Municipal Accounting Exam Preparation Guide
Course Introduction
Municipal Accounting focuses on the principles, practices, and regulations governing the financial management of local government entities such as cities, towns, and municipalities. The course covers specialized accounting methods for recording, reporting, and auditing the use of public funds, fund accounting, budgeting processes, and compliance with legal and regulatory requirements. Students will learn to prepare and analyze financial statements and reports specific to municipal organizations, understand procedures for managing revenues and expenditures, and explore the ethical responsibilities and challenges faced by public sector accountants. Through case studies and practical exercises, students gain skills essential for effective fiscal stewardship and transparency in municipal finance.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 15th Edition by Jacqueline Reck
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17 Chapters
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Chapter 1: Introduction to Accounting and Financial
Reporting for Governmental and Not-For-Profit Entities
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Q1) The organization that designates which authoritative standard setting body is responsible for establishing accounting and financial reporting standards for particular kinds of organizations (e.g.,federal,state,and local government,not-for-profit,and business organizations)is the:
A)American Institute of Certified Public Accountants.
B)Financial Accounting Foundation.
C)Government Finance Officers Association.
D)Association of Government Accountants.
Answer: A
Q2) The FASB,GASB,and FASAB all focus their standards on both internal and external financial reporting.
A)True
B)False
Answer: False
Q3) The Federal Accounting Standards Advisory Board (FASAB)recommends accounting principles and standards for the federal government and its agencies and departments.
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) Under GASB reporting entity standards,a component unit is
A)An organization for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete.
B)A legally separate organization that is financially independent of a primary government and on which the primary government cannot impose its will.
C)A large department of a primary government.
D)A not-for-profit organization that is authorized to operate within the boundaries of a city but is not accountable financially or in other way to the city.
Answer: A
Q2) Which of the following is not a characteristic of a fund as defined by GASB standards?
A)An accounting entity.
B)A fiscal entity.
C)A segregated quantity of cash and other financial resources on deposit with a designated trustee.
D)A self-balancing set of accounts.
Answer: C
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) The Appropriations account of a governmental fund is credited when
A)The budgetary accounts are closed.
B)The budget is recorded.
C)Supplies are purchased.
D)Expenditures are recorded.
Answer: B
Q2) Which of the following accounts is a budgetary account of a governmental fund?
A)Reserve for Encumbrances.
B)Estimated Other Financing Uses.
C)Expenditures.
D)Other Financing Sources.
Answer: B
Q3) Which of the following accounts of a government is credited when a purchase order is approved?
A)Encumbrances.
B)Reserve for Encumbrances.
C)Vouchers Payable.
D)Appropriations.
Answer: B
Page 5
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Proceeds from general obligation bonds for capital construction should generally be recorded in the
A)Enterprise fund.
B)General Fund.
C)Capital projects funds.
D)Debt service funds.
Q2) Which of the following is properly reported as an other financing source by the General Fund?
A)Sales taxes.
B)Interfund transfers in.
C)Parking fines.
D)Sale of zoning maps.
Q3) Whenever a tax or other significant revenue source is authorized by a legislative body to be used for a specified purpose only,a special revenue fund should be established.
A)True
B)False
Q4) Describe the difference between exchange and nonexchange transactions and discuss the rules for recognition of revenues and expenses/expenditures for each type of transaction.
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) If a capital project is financed partially by use of special assessments,should the capital projects fund recognize revenue from the assessments at the time of the levy or at the time that the assessments are collected? Explain your answer.
Q2) The cost of the periodic redecoration of the city mayor's office should be capitalized in the governmental activities accounts.
A)True
B)False
Q3) "Infrastructure assets (e.g.,roads,bridges,curbs and gutters,streets,etc.)need not be capitalized since they are immovable and not likely to be stolen." Do you agree or disagree? Explain your answer.
Q4) General capital assets must be depreciated and the amount of depreciation for the period should be reported in the operating statement for governmental activities at the government-wide level.
A)True B)False
Q5) A patent purchased by a city would be considered a capital asset.
A)True
B)False
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) On July 15,2011,the city of Higgins Lake issued tax-supported term bonds having a face value of $10,000,000 and maturing in 20 years.The bonds are dated July 15,2011,and pay interest of 6 percent semiannually on January 15 and July 15 of each year.The bonds were sold at a price of 102 and were intended to finance construction of a new city jail.The premium on sale of the bonds was recorded directly in the debt service fund and was immediately invested for eventual retirement of the debt.
For the fiscal year ending June 30,2011,the city council approved a budget for the newly established term bond debt service fund in the amount of $444,500,which includes $432,500 that will be transferred from the General Fund as follows: (1)$300,000 on January 14,2012 for the January 15,2012 interest payment due and (2)$132,500 on June 30,2012 for investment in the debt service fund for retirement of principal,and $12,000 of estimated revenue for interest on investment of premium.
Required: Make all journal entries,including the budget entry and closing entry,required in the term bond debt service fund for the fiscal year ending June 30,2012.Investment revenue during the year was $11,800,all of which added to the investment balance.
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) Enterprise funds are used by state and local governments to account for services that are provided to the general public on a user-charge basis,with prices set to recover the costs of operations,activities financed with debt secured solely by revenues from fees of the activity,activities required by law or regulations to recover operating costs from user charges,or any activity that the governing body of the government has decided should be accounted for on a "business basis."
A)True
B)False
Q2) Under GASB standards,an internal service fund should prepare all of the following financial statements except for a
A)Statement of revenues,expenditures,and changes in fund balance.
B)Statement of revenues,expenses,and changes in net assets.
C)Statement of net assets.
D)Statement of cash flows.
Q3) A statement of revenues,expenses,and changes in net assets for an internal service fund is similar in many respects to an income statement prepared for an investor-owned business.
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 is a valid reason for establishing a tax agency fund and charging a collection fee to other governments?
A)To help eliminate a General Fund deficit.
B)To increase the total amount of taxes levied.
C)To avoid overlapping taxes.
D)To realize administrative efficiencies from centralizing tax billing and collection activities.
Q2) Public employee retirement systems should label the difference between assets and liabilities on the statement of plan net assets as "fund balance available for member benefits."
A)True B)False
Q3) An agency fund should be used to account for special assessment billing and collection,and related debt service of special assessment debt,if the government has no responsibility for the debt.
A)True B)False
Q4) Explain the purpose of an investment trust fund and describe its accounting treatment.
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) 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.
Q2) Which of the following is one of the three sections of a comprehensive annual financial report?
A)Statistical section.
B)Single audit section.
C)Supplementary section.
D)Investment section.
Q3) A component unit is dependent on the primary government if the primary government is obligated for its debt.
A)True
B)False
Q4) Describe the objectives of financial reporting by state and local governments.
Page 11
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) Discuss how despite significant improvements in the quality of governmental financial reporting over the years there are still serious,high profile public sector financial crises.How does the quality of financial reporting affect the ability to evaluate financial condition?
Q2) 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.
Q3) Financial position refers to liquidity while financial condition is a much broader concept that includes not only financial position but consideration of long-term solvency.
A)True
B)False
Q4) How do the objectives of evaluating financial condition differ between internal managers and credit analysts? How are their objectives similar?
Q5) There is more emphasis on compliance with generally accepted accounting principles today than there was in 1975 around the time of New York City's default on several billions of short-term debt.
A)True
B)False
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) Describe the purpose of a management's discussion and analysis (MD&A)in the general purpose federal financial report of a federal agency.
Q2) Which of the following accounts used in state and local government accounting is most like the federal budgetary account "Undelivered Orders"?
A)Reserve for Encumbrance.
B)Expenditures.
C)Appropriations.
D)Encumbrances.
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
Q4) The objectives of federal financial reporting are to assist report users in evaluating budgetary integrity,operating performance,stewardship,and adequacy of systems and controls.
A)True
B)False
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Chapter 12: Budgeting and Performance Measurement
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Q1) The scope paragraph of an independent auditor's report on a financial audit of a local government
A)Identifies the statutes the auditor determined to be relevant to the financial activities of the government.
B)Identifies the financial statements that the auditor has examined.
C)Identifies all applicable accounting records that were located and examined.
D)Identifies the standards used in performing the audit.
Q2) The introductory paragraph of an audit report introduces the auditor and his/her background and qualifications to perform the auditor.
A)True
B)False
Q3) Explain what an "attestation engagement" is and contrast that to financial audits and performance audits.
Q4) What are the essential elements of an "unqualified opinion" expressed in the AICPA standard auditor's report? Your answer should be brief,but complete.
Q5) "The guidance provided by OMB Circular A-133,the OMB Compliance Supplement,and AICPA publications has resulted in an extraordinarily high level of single audit quality." Do you agree or disagree? Why?
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) "Because a budgetary comparison statement is required for conformity with GAAP (under GASBS 34),resource management purposes are best served by preparation of the budget on the same basis as the accounts." Do you agree? Why or why not?
Q2) The sole purpose of preparing a governmental budget is to show compliance with laws and regulations.
A)True
B)False
Q3) Why is a medium- or long-range capital improvement plan essential to sound capital budgeting?
Q4) What is the role of cost drivers in an activity-based cost (ABC)system? Explain how analysis of cost drivers can be useful in identifying inefficient activities and the cause(s)of the inefficiency?
Q5) Name at least three criteria that must be met for costs to be allowable under OMB circulars.
Q6) Explain what is required to develop an effective total quality management (TQM)program for a government.
Q7) Explain the relevance of process cost accounting to governmental financial management.
Page 15
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Chapter 14: Not-For-Profit Organizations Regulatory, taxation,
and Performance Issues
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Q1) All of the following are characteristics of not-for-profit organizations (NPOs)that distinguish them from business organizations except
A)Contributions by resource providers who do not expect a return on investment.
B)Ability to impose taxes on citizens.
C)Operating purposes other than to earn a profit.
D)Absence of ownership interests.
Q2) A local philanthropist pledged to make a donation of $100,000 to an NPO to be paid in five equal installments of $20,000 beginning in the next fiscal year.Under FASB standards the pledge would be recognized as
A)Support of $20,000 in each of the following five years.
B)Support of $20,000 in the year the pledge was made and $80,000 as deferred support.
C)Deferred support of $100,000 in the year the pledge was made.
D)Support of $100,000 in the year the pledge was made,discounted at an appropriate rate for future receipts.
Q3) Explain when donated materials should be recognized as a contribution and as an expense by a not-for-profit organization.
Q4) Distinguish between "support" and "revenues from exchange transactions."
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Chapter 15: Accounting for Colleges and Universities
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Q1) Describe the process for becoming a tax-exempt organization.Why is it important for an accountant to understand this process?
Q2) A good measure of whether a not-for-profit organization is "liquid" and can meet its short-term obligations is
A)Percentage of total expenses spent on the program function as opposed to support function.
B)Total revenues divided by total expenses.
C)Current assets divided by current liabilities.
D)Percentage of unrestricted net assets to operating expenses.
Q3) The purpose of the Internal Revenue Service's 2008 revision of the Form 990 is to simplify and shorten the form so that it takes less time for not-for-profit organizations to complete.
A)True B)False
Q4) A state has the obligation to monitor and regulate a not-for-profit (NPO)organization because it granted the NPO tax-exempt status through the not-for-profit corporation laws.
A)True B)False
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Chapter 16: Accounting for Health Care Organizations
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Q1) Refunds of college or university tuition or fees should be recorded as expenses in the period in which they are made.Do you agree? Why or why not?
Q2) Earnings on endowment investments may increase unrestricted or restricted net assets,or both.
A)True
B)False
Q3) Revenues and expenses of both public and private colleges and universities are accounted for on the accrual basis.
A)True
B)False
Q4) Cactus College,a small private college,received a research grant from NACUBO to study whether service efforts and accomplishments measures improve institutional performance.Under the provisions of SFAS No.116 the grant would be reported as an increase in:
A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)The fund balance of restricted current funds.
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) Which of the following statements is not true regarding generally accepted accounting principles (GAAP)applicable to health care organizations?
A)Private hospitals follow guidance from the GASB.
B)Public health care organizations follow guidance from the GASB.
C)The AICPA Audit and Accounting Guide Health Care Organizations provides guidance for public,private,and for-profit health care entities.
D)Both for-profit and not-for-profit health care organizations follow guidance from the FASB.
Q2) Which of the following statements is true regarding hospitals?
A)Hospital accounting and financial reporting is identical to that used by for-profit businesses.
B)Hospitals use modified accrual accounting.
C)Hospitals record revenues based upon full charges and report contractual adjustments as a deduction from revenues.
D)Hospitals report charity care in the same manner as contractual adjustments.
Q3) Contrast and compare the statement of cash flows that nongovernmental not-for-profit hospitals prepare to those that governmental hospitals prepare.
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