Governmental and Nonprofit Accounting Practice Exam
Course Introduction
This course examines the unique principles, standards, and practices applicable to accounting in governmental and nonprofit organizations. Students will explore fund accounting, financial reporting, budgeting, and regulatory requirements, focusing on the differences between these sectors and private enterprise accounting. Through practical examples and case studies, the course delves into issues such as revenue recognition, grant accounting, accountability, and transparency, equipping students with the skills necessary to prepare and analyze financial statements for public sector and nonprofit entities in accordance with GASB and FASB standards.
Recommended Textbook
Advanced Accounting 12th Edition by Hoyle
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19 Chapters
1777 Verified Questions
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2013, for $105,000 when the book value of Gates was $600,000. During 2013 Gates reported net income of $150,000 and paid dividends of $50,000. On January 1, 2014, Dodge purchased an additional 25% of Gates for $200,000. Any excess cost over book value is attributable to goodwill with an indefinite life. The fair-value method was used during 2013 but Dodge has deemed it necessary to change to the equity method after the second purchase. During 2014 Gates reported net income of $200,000 and reported dividends of $75,000. The balance in the investment account at December 31, 2014, is
A) $370,000.
B) $355,000.
C) $305,000.
D) $400,000.
E) $105,000.
Answer: A
Q2) How would a change be made from the fair value method to the equity method of accounting for investments?
Answer: According to GAAP, the investment account and retained earnings of the investor should be adjusted to retrospectively restate results of operations of prior periods.
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Chapter 2: Consolidation of Financial Information
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Q1) Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in
A) a worksheet.
B) Lisa's general journal.
C) Victoria's general journal.
D) Victoria's secret consolidation journal.
E) the general journals of both companies.
Answer: A
Q2) Describe the accounting for direct costs, indirect costs, and issuance costs under the acquisition method of accounting for a business combination.
Answer: Direct and indirect combination costs are expensed and issuance costs reduce the otherwise fair value of the consideration issued under the acquisition method of accounting for business combinations.
Q3) How are direct combination costs accounted for in an acquisition transaction?
Answer: In an acquisition, direct combination costs are expensed in the period of the acquisition.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) On 4/1/11, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash. On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets included land that was undervalued by $300,000, a building that was undervalued by $400,000, and equipment that was overvalued by $50,000. The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years. Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years.
Determine the amortization expense related to the consolidation at the year-end date of 12/31/19.
Answer: By 2019, all of the fair value adjustments and the patent will have been fully amortized. The amortization expense for 2019 related to the combination will be $0.
Q2) Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation. How would this loan be treated on a consolidated balance sheet?
Answer: The loan represents an intra-entity payable for Hans and receivable for Dutch, and each receivable and payable would be eliminated in preparing a consolidated balance sheet.
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2014. During 2014, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2014.
The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be
A) $132,000.
B) $150,000.
C) $168,000.
D) $160,000.
E) $0.
Q2) Where may a non-controlling interest be presented in a consolidated balance sheet?
Q3) How does a parent company account for the sale of a portion of an investment in a subsidiary?
Q4) Prevatt, Inc. owns 80% of Franklin Company. During the current year, a portion of the investment in Franklin is sold. Prior to recording the sale, Prevatt adjusts the carrying value of its investment. What is the purpose of the adjustment?
Q5) What is preacquisition income?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should
A) not recognize a gain on the sale of the land since it was made to a related party.
B) recognize a gain of $17,600.
C) defer recognition of the gain until Evana sells the land to a third party.
D) recognize a gain of $8,000.
E) recognize a gain of $22,000.
Q2) What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intra-entity transfer of a depreciable asset?
Q3) Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2012, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2012, Stateside had sold 75% of the goods to outside parties for $420,000 cash. Prepare the consolidation entries that should be made at the end of 2012.
Q4) How is the gain on an intra-entity transfer of a depreciable asset realized?
Page 7
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on January 1, 2012, with a book value of $265,000. The parent acquired the bonds on that date for $288,000. Subsequently, Vontkins reported interest income of $25,000 in 2012 while Quasimota reported interest expense of $29,000. Consolidated financial statements were prepared for 2013. What adjustment would have been required for the retained earnings balance as of January 1, 2013?
A) reduction of $27,000.
B) reduction of $4,000.
C) reduction of $19,000.
D) reduction of $30,000.
E) reduction of $20,000.
Q2) Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) Dog Corporation acquires all of Cat, Inc. for $400,000 cash. On that date, Cat has net assets with fair value of $350,000 but a book value and tax basis of $325,000. The tax rate is 30 percent. Prior to this date, neither Dog nor Cat has reported any deferred income tax assets or liabilities. What amount of goodwill should be recognized on the date of the acquisition?
A) $0.
B) $50,000.
C) $65,000.
D) $66,400.
E) $57,500.
Q2) What are the benefits or advantages of filing a consolidated income tax return?
Q3) When indirect control is present, which of the following statements is true?
A) At least one company within the business combination holds a parent and a subsidiary relationship.
B) The parent company owns a percent of subsidiary and subsidiary owns a percent of the parent.
C) Consolidated financial statements are required for only one subsidiary.
D) Recognition of income for an indirectly owned subsidiary is ignored.
E) Only dividend income is recognized for an indirectly owned subsidiary.
Page 9
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Chapter 8: Segment and Interim Reporting
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Q1) According to U.S. GAAP, how should common costs be allocated to individual segments to determine segment profit or loss?
Q2) What is the appropriate treatment in an interim financial report for inventory that has cost below market value?
A) The loss should always be recorded in the interim period in which cost drops below market value.
B) The loss should be recorded in the interim period in which cost drops below market value if the loss is considered temporary.
C) The loss should be recorded in the interim period in which cost drops below market value if the loss is considered permanent.
D) The loss should be ignored for interim reporting purposes.
E) There is no loss to report.
Q3) On February 23, 2013, Cleveland, Inc. paid property taxes of $300,000 for the calendar year 2013.
Q4) What is meant by the term: disaggregated financial information?
Q5) Which items of information are required to be included in interim reports for each operating segment?
Q6) What is the major objective of segment reporting?
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Larson Company, a U.S. company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.023, and the forward rate was $.021. Which of the following did the U.S. exporter report in net income?
A) Discount revenue.
B) Premium revenue.
C) Discount expense.
D) Premium expense.
E) Both discount revenue and premium expense.
Q2) Where can you find exchange rates between the U.S. dollar and most foreign currencies?
Q3) What is the purpose of a hedge of foreign exchange risk?
Q4) What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency appreciates?
Q5) What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency depreciates?
Q6) What factors create a foreign exchange gain?
Q7) What is meant by the spot rate?
11
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) What is the justification for the remeasurement of foreign currency transactions?
Q2) What is a company's functional currency?
A) the currency of the primary economic environment in which it operates.
B) the currency of the country where it has its headquarters.
C) the currency in which it prepares its financial statements.
D) the reporting currency of its parent for a subsidiary.
E) the currency it chooses to designate as such.
Q3) Under the temporal method, how would cost of goods sold be remeasured?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) A single historical rate.
E) A combination of historical rates.
Q4) Under the temporal method, common stock would be remeasured at what rate?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) Historical rate.
E) Composite amount.
12
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) Which of the following is not a way for a country to use IFRS?
A) Require foreign companies listed on that country's stock exchange to use IFRS for consolidated financial statements.
B) Allow foreign companies listed on that country's stock exchange to use IFRS.
C) Allow that country's companies listed on its stock exchange to use IFRS.
D) Adopt IFRS as that country's national GAAP.
E) All of these are ways a country can use IFRS.
Q2) What were the major objectives of the Treaty of Rome?
Q3) What are recognition differences in international reporting and what would be an example of a difference?
Q4) A U.S. company has many foreign subsidiaries and wants to convert its consolidated financial statements from U.S. GAAP to IFRS. Which of the following items is not one of the likely accounting issues to resolve for the opening IFRS balance sheet?
A) Measuring asset impairment.
B) Classifying extraordinary items.
C) Sale and leaseback gain recognition.
D) Measuring salaries expense.
E) Prior service cost recognition for pension amendments.
Q5) What are the two major types of legal systems used around the world?
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) A letter of comments would be issued by the SEC
A) to request clarification of a registration statement.
B) to convey your pertinent comments to the SEC.
C) in response to a company's filing of Form 8-K.
D) after receiving the company's Form 10-K.
E) to indicate that a registration statement has been approved.
Q2) Which one of the following regulates the initial offering of securities by a company or underwriter?
A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Investment Advisers Act of 1940.
E) The Sarbanes-Oxley Act of 2002.
Q3) What is included in Part I of a securities registration statement?
Q4) What is the primary focus of the Sarbanes-Oxley Act of 2002?
Q5) When must Form 8-K be filed with the SEC?
Q6) What information needs to be included in Form 10-Q?
Q8) What was the purpose of the Securities Exchange Act of 1934? Page 14
Q7) Who has the responsibility for the evaluation of the quality of an investment?
Q9) What are some of the reasons for the corporate scandals of 2001 and 2002?
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Q1) How should the fresh start reorganization value normally be determined?
A) as the sum of current replacement cost of the company's assets.
B) by discounting future cash flows for the entity that will emerge.
C) as the sum of the historical cost of net assets.
D) as the sum of the net realizable value of identifiable assets.
E) by adjusting current cash flows for the entity as it emerges from reorganization.
Q2) On its balance sheet, a company undergoing reorganization should
A) report its assets at fair value, so that financial statement users can estimate whether creditors' claims will be met.
B) report its assets at net realizable value because there is reason to doubt that the organization is a going concern.
C) report its assets as pledged or free.
D) report its assets at current replacement cost.
E) continue to report its assets at book value.
Q3) How is the presentation of a balance sheet during a reorganization different from a normal balance sheet?
Q4) To what does the term Chapter 11 bankruptcy refer?
Q5) What term is used for a bankruptcy forced upon a debtor by its creditors?
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Chapter 14: Partnerships: Formation and Operation
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Q1) James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000 respectively. Because of a cash shortage James invests an additional $12,000 on June 1<sup>st</sup>. Each partner withdraws $1,000 per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000, respectively, for work done during the year. Each partner receives interest of 8% on their weighted average capital balance without regard to normal drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The net income for the year is $30,000. What are the ending capital balances for each partner?
Q2) Which of the following is not a characteristic of a partnership?
A) The partnership itself pays no income taxes.
B) It is easy to form a partnership.
C) Any partner can be held personally liable for all debts of the business.
D) A partnership requires written Articles of Partnership.
E) Each partner has the power to obligate the partnership for liabilities.
Q3) How is accounting for a partnership different from accounting for a corporation?
Q4) Brown and Green are forming a business as partners. If they do not create a formal written partnership agreement, what risks are they exposing themselves to?
Q5) What is the dissolution of a partnership?
Q6) For what events or conditions should the Articles of Partnership make provision?
Page 17
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) What is a safe cash payment?
Q2) For a partnership, how should liquidation gains and losses be accounted for?
Q3) Which item is not shown on the schedule of partnership liquidation?
A) Current cash balances.
B) Property owned by the partnership.
C) Liabilities still to be paid.
D) Personal assets of the partners.
E) Current capital balances of the partners.
Q4) A partnership had the following account balances: Cash, $91,000; Other Assets, $702,000; Liabilities, $338,000; Polk, Capital (50% of profits and losses), $221,000; Garfield, Capital (30%), $143,000; Arthur, Capital (20%), $91,000. The company liquidated and $10,400 became available to the partners.
Required:
Who would have received the $10,400?
Q5) Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner has a deficit balance in their respective capital account. All assets from the partnership have been liquidated and all of the liabilities had been paid. How should any additional cash coming into the partnership be distributed to the partners?
Q6) What should occur when a solvent partner has a deficit balance?
Page 18
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Chapter 16: Accounting for State and Local Governments
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Q1) Which group of financial statements is prepared using the "modified accrual accounting" approach?
A) GAAP-Based Financial Statements.
B) Fund Financial Statements.
C) Cost-Based Financial Statements.
D) Government-Wide Financial Statements.
E) General Purpose Financial Statements.
Q2) GASB Codification Section N50.104 divides all eligibility requirements into four general classifications including all of the following except:
A) Required characteristics of the recipients.
B) Time requirements.
C) Reimbursement.
D) Contingencies.
E) Refunding.
Q3) On July 1, 2013, Fred City ordered $1,500 of office supplies. They were to be paid for out of the General Fund.
Required:
(A.) What journal entry was required for the Fund Financial Statements?
(B.) What journal entry was required for the Government-Wide Statements?
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Chapter 17: Accounting for State and Local Governments
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Q1) Jones College, a public institution of higher education, must prepare financial statements
A) As if the college was an enterprise fund.
B) Following the same rules as state and local governments.
C) According to GAAP.
D) As if the college was a fiduciary fund.
E) In the same manner as private colleges and universities.
Q2) The City of Nextville operates a motor pool serving all city-owned vehicles. The motor pool bought a new garage by paying $29,000 in cash and signing a note with the local bank for $280,000. Subsequently, the motor pool performed work for the police department at a cost of $17,000, which had not yet been collected. Depreciation on the garage amounted to $20,000. The first $12,000 payment made on the note included $4,800 in interest.
Required:
Prepare the journal entries for these transactions that are necessary to prepare government-wide financial statements.
Q3) What is meant by the term legally independent?
Q4) What are the three broad sections of a state or local government's CAFR?
Q5) What is meant by the term fiscally independent?
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Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Q1) How does a voluntary health and welfare organization account for donated goods and cash contributed for operating purposes? What types of revenues are recognized by voluntary health and welfare organizations?
Q2) What is the main source of financial support for most voluntary health and welfare organizations?
Q3) What criteria must be met before a voluntary health and welfare organization can recognize donated services as a means of support?
Q4) What two classifications are used for the expenses incurred by voluntary health and welfare organizations?
Q5) A not-for-profit organization (Charity A) raises money for other charitable organizations. Charity A receives $10,000 to distribute to Charity B.
Assume there are no donor rights to revoke or redirect the gift.
Q6) What are third party payors? Why are their interests important in accounting for health care entities?
Q7) What term is used by voluntary health and welfare organizations for contributions?
Q8) What are the objectives of accounting for a not-for-profit organization?
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Chapter 19: Accounting for Estates and Trusts
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Q1) What choices does an executor of an estate have in determining the values of assets included in the estate for tax purposes?
Q2) The provisions of a will currently undergoing probate are: "One thousand shares of Wal-Mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash to my daughter; and any remaining property divided equally between my son and daughter." At the time of death, the estate included 1,400 shares of Wal-Mart stock and $25,000 cash in the savings account. What is the remaining principal to be divided equally between the son and the daughter?
A) $10,000 cash
B) $15,000 cash
C) 400 shares of Wal-Mart stock and $10,000 cash
D) 400 shares of Wal-Mart stock and $15,000 cash
E) 1,000 shares of Wal-Mart stock and $5,000 cash
Q3) What are the three goals of probate laws?
Q4) What is meant by estate accounting?
Q5) In settling an estate, what is the meaning of the term legacy?
Q6) What are the four levels of claims in the order of priority of the Uniform Probate Code?
Page 22
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