Governmental and Not-for-Profit Accounting Exam Preparation Guide
Course Introduction
Governmental and Not-for-Profit Accounting focuses on the principles, standards, and procedures unique to accounting for governmental entities and not-for-profit organizations. The course covers the structure and use of fund accounting, budgetary processes, and financial reporting as prescribed by the Governmental Accounting Standards Board (GASB) and Financial Accounting Standards Board (FASB). Students learn about revenue recognition, expenditure tracking, and compliance requirements specific to public sector and nonprofit organizations, as well as how to prepare, interpret, and analyze financial statements for these entities. Emphasis is placed on accountability, stewardship, and transparency in financial management, providing essential knowledge and skills for careers in public administration, nonprofit management, and related fields.
Recommended Textbook
Advanced Accounting 12th Edition by Floyd A. Beams
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Q1) A business merger differs from a business consolidation because
A)a merger dissolves all but one of the prior entities,but a consolidation dissolves all of the prior entities and forms a new corporation.
B)a consolidation dissolves all but one of the prior entities,but a merger dissolves all of the prior entities.
C)a merger is created when two entities join,but a consolidation is created when more than two entities join.
D)a consolidation is created when two entities join,but a merger is created when more than two entities join.
Answer: A
Q2) Following the accounting concept of a business combination,a business combination occurs when a company acquires an equity interest in another entity and has
A)at least 20% ownership in the entity.
B)more than 50% ownership in the entity.
C)100% ownership in the entity.
D)control over the entity,irrespective of the percentage owned.
Answer: D
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Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) What method of accounting will generally be used when one company purchases between 20% to 50% of the outstanding stock of another company?
A)Only the fair value method may be used.
B)Only the equity method may be used.
C)The GAAP prescribed the equity method may be used.
D)Neither the fair value method nor the equity method may be used,regardless of the level of ownership.
Answer: C
Q2) Assume that Pansy has significant influence and uses the equity method of accounting for its investment in Sunflower.The balance in the Investment in Sunflower account at December 31,2015 was
A)$78,200.
B)$80,000.
C)$81,800.
D)$83,300.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) On July 1,2014,Polliwog Incorporated paid cash for 21,000 shares of Salamander Company's $10 par value stock,when it was trading at $22 per share.At that time,Salamander's total stockholders' equity was $597,000,and they had 30,000 shares of stock outstanding,both before and after the purchase.The book value of Salamander's net assets is believed to approximate the fair values.
Requirement 1: Prepare the journal entry that Polliwog would record at the date of acquisition on their general ledger.
Requirement 2: Calculate the balance of the goodwill that would be recorded on Polliwog's general ledger,on Salamander's general ledger,and in the consolidated financial statements.
There is no goodwill recorded on the general ledger of the Polliwog or Salamander.The goodwill is recorded in consolidation only,as calculated below: 11ea8400_3c49_13d6_bb88_d9a651df931e_TB2660_00
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Chapter 4: Consolidated Techniques and Procedures
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Q1) Pigeon Corporation acquired an 80% interest in Statue Company on January 1,2014,for $90,000 cash when Statue had Capital Stock of $60,000 and Retained Earnings of $40,000.The fair value/book value differential was attributable to equipment with a 10-year (straight-line)life.Statue suffered a $10,000 net loss in 2014 and paid no dividends.At year-end 2014,Statue owed Pigeon $18,000 on account.Pigeon's separate income for 2011 was $150,000.Controlling interest share of consolidated net income for 2014 was
A)$140,000.
B)$141,000.
C)$142,000.
D)$150,000.
Q2) When preparing consolidated financial statements,which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method?
A)The change in the balance sheet of the common stock account
B)Noncontrolling interest dividends paid
C)Noncontrolling interest share
D)Undistributed income of equity investees
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Q1) On January 1,2014,Palling Corporation purchased 70% of the common stock of Sam's Storage Systems for $320,000 when Sam's had Common Stock outstanding of $100,000 and Retained Earnings of $200,000.Any excess differential was attributed to goodwill. At the end of 2014,Palling and Sam's had unrealized inventory profits from intercompany sales of $6,000 and $8,000,respectively.These year-end profit amounts were realized in 2015.At the end of 2015,Palling held inventory acquired from Sam's with a $10,000 unrealized profit.Palling reported separate income of $100,000 for 2015 and paid dividends of $30,000.Sam's reported separate income of $70,000 for 2015 and paid dividends of $20,000.
Required:
Compute the controlling interest share of consolidated net income for 2015.
Q2) Assume there are routine inventory sales between parent companies and subsidiaries.When preparing the consolidated financial statements,which of the following line items is indifferent to the sales being either upstream or downstream?
A)Consolidated retained earnings
B)Consolidated gross profit
C)Noncontrolling interest share
D)Controlling interest share of consolidated net income
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Q1) Plock Corporation,the 75% owner of Seraphim Company,reported net income of $400,000 in 2013,prior to recording any income from Seraphim.Seraphim reported net income for that same year of $80,000 on their stand-alone statements.During 2013,an intercompany sale of a vehicle resulted in a gain of $4,000,and the vehicle was assumed to have a four-year remaining useful life.The vehicle has no salvage value.Straight-line depreciation is used.
Required:
1.Assuming that the vehicle transfer was downstream,calculate Plock's consolidated net income for 2013,and controlling share of consolidated net income for 2013.
2.Assuming that the vehicle transfer was upstream,calculate Plock's consolidated net income for 2013,and controlling share of consolidated net income for 2013.
Q2) In the eliminating/adjusting entries on consolidation working papers for 2014,the Truck account was
A)debited for $3,000.
B)credited for $3,000.
C)debited for $15,000.
D)credited for $15,000.
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Q1) Bonds issued by a company remain on their books as a liability,but are considered constructively retired when
A)the company borrows money from unaffiliated entities to re-purchase its own bonds at a gain.
B)The company borrows money from an affiliate to re-purchase its own bonds at a gain.
C)The company's parent or subsidiary purchases the bonds from outside entities.
D)The company borrows money from an affiliate to repurchase its own bonds at a gain or at a loss.
Q2) Pelami Corporation owns a 90% interest in Sunbird Corporation.At December 31,2012,Sunbird had $3,000,000 of par value 6% bonds outstanding with an unamortized premium of $30,000.The bonds have interest payment dates of January 1 and July 1 and mature on January 1,2017.
On January 2,2013,Pelami purchased $1,200,000 par value of Sunbird's outstanding bonds for $1,210,000.Assume straight-line amortization.
Required:
Prepare the necessary consolidation working paper entries with respect to the intercompany bonds for the year ending December 31,2013.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) A 15% stock dividend by a subsidiary causes
A)the parent company investment account to decrease.
B)the parent company investment account to remain the same.
C)the parent company investment account to increase.
D)the noncontrolling interest equity to increase.
Q2) Noncontrolling interest share for 2013 is
A)$21,000.
B)$32,400.
C)$36,000.
D)$50,000.
Q3) What is Goldberg's percentage ownership in Savannah after Savannah issues its stock to Goldberg?
A)76.32%
B)80.43%
C)82.57%
D)83.43%
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Chapter 9: Indirect and Mutual Holdings
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Q1) When mutually-held stock involves subsidiaries holding the stock of each other,the ________ method is not used.
A)equity
B)cost
C)conventional
D)treasury stock
Q2) Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on January 1,2013.On the same date,Ace acquired a 70% interest in Bader Corporation at a price $30,000 in excess of book value and fair value.The excess purchase cost paid by Page and Ace was attributed to goodwill.Separate net incomes (excluding investment income)for the three affiliates for 2013 are as follows: Page,$500,000,Ace,$300,000,and Bader,$400,000.
Page's controlling interest share of consolidated net income for 2013 is
A)$808,000.
B)$848,000.
C)$920,000.
D)$960,000.
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Earnings Per Share,and Consolidated Income Taxation
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Q1) How much should the Parminter's Investment in Sanchez-Common Stock,change during 2014?
A)$5,000
B)$20,000
C)$25,000
D)$30,000
Q2) What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on December 31,2014 based on Pamplin's purchase of Sage's common stock?
A)$140,000
B)$240,000
C)$290,000
D)$306,667
Q3) What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January 1,2014?
A)$ 0
B)$ 35,000
C)$ 70,000
D)$100,000
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Chapter 11: Consolidation Theories,push-Down
Accounting,and Corporate Joint Ventures
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Q1) Under parent company theory,noncontrolling interest is classified on the consolidated balance sheet as ________.Under entity theory,noncontrolling interest is classified on the consolidated balance sheet as ________.
A)stockholders' equity;stockholders' equity
B)stockholders' equity;liability
C)liability;a liability
D)liability;stockholders' equity
Q2) Under the entity theory,a consolidated balance sheet prepared immediately after the business combination will show noncontrolling interest of
A)$5,000.
B)$7,500.
C)$9,000.
D)$10,000.
Q3) Under GAAP,the ________ will include the variable interest entity in consolidated financial statements.
A)special purpose entity
B)limited liability company
C)trust
D)primary beneficiary
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) A U.S.importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the A)dollar weakened relative to the Korean won and the won was the denominated currency.
B)dollar weakened relative to the Korean won and the dollar was the denominated currency.
C)dollar strengthened relative to the Korean won and the won was the denominated currency.
D)dollar strengthened relative to the Korean won and the dollar was the denominated currency.
Q2) On April 1,2014,Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton.Button agrees to purchase (and Bows agrees to sell)100,000 pounds of cotton at $1.19 per pound,six months from the date of agreement.On October 1,2014,the price of cotton is $1.17 per pound.The contract allows for net settlement. Required:
Determine the net settlement on the forward contract.
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) What is the fair value of the forward contract at February 29?
A)$-0-
B)$1,654.97 asset
C)$1,654.97 liability
D)$1,680 asset
Q2) When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is
A)deferred using other comprehensive income.
B)recognized immediately at the time the agreement is made.
C)recognized over time,amortized over the period of the agreement.
D)recognized over time,offset by the fluctuation in the value of the hedged asset or liability.
Q3) What is the fair value of the forward contract at December 31,2014?
A)$400.00 liability
B)$400.00 asset
C)$396.04 liability
D)$396.04 asset
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Chapter 14: Foreign Currency Financial Statements
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Q1) Paskin Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency.In translating the subsidiary's account balances into U.S.dollars for reporting purposes,which one of the following accounts would be translated at historical exchange rates?
A)Accounts Receivable
B)Notes Payable
C)Capital Stock
D)Retained Earnings
Q2) Selvey Inc.is a wholly-owned subsidiary of Parsfield Incorporated,a U.S.firm.The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.Therefore,for purposes of preparing consolidated financial statements,the functional currency is
A)its reporting currency.
B)its current rate method currency.
C)the US dollar.
D)its local currency.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Which one of the following operating segment disclosures is not required by GAAP?
A)Total Assets
B)Equity
C)Intersegment sales
D)Extraordinary items
Q2) Sandpiper Corporation paid $120,000 for annual property taxes on January 15,2014,and $20,000 for building repair costs on March 10,2014.Total repair expenses for the year were estimated to be $200,000,and are normally accrued during the year until incurred.What total amount of expense for these items was reported in Sandpiper's first quarter 2014 interim income statement?
A)$ 50,000
B)$ 80,000
C)$100,000
D)$140,000
Q3) What is the threshold for reporting a major customer?
A)5 percent of revenues
B)5 percent of profits
C)10 percent of revenues
D)10 percent of profits
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Q1) What goodwill will be recorded?
A)$ 80,000
B)$240,000
C)$320,000
D)$400,000
Q2) Which of the following is a reason to use a partnership as the legal form of a business?
A)Partnerships avoid the issue of mutual agency.
B)Partnerships avoid the issue of unlimited liability.
C)Partnerships avoid the issue of double-taxation faced by corporations.
D)Partnerships avoid the difficulty of raising capital.
Q3) Required:
1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $330,000.
2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).
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Chapter 17: Partnership Liquidation
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Q1) How much cash would Able receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used . )
A)$ 0
B)$ 800
C)$2,400
D)$4,000
Q2) If all partners are included in the first installment of an installment liquidation,then in future installments
A)cash will be distributed according to the residual profit and loss sharing ratios.
B)cash should not be distributed until all non-cash assets are converted into cash.
C)vulnerability rankings for each partner should be prepared.
D)a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Rank the following claims 1 through 5,with 1 being the first priority claim,under Chapter 7 of the bankruptcy code.
________ A.Trustee fees for administration of the estate.
________ B.Accounts payable for goods delivered prior to filing an involuntary petition for bankruptcy
________ C.Customer deposits for services never rendered.
________ D.First mortgage on the company's real estate.
________ E.Income taxes owed for the prior year.
Q2) Which of the following statements is correct concerning companies emerging from reorganization under Chapter 11 when they do not qualify for fresh start accounting? The forgiveness of debt is reported as
A)an operating gain.
B)a non-operating gain.
C)an extraordinary item.
D)an increase in contributed capital.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) What funds are reported in Government-wide financial statements?
A)Governmental only
B)Proprietary only
C)Governmental and proprietary
D)Governmental,proprietary and fiduciary
Q2) Which fund would most likely report depreciation expense?
A)A special revenue fund
B)An enterprise fund
C)A capital projects fund
D)A debt service fund
Q3) The following are transactions for the city of Clinton.
a.Borrowed $100,000 by issuing a one-year,5% note,three months before year-end.
b.Accrued interest at year end,but did not pay the interest at year end.
c.Charges for services rendered of $2,500 were billed and collected immediately.
d.Incurred salary costs of $5,000,unpaid.
Required:
Analyze the above transactions by using the accounting equation for a proprietary fund.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) 1.Urban City issued $6 million of general obligation bonds at par to finance the construction of a city building.The bonds are 6%,10-year bonds,and interest is paid on June 30 and December 31.
2.The city transferred $3,600,000 from its General Fund to its Debt Service Fund to provide a portion of the resources needed to service the bonds.
3.The city paid the first interest payment to the bondholders. Required:
Prepare journal entries for each of the above transactions.Identify the appropriate fund or funds used by the city of Urban.
Q2) The General Fund transfers $50,000 cash to the Debt Service Fund to meet annual interest payments.What entry did the Debt Service Fund prepare?
A)Debit Cash $50,000,Credit Revenue $50,000
B)Debit Cash $50,000,Credit Other Financing Sources-Transfer from General Fund $50,000
C)Debit Encumbrance $50,000,Credit Due to General Fund $50,000
D)Debit Appropriation $50,000,Credit Reserve for Encumbrance $50,000
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Chapter 21: Accounting for State and Local Governmental
Units - Proprietary and Fiduciary Funds
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Q1) Journalize the following utility transactions in the Hazzard County Enterprise Fund:
1.The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1,2014 (an interest payment date).The bond proceeds are to be used for new plant construction and the issue will mature in 20 years.Interest is paid semi-annually on July 1 and January 1.
2.Depreciation for the year-ended December 31,2014 included $300,000 for buildings and $190,000 for equipment.
3.The utility paid $600,000 in construction costs for the new plant. The plant is still under construction.
4.Interest on the revenue bonds was accrued at year-end,December 31,2014.Straight-line amortization is used for bond discounts and premiums.
Q2) The trust fund for a school library is required to prepare financial statements that include
A)Balance Sheet and Income Statement.
B)Statement of Revenues,Expenses and Changes in Fiduciary Net Assets.
C)Statement of Fund Balance and Statement of Changes in Fund Balance.
D)Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) A gift-in-kind,for which the not-for-profit entity has no discretion on disposition,should be accounted for by the not-for-profit,nongovernmental entity as
A)a special purpose contribution.
B)an exchange transaction.
C)an agency transaction.
D)a conditional promise to give.
Q2) A private,not-for-profit university received donations of $800,000 in 2014 that were restricted to capital improvements of the football stadium.The university spent $670,000 on capital improvements for the stadium in 2014 and recorded depreciation of $130,000. In 2014,an alumnus contributed a $1,500,000 endowment for football scholarships with all endowment income restricted for that purpose.Endowment income totaled $75,000 for the year and scholarship awards were $68,000.
Required: Prepare the appropriate journal entries for the university for these transactions.
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Chapter 23: Estates and Trusts
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Q1) Which of the following are entitled to the remainder of the estate after all other rightful claims on the estate have been satisfied?
A)Remainder beneficiaries
B)Residual beneficiaries
C)Alternate beneficiaries
D)Secondary beneficiaries
Q2) Under the amended Uniform Probate Code,if the decedent dies intestate,and if there are descendants from a prior marriage or relationship,the surviving spouse receives what?
A)$25,000 and 2/3 of the remaining intestate estate
B)$200,000 and 1/3 of the remaining intestate estate
C)$50,000 and 1/2 of the remaining intestate estate
D)$100,000 and 1/2 of the remaining intestate estate
Q3) If estate assets are insufficient to pay all claims in full,under the Uniform Probate Code which of the following would be paid first?
A)Reasonable funeral expenses
B)Necessary medical and hospital expenses of the last illness of the decedent
C)Unsecured debts
D)The costs and expenses of administration of the estate
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