Public Sector Accounting Practice Exam
Course Introduction
Public Sector Accounting explores the principles, practices, and regulatory frameworks governing the financial operations of government entities and other public sector organizations. The course covers topics such as budgeting, financial reporting, auditing, and accountability, emphasizing the differences between public sector and private sector accounting. Students will learn the importance of transparency and stewardship in managing public resources, analyze governmental financial statements, and examine the influence of regulations and standards like IPSAS (International Public Sector Accounting Standards) on financial disclosures. The course also addresses contemporary challenges in public financial management, including performance measurement and reform initiatives.
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) Identify and explain the characteristics that distinguish government and not-for-profit entities from business entities.
Answer: Governmental and not-for-profit entities (nonbusiness entities)do not have owners who expect a return on their investment.Resource providers to these entities do not expect to be repaid or to receive economic benefits in proportion to the resources provided.Government and not-for-profit entities do not operate to make a profit on goods or services provided.On the other hand,business entities do have owners whose interests can be transferred to others and who expect a share of the profits from operating the business and a residual distribution of the net assets in the case of liquidation of the organization (see FASB Concepts Statements).
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Chapter 2: Principles of Accounting and Financial Reporting
for State and Local Governments
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Sample Questions
Q1) A city received resources that the state indicates can only be used for public works projects,such as road construction.Assuming the resources have not been expended by year end,how would the resources the city received be shown in the city's fund balances?
A) Spendable-Designated Fund Balance.
B) Spendable-Committed Fund Balance.
C) Spendable-Restricted Fund Balance.
D) Spendable-Assigned Fund Balance.
Answer: C
Q2) According to GASB standards transfers should be recognized
A) When earned.
B) When collected in cash.
C) When authorized by the budget ordinance.
D) In the period the interfund receivable and payable arise.
Answer: D
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4
Chapter 3: Governmental Operating Statement Accounts
Budgetary Accounting
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Sample Questions
Q1) 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
Q2) Available means that a revenue or other financing source is expected to be collected during the current fiscal period or within one month of the fiscal year end.
A)True
B)False
Answer: False
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5
Chapter 4: Accounting for Governmental Operating
Activitiesillustrative Transactions and Financial Statements
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Sample Questions
Q1) Which of the following would be reported on the operating statement of a governmental fund?
A) The liability for the annual obligation to the employee retirement plan.
B) Depreciation expense.
C) Resources received for services to be provided in future periods.
D) Revenue related to prior periods.
Q2) The General Fund used electricity provided by the city-owned electric utility (an enterprise fund of the city).The General Fund general journal entry to record the transaction will include:
A) A debit to Expenses.
B) A debit to Expenditures.
C) A debit to Interfund Transfers Out.
D) A debit to Due to Other Funds.
Q3) Encumbrances Outstanding is shown on the balance sheet as a restriction on fund balance.
A)True
B)False
Q4) How does the use of encumbrance procedures improve budgetary control over expenditures?
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Chapter 5: Accounting for General Capital Assets and Capital Projects
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Q1) Transfers from the General Fund to the capital projects fund to provide partial financing of a capital project would be reported by the capital projects fund as a(an):
A) Fund balance addition.
B) Revenue.
C) Other financing source.
D) Current liability.
Q2) Under the modified approach,what happens if infrastructure assets are not maintained at or above the established condition level?
Q3) One of the required general capital asset disclosures is a schedule of the additions to,and deductions from,general capital assets during the course of a fiscal year.
A)True
B)False
Q4) The recorded premium on tax-supported bonds issued by a capital projects fund should be amortized at both the government-wide and fund levels. A)True
B)False
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Chapter 6: Accounting for General Long-Term Liabilities and Debt Service
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Q1) Pollution remediation obligations should be recognized if which of the following obligating events has occurred?
A) A violation of a pollution prevention permit has occurred.
B) The government is named or will be named as the responsible or potentially responsible party to a remediation.
C) The government is compelled to take remediation action due to imminent endangerment to the public health.
D) All of the above items are obligating events that would require recognition of a pollution remediation obligation.
Q2) When a capital lease payment is legally due,an entry is made in the debt service (or appropriate governmental)fund to record an expenditure,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.
A)True
B)False
Q3) How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?
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Page 8
Chapter 7: Accounting for the Business-Type Activities of
State and Local Governments
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Sample Questions
Q1) A motor pool is a common example of an internal service fund.
A)True
B)False
Q2) The comprehensive annual financial report (CAFR)of a government should contain a statement of revenues,expenses,and changes in fund net position 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 swimming pool.
D) Risk management.
Q4) "Enterprise funds should not be permitted to accumulate unrestricted net position,since to do so would indicate overpricing of its services." Do you agree? Why or why not?
Q5) What are the alternative methods of dissolving an internal service fund?
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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 $2,900,000.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 debit to Revenues-Change in Fair Value of Investments in the amount of $100,000.
C) A debit to Investments in the amount of $2,900,000.
D) A credit to Investments in the amount of $100,000.
Q2) It is common for a government that collects taxes on behalf of other governments to be authorized to withhold a certain percentage from the collections for each government.
A)True
B)False
Q3) Trust funds often exist over a longer period of time than agency funds,represent and develop vested interests of a beneficiary to a greater extent,and involve more complex administration and financial accounting and reporting.
A)True
B)False
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Chapter 9: Financial Reporting of State and Local Governments
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Sample Questions
Q1) Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported?
A) Letter of transmittal.
B) Fund financial statements.
C) Management's discussion and analysis.
D) Government-wide financial statements.
Q2) Which of the following factors would not indicate that a potential component unit (PCU)imposes a financial burden or provides a financial benefit to the primary government?
A) The primary government is entitled to its share of any dividends distributed by the PCU.
B) The primary government is obligated to provide financial support to the PCU.
C) The primary government is obligated for the PCU's debt.
D) The primary government is entitled to the PCU's resources.
Q3) What is meant by the term "reporting entity" in accounting for state and local governments?
Q4) Under GASB standards,only proprietary funds prepare a statement of cash flows.
A)True
B)False
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Chapter 10: Analysis of Governmental Financial Performance
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Q1) The financial condition of a government is easily determined by calculating the financial ratios discussed in Chapter 10.
A)True
B)False
Q2) Which of the following is one of the most important reasons for evaluating a government's financial performance?
A) Determine if property taxes and other revenue sources should be increased.
B) Assign responsibility for success or failure of the government to certain parties.
C) Determine whether the government is accomplishing its mission.
D) Have an early warning of impending financial difficulty for a diverse set of decision makers.
Q3) How do the objectives of evaluating financial condition differ between internal managers and credit analysts? How are their objectives similar?
Q4) One measure of interperiod equity is whether net revenues are exceeding a government's total expenses.
A)True B)False
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Chapter 11: Auditing of Governmental and Not-For-Profit Organizations
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Q1) Which of the following is not a required component of the audit report for a single audit?
A) A report on internal control over financial reporting and compliance with federal statutes, regulations, and the terms and conditions of the federal award.
B) An opinion on the completeness of the schedule of expenditures.
C) A report on compliance for each major program and on internal control over compliance.
D) A schedule of findings and questioned costs.
Q2) A common reason why a government might receive a "modified opinion" from the external auditors is:
A) A violation of generally accepted accounting principles was noted 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) Expenditures exceeded appropriations in the General Fund.
Q3) What are clarified auditing standards? Do they apply to audits of governments and not-for-profit organizations?
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Page 13
Chapter 12: Budgeting and Performance Measurement
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Sample Questions
Q1) Identify and define the three broad categories of service efforts and accomplishments (SEA)measures.
Q2) Governments receiving federal grants and contract funds are expected to have an accounting information system with adequate internal controls that can deliver reliable information to compare the actual amount spent with budgeted amounts.
A)True
B)False
Q3) Popular budgeting approaches employed by governments include incremental budgeting,performance budgeting,program budgeting,planning-programming-budgeting systems,and zero-based budgeting.
A)True
B)False
Q4) Under GASB standards,every government,regardless of its size,is instructed to prepare a cash budget for each month of the fiscal year.
A)True
B)False
Q5) Explain what is required to develop an effective total quality management (TQM)program for a government.
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Chapter 13: Accounting for Not-For-Profit Organizations
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Q1) Explain the purpose of FASB ASC 958-720-45 on joint-cost accounting as it relates to reporting fund-raising and program expenses of a not-for-profit organization.How is this standard applied?
Q2) The FASB requires a statement of functional expenses be prepared by all not-for-profit organizations.
A)True
B)False
Q3) Supporting services expenses include fund-raising and management and general expenses that are not directly attributable to specific programs.
A)True
B)False
Q4) Which of the following would be considered "contribution revenue or support" of a not-for-profit organization under FASB standards?
A) Gain on disposal of capital assets.
B) Money received from a fund-raising campaign.
C) Money received from rental of surplus office space.
D) Investment earnings.
Q5) 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) Public disclosure rules require that a tax-exempt not-for-profit organization:
A) Make available a copy of its Form 990 to the public for a period of up to three years.
B) Post a copy of its articles of incorporation and by-laws on its Web site.
C) Provide a copy of the minutes to all board meetings to any person who requests the minutes within 90 days of the board meeting.
D) Make available a copy of its Form 990-T, but not its Form 990, to the public for a period of up to two years.
Q2) The Form 990 consists of 12 parts (core form)and several schedules.Which of the following would not be included as one of the parts of the core form of the Form 990?
A) Statement of program service accomplishments.
B) Management analysis of the financial condition of the organization.
C) Balance sheet.
D) A checklist of required schedules.
Q3) Income a not-for-profit organization earns from a rental property on which it has a mortgage is subject to unrelated business income tax.
A)True
B)False
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Page 16
Chapter 15: Accounting for Colleges and Universities
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Q1) Manthei University,a private university,has provided the following information concerning selected transactions.Prepare in general journal form the entries required for each of the transactions.
1.The university was awarded a federal grant in the amount of $1,800,000 to be used for a specified research project (determined to be a nonexchange transaction).During the year the entire $1,800,000 was received and expenses for the specified project totaled $1,000,000.
2.Ira Beaker,a renowned chemist and alumnus,donated $7,000,000 to be used for the construction of new chemistry building to be named Beaker Hall.The gift is to be paid to the university in equal installments over a two-year period; the sum for the current year was received in cash.
3 Cash outlays of $2,750,000 were made during the year for construction in progress on the new chemistry building.Other construction projects completed during the year,also financed by temporarily restricted resources,amounted to $1,500,000 for buildings and $500,000 for improvements other than buildings.There was no debt financing used for these projects.
4.During the year bonds with a face value of $180,000 were retired.
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Chapter 16: Accounting for Health Care Organizations
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Q1) Continuing care retirement communities (CCRC)provide residential care in a facility,along with some level of long-term medical care that is less intensive that hospital care.
A)True
B)False
Q2) Record in general journal form the following selected transactions for Avalon General Hospital,a nongovernmental not-for-profit institution.
1. Gross charges for patient services rendered during the period amounted to $7,870,000,of which $350,000 represented charity care for indigent patients.
2. During the year the provision for bad debts was set at $190,000 and contractual adjustments amounted to $435,000.
3. A wealthy donor donated $2,000,000 to construct a new cardiology wing on the hospital.4. During the year,the new cardiology wing (see item 3)was one-half completed at a cost of $1,000,000.
Q3) What auditing issues are of particular significance to the health care industry?
Q4) Financial reporting standards for all hospitals are established by the FASB.
A)True
B)False
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Page 18
Chapter 17: Accounting and Reporting for the Federal Government Glossary
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Q1) Which of the following statements most accurately describes the dual-track accounting system used in federal agency accounting?
A) Recording internal budgetary transactions and proprietary transactions with external parties on a modified accrual basis of accounting.
B) Use of double-entry accounting.
C) Maintaining self-balancing sets of proprietary and budgetary accounts and recording the effects of transactions on both available budgetary resources and proprietary accounts.
D) Keeping separate books, one on a tax basis and the other on a GAAP basis.
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) The fund balances of a federal reporting entity should be separated into unexpended appropriations,restricted appropriations,and cumulative fund balance.
A)True
B)False
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