Municipal and Fund Accounting Exam Questions
Course Introduction
Municipal and Fund Accounting explores the principles, methods, and legal requirements of accounting for state and local governments as well as other non-profit entities that utilize fund accounting systems. The course introduces students to fund classifications, budgetary control, revenue recognition, financial reporting, and internal control frameworks specific to governmental and non-profit organizations. Emphasis is placed on the unique reporting objectives and standards, such as those established by the Governmental Accounting Standards Board (GASB), and the preparation and interpretation of financial statements for public sector entities, providing a foundation for responsible financial management and public accountability.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 15th Edition by Jacqueline Reck
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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 needs of users of governmental financial reports are the same as those of users of business financial reports.
A)True
B)False
Answer: False
Q2) The Governmental Accounting Standards Board is assigned responsibility for setting accounting and financial reporting standards for
A)Governments; such as federal agencies,states,cities,counties,villages,and townships.
B)State and local government entities and governmentally-related units and agencies,such as utilities,authorities,hospitals,and colleges and universities.
C)Not-for-profit organizations.
D)State and local government and all not-for-profit organizations.
Answer: B
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3
Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Q1) All capital assets acquired by or used by a fund should be reported in the fund balance sheet or statement of net assets.
A)True
B)False
Answer: False
Q2) Which of the following funds are governmental funds?
A)General Fund,special revenue funds,capital projects funds,debt service funds,and private-purpose trust funds.
B)General Fund,special revenue funds,private-purpose trust funds.
C)General Fund,special revenue funds,debt service funds,capital projects funds,and permanent funds.
D)General Fund,special revenue funds,capital projects funds,debt service funds,and internal service funds.
Answer: C
Q3) A fund is an accounting but not a fiscal entity.
A)True
B)False
Answer: False
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) If a state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by generally accepted accounting principles (GAAP)
A)The actual amounts in the budgetary comparison schedule should be reported using the government's budgetary basis.
B)The actual amounts in the budgetary comparison schedule should be reported on the GAAP basis.
C)Both the budgeted and actual amounts in the budgetary comparison schedule prepared as part of the required supplementary information (RSI)should be reported on the GAAP basis; a separate budget-basis comparison schedule should be prepared for the appropriate state oversight body.
D)Only a budgetary comparison schedule prepared for the appropriate state oversight body is required.
Answer: A
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5
Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Sample Questions
Q1) All revenue and interfund transfers of the City of Fenton are accounted for on the modified accrual basis.Below is shown a list of Fenton's General Fund transactions of a revenue or transfer nature.State which ones should be recognized by the General Fund as a revenue or interfund transfer in the year of occurrence.If any item is neither a current revenue nor interfund transfer,state the proper treatment for that item.
1)Receipt of money from issue of tax anticipation notes.
2)Charge to a special revenue fund for supplies transferred to it at cost.
3)Collection of current-year property taxes.
4)Collection of prior years' taxes.
5)Receipt of money in prepayment of a property owner's next-year taxes.
6)Collection of taxes applicable to prior year that,due to an assessor's error,had not been recorded as receivable in that year.
7)Receipt of refund on prior year's expenditures.
8)Refund of current year's expenditures.
9)Collection of accounts receivable for charges for services.
10)Collection of taxes that had been written off in prior year.
Q2) Distinguish between interfund loans and interfund transactions that recognize a flow of financial resources in governmental fund operating statements.
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) The capital assets used by the government departments accounted for in the governmental funds should be reported in
A)The appropriate governmental funds.
B)The property,plant,and equipment fund.
C)Departmental memorandum records.
D)The governmental activities accounts at the government-wide level.
Q2) The city of McNeely sold bonds in the amount of $10,000,000 to finance the construction of a public health center.The bonds are serial bonds and were sold at par on July 1,2011 the first day of a fiscal year.Shortly thereafter a construction contract in the amount of $9,000,000 was signed and the contractor commenced work.By year-end the contractor had been paid in full for all billings to date amounting to $4,000,000.Prepare,in general journal form,all journal entries that should have been made during the fiscal year ended June 30,2012 to record the preceding information in the capital projects fund (including closing entry).
Q3) If all asset,liability,and fund equity accounts of a capital projects fund were closed during a certain fiscal year,it is unnecessary to prepare any financial statements for that fund for that year.
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) Debt backed by both special assessments and the full faith and credit of a government should be reported in the government-wide statement of net assets in the Business-type Activities column.
A)True
B)False
Q2) In a particular debt service fund journal entry the offsetting credit to debits for Assessments Receivable-Current could be to Assessments Receivable-Deferred.
A)True
B)False
Q3) Capital lease payments should be recorded by a debt service fund rather than the fund using the leased asset.
A)True
B)False
Q4) Term bond debt service funds should always be accounted for on the assumption that they are operated on an actuarial basis.
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) Unbilled customer accounts receivable should be reflected in the balance sheet of a governmentally owned utility even though the exact amount of service to be billed is unknown until the customers' meters can be read.
A)True
B)False
Q2) The comprehensive annual financial report (CAFR)of a government should contain a statement of revenues,expenses,and changes in net assets for
A)Both proprietary and governmental funds.
B)Proprietary but not governmental funds.
C)Governmental but not proprietary funds.
D)Proprietary and fiduciary funds.
Q3) Which of the following activities or services would most likely not be accounted for by an internal service fund?
A)Electronic data processing.
B)Central purchasing,warehousing,and issuing of supplies.
C)Municipal golf course.
D)Risk management.
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Page 9
Chapter 8: Accounting for Fiduciary Activities Agency and Trust Funds
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Sample Questions
Q1) Which of the following statements is true regarding termination benefits?
A)Voluntary termination benefits occur when employers provide an incentive to hasten an employee's voluntary termination of employment,such as a one-time payout.
B)Voluntary terminations relate to layoffs or reductions in workforce.
C)Employers incur expenses related to voluntary terminations but not to involuntary terminations.
D)Expenses related to voluntary terminations may be avoided by hiring replacement employees within 60 days of the terminations.
Q2) Fiduciary funds are accounted for in a manner similar to which of the following funds?
A)Permanent funds.
B)Special revenue funds.
C)Enterprise funds.
D)Debt service funds.
Q3) Which basis of accounting best maintains the original principal of a trust?
A)Accrual basis.
B)Cash basis.
C)Modified accrual basis.
D)Legal basis.
Page 10
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) What is the minimum level of detail required for expenditures presented in the governmental fund statement of revenues,expenditures,and changes in fund balance?
A)Program and object.
B)Function and character.
C)Program and department.
D)Character and object.
Q2) Describe some items requiring adjustments when modified accrual basis accounting information must be converted to accrual basis accounting in preparation of government-wide statements.
Q3) Explain why other comprehensive bases of accounting (OCBOA)may be used by a state or local government instead of GASBS 34 standards which are generally accepted accounting principles (GAAP).
Q4) Describe what the government-wide statements are intended to convey to readers and contrast with the intent of the fund financial statements.
Q5) A component unit is dependent on the primary government if the primary government is obligated for its debt.
A)True
B)False
11
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) A recognizable signal of fiscal stress is
A)Total revenues from own sources increasing as a percent of total revenues for all sources.
B)Increasing population.
C)Declining property values.
D)An increasing ratio of total revenues to total expenditures.
Q2) Which of the following statements about credit analysts' models is true?
A)Credit analysts focus on debt and finances,and not demographics and management strategies.
B)Credit analysts have access to the same set of information that internal managers use.
C)Credit analysts are concerned with assessing a government's ability to pay interest and principal on debt when due.
D)Credit analysts rarely use comprehensive annual financial reports.
Q3) Cash solvency is the government's long-run ability to pay all the costs of doing business,such as expenditures in the annual budget and those that appear only in the years in which they must be paid.
A)True
B)False
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) The federal budgetary term "commitment" is synonymous with "encumbrance" as used in state and local government terminology.
A)True
B)False
Q2) At the present time,the conceptual framework for the federal government and its agencies does not provide definitions of the basic elements of the financial statements.
A)True
B)False
Q3) Federal departments and agencies should utilize the U.S.Government Standard General Ledger as the account structure for their accounting systems.
A)True
B)False
Q4) Describe the purpose of a management's discussion and analysis (MD&A)in the general purpose federal financial report of a federal agency.
Q5) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
Q6) Explain the GAAP hierarchy used by federal government agencies.
Page 13
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Chapter 12: Budgeting and Performance Measurement
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Q1) A common reason why a government might receive a "qualified opinion" from the external auditors is
A)A violation of generally accepted accounting principles that does not cause material misstatement of the financial statements.
B)A fund balance deficit in the General Fund.
C)Poor internal controls such that the accounting records could not be audited.
D)Liabilities exceed assets in the General Fund.
Q2) Audits of governments' financial statements are performed to determine if the financial statements are fair and in accordance with generally accepted accounting principles,but not to determine if there is compliance with laws and regulations.
A)True
B)False
Q3) In the standard auditor's report for a state or local government,the introductory paragraph identifies the opinion units on which the auditor is expressing an opinion and refers to the accompanying financial statements of those units.Name or describe the financial statements that are usually accompanying the standard report.
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) Cash disbursements budgets
A)Need to be prepared because GASB standards specify the use of the accrual basis of accounting for governments.
B)Should usually be prepared for each month of the year,or for shorter intervals,in order to facilitate planning short-term borrowings and investments.
C)Should be prepared only for funds not required to operate under legal appropriation budgets.
D)Should be prepared only for each fiscal year because disbursements for each month are approximately equal.
Q2) In the chapters that discuss governmental fund-types,it is assumed that budgets are prepared on the modified accrual basis.Examples in those chapters also assume that the perspective of the budget is the fund,and that revenue budgets are prepared by source and appropriations budgets are prepared by function.From the standpoint of financial management of a government,state what objectives are served by preparation of budgets on the same basis as financial statements.
Q3) If the revenues budget of a government is prepared on the modified accrual basis is there any reason why the revenues budget should be converted to a cash receipts budget? Explain.
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Chapter 14: Not-For-Profit Organizations Regulatory, taxation, and Performance Issues
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Q1) Responsibility for establishing generally accepted accounting principles (GAAP)for nongovernmental,not-for-profit organizations rests with the FASB and was most clearly established
A)In the 1930s.
B)When the FASB was created in 1974.
C)When the GASB was created in 1984.
D)In the AICPA's Statement of Auditing Standards No.69 (hierarchy of GAAP)in 1992.
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) Distinguish between "support" and "revenues from exchange transactions."
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Chapter 15: Accounting for Colleges and Universities
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Q1) Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service
A)Only if they have unrelated business income.
B)If they are nongovernmental and not a church.
C)Whether they are governmental or nongovernmental.
D)Only if they are a private foundation,not a public charity.
Q2) The incorporating documents that have an external focus and describe the purpose of the organization without being too restrictive are called
A)By-laws.
B)IRS Form 990.
C)Articles of incorporation.
D)Minutes of the board meetings.
Q3) A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a
A)Public charity.
B)Private foundation.
C)Public foundation.
D)Voluntary health and welfare organization.
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Page 17
Chapter 16: Accounting for Health Care Organizations
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Q1) College summer school revenues of a public university engaged only in business-type activities should be recognized in the fiscal year in which the term is predominantly conducted.
A)True
B)False
Q2) Depreciation of a residence hall should be reported as an expense in a private college's operating statement but might not be reported in the operating statement of a public college engaged only in business-type activities.
A)True
B)False
Q3) 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 would usually be considered as temporarily restricted net assets in a nongovernmental not-for-profit hospital?
A)Investment income.
B)Donated services by senior citizens.
C)A permanent endowment received from the city's leading citizen.
D)A research grant from the federal government to study high blood pressure.
Q2) SFAS No.117 requires that interest received on endowment funds be reported in the statement of cash flows as a(n)
A)Reconciliation of change in net assets to cash.
B)Operating activity.
C)Investing activity.
D)Financing activity.
Q3) Assets whose use is limited by contracts or agreements with outside parties other than donors or grantors are labeled
A)Temporarily restricted net assets.
B)Designated net assets.
C)Assets limited as to use.
D)Restricted assets.
Q4) What auditing issues are of particular significance to the health care industry?
Page 19
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