amounts in the budgetary comparison schedule prepared as part of the required supplementary information (RSI)should be reported on the GAAP basis; a separate budget-basis comparison schedule should be prepared for the appropriate state oversight body.
D)Only a budgetary comparison schedule prepared for the appropriate state oversight body is required.
Answer: A
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5
Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Which of the following are reported in the functions/programs section of the statement of activities at the government-wide level where they reduce the net expense of each function or produce a net revenue?
A)Indirect revenues.
B)Program revenues.
C)General revenues.
D)Nonexchange revenues.
Q2) Beach City received a gift of corporate stock valued at $1,200,000 on the date of the gift.The donor specified that the principal amount of the gift be maintained in perpetuity,but that earnings can be used to acquire works of art to improve the appearance of public buildings.All changes in fair value are to increase or decrease the principal amount of the gift.Assuming that Beach City uses a permanent fund to account for the endowment and a special revenue fund to account for the earmarked earnings from the endowment,explain the accounting process for (1)receipt of the original gift, (2)receipt of quarterly dividends, (3)notification that fair value of the original stock increased by $3,000 during the year,and (4)the effect on fund balances of closing temporary accounts at year-end.(Note: Ignore the effects of the transactions at the government-wide level.
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) Proceeds of tax-supported debt issued for the construction or acquisition of capital assets are recognized by the capital projects fund as "other financing sources" and as a liability in the governmental activities journal.
A)True
B)False
Q2) The acquisition of long-lived assets under an operating lease does not require any recognition in the accounts of any governmental fund.
A)True
B)False
Q3) "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.
Q4) The budgetary account recommended for use by a capital projects funds is A)Estimated revenues.
B)Encumbrances.
C)Appropriations.
D)Estimated Other Financing Uses.
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) Capital lease payments should be recorded by a debt service fund rather than the fund using the leased asset.
A)True
B)False
Q2) The city of Sparr's fiscal year ends on December 31.On July 1,2011,the city issued $1,000,000 of 6%,10-year term bonds with semi-annual interest payments due on July 1 and January 1 each year,beginning on January 1,2012.What amount of expenditures should the city recognize in its debt service fund for the years 2011 and 2012?
A)$30,000 in 2011; $60,000 in 2012.
B)$60,000 in 2011; $60,000 in 2012.
C)$3,000 in 2011; $6,000 in 2012.
D)$0 in 2011; $60,000 in 2012.
Q3) Debt margin is the difference between the debt limit and the amount of outstanding debt subject to the debt limitation.
A)True
B)False
Q4) "Bonds to be retired by a debt service fund are recorded in that fund throughout their life." Do you agree or disagree? Why or why not?
Page 8
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) A municipal solid waste landfill (MSWLF)accounted for by an enterprise fund should recognize an expense and liability for the year in the amount of
A)The estimated total current costs for closure and postclosure of the MSWLF determined at the time the landfill is placed into initial operation divided by the estimated number of years the landfill will be operated.
B)The estimated total current costs for closure and postclosure of the MSWLF as reevaluated at the end of each fiscal year divided by the remaining estimated number of years the landfill will be operated.
C)A portion of the estimated total current costs for closure and postclosure of the MSWLF,determined at the time the landfill is placed into initial operation,equal to the ratio of landfill used during the year to its total capacity.
D)A portion of the estimated total current costs for closure and postclosure of the MSWLF,as reevaluated at the end of the fiscal year,equal to the ratio of landfill used during the year to its total capacity.
Q2) What are the alternative methods of dissolving an internal service fund? What factors should be considered in choosing the appropriate method?
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Page 9
Chapter 8: Accounting for Fiduciary Activities Agency and Trust Funds
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Q1) Which of the following is the appropriate measurement focus for agency funds?
A)Economic resources.
B)Current financial resources.
C)Cash and cash equivalents.
D)Accrual basis.
Q2) Which of the following is the appropriate basis of accounting for an agency fund?
A)Cash basis.
B)Modified cash basis.
C)Accrual basis.
D)Modified accrual basis.
Q3) If the fair value of stock received by a private-purpose trust fund differs from the par value of the stock,the premium or discount should be amortized over the remaining life of the stock.
A)True
B)False
Q4) Public Employee Retirement Systems should utilize the modified accrual basis of accounting.
A)True
B)False
10
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) GASB reporting objectives emphasize the role of accountability in external financial reporting,and describe accountability as the "paramount objective from which all other objectives must flow."
A)True
B)False
Q2) Balsam City's library board is appointed by the city council which has agreed to subsidize the operating costs of the library at a material amount to be determined each year.In addition,the city is paying debt service on general obligation bonds issued to construct the library.Based on generally accepted accounting principles (GAAP)criteria for defining the reporting entity:
A)The library is a component unit.
B)The library is not a component unit.
C)Financial data for the library's General Fund should be blended with the financial data for the city's special revenue funds.
D)The library can avoid being a component unit by establishing itself as a legally separate organization.
Q3) Describe the alternative processes for capturing the financial accounting information required for government-wide financial statements.
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) All of the following are appropriate benchmarks for a state or local government to use as a basis for comparing performance except
A)A government's own operating results and financial position from prior years.
B)International City/County Management Association's Financial Trend Monitoring System results for governments of similar types and size.
C)Federal agencies' financial information for a comparable time period.
D)Socioeconomic and demographic trends of governments of similar types and size available from U.S.Census Bureau.
Q2) How do credit analysts assist decision makers in evaluating the creditworthiness of a state or local government?
Q3) The management discussion and analysis (MD&A)is designed to provide substantial information in "plain English" so financial statement users can assess the financial health of the government.
A)True
B)False
Q4) How do the objectives of evaluating financial condition differ between internal managers and credit analysts? How are their objectives similar?
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Chapter 11: Auditing of Governmental
and Not-For-Profit Organizations
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Q1) Which of the following is required by OMB Circular A-136 in the basic financial statements?
A)Statement of changes in net position.
B)Statement of net assets.
C)Statement of revenues,expenditures,and changes in fund balances.
D)Statement of financing.
Q2) FASAB has identified four major user groups of federal financial reports,they are
A)Congress,executives,program managers,and citizens.
B)Congress,executives,citizens,and bond rating agencies.
C)Congress,program managers,foreign governments,and citizens.
D)Congress,program managers,bond rating agencies,and political parties.
Q3) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
Q4) The Comptroller General of the United States is the head of the:
A)Office of the Management and Budget.
B)Government Accountability Office.
C)Congressional Budget Office.
D)Federal Accounting Standards Advisory Board.
Q5) Explain the components of net position.
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Chapter 12: Budgeting and Performance Measurement
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Q1) Answer the following questions relating to the provisions of the Single Audit Act of 1984 and 1996 Amendments.
(a)What is a single audit?
(b)How do you determine if your government must have a single audit?
(c)Where would you find authoritative guidance on conducting a single audit?
Q2) Which of the following is the highest in the hierarchy of generally accepted accounting principles according to AICPA Statement of Auditing Standard No.69,as amended by SAS No.91,for the federal government entities?
A)AICPA Audit and Accounting Guide.
B)FASB emerging issues task force reports.
C)GASB statements.
D)FASAB statements.
Q3) Explain what an "attestation engagement" is and contrast that to financial audits and performance audits.
Q4) "An unqualified opinion on the financial statements of a local government means that all statements in the comprehensive annual financial report (CAFR)have been audited and conform with GAAP." Do you agree or disagree? Why?
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) One of the major advantages of incremental budgeting is that it focuses largely on inputs.
A)True
B)False
Q2) 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
Q3) Budget appropriations for governmental funds ordinarily cover only one year,however; there is also a need to develop multi-year capital budgets.
A)True
B)False
Q4) Which of the following is not a typical step in the budgeting process for a state or local government?
A)Request by management for input on the budget.
B)Review and revisions of the budget by the administrative staff of each unit.
C)Public hearings for citizen input.
D)Approval by a majority vote of the citizenry.
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15
Chapter
14: Not-For-Profit Organizations Regulatory, taxation, and Performance Issues
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Q1) When a not-for-profit (nongovernmental)organization spends money for the purpose for which an external donor intended,then the expense is reported as a
A)Decrease in temporarily restricted net assets.
B)Decrease in unrestricted net assets.
C)Decrease in permanently restricted net assets.
D)Decrease in current-restricted fund balance.
Q2) Donor-imposed restrictions must be clearly reflected in financial statements of not-for-profit organizations.
A)True
B)False
Q3) Not-for-profit organizations should be conservative and record pledges as support (contributions)only when received in cash.
A)True B)False
Q4) A statement of functional expenses is not required of all voluntary health and welfare organizations.
A)True
B)False
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Chapter 15: Accounting for Colleges and Universities
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Q1) The not-for-profit organization applying for tax-exempt status determines the appropriate subsection under IRC Sec.501 for which it wants to be considered and the Internal Revenue Service then approves or does not approve the application.
A)True
B)False
Q2) The federal government's primary objective in regulating not-for-profit organizations through the income tax laws is to limit the number of exempt organizations that operate at any one point in time.
A)True
B)False
Q3) The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is
A)Political influence.
B)Legislation.
C)Propaganda.
D)Lobbying.
Q4) Explain why Congress enacted the "intermediate sanctions" legislation in 1996.
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17
Chapter 16: Accounting for Health Care Organizations
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Q1) State educational appropriations received by a public university are classified as which of the following on the statement of revenues,expenses,and changes in net assets?
A)Nonoperating revenue.
B)Operating revenue.
C)Other financing source.
D)Increase in unrestricted net assets.
Q2) Economic rationality would argue against a university accepting a split interest agreement in which a fixed annuity is payable to the donor if:
A)The donor has attached conditions to the gift.
B)The university has no immediate need for the assets.
C)The sum of future annuity payments plus interest thereon exceeds the fair market value of the assets.
D)The present value of the future annuity payments and other liabilities exceed the fair market value of the assets.
Q3) Describe why and how a public college or university reports on segments of its operations? Are private colleges and universities also required to do the same.
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) The net assets or equity section of a health care organization's balance sheet or statement of net assets will indicate whether the health care organization is for-profit,not-for-profit,or governmental.
A)True
B)False
Q2) The statement of activities required by SFAS No.117 for not-for-profit health care entities must display changes for the period in which of the following categories of net assets?
A)Unrestricted,temporarily restricted,and invested in capital assets.
B)Unrestricted,temporarily restricted,and permanently restricted.
C)Unrestricted,restricted,and invested in capital assets.
D)Unreserved fund balance and reserved fund balance.
Q3) Financial reporting standards for all government owned and operated hospitals are established by the GASB.
A)True
B)False
Q4) Describe what prepaid health care plans are and some of the related accounting issues.
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Q5) What auditing issues are of particular significance to the health care industry?