Ch1-3Key - Test Bank wizardCh1-3Key 1. General purpose ......

Ch1-3 Key

1. General purpose governments provide a wide range of services to their residents, such as publicsafety, road maintenance, and health and welfare.

TRUE

Content: ConceptLevel: Easy

Wilson - Chapter 01 #1

2. Examples of special purpose governments include public schools, libraries, and water supply plantsthat receive tax revenue to finance the services they provide.

TRUE

Content: ConceptLevel: Medium


3. The Governmental Accounting Standards Board (GASB) is the body authorized to establishaccounting principles for all governmental and not-for-profit organizations.

FALSE

The GASB does not have authority over the federal government or its agencies or nongovernmental,not-for-profit organizations.



4. A characteristic common to governmental and not-for-profit organizations is the absence of definedownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share ofa residual distribution of resources in the event of liquidation of the organization.

TRUE

This is one of the characteristics; others include receipt of significant amounts of resources fromresource providers who do not expect to receive either repayment or economic benefits proportionateto the resources provided and operating purposes that are other than to provide goods or services at aprofit and absence of defined ownership interests.



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5. The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles andstandards for the federal government and its agencies and state governments.

FALSE

The FASAB does not have responsibility for setting standards for state governments, the GASB does.



6. Interperiod equity refers to the concept that current-year revenues are sufficient to pay for servicesprovided that year, so that future taxpayers will not be required to assume the burden for servicespreviously provided.

TRUE

Interperiod equity is a significant part of accountability of the government to its taxpayers, bothcurrent and future.



7. The FASB, GASB, and FASAB all base their standards on both internal and external financialreporting.

FALSE

While it is true that the FASAB sets standards for both internal and external users of financialinformation, the FASB and GASB base their standards only on external financial reporting.



8. The two government-wide financial statements required by GASBS 34 are the statement of net assetsand the statement of activities.

TRUE

In addition to these two statements, there are two required basic financial statements forgovernmental funds, three for proprietary funds, and two for fiduciary funds, as illustrated anddescribed in this chapter.



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13. The body that has been established to recommend accounting and financial reporting standards forthe federal government is the

A. Financial Accounting Standards Board (FASB).B. Governmental Accounting Standards Board (GASB).C. Cost Accounting Standards Board (CASB).D. Federal Accounting Standards Advisory Board (FASAB).



14. The GASB has identified which of the following as the "cornerstone" of all financial reporting ingovernment?

A. Understandability.B. Representational faithfulness.C. Accountability.D. Interperiod equity.



15. Which of the following distinguishes governments from nongovernmental not-for-profitorganizations?

A. Absence of profit motive.B. The power to enact and enforce a tax levy.C. Resource providers do not expect benefits proportional to the resources provided.D. Absence of a defined ownership interest that can be sold, transferred, or redeemed.



16. Which of the following is not an objective of financial reporting by state and local governments?

A. To assist financial report users in comparing actual financial results with the legally adoptedbudget.

B. To assist users in assessing financial condition and results of operations.C. To assist users in assessing the adequacy of systems and controls.D. None of the above; that is, all of the above are objectives of state and local government financial

reporting.



17. The minimum requirements for general purpose external financial reporting include:

A. Management's discussion and analysis (MD&A).B. Government-wide and fund basic financial statements, including the notes thereto.C. Required supplementary information (other than the MD&A).D. All of the above.



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18. The three sections recommended by GASB for inclusion in the Comprehensive Annual FinancialReport (CAFR) are:

A. Introductory, financial, and statistical.B. Letter of transmittal, MD&A, and financial.C. Introductory, MD&A, and financial.D. Letter of transmittal, financial, and supplementary.



19. Which of the following would be included in a properly prepared comprehensive annual financialreport (CAFR) but not in the minimum requirements for general purpose financial reporting specifiedby GASBS 34?

A. Management Discussion and Analysis (MD&A).B. Statistical information.C. Notes to the financial statements.D. Fund financial statements.



20. Combining financial statements of a governmental entity should be included in

A. A comprehensive annual financial report (CAFR).B. The basic financial statements.C. The notes to the financial statements.D. Any of the above is acceptable under GAAP.



21. Which of the following would not be included in the introductory section of a comprehensive annualfinancial report?

A. Title and contents page.B. Letter of transmittal.C. Management discussion and analysis.D. Reference to other sections of the CAFR so readers desiring detailed information can find it

conveniently.



22. Which of the following is information that should be included in the financial section of acomprehensive annual financial report?

A. The auditor's report.B. The basic financial statements.C. Notes to the financial statements.D. All of these should be included.



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4. Governments that are temporarily short of cash but that have levied taxes expected to be collectibleduring the fiscal year are generally able to borrow on short-term notes known as "tax anticipationnotes payable".

TRUE

Property taxes are a lien on the underlying property; therefore, the tax levy is generally considered bybankers or other lenders to be good security for short-term loans.



5. In order to account correctly for the receipt of goods or services ordered in a prior fiscal year it isnecessary to know which appropriations were affected when the encumbrance documents wereissued.

TRUE

The appropriations of the year in which encumbrance documents were issued were charged for theestimated liability at the time the encumbrances were issued. In most jurisdictions the encumberedportion of the appropriation does not lapse at fiscal year-end and may properly be expended in thesubsequent years when goods and services are received.



6. When purchase orders or contracts are issued for legally authorized purposes a record must be kept,but no entries in the General Fund or special revenue fund accounts are necessary.

FALSE

GASB standards provide that the encumbrance be recorded to assist in budgetary control overexpenditures so that appropriations will not be over-expended.



7. If the actual liability for goods or services ordered in the current year differs from the estimatedliability, the Encumbrances account should be credited in the amount of the actual liability.

FALSE

If the actual liability for goods received differs from the estimated liability (which is often the case),the Encumbrances account is credited for the estimated liability that was originally debited.



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8. The payment of liabilities by the General Fund or a special revenue fund requires the expenditure ofan appropriation.

FALSE

The appropriation was expended when the liability was given accounting recognition; payment of theliability by a government is recorded in the same manner as would be done by a businessorganization, as a decrease of cash and a decrease of the liability.



9. Under the modified accrual basis of accounting applicable to governmental fund types, Revenues iscredited for the total amount of property tax bills prepared.

FALSE

Revenues should be credited for the portion of the receivable expected to be collectible; the estimateduncollectible portion is credited to Estimated Uncollectible Current Taxes.

Content: Journal EntryLevel: Easy


10. Under the modified accrual basis of accounting applicable to governmental fund types, revenue fromsources such as fines and forfeits is accrued and recorded at net realizable value.

FALSE

Fines and forfeits, and many other sources of revenue of general and special revenue funds, isrecognized when cash is received because there is no practicable way of measuring the revenuebefore collection.



11. Under current GASB standards the revenue from property taxes should be recorded in the period andin the amounts in which taxes are collected.

FALSE

Property tax revenue is considered susceptible to accrual and should be recognized when tax bills areprepared. GASBS 33 requires that imposed nonexchange transactions, such as property taxes, berecognized in the period for which the taxes are levied.



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12. If property taxes are not collected by the date specified by law, additional revenue is generally earnedby the fund of the government for which the taxes were levied.

TRUE

Interest and penalties are levied by law on delinquent taxes, and to the extent estimated to becollectible, are recorded as revenue at the time the amounts are computed.



13. Correction of errors in recording revenues or expenditures of the current year must be recorded bothin the proper general ledger control account (Revenues or Expenditures) and in each subsidiaryledger account affected.

TRUE

Subsidiary ledger accounts as well as control accounts must receive entries for the corrections so thatthe subsidiary and control accounts will agree properly.



14. A government that uses the encumbrance method for purchases of goods and services is not requiredto use encumbrance accounting for its payrolls.

TRUE

If neither law nor good financial management requires the use of encumbrance accounting forpayrolls, which is typically the case, there is no need to use the encumbrance method. An exceptionmight be when payroll varies substantially from period to period, perhaps due to seasonal part-timeemployment.



15. Governments, unlike business organizations, generally do not incur expenditures/expenses for theemployer's share of FICA taxes and for contributions to other retirement plans established by law.

FALSE

Fringe benefits given to employees of state and local governments whose salaries are paid by agovernmental fund must be authorized by appropriations and therefore result in expenditures; fringebenefits for employees paid by a proprietary fund result in expenses.



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Ch1-3Key - Test Bank wizardCh1-3Key 1. General purpose ......

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