Fund Accounting
Mock Exam
Course Introduction
Fund Accounting introduces students to the specialized accounting principles and practices used in managing and reporting the financial activities of entities such as governments, non-profits, and other organizations where accountability rather than profitability is the primary focus. The course covers the structure and operation of various funds, the preparation and analysis of fund financial statements, budgetary control, and compliance with regulatory standards. Students will explore concepts such as encumbrances, government-wide versus fund financial statements, and reporting under GASB standards, gaining practical skills for accurately recording transactions and producing transparent, reliable financial reports specific to fund-based organizations.
Recommended Textbook Accounting for Governmental and Nonprofit Entities 15th Edition by Jacqueline Reck
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Chapter 1: Introduction to Accounting and Financial
Reporting for Governmental and Not-For-Profit Entities
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Q1) Which of the following reconciliations is required in the basic financial statements of a state or local government?
A)Total fund balances on the balance sheet-governmental funds to total governmental activities net assets on the government-wide statement of net assets.
B)Total net assets on the statement of net assets-proprietary funds to total business-type activities net assets on the government-wide statement of net assets.
C)Total net assets on the statement of fiduciary net assets to total fiduciary activities net assets on the government-wide statement of net assets.
D)Total fund balances on the balance sheet-governmental funds to total changes in fund balances on the statement of revenues,expenditures,and changes in fund balances-governmental funds.
Answer: A
Q2) The governmental fund financial statements are intended to report on fiscal accountability.
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) "The primary purpose of an accounting system for a state or a local government is to make it possible for financial statements to demonstrate compliance with finance-related legal and contractual provisions." Explain why you believe this statement to be correct or incorrect.
Answer: The statement is not correct.The GASB Accounting and Reporting Capabilities Principle specifies that a governmental accounting system must make it possible both to prepare statements in conformity with GAAP and to prepare legal compliance reports.The former are the basic financial statements on which auditors express an opinion; the latter are special purpose reports that may or may not be accompanied by auditors' reports.
Q2) All capital assets acquired by or used by a fund should be reported in the fund balance sheet or statement of net assets.
A)True
B)False
Answer: False
Q3) A fund is an accounting but not a fiscal entity.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) When the budget of a government is adopted and Estimated Revenues exceed Appropriations,the excess is
A)Credited to Budgetary Fund Balance.
B)Debited to Budgetary Fund Balance.
C)Debited to Reserve for Encumbrances.
D)Credited to Reserve for Encumbrances.
Answer: A
Q2) When the budget of a government is recorded and Appropriations exceeds Estimated Revenues,the Budgetary Fund Balance account is
A)Credited at the beginning of the year and debited at the end of the year.
B)Credited at the beginning of the year and no entry is made at the end of the year.
C)Debited at the beginning of the year and no entry is made at the end of the year.
D)Debited at the beginning of the year and credited at the end of the year.
Answer: D
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Describe the difference between exchange and nonexchange transactions and discuss the rules for recognition of revenues and expenses/expenditures for each type of transaction.
Q2) Which of the following should not be reported as a liability of the General Fund?
A)General obligation bonds payable (due in 10 years).
B)Vouchers payable.
C)Tax anticipation notes payable.
D)Due to federal government.
Q3) In fiscal year 2011 the "Expenditures-2010" account represents
A)Excess expenditures in 2010 that will be offset against appropriations for 2011.
B)Goods or services received in 2010 which the government has no record of ordering.
C)Amount of expenditures for goods ordered in 2010 that were received in 2011 and chargeable to appropriations of 2010.
D)The amounts of purchase orders issued in 2010 that were intended to be paid in full from appropriations for 2011.
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) A city recorded an asset impairment to a Public Works facility.Which of the following is correct concerning the recording of the amount of the asset impairment?
A)The General Fund would record a debit to Expenditures.
B)The General Fund would record a debit to Other Financing Uses-Loss due to Impairment.
C)The governmental activities accounts would record a debit to Loss due to Impairment.
D)The governmental activities accounts would record a debit to Expenses-Public Works.
Q2) "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.
Q3) The budgetary account recommended for use by a capital projects fund is
A)Estimated other financing sources.
B)Encumbrances.
C)Appropriations.
D)Estimated revenues.
Q4) How should the capital assets of a capital lease be recorded in the capital projects fund?
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) Taxes for debt service are always levied by the General Fund and transferred to a debt service fund.
A)True B)False
Q2) One argument advanced in favor of financing with term bonds secured by some sort of a sinking fund is that earnings on investments held by the debt service fund will reduce the amount of support required from other sources.What is your opinion of the validity of this argument?
Q3) The liability for matured bonds payable should be recorded by a debt service fund only if a legal appropriation for that purpose exists in the proper amount.
A)True B)False
Q4) If all financial resource inflows have been collected,and all debt interest and principal legally due has been paid,a regular serial bond debt service fund could have no assets,no liabilities,and no fund balance at year-end.
A)True B)False
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) The liability for utility revenue bonds should be reported in business-type activities on the government-wide statements,as well as in the enterprise fund.
A)True
B)False
Q2) Sales revenues of a utility for a certain fiscal period
A)Are equivalent to total debits to Customer Accounts Receivable for that period.
B)Include receivables billed during a fiscal period,plus receivables billed early in the next year if meters were read before year-end.
C)Should be reported on the cash basis for the sake of conservatism.
D)Include billed receivables and an accrual for unbilled receivables as of the balance sheet date.
Q3) Proprietary funds are accounted for in a manner similar to investor-owned businesses; among other features,the accrual basis of accounting is used and all of the capital assets used in fund operations are accounted for by the using fund.
A)True
B)False
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Chapter 8: Accounting for Fiduciary Activities Agency and Trust Funds
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Q1) Effective management of cash and investments of individual funds may be enhanced by placing the cash and investments in a pool under the control of the treasurer of the government or other official.
A)True
B)False
Q2) If special assessment receivables are recorded in the accounts of an agency fund,the appropriate account(s)to credit is (are):
A)Contributions to Net Assets.
B)Revenues and Deferred Revenues.
C)Due to Special Assessment Bondholders.
D)Interfund Transfers In.
Q3) 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.
Q4) Explain the purpose of an investment trust fund and describe its accounting treatment.
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) What constitutes the basic financial statements of a government?
A)Financial section of the comprehensive annual financial report (CAFR).
B)Government-wide financial statements plus notes.
C)Government-wide financial statements plus fund financial statements plus notes.
D)Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).
Q2) A financial reporting entity is defined as a primary government,as well as all other organizations that have an operational relationship with the primary government.
A)True
B)False
Q3) Describe what the government-wide statements are intended to convey to readers and contrast with the intent of the fund financial statements.
Q4) "Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?
Q5) Describe the objectives of financial reporting by state and local governments.
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) Political culture,one of the environmental factors affecting financial condition,includes such factors as form of government and the entity's economic,political,and social history.
A)True
B)False
Q2) The term that is defined as determining whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided is
A)Financial position.
B)Interperiod equity.
C)Financial condition.
D)Economic condition.
Q3) Environmental factors facing a government have little impact on a city's fiscal policy.
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?
Q5) Explain the importance of evaluating governmental financial performance.
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) Fund balances of a federal agency's various funds are reported in the fund equity section of the agency's balance sheet.
A)True
B)False
Q2) Describe the budgetary accounts used in federal agency accounting and the flow of budgetary authority through those accounts.
Q3) 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.
Q4) "Each federal government agency should maintain a General Fund and as many other funds defined by the GASB as are appropriate." Do you agree? Why or why not?
Q5) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
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Chapter 12: Budgeting and Performance Measurement
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Q1) An unqualified audit opinion rendered on a governmental unit's general purpose external financial statements means those statements
A)Contain departures from GAAP that may make them misleading.
B)Have been audited by an auditor with limited qualifications.
C)Present fairly in conformity with GAAP.
D)Have been certified as free from error.
Q2) Which of the following statements concerning the Single Audit Act of 1984 (with 1996 Amendments)is correct?
A)Only those entities receiving over $500,000 a year in federal financial assistance are required to have a single audit.
B)Those entities expending under $500,000 a year in federal awards are exempt from single audit requirements.
C)The Single Audit Act only applies if an entity has high risk programs.
D)The single audit is optional for all entities receiving federal awards.
Q3) The scope paragraph of an audit report identifies the audit standards used in performing the audit and describes any limitations imposed on the audit.
A)True
B)False
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) Why should persons who manage,advise,or audit governments and not-for-profit organizations be generally familiar with OMB Circulars A-87,A-21,and A-122? In your answer explain what "OMB" means,and why its circulars should be of concern to those involved with management,advisement,or auditing of state and local governments and not-for-profit organizations.
Q2) Which of the following statements is not consistent with the GASB's "Budgeting,Budgetary Control,and Budgetary Reporting Principle?"
A)An annual budget must be adopted using generally accepted accounting principles.
B)The accounting system should provide the basis for appropriate budgetary control.
C)Budgetary comparison schedules should be presented as required supplementary information for the General Fund and each major special revenue fund for which an annual budget has been adopted.
D)The budgetary comparison schedule should present both the original and the final appropriated budgets for the reporting period.
Q3) Discuss the implications of GASB governmental fund and government-wide financial reporting on the budgeting process in a city.
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Chapter 14: Not-For-Profit Organizations Regulatory, taxation,
and Performance Issues
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Q1) Which of the following statements is true regarding fund accounting for not-for-profit organizations (NPOs)?
A)Fund accounting may provide a good mechanism for facilitating reporting to donors for restricted grants.
B)Fund accounting may be used by NPOs for external purposes,but not internal purposes.
C)Fund accounting is not allowed.
D)SFAS Nos.116 and 117 method of reporting three classes of net assets (unrestricted,temporarily restricted,and permanently restricted)replaces fund accounting for both internal and external reporting purposes.
Q2) Not-for-profit organizations should be conservative and record pledges as support (contributions)only when received in cash.
A)True
B)False
Q3) Temporarily restricted net assets are released from restrictions
A)At the end of each fiscal year.
B)As assets are spent for the purposes intended by the donor.
C)When funds are returned to the donor.
D)When they are converted to permanently restricted net assets.
Page 16
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Chapter 15: Accounting for Colleges and Universities
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Q1) All officers of a not-for-profit organization have the same responsibilities to the organization and its constituents.
A)True
B)False
Q2) 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.
Q3) The incorporating documents that have an internal focus and describe the functional rules of the organization are the
A)IRS Forms 990.
B)By-laws.
C)Minutes of the board meetings.
D)Articles of incorporation.
Q4) Explain why Congress enacted the "intermediate sanctions" legislation in 1996.
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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Chapter 16: Accounting for Health Care Organizations
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Q1) If a public university receives $1,000,000 in fiscal year 2011 as a grant restricted for a specific research project and makes expenditures amounting to $400,000 during fiscal year 2011 properly chargeable to the grant,how much should be reported as revenues in fiscal year 2011? Explain.
Q2) Prepare in general journal form the entries required for each of the following selected transactions of Northern University,a state-funded public institution engaged only in business-type activities.Some of these transactions are related and some are not.
1)A generous alumnus donated $300,000 that can only be used for research on diabetes.The full $300,000 was received in FY 2011.
2)During FY 2011,expenses of $150,000 were made in cash for diabetes research (see item 1 above).
3)$2,000,000 in long-term bonds was issued to construct a new parking garage on campus.
4)During FY 2011,the parking garage (see item 3 above)was partially completed at a total cash expenditure of $1,800,000.
5)During 2011,interest was paid in the amount of $120,000 on the long-term bonds issued for the parking garage project (see item 3 above).
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) Equipment purchased from the restricted resources of a private hospital should be depreciated.
A)True
B)False
Q2) Continuing care retirement communities (CCRC)provide residential care in a facility,along with some level of long-term medical care that is less intensive that hospital care.
A)True
B)False
Q3) The primary source of revenue for most hospitals is
A)Nonexchange transactions,such as contributions.
B)Exchange transactions,such as fees for services.
C)Investment income.
D)Capitation fees from health maintenance organizations.
Q4) Financial reporting standards for all government owned and operated hospitals are established by the GASB.
A)True
B)False
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Q5) What auditing issues are of particular significance to the health care industry?