Fund Accounting Practice Questions
Course Introduction
Fund Accounting explores the principles and procedures unique to accounting for funds, focusing on entities such as governments, non-profits, and other organizations that utilize fund-based accounting systems. The course examines concepts like fund structure, the regulatory environment, budgeting, financial reporting, and performance measurement. Special emphasis is placed on how fund accounting ensures accountability and transparency in resource allocation, with practical applications in recording transactions, preparing financial statements, and understanding compliance requirements. Through real-world examples and case studies, students gain skills to effectively manage and report financial activities within the framework of multiple, separate funds.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 16th Edition by Jacqueline L.
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Page 2
Reck Wilson
Chapter 1: Introduction to Accounting and Financial
Reporting for Governmental and Not-For-Profit Entities
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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 is identified by the FASAB as the foundation for federal financial reporting?
A) Decision usefulness.
B) Accountability.
C) Understandability.
D) Budget integrity.
Answer: B
Q3) The FASB,GASB,and FASAB all focus their standards on both internal and external financial reporting.
A)True
B)False
Answer: False
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Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Q1) In accounting for state and local governments the modified accrual basis is required for
A) Proprietary and fiduciary funds.
B) Governmental funds only.
C) Proprietary funds only.
D) All funds.
Answer: B
Q2) All capital assets acquired by or used by a fund should be reported in the fund balance sheet or statement of net position.
A)True
B)False
Answer: False
Q3) Economic resources are cash or items expected to be converted into cash during the current period,or soon enough thereafter to pay current period liabilities.
A)True
B)False
Answer: False
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) Which of the following neither increases nor decreases fund balance of the General Fund during the current period?
A) Deferred revenues.
B) Revenues.
C) Expenditures.
D) Other financing sources.
Answer: A
Q2) Government-wide financial statements include financial information presented for the General Fund and major governmental funds.
A)True
B)False
Answer: False
Q3) Depreciation expense for assets that essentially benefit all functions,such as the city hall,may be reported as a separate line item or on the same line as the General Government or similar function.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Governmental Operating
Activities-Illustrative Transactions and Financial Statements
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Q1) The governmental funds operating statement presents all of the following except A) Expenditures.
B) Other financing sources.
C) Revenues.
D) Encumbrances.
Q2) Governments that are temporarily short of cash but that have levied taxes expected to be collectible during the fiscal year are generally able to borrow on short-term notes known as "tax anticipation notes payable."
A)True
B)False
Q3) Under the modified accrual basis of accounting applicable to governmental fund types,revenue from sources such as fines and forfeits is accrued and recorded at net realizable value.
A)True
B)False
Q4) Property taxes due 75 days after the end of the 2014 fiscal year would be recognized in 2014 as revenues in the General Fund general journal.
A)True
B)False
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) Interest incurred on interim or long-term financing during construction of general capital assets cannot be capitalized as part of the cost of those assets.
A)True
B)False
Q2) Proceeds of 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
Q3) Which of the following is true regarding capital projects funds?
A) Encumbrances accounting is employed.
B) Encumbrances accounting is not normally employed,but Estimated Revenues and Appropriations accounts are used.
C) No budgetary accounts are ever used.
D) All budgetary accounts are employed in the same manner as for the General Fund and special revenue funds.
Q4) How should capital assets acquired under 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) 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?
Q2) Installments of special assessments to be collected within one year are recorded as Assessments Receivable-Current; installments due in periods after one year are recorded as Assessments Receivable-Deferred.
A)True
B)False
Q3) If general capital assets are being acquired by a government under a capital lease agreement,describe the entries that should be recorded in a governmental fund (logically,a debt service fund)for each lease payment.
Q4) Special assessment debt is not recorded in a government's accounts.
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) Which of the following may properly be reported as a component of net position in the proprietary fund statement of net position?
A) Retained earnings.
B) Designated equity.
C) Restricted net position.
D) Contributed capital.
Q2) Public utilities owned and operated by governments are common examples of enterprise funds.
A)True
B)False
Q3) 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
Q4) Budgets for enterprise funds should be recorded in the accounts in the same manner as budgets for a General Fund or a special revenue fund.
A)True
B)False
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 accounts is least likely to be used by a tax agency fund?
A) Cash.
B) Revenues.
C) Taxes receivable for other funds and units.
D) Due to other funds and units.
Q2) Tax agency funds assume liability for gross levies,not for the amounts the levying funds or units expect to collect.
A)True
B)False
Q3) A local golfer contributed $100,000 to the city stipulating that the money be invested and that the earnings thereon be used for maintenance of the city golf course.The $100,000 would most appropriately be recorded in a(an)
A) Agency fund.
B) A permanent fund.
C) Private-purpose trust fund.
D) Investment trust fund.
Q4) Explain the purpose of the account "undistributed change in fair value of investments" used in a cash and investment pool and describe how it should be reported in the government's financial statements.
Page 10
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) A government is financially accountable for another entity if it appoints the voting majority of the entity's governing board.
A)True
B)False
Q2) Describe the objectives of financial reporting by state and local governments.
Q3) Government-wide financial statements present the government's financial position using
A) Total financial resources measurement focus and the accrual basis of accounting.
B) Economic resources measurement focus and the accrual basis of accounting.
C) Current financial resources measurement focus and the modified accrual basis of accounting.
D) Current financial resources measurement focus and the cash basis of accounting.
Q4) What is meant by the term "reporting entity" in accounting for state and local governments?
Q5) Describe some items requiring adjustments when modified accrual basis accounting information must be converted to accrual basis accounting in preparation of government-wide statements.
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) 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.
Q2) The key cause of municipal financial crises is the failure of management to raise taxes quickly enough in response to adverse environmental factors.
A)True
B)False
Q3) Describe how financial performance is related to the operating performance of a governmental entity.
Q4) The term financial position is closely related to the term liquidity while financial condition is much broader in scope,including not only financial position but also consideration of long-term solvency.
A)True
B)False
Q5) The term that is closely related to the concept of liquidity is
A) Financial condition.
B) Interperiod equity.
C) Financial position.
D) Economic condition.
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) In the standard auditor's report for a state or local government,the introductory paragraph identifies the opinion units on which the auditor is expressing an opinion and refers to the accompanying financial statements of those units.Name or describe the financial statements that are usually accompanying the standard report.
Q2) Typical objectives of a performance audit include
A) Determining whether financial statements fairly present the entity's operational results.
B) Judging the appropriateness of an entity's program goals.
C) Determining whether financial statements fairly present in conformity with GAAP.
D) Assessing effectiveness and results,economy and efficiency,and internal controls and compliance with laws and regulations.
Q3) Audits of state and local governments may be performed by all of the following except
A) Independent CPAs.
B) State audit agencies.
C) Federal grantor agencies.
D) The Office of Management and Budget (OMB).
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Chapter 12: Budgeting and Performance Measurement
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Q1) "The sole objective of budgeting in a governmental entity is to demonstrate compliance with appropriation legislation." Do you agree or disagree? Explain.
Q2) Governmental budgets must be made available for public scrutiny,and public hearings must be held to provide adequate opportunity for citizens' input,prior to legislative adoption of the budget.
A)True
B)False
Q3) The concepts of total quality management (TQM)are consistent with earlier budget approaches such as performance budgeting and PPBS.
A)True
B)False
Q4) If the revenues budget of a government is prepared on the modified accrual basis is there any reason why the revenues budget should be converted to a cash receipts budget? Explain.
Q5) What advantages does total quality management (TQM)offer a government? Is it fundamentally a budget approach?
Q6) Explain what is required to develop an effective total quality management (TQM)program for a government.
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) Distinguish between "support" and "revenues from exchange transactions".
Q2) Which of the following is a condition that must be met for contributed services to a not-for-profit organization (NFP)to be recorded as both a contribution and as an expense?
A) The service creates or enhances nonfinancial assets,such as a carpenter renovating a building.
B) The service requires a specialized skill and is provided by someone who possesses the specialized skill,such as a lawyer preparing contracts.
C) The service supplements the management function,such as an auditor preparing a program audit,which is not normally done.
D) All of the above must be met for contributed services to be recognized as a contribution and an expense.
Q3) Investments in equity securities that have a readily determinable market value and all debt securities of a not-for-profit organization are reported at
A) Lower of cost or market.
B) Amortized cost.
C) Fair value.
D) Cost.
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Chapter
14: Not-For-Profit Organizations-Regulatory, Taxation, and Performance Issues
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Q1) The unrelated business income tax could be a significant cost and therefore should be of concern to tax-exempt organizations.
A)True
B)False
Q2) Which of the following is a reason why an not-for-profit organization might fail to qualify for tax-exempt status?
A) It is operated primarily for the benefit of its members.
B) Its officers are paid excessive wages.
C) Its primary purpose is to promote the passage of legislation favorable to institutions of higher education.
D) It has unrelated business income.
Q3) Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec.501(c) (3)?
A) Beta Kappa Alpha Sorority.
B) Peaceful Dreams Cemetery Association.
C) Regional Association of Tree Trimmers.
D) Survivors of Breast Cancer Club.
Q4) Explain the purpose of "intermediate sanctions."
Page 16
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Chapter 15: Accounting for Colleges and Universities
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Q1) A receipt of a $500,000 gift by a private college that is stipulated by the donor to be used to endow a "chaired" professorship in accounting would be recorded as an increase in temporarily restricted net assets.
A)True
B)False
Q2) Revenues and expenses of both public business-type and private colleges and universities are accounted for on the accrual basis.
A)True
B)False
Q3) 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 position?
A) Nonoperating revenue.
B) Operating revenue.
C) Other financing source.
D) Increase in unrestricted net position.
Q4) Tuition refunds are recorded by debiting Tuition and Fees-Unrestricted.
A)True
B)False
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Chapter 16: Accounting for Health Care Organizations
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Q1) Contrast the statement of cash flows that nongovernmental not-for-profit hospitals prepare to those that governmental hospitals prepare.
Q2) The statement of activities required by FASB standards 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 net investment in capital assets.
B) Unrestricted,temporarily restricted,and permanently restricted.
C) Unrestricted,restricted,and invested in capital assets.
D) Spendable net assets and nonspendable net assets.
Q3) There are three main reasons why a nongovernmental not-for-profit hospital does not receive the full amount that it normally charges for a room: 1)contractual adjustments arising from transactions with third-party payors,2)charity service provided to indigent patients,and 3)bad debts.Compare the accounting treatment for the three reasons listed.
Q4) A contractual adjustment is recorded as a contra-revenue account.
A)True
B)False
Q5) What auditing issues are of particular significance to the health care industry?
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) Heritage assets are defined as beneficial investments of the federal government in items such as nonfederal physical property,human capital,and research and development.
A)True
B)False
Q2) Explain the components of net position.
Q3) Which of the following describes the usual flow of budgetary authority through the budgetary accounts of a federal agency?
A) Apportionment,allotment,appropriation,commitment,obligation,expended appropriation.
B) Allotment,commitment,obligation,expended appropriation,apportionment.
C) Appropriation,apportionment,allotment,commitment,obligation,expended appropriation.
D) Commitment,obligation,appropriation,apportionment,allotment,expended appropriation.
Q4) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
Q5) Describe the budgetary accounts used in federal agency accounting and the flow of budgetary authority through those accounts.
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