Fund Accounting Pre-Test
Questions
Course Introduction
Fund Accounting introduces students to the specialized system of accounting used by non-profit organizations, government entities, and other institutions that manage funds for specific purposes. The course covers the principles and practices underlying fund-based financial reporting, emphasizing the segregation of resources according to their intended use. Key topics include the classification and operation of various funds (e.g., general, special revenue, capital projects, debt service, and fiduciary funds), budgetary control, financial statement preparation, and regulatory requirements unique to fund-accounted entities. Through case studies and practical exercises, students develop skills in recording, reporting, and managing financial information to ensure accountability and compliance with relevant standards such as GASB and FASB.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 17th 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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Sample Questions
Q1) Government-wide financial statements are prepared using the accrual basis of accounting.
A)True
B)False
Answer: True
Q2) GASB and FASB standards are concerned only with external financial reporting; whereas,FASAB standards are concerned with both internal and external financial reporting.Do you agree with this statement? Why or why not?
Answer: Agree.Both the Governmental Accounting Standards Board (GASB)and the Financial Accounting Standards Board (FASB)issue standards for external users of financial information-those who lack the authority to prescribe information they want and who must rely on the information management communicates to them.By contrast,the Federal Accounting Standards Advisory Board (FASAB)has identified users who are both internal and external to the government: citizens,the Congress,executives,and program managers.Not surprisingly,then,its standards address both internal and external financial information needs.
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Page 3
Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Sample Questions
Q1) Governmental funds are identical to governmental activities,proprietary funds are identical to business-type activities,and fiduciary funds are identical to fiduciary activities of a government.
A)True
B)False
Answer: False
Q2) The GASB concept statements indicate that an asset that is going to be converted to cash should be reported at a remeasured amount at the financial statement date. A)True
B)False
Answer: True
Q3) Governmental funds account for assets but not the liabilities. A)True
B)False
Answer: False
Q4) Proprietary funds primarily provide services to the general public for a fee. A)True
B)False
Answer: False
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Chapter 3: Governmental Operating Statement Accounts
Budgetary Accounting
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Sample Questions
Q1) What benefits do financial statement users derive from the net (expense)revenue format used for the government-wide statement of activities?
Answer: The net (expense)revenue format requires governments to distinguish between program and general revenues. When compared to specific expenses,the distinction allows financial statement users to evaluate whether specific functions or programs are self-sufficient or require general revenues to cover net costs.
Q2) An allotment may be described as an internal allocation of funds on a periodic basis usually agreed upon by the department heads and the chief executive.
A)True
B)False
Answer: True
Q3) The Expenditures control account of a government is debited when:
A) The supplies budget is recorded.
B) Supplies are ordered.
C) Supplies previously encumbered are received.
D) The invoice for supplies is paid.
Answer: C
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Sample Questions
Q1) Vacation City was awarded a $500,000 federal operating grant for use in Year 2. On December 1 of year 1,half of the grant money was received by the City.The journal entry to record receipt of the grant funds will include:
A) A credit to Revenues in the amount of $250,000.
B) A credit to Deferred Inflow of Resources- Grant Proceeds in the amount of $250,000.
C) A debit to Grant Expenditures in the amount of $250,000.
D) No journal entry will be made until expenditures are made in Year 2.
Q2) The earnings on the assets of a permanent fund are to be used to support the city's library (special revenue fund).How would the earnings be recorded?
A) Revenues by the permanent fund.
B) Revenues by the library.
C) Revenues by both the permanent fund and the library.
D) Other financing source by the permanent fund.
Q3) Under GASB standards,Revenues must be credited for the total amount of the property tax levy.
A)True
B)False
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Page 6
Chapter 5: Accounting for General Capital Assets and Capital Projects
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Sample Questions
Q1) During the year,a wealthy local merchant donated a building to the City of Rosewood.The original cost of the building was $300,000.Accumulated depreciation at the date of the gift amounted to $250,000.The appraised fair market value of the donation at the date of the gift was $600,000,of which $40,000 was the value of the land on which the building was situated.At what amount should this contribution be recorded in the governmental activities accounts at the government-wide level?
A) $50,000.
B) $300,000.
C) $600,000.
D) $0.
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 expenditures of a capital projects fund should be capitalized to Construction Work in Progress? Is Construction Work in Progress included in the chart of accounts of a capital projects fund? If not,where would it be found?
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Chapter 6: Accounting for General Long-Term Liabilities and Debt
Service
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Q1) When the debt service fund makes a payment of principal and interest on an outstanding long-term debt,the governmental activities accounts:
A) Reflect the principal payment only.
B) Reflect the interest payment only.
C) Have no record of the transaction.
D) Reflect both principal and interest payments.
Q2) The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 bond principal and $15,000 interest payment.Subsequent payment of the principal and interest would include:
A) A debit to Expenditures - Bond Interest in the debt service fund.
B) A debit to Other Financing Uses - Principal and Interest Payments in the debt service fund.
C) A debit to Interest Expenditures in the General Fund.
D) A debit to Interest Expenditures in the governmental activities accounts.
Q3) Long-term debt intended to be repaid from tax levies or special assessments is recorded in debt service funds.
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 should be accounted for in an internal service fund? Light poles to be paid for in installments by Affected property owners $350,000
Van used to transport supplies to all city Departments on a cost reimbursement basis 65,000 Equipment used for supplying electric power
To residents 1,250,000
A) $ 65,000.
B) $ 415,000.
C) $1,250,000.
D) $1,315,000.
Q2) Internal service funds utilize encumbrance accounting.
A)True
B)False
Q3) Internal service funds account for operating expenditures on the accrual basis. A)True B)False
Q4) An employee pension fund is a common example of an internal service fund.
A)True B)False
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Chapter 8: Accounting for Fiduciary Activitiesagency and Trust Funds
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Q1) Which of the following activities would be accounted for by a trust fund?
A) Deposits held for customers of a city-owned electric utility.
B) Assets passed-through the state government to the local government.
C) Assets held for special assessment bondholders for which the city has no liability.
D) Assets which are used to assist in the preservation of a private residence.
Q2) If special assessment receivables are recorded in the accounts of an agency fund,the appropriate account(s)to credit upon receipt of assessments from property owners will include:
A) Contributions to Net Position.
B) Revenues and Deferred Revenues.
C) Due to Special Assessment Bondholders.
D) Interfund Transfers In.
Q3) Fiduciary activities are reported only in the fiduciary fund financial statements; they have no effect on the governmental or business-type activities of the primary government reported in the government-wide financial statements.
A)True
B)False
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Page 10
Chapter 9: Financial Reporting of State and Local Governments
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Q1) According to the guidance of GASB Concepts Statement 3,financial information can be communicated by recognition in the financial statements,disclosure in the notes to the financial statements,presentation as required supplementary information,or presentation as supplementary information.
A)True
B)False
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) Popular reports provide condensed financial information that can be used by governments to communicate financial results to citizens.
A)True
B)False
Q4) What is meant by the term "reporting entity" in accounting for state and local governments?
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Page 11
Chapter 10: Analysis of Governmental Financial Performance
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Q1) A measure of whether the government lived within its means in the measurement year,was required to use prior year resources to fund a portion of current year costs,or shifted the funding of some current year costs to future periods,is:
A) Business-type activities revenues/business-type activities expenses.
B) Unrestricted net position/total revenues.
C) Total revenues/total expenditures.
D) Total net position (governmental activities and business-type activities) less total net position at the beginning of the year.
Q2) Failure to achieve interperiod equity may negatively impact a government's financial condition.
A)True B)False
Q3) Environmental factors facing a government have little impact on a city's fiscal policy.
A)True
B)False
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) 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.
Q2) What are the benefits to a state or local government of establishing an audit committee?
Q3) Describe the importance of materiality for auditors and explain how materiality is determined in audits of state and local governments that follow GASB standards.
Q4) Required supplementary information (RSI),such as the MD&A and budgetary comparison schedules,are within the scope of a financial statement audit.
A)True
B)False
Q5) When conducting a governmental financial statement audit,how does the auditor determine the appropriate auditing standards for the engagement?
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Chapter 12: Budgeting and Performance Measurement
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Q1) Governmental budgets must be voted upon by citizens for approval in an annual general election.
A)True
B)False
Q2) The GASB identifies which of the following three broad categories of service efforts and accomplishments (SEA)measures:
A) Measures of service efforts, measures of service accomplishments, and measures of efficiency.
B) Measures of service efforts and accomplishments, measures of service efficiency, and measures of service effectiveness.
C) Measures of service efforts, measures of service accomplishments, and measures of the costs of service efforts and accomplishments.
D) Measures of service efforts, measures of service accomplishments, and measures that relate efforts to accomplishments.
Q3) The type of budgeting that relates input of resources to output of services is zero-based budgeting.
A)True
B)False
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14
Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) Donor-imposed restrictions must be clearly reflected in financial statements of not-for-profit organizations reporting under the FASB.
A)True
B)False
Q2) A voluntary health and welfare organization (VHWO)is a type of not-for-profit that depends primarily on charges for services as a source of revenue,rather than on contributions from the public at large.
A)True
B)False
Q3) The FASB requires 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.
Q4) Explain the accounting for contributions received by a financial intermediary under the FASB Codification.
Q5) Distinguish between "support" and "revenues from exchange transactions."
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Chapter 14: Not-For-Profit Organizationsregulatory, Taxation, and Performance Issues
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Q1) The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is:
A) Rental of extra space in the building.
B) Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost.
C) Interest and dividend income on investments.
D) Gain on the sale of equipment no longer needed by the organization.
Q2) All of the following are reasons why the Internal Revenue Service (IRS)overhauled the Form 990 for tax years beginning in 2008 except:
A) To minimize the burden of filing on tax-exempt organizations.
B) To shorten the time it takes to complete a return for large not-for-profit organizations.
C) To enhance transparency about the organization.
D) To allow the IRS to efficiently assess noncompliance.
Q3) If a tax-exempt organization dissolves and goes out of business,it must distribute its assets to another tax-exempt organization or a governmental entity.
A)True
B)False
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Page 16
Chapter 15: Accounting for Colleges and Universities
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Q1) The Academy,a private college,provided tuition waivers of $500,000.Of the amount $200,000 was for students teaching courses as graduate assistants and $300,000 was simply an award for scholastic accomplishments. Another $100,000 was given is tuition refunds. What amount would The Academy record as Tuition and Fees Discounts and Allowances?
A) $600,000.
B) $500,000.
C) $400,000.
D) $300,000.
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.
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Chapter 16: Accounting for Health Care Organizations
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Q1) In accounting for health care entities,the account Provision for Bad Debts should be reported as a contra-revenue,rather than as an expense.
A)True
B)False
Q2) Which of the following could be included in the performance indicator measure provided by a nongovernmental not-for-profit hospital?
A) Contribution to an endowment.
B) Gain on sale of equipment.
C) Grant restricted for diabetes research.
D) Interest income that is temporarily restricted.
Q3) Where does a nongovernmental not-for-profit health care entity report increases that have occurred in its temporarily restricted net assets?
A) Statement of changes in net assets.
B) Statement of operations.
C) Balance sheet.
D) Similar to governmental health care entities, it would not report the change on the face of a financial statement.
Q4) What auditing issues are of particular significance to the health care industry?
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Page 18
Chapter 17: Accounting and Reporting for the Federal Government Glossary
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Q1) 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.
Q2) The fund balances of a federal reporting entity should be separated into unexpended appropriations,restricted appropriations,and cumulative fund balance. A)True
B)False
Q3) Unexpended appropriations is the component of net position in a federal agency balance sheet that represents the amount of appropriations still available for obligation,or which has been obligated but not yet expended.
A)True
B)False
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