Government and Not-for-Profit Accounting
Chapter Exam Questions
Course Introduction
Government and Not-for-Profit Accounting examines the unique accounting principles, standards, and financial reporting requirements applicable to governmental entities and not-for-profit organizations. The course addresses fund accounting, budgetary control, and regulatory frameworks such as GASB and FASB standards. Students will learn to prepare, analyze, and interpret financial statements for public sector and nonprofit entities, understand the principles of accountability and stewardship, and explore topics such as revenue recognition, expenditure classification, and the impact of grants and donations. Ethical and managerial considerations in resource allocation and compliance are also emphasized to equip students with skills necessary for responsible financial management in the public and nonprofit sectors.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 17th 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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Q1) The FASB standards require not-for-profit entities to report net assets in three categories: unrestricted,restricted,and net investment in capital assets.
A)True
B)False Answer: False
Q2) The Financial Accounting Standards Board (FASB)is the body authorized to establish accounting principles for all colleges and universities and health care entities.
A)True
B)False Answer: False
Q3) The Financial Accounting Foundation has oversight over both FASB and GASB. 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) In accounting for state and local governments the modified accrual basis is required for
A) Proprietary and fiduciary funds.
B) Governmental funds.
C) Governmental and fiduciary funds.
D) Governmental and internal service funds.
Answer: B
Q2) Governments can,in part,demonstrate operational accountability by reporting proprietary and fiduciary fund financial information,as well as all government-wide financial information,using an economic resources measurement focus and the accrual basis of accounting.
A)True
B)False
Answer: True
Q3) Revenues is an example of what the GASB terms an inflow of resources. A)True
B)False
Answer: True
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Chapter 3: Governmental Operating Statement Accounts
Budgetary Accounting
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Q1) 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
Q2) How might a citizen become involved in the local government budgeting process?
Answer: The budgeting process within a government is quite extensive and begins with budget projections at the program or departmental level,integration of budget projections by the budget office,public hearings,and final approval by the government's administrative body. Citizens can monitor the budget process through the local newspaper or municipal websites. They can attend and participate in public hearings.
Q3) Government-wide financial statements include financial information for all governmental,proprietary,and fiduciary funds.
A)True
B)False
Answer: False
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Under current GASB standards the revenue from property taxes should be recorded in the amounts collected during the current period.
A)True
B)False
Q2) The receipt of equipment that had previously been ordered should be recorded in the General Fund as a debit to
A) Appropriations.
B) Equipment.
C) Encumbrances.
D) Expenditures.
Q3) Which of the following assets would appropriately be reported on the governmental funds balance sheet?
A) Capital assets.
B) Inventories.
C) Unamortized debt issuance costs.
D) Goodwill.
Q4) The account Budgetary Fund Balance can have either a debit or credit balance. A)True
B)False
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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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 Rosewood record this donated property in the General Fund?
A) $50,000.
B) $300,000.
C) $600,000.
D) $0.
Q2) How should a capital lease for a general capital asset be recorded in the governmental activities accounts at the inception of the lease?
A) Debit to a capital asset account.
B) Debit to a capital expense/expenditure account.
C) Credit to Capital Lease Obligations Payable.
D) Both A and C are correct.
Q3) Capital projects funds generally do not use the Encumbrances control account.
A)True
B)False
Page 7
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) Typically,proceeds from general obligation bonds will be recorded in the:
A) Debt service fund.
B) General obligation bond fund.
C) Permanent fund.
D) Capital projects fund.
Q2) When a capital lease payment is legally due,an entry is made in the debt service (or appropriate governmental)fund to record an expenditure,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.
A)True
B)False
Q3) Pollution remediation obligations arise from responsibilities related to the cleanup of hazardous wastes or hazardous substances resulting from existing pollution.
A)True
B)False
Q4) Term bond issues mature in installments.
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 is not regarding proprietary funds?
A) The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources of proprietary funds is called "net assets."
B) Proprietary funds record long-term debt directly in the fund accounts.
C) Proprietary funds record capital assets directly in the fund accounts.
D) Proprietary funds present a statement of cash flows.
Q2) In which of the following funds is it appropriate to record depreciation of capital assets?
A) Internal service fund.
B) Permanent fund.
C) General fund.
D) Capital projects fund.
Q3) An internal service fund normally uses which of the following budgetary accounts?
A) Estimated Revenues.
B) Appropriations.
C) Encumbrances.
D) An internal service fund normally does not use budgetary accounts.
Q4) What are the alternative methods of dissolving an internal service fund?
Page 9
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Chapter 8: Accounting for Fiduciary Activitiesagency 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) Agency funds should utilize the modified accrual basis of accounting.
A)True
B)False
Q3) When one participant in an investment pool withdraws part of its equity from the pool,that participant's proportionate interest is decreased and all other participants' proportionate interest is increased.
A)True
B)False
Q4) Agency funds are used only if a government holds resources in a purely custodial capacity for others.
A)True
B)False
Q5) It is common for an agency fund to have relatively small net position balances. A)True
B)False
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the government financial reporting entity?
A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of 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.
Q2) Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported?
A) Letter of transmittal.
B) Fund financial statements.
C) Management's discussion and analysis.
D) Government-wide financial statements.
Q3) 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) Service-level solvency is the government's ability to meet its current budget by expending no more resources than were appropriated.
A)True
B)False
Q2) Electronic Municipal Market Access (EMMA)is an electronic database of government financial reports provided by the Securities and Exchange Commission.
A)True
B)False
Q3) The financial condition of a government is easily determined by calculating the financial ratios discussed in Chapter 10.
A)True
B)False
Q4) Which ratio or concept describes the extent to which the government has lived within its means for the year?
A) Debt to assets.
B) Interperiod equity.
C) Current ratio.
D) Revenue dispersion.
Page 12
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) Generally accepted government auditing standards (GAGAS)apply to financial audits of state and local governments only if they expend $750,000 or more in federal financial assistance.
A)True
B)False
Q2) Under generally accepted government auditing standards,safeguards are controls designed to reduce or eliminate threats to independence.
A)True
B)False
Q3) Under the existing GAAP hierarchy for state and local government financial reporting,the GASB Implementation guides are:
A) More authoritative than GASB Statements.
B) Less authoritative than GASB Technical Bulletins.
C) More authoritative than the AICPA state and local government audit guide.
D) Equally authoritative to AICPA Practice Bulletins.
Q4) Governments may engage one auditor to audit the primary government and other auditors to audit certain component units.
A)True
B)False
13
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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) Which of the following statements regarding service efforts and accomplishments (SEA)is not ?
A) SEA information includes indicators of a government's actual performance in providing services to its citizens.
B) As governments integrate strategic planning, budgeting, and performance measurement, information on SEA is available and often provided to the public.
C) SEA reporting may take the form of a published report, an electronic report posted on a government's Web site, or a pamphlet designed to summarize an entity's SEA measurement results.
D) SEA reporting is required by governments with populations greater than 500,000.
Q3) What budgeting approach requires justification for the inclusion of every activity each year? Briefly describe this method and how it can be effective.
Q4) Under federal guidelines,when is a cost considered reasonable?
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) The FASB requires that support from special events,if related to the central ongoing and major activities of the organization,and related direct costs,be reported at their gross amounts in the statement of activities.
A)True
B)False
Q2) In the current year,the not-for-profit organization (NFP)How to Read Government Financial Reports received both cash of $1,000 and pledges of $2,000 to be used for teaching citizens how to read government financial reports.During the year the organization spent $1,500 teaching citizens to read financial statements.Assuming the NFP has a policy of spending its restricted resources first,in the current year what amount of contributions can be reclassified as unrestricted?
A) $1,000.
B) $1,500.
C) $2,000.
D) $3,000.
Q3) GAAP for nongovernmental,not-for-profit organizations is set by the FASB and the AICPA.
A)True
B)False
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Chapter 14: Not-For-Profit Organizationsregulatory, Taxation,
and Performance
Issues
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Q1) Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians.
A)True
B)False
Q2) 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
Q3) Describe the difficulty in comparing the financial performance of a not-for-profit organization to other similar organizations.What benchmarks are available to assist in this task?
Q4) Which of the following is the incorporating document of a not-for-profit organization that describes the purpose or mission of the organization?
A) By-laws.
B) IRS Form 1023 request for tax-exempt status.
C) Articles of incorporation.
D) Charter.
Q5) Explain the purpose of "intermediate sanctions".
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Chapter 15: Accounting for Colleges and Universities
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Q1) The federal government is considering a national ranking system in which colleges and universities would be ranked on affordability,among other factors.
A)True B)False
Q2) The accrual basis of accounting is used to record revenues and expenses of both public business-type and private colleges and universities.
A)True B)False
Q3) The National Association of College and University Business Officers (NACUBO)provides second-tier GAAP for private colleges and universities. A)True B)False
Q4) Assets set aside for an endowment by a university governing board would be reported as unrestricted. A)True B)False
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Chapter 16: Accounting for Health Care Organizations
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Q1) Contractual Adjustments is properly characterized as:
A) An expense.
B) An other financing use.
C) A liability.
D) A contra revenue.
Q2) Financial reporting standards for all hospitals are established by the FASB.
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) 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.
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 Glossary
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Q1) According to FASAB,entity assets are defined as those assets arising from transactions between federal entities.
A)True
B)False
Q2) Where would federal agencies report information concerning their performance goals and performance results,along with their future challenges?
A) Other accompanying information.
B) Required supplemental information.
C) Management discussion and analysis.
D) Notes to the financial statements.
Q3) What is the difference between entity assets and nonentity assets?
Q4) 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
Q5) A federal agency does not record depreciation expense.
A)True
B)False
Q6) Explain the components of net position.
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