Public Accounting Exam Review
Course Introduction
Public Accounting is a foundational course that explores the principles, practices, and regulatory environment of accounting for businesses, government agencies, and non-profit organizations. The course covers core topics such as financial statement preparation and analysis, auditing standards and procedures, taxation, and ethical considerations in the public accounting profession. Students will gain practical knowledge of the Generally Accepted Accounting Principles (GAAP), understand the role of public accountants in maintaining transparency and accountability, and become familiar with the legal and professional responsibilities associated with the field. Throughout the course, emphasis is placed on critical thinking and the application of accounting standards to real-world scenarios.
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 governmental fund financial statements are intended to report on fiscal accountability.
A)True
B)False
Answer: True
Q2) Which of the following would typically not be included in the introductory section of a comprehensive annual financial report?
A)Title and contents page.
B)Letter of transmittal.
C)A description of the government.
D)Summary of the government's current financial position and results of financial activities.
Answer: D
Q3) Enterprise funds are primarily distinguished from internal service funds by the:
A)Type of customers they serve.
B)Different basis of accounting they use.
C)Different kinds of financial statements used to present their financial information.
D)Different budgeting approaches used.
Answer: A
Page 3
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Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Q1) The activities of a water utility department,which offers its services to the general public on a user charge basis,should be accounted for in
A)An enterprise fund.
B)A special revenue fund.
C)The General Fund.
D)An internal service fund.
Answer: A
Q2) "Generally accepted accounting principles include both those principles established by the Governmental Accounting Standards Board and those required by state laws." Indicate whether this statement is true or false and explain why.
A)True
B)False
Answer: False
Q3) Economic resources are cash or items expected to be converted into cash during the current period,or soon enough thereafter to pay current period liabilities.
A)True
B)False
Answer: False
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Chapter 3: Governmental Operating Statement Accounts; Budgetary Accounting
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Q1) When the budget of a government is recorded and Appropriations exceeds Estimated Revenues,the Budgetary Fund Balance account is
A)Credited at the beginning of the year and debited at the end of the year.
B)Credited at the beginning of the year and no entry is made at the end of the year.
C)Debited at the beginning of the year and no entry is made at the end of the year.
D)Debited at the beginning of the year and credited at the end of the year.
Answer: D
Q2) All decreases in fund financial resources,other than for repayment of fund liabilities,are termed "expenditures."
A)True
B)False
Answer: False
Q3) Program revenues are distinguished from general revenues on the government-wide statement of activities under GASB standards.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) In which fund would a government most likely account for the assets confiscated in drug arrests and legally required to be used for drug prevention education?
A)General Fund.
B)Permanent fund.
C)Special revenue fund.
D)Enterprise fund.
Q2) Describe the difference between exchange and nonexchange transactions and discuss the rules for recognition of revenues and expenses/expenditures for each type of transaction.
Q3) Assuming all legal requirements have been met,the revenues budget total should be debited to the Estimated Revenues control account; the appropriations budget total should be credited to Appropriations and the difference should be debited or credited to Budgetary Fund Balance.
A)True
B)False
Q4) Under GASB standards,Revenues must be credited for the total amount of the property tax levy.
A)True
B)False
6
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) With regard to depreciation of general capital assets,which of the following statements is correct?
A)Depreciation expense should be recorded in the appropriate governmental funds,and recorded in the governmental activities accounts.
B)Depreciation expense must be recorded in the governmental fund,but no depreciation expense is recorded in the governmental activities accounts.
C)No depreciation can be recorded in any governmental fund,but depreciation expense must be recorded in the governmental activities accounts.
D)No depreciation can be recorded in any governmental fund,nor is it permissible to record depreciation expense in the governmental activities accounts.
Q2) 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
Q3) How should the capital assets of a capital lease be recorded in the capital projects fund?
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) If all financial resource inflows have been collected,and all debt interest and principal legally due has been paid,a regular serial bond debt service fund could have no assets,no liabilities,and no fund balance at year-end.
A)True
B)False
Q2) When the debt service fund makes a payment of principal and interest on an outstanding long-term debt,the governmental activities accounts
A)Reflect the principal payment only.
B)Reflect the interest payment only.
C)Has no record of the transaction.
D)Reflects both principal and interest payments.
Q3) Budgetary accounting for regular serial bond debt service funds differs somewhat from that for deferred serial bond or term bond debt service funds.Explain these differences.
Q4) Debt service funds are used to record
A)Both principal and interest payments of debt issues.
B)Only interest payments on debt issues.
C)Only principal payments of debt issues.
D)Neither principal nor interest payments of debt issues.
Page 8
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) The liability for long-term debt issued to provide financing for an enterprise fund and to be serviced from revenues of the enterprise fund should be reported in the financial statements of the enterprise fund,even though the debt also is backed by the general obligation credit of the government.
A)True
B)False
Q2) Premiums or discounts on bonds payable issued by enterprise funds should be accounted for in the same manner as those of a comparable business entity.
A)True
B)False
Q3) If an internal service fund is created to improve the management of resources devoted to the supply function,the supplies fund should use periodic inventory accounting instead of perpetual physical inventory accounting.
A)True
B)False
Q4) What are the alternative methods of dissolving an internal service fund? What factors should be considered in choosing the appropriate method?
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Chapter 8: Accounting for Fiduciary Activities Agency and Trust Funds
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Q1) Investment trust funds and pension trust funds should be accounted for in the same manner as permanent funds.
A)True
B)False
Q2) When a cash and investment pool of a certain city was established,the debt service fund transferred investments to the pool having a cost of $3,000,000 but a current fair market value of $3,100,000.To record this transaction,the journal entry made by the debt service fund will include:
A)A debit to Equity in Pooled Cash and Investments in the amount of $3,000,000.
B)A credit to Revenues-Change in Fair Value of Investments in the amount of $100,000.
C)A debit to Investments in the amount of $3,000,000.
D)A credit to Investments in the amount of $3,100,000.
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.
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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) Balsam City's library board is appointed by the city council which has agreed to subsidize the operating costs of the library at a material amount to be determined each year.In addition,the city is paying debt service on general obligation bonds issued to construct the library.Based on generally accepted accounting principles (GAAP)criteria for defining the reporting entity:
A)The library is a component unit.
B)The library is not a component unit.
C)Financial data for the library's General Fund should be blended with the financial data for the city's special revenue funds.
D)The library can avoid being a component unit by establishing itself as a legally separate organization.
Q3) Describe the objectives of financial reporting by state and local governments.
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) A financial capability ratio that measures the degree to which the annual budget is loaded with disbursements to pay off long-term debt is:
A)Revenue dispersion.
B)Debt service load.
C)Financing margin-bonded debt per capita.
D)Financing margin-legal debt limit.
Q2) Failure to achieve interperiod equity may negatively impact a government's financial condition.
A)True
B)False
Q3) Financial statements are more relevant in evaluating a city's current financial condition because they focus on historical transactions rather than other information in the comprehensive annual financial report.
A)True
B)False
Q4) Describe how financial performance is related to the operating performance of a governmental entity.
Q5) Explain the importance of evaluating governmental financial performance.
Page 12
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) 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.
Q2) The financial statements of the U.S.government are prepared using generally accepted accounting principles promulgated by the Governmental Accounting Standards Board.
A)True
B)False
Q3) Describe the purpose of a management's discussion and analysis (MD&A)in the general purpose federal financial report of a federal agency.
Q4) What is a Performance and Accountability Report (PAR)? Describe its purpose and contents.
Q5) Federal government accounting standards require the measurement of expenses rather than expenditures.
A)True
B)False
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Chapter 12: Budgeting and Performance Measurement
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Q1) Performance audits provide an auditor's independent assessment of the performance and the management of an entity,program,service,or activity against objective criteria.
A)True
B)False
Q2) Generally accepted government auditing standards (GAGAS)
A)Establish the same scope as GAAS,but use wording appropriate to governmental entities instead of business organizations.
B)Are set forth in the "Federal Government Red Book."
C)Establish more standards that are broader in scope than those found in GAAS.
D)Establish standard wording of auditor's reports on governmental financial statements.
Q3) The introductory paragraph of an audit report introduces the auditor and his/her background and qualifications to perform the auditor.
A)True
B)False
Q4) Describe the importance of materiality for auditors and explain how materiality is determined in audits of state and local governments that follow GASB standards.
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) 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?
Q2) 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.
Q3) "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?
Q4) How can service efforts and accomplishments (SEA)indicators be useful in improving budgeting?
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Chapter
14: Not-For-Profit Organizations Regulatory, taxation, and Performance Issues
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Q1) Would a not-for-profit library that receives the majority of its resources from a specific tax levy on local citizens remitted to the city follow the same financial reporting principles as would a library that operates without a dedicated tax and instead relies on contributions from individuals and grants from foundations and governments? Explain.
Q2) Investments should be recorded at cost,or in the case of donated investments,at fair value as of the date of the gift.On subsequent balance sheets investments should be marked to and reported at market value with the valuation method disclosed and consistently followed.
A)True
B)False
Q3) Donated materials are seldom recognized as a contribution and as an expense by a not-for-profit organization.
A)True
B)False
Q4) Supporting services expenses include fund-raising and management and general expenses that are not directly attributable to specific programs.
A)True
B)False
Page 16
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Chapter 15: Accounting for Colleges and Universities
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Q1) Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec.501(c)(3)?
A)Beta Kappa Alpha Sorority.
B)Peaceful Dreams Cemetery Association.
C)Regional Association of Tree Trimmers.
D)Survivors of Breast Cancer Club.
Q2) A good measure of whether a not-for-profit organization is efficient in its fund-raising efforts is
A)Public support as a percentage of fund-raising expenses.
B)Current ratio.
C)Total revenues divided by total expenses.
D)Percentage of total expenses spent on the program function as opposed to support function.
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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Chapter 16: Accounting for Health Care Organizations
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Q1) Assets that the governing board of a public university,rather than a donor or other outside agency,has determined are to be retained and invested for future scholarships would be reported as
A)An endowment.
B)Unrestricted net assets.
C)Deposits held in custody for others.
D)Restricted net assets.
Q2) The sale of bonds for construction of a college residence hall would always result in a credit to proceeds of bonds in the accounts.
A)True
B)False
Q3) An alumnus donates securities to St.Aloysius College,a private college,and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel.Dividends received from the securities should be recognized as increases in
A)Endowments.
B)Unrestricted net assets.
C)Permanently restricted net assets.
D)Temporarily restricted net assets.
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Chapter 17: Accounting and Reporting for the Federal Government
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Q1) Which of the following would be an appropriate performance indicator for a not-for-profit health care organization?
A)Revenues.
B)Excess of revenues and gains over expenses and losses.
C)Expenses and losses.
D)Contributions to long-lived assets.
Q2) Which of the following would not be considered a health care organization required to follow the guidance of the AICPA Audit and Accounting Guide Health Care Organizations?
A)A heart research and education foundation.
B)A home health agency.
C)A public health clinic.
D)A health maintenance organization.
Q3) Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use".
A)True
B)False
Q4) Explain how one can evaluate both the financial performance of a hospital and the quality of health care the hospital provides.
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