Public Sector Accounting Exam Bank
Course Introduction
Public Sector Accounting focuses on the principles, methods, and practices specific to accounting within government and non-profit organizations. The course examines the regulatory frameworks, budgeting processes, and financial reporting standards unique to the public sector, including fund accounting and the application of International Public Sector Accounting Standards (IPSAS). Students will explore topics such as public financial management, audit and control mechanisms, and transparency and accountability in the use of public resources. The course also emphasizes the ethical and legal considerations that ensure the integrity of financial information in the public sector, preparing students for roles in governmental and non-governmental accounting environments.
Recommended Textbook
Accounting for Governmental and Nonprofit Entities 17th Edition by Jacqueline Reck
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Page 2
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 government financial reports are the same as those of users of business entity financial reports.
A)True
B)False
Answer: False
Q2) The body that has been established to recommend accounting and financial reporting standards for the federal government is the
A) Financial Accounting Standards Board (FASB).
B) Governmental Accounting Standards Board (GASB).
C) Federal Accounting Foundation (FAF).
D) Federal Accounting Standards Advisory Board (FASAB).
Answer: D
Q3) The FASB,GASB,and FASAB all focus their standards on both internal and external financial reporting.
A)True
B)False
Answer: False
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Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Q1) Which of the following funds would be most appropriate when accounting for an activity that provides goods or services to the public for a fee that is intended to make the activity self-supporting?
A) Investment trust fund.
B) Enterprise fund.
C) Internal service fund.
D) Special revenue fund.
Answer: B
Q2) Under GASB standards which of the following funds can report a positive amount for unassigned fund balance?
A) Capital projects fund.
B) Special revenue fund.
C) General Fund.
D) All of the above.
Answer: C
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Chapter 3: Governmental Operating Statement Accounts
Budgetary Accounting
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Q1) The expenditure classification "Public Safety" is an example of which of the following types of classifications?
A) Activity.
B) Function.
C) Character.
D) Object.
Answer: B
Q2) If supplies that were ordered by a department financed by the General Fund are received at an actual price that is less than the estimated price on the purchase order,the department's available balance of appropriations for supplies will be:
A) Decreased.
B) Increased.
C) Unaffected.
D) Either a or b, depending on the department's specific budgetary control procedures.
Answer: B
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Page 5
Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Q1) Permanent funds use the modified accrual basis of accounting.
A)True
B)False
Q2) The Governmental Activities column of the government-wide statement of net position reports both current and noncurrent assets and liabilities.
A)True
B)False
Q3) Under the modified accrual basis of accounting applicable to governmental fund types,property tax revenue is accrued and recorded at net realizable value.
A)True
B)False
Q4) A payment made by a city-owned utility to the General Fund of the city in lieu of taxes is an example of an "internal exchange transaction."
A)True
B)False
Q5) Identify the four types of 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) Streets,curbs,and sidewalks constructed or acquired through use of capital projects fund resources should never be reported in the financial statements of a government because they are for the use of the public,not for use by the government.
A)True
B)False
Q2) GASB standards require that general capital assets be recorded in the government-wide statements at:
A) Historical cost.
B) Fair value at the financial statement date.
C) Estimated cost at the financial statement date
D) None of the above.
Q3) Proceeds of debt issued for the construction or acquisition of capital assets are recognized by the capital projects fund as "other financing sources" and as a liability in the governmental activities journal.
A)True
B)False
Q4) Capital projects funds generally do not use the Encumbrances control account.
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 the due date for bond interest,the debt service fund journal entry (or entries)will include:
A) A debit to Bonds Payable.
B) A debit to Interfund Transfers Out.
C) A debit to Expenditures-Bond Interest.
D) A debit to Interest Expense.
Q2) The liability for general obligation bonds should be recorded in the:
A) General Fund.
B) Capital projects fund.
C) Governmental activities journal.
D) Debt service fund.
Q3) Typically,proceeds from general obligation bonds will be recorded in the:
A) Debt service fund.
B) General obligation bond fund.
C) Permanent fund.
D) Capital projects fund.
Q4) A government's MD&A states that government-wide net position decreased as a result of the issuance of a long-term liability during the current reporting period.Does this sound correct? How does the issuance of long-term debt typically affect net position in the year of issuance?
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Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Q1) 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 swimming pool.
D) Risk management.
Q2) Proprietary funds report using three net position categories: net investment in capital assets; restricted; and unrestricted.
A)True
B)False
Q3) Interest and principal on enterprise fund revenue bonds should be recorded in a debt service fund until paid.
A)True
B)False
Q4) How does the statement of cash flows under GASB standards differ from the statement of cash flows under FASB standards?
Q5) Internal service funds utilize encumbrance accounting.
A)True B)False
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Chapter 8: Accounting for Fiduciary Activitiesagency and Trust Funds
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Sample Questions
Q1) 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.
Q2) Fiduciary funds use a basis of accounting similar to which of the following funds?
A) Permanent funds.
B) Special revenue funds.
C) Enterprise funds.
D) Debt service funds.
Q3) At the government-wide level,where are fiduciary funds reported?
A) In the Governmental Activities column.
B) In the Business-type Activities column.
C) As an internal balance in the total column.
D) Fiduciary funds are not reported at the government-wide level.
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Chapter 9: Financial Reporting of State and Local Governments
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Q1) Describe the alternative processes for capturing the financial accounting information required for government-wide financial statements.
Q2) In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would be added to the change in net position of governmental activities?
A) Issuance of long-term debt.
B) Construction of capital assets.
C) Accrual of interest expense.
D) Depreciation expense.
Q3) Government-wide financial statements present the government's financial position using the:
A) 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.
Q4) What is meant by the term "reporting entity" in accounting for state and local governments?
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) Which of the following trends is most likely to be a signal of impending fiscal stress?
A) An increasing ratio of own source revenues to total revenues.
B) A decreasing ratio of total revenues to total expenditures.
C) A decreasing ratio of debt service expenditures to operating revenues.
D) A decreasing ratio of operating expenditures to total revenues.
Q2) Environmental factors facing a government have little impact on a city's fiscal policy.
A)True
B)False
Q3) Which of the following financial capability indicators is a measure of a government's capacity to issue bonded debt?
A) Revenue dispersion.
B) Property taxes per capita.
C) Bonded debt per capita.
D) Available legal debt limit.
Q4) "Benchmarking is a simple method for comparing one government to another." Do you agree or disagree with this statement? Explain.
Q5) Explain the importance of evaluating governmental financial performance.
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) When compared to generally accepted auditing standards (GAAS),generally accepted government auditing standards (GAGAS)include additional General Standard requirements for financial audits related to all of the following except:
A) Independence.
B) Quality control and assurance.
C) Audit opinions
D) Competence.
Q2) Governments may engage one auditor to audit the primary government and other auditors to audit certain component units.
A)True
B)False
Q3) Guidelines for grant accounting and reporting is contained within Uniform Administrative Requirements,Cost Principles,and Audit Requirements for Federal Awards,issued by the AICPA.
A)True
B)False
Q4) What are clarified auditing standards? Do they apply to audits of governments and not-for-profit organizations?
Page 13
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Chapter 12: Budgeting and Performance Measurement
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Q1) Cash planning and budgeting are important in government because the timing of cash inflows often do not necessarily coincide with the timing of cash outflows.
A)True
B)False
Q2) Service efforts and accomplishments (SEA)information:
A) Includes indicators of a government's actual performance in providing services to its citizens.
B) Aids users in assessing the economy, efficiency, and effectiveness of government.
C) Is required for all governments that issue a CAFR.
D) Both A and B are true.
Q3) A common approach to budgeting line-items whereby the current year's budget is constructed by adding or subtracting amounts expected to be required by line items is:
A) Performance budgeting.
B) Zero-based budgeting.
C) Program budgeting.
D) Incremental budgeting.
Q4) Are governments required to report their budgets externally? Explain.
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is:
A) An unconditional promise to give.
B) Investment income.
C) A restricted gift.
D) An allocation of funds from the local United Way organization.
Q2) In the current year,the not-for-profit organization Save the Butterflies Foundation received cash of $500 to be used as the Foundation wishes and $1,000 to be used for butterfly research.Save the Butterflies also received pledges of $700 that it can use as it wishes and $600 for its building fund.All pledges are expected to be received next year.How much would Save the Butterflies report as temporarily restricted contributions in the current year?
A) $1,000.
B) $1,600.
C) $1,300.
D) $2,300.
Q3) Distinguish not-for-profit organizations from entities in the government and commercial sectors of the U.S.economy.
Q4) Distinguish between "support" and "revenues from exchange transactions."
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Chapter 14: Not-For-Profit Organizationsregulatory, Taxation,
and Performance Issues
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Q1) Your client is a nongovernmental not-for-profit museum that operates a gift shop.Explain the unrelated business income tax to your client and suggest ways to avoid this tax.
Q2) The unrelated business income tax could be a significant cost and therefore should be of concern to tax-exempt organizations.
A)True
B)False
Q3) 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.
Q4) A 501(c)(3)organization must provide donors with a written disclosure of the amount of the donation if the donation is $1,000 or more.
A)True
B)False
Q5) Explain the purpose of "intermediate sanctions".
Page 16
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Chapter 15: Accounting for Colleges and Universities
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Q1) An annuity agreement requires that a college pay the donor (or other designated individual)a fixed dollar amount at specified time intervals.
A)True
B)False
Q2) A statement of cash flows is required by GAAP for both private colleges and universities and public colleges and universities engaged in business-type activities.
A)True B)False
Q3) Tuition refunds are recorded by debiting Tuition and Fees-Unrestricted.
A)True
B)False
Q4) A private university following the recommendations of the National Association of College and University Business Officers (NACUBO)chart of accounts for reporting expenses,must disclose expenses by program and support function in the notes.
A)True B)False
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Page 17
Chapter 16: Accounting for Health Care Organizations
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Q1) Which of the following is not a financial statement prepared by nongovernmental not-for-profit health care entities?
A) Statement of changes in net assets.
B) Statement of revenues, expenses, and changes in net assets.
C) Balance sheet.
D) Statement of cash flows.
Q2) Under the FASB GAAP hierarchy the AICPA Audit and Accounting Guide Health Care Entities would be category (b)authoritative guidance.
A)True
B)False
Q3) An annual contributor to a nongovernmental not-for-profit hospital made an unrestricted pledge in October 2016 that will be paid in March 2017.Assuming the hospital's fiscal year-end is December 31,2016,the pledge should be credited to:
A) Contributions-Temporarily Restricted in 2016.
B) Contributions-Unrestricted in 2016.
C) Contributions-Temporarily Restricted in 2017.
D) Contributions-Unrestricted in equal amounts in 2016 and 2017.
Q4) What auditing issues are of particular significance to the health care industry?
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Page 18
Chapter 17: Accounting and Reporting for the Federal Government Glossary
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Q1) A federal agency issued $1,000 in purchase orders for goods and services. How would this transaction be recorded?
A) In the budgetary track debit Commitments $1,000, and credit Undelivered Orders $1,000.
B) In the proprietary track debit Operating Materials and Supplies $1,000, and credit Undelivered Orders $1,000.
C) In the budgetary track debit Unapportioned Authority $1,000, and credit Undelivered Orders $1,000.
D) In the budgetary track debit Commitments $1,000, and credit Undelivered Orders $1,000; in the proprietary track debit Estimated Operating Materials and Supplies $1,000, and credit Undelivered Orders $1,000.
Q2) Which of the following financial statements is not required by OMB Circular A-136?
A) Statement of budgetary resources.
B) Statement of cash flows.
C) Balance sheet.
D) Statement of changes in net position.
Q3) Explain the components of net position.
Q4) What is the difference between entity assets and nonentity assets?
Page 19
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