Test bank of Accounting for governmental and nonprofit entities, 14e chapter 1 to chapter3

Ch1-3
Student: ___________________________________________________________________________

1.

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

2.

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

3.

False

The two government-wide financial statements required by GASBS 34 are the statement of net assets and
the statement of activities.
True

9.

False

The FASB, GASB, and FASAB all base their standards on both internal and external financial
reporting.
True

8.

False

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

7.

False

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

6.

False

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

5.

False

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

4.

False

False

The government-wide financial statements are intended to report on fiscal accountability.
True

False

10. The minimum requirements for general purpose external financial reporting are (1) management's
discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the financial
statements, and (3) required supplementary information (RSI, other than the MD&A).
True

False

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11. The Governmental Accounting Standards Board has the responsibility for setting accounting and
financial reporting standards for
A. State and local government entities and governmentally-related units and agencies, such as utilities,
authorities, hospitals, and colleges and universities.
B. Governments; such as federal agencies, states, cities, counties, villages, and townships.

C. Not-for-profit organizations.
D. All of the above.
12. The Financial Accounting Standards Board has the responsibility for setting accounting and financial
reporting standards for
A. All federal and state organizations.
B. All not-for-profit organizations that are nongovernmental and business entities.
C. All not-for-profit organizations.
D. Both B) and C) are correct.
13. 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. 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 in
government?
A. Understandability.
B. Representational faithfulness.
C. Accountability.
D. Interperiod equity.
15. Which of the following distinguishes governments from nongovernmental not-for-profit organizations?
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 adopted budget.
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.

2


18. The three sections recommended by GASB for inclusion in the Comprehensive Annual Financial Report
(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 financial report
(CAFR) but not in the minimum requirements for general purpose financial reporting specified by
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 annual
financial 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 a
comprehensive 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.
23. The section of the comprehensive annual financial report that presents tables and charts showing social
and economic data in addition to financial trends and the fiscal capacity of the government is the:
A. Introductory section.
B. Statistical section.
C. Management discussion and analysis section.
D. Financial section.
24. On what should the government-wide financial statements report?
A. Net assets and results of financial operations of the government as a whole.
B. Operational accountability.
C. The cost of government services.
D. All of the above.

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25. The fund financial statements for governmental funds should include a
A. Balance sheet for governmental funds.
B. Statement of revenues, expenses, and changes in fund net assets.
C. Statement of cash flows.

D. All of the above.
26. On what should the fund financial statements report?
A. Net assets and results of financial operations of the government as a whole.
B. Fiscal accountability.
C. Cost of government services.
D. All of the above.
27. Which of the following groups normally would not be considered a primary user of a state or local
government's general-purpose external financial statements?
A. Citizens.
B. Managers.
C. Investors and creditors.
D. None of the above; that is, all these groups are considered primary users.
28. Which of the following reconciliations is required in the basic financial statements of a state or local
government?
A. Total fund balances on the balance sheet--governmental funds to total governmental activities net
assets on the government-wide statement of net assets.
B. Total net assets on the statement of net assets--proprietary funds to total business-type activities net
assets on the government-wide statement of net assets.
C. Total net assets on the statement of fiduciary net assets to total fiduciary activities net assets on the
government-wide statement of net assets.
D. All of the above.
29. Members of the Governmental Accounting Standards Board are appointed by the:
A. Financial Accounting Standards Board.
B. Governmental Accounting Standards Board.
C. American Institute of Certified Public Accountants.
D. Financial Accounting Foundation.
30. Which of the following organizations designated the FASAB as the authoritative standard setting body
for the federal government and its agencies?
A. Financial Accounting Foundation.
B. American Institute of Certified Public Accountants.

C. Government Finance Officers Association.
D. Securities and Exchange Commission.
31. Which of the following is always subject to GASB jurisdiction?
A. A hospital.
B. A college or university.
C. A public school district.
D. All of the above.

4


32. Recognizing revenues when measurable and available for paying current obligations and expenditures
when incurred describes which basis of accounting?
A. Accrual.
B. Modified accrual.
C. Modified cash.
D. Budgetary.
33. 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. All of the above.
34. Governmental funds are identical to governmental activities, proprietary funds are identical to
business-type activities, and fiduciary funds are identical to fiduciary activities of a government.
True

False

35. Major funds are those that are relatively large or significant with respect to other funds.
True

False

36. 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.
True

False

37. A fund is an accounting and a fiscal entity.
True

False

38. The types of funds that may be used in governmental accounting are classified into three categories of
activities performed by governments: governmental, business-type, and fiduciary.
True

False

39. All short-term liabilities of the government should be accounted for in the General Fund.
True

False

40. Governments can demonstrate fiscal accountability by adopting an annual budget, using the accounting
system to provide for budgetary control, and presenting budgetary comparisons to actual results in the
appropriate financial statements.
True

False

41. The primary purpose of an accounting system for a state or a local governmental unit is to make it
possible for financial statements to demonstrate compliance with finance-related legal and contractual
provisions.
True

False

42. Because budgetary accounts are used by governments, their financial statements can never be said to be
in accord with generally accepted accounting principles.
True

False

5


43. Capital assets of a government should always be reported on the same basis as a business--depreciated
historical cost.
True

False

44. The accounting system used by a state or local government must make it possible
A. To prepare consolidated accrual basis statements for the government as a whole.
B. To prepare financial statements as required by the Financial Accounting Standards Board.
C. To present fairly the financial position and results of financial operations of the government as a
whole, as well as fund financial activity in conformity with GAAP, and to demonstrate compliance
with finance-related legal and contractual provisions.

D. All of the above.
45. Which of the following is not a characteristic of a fund as defined by GASB standards?
A. An accounting entity.
B. A segregated quantity of cash and other financial resources on deposit with a designated trustee.
C. A fiscal entity.
D. A self-balancing set of accounts.
46. The accrual basis of accounting applicable to proprietary fund types requires that revenues be recognized
when
A. Earned.
B. Authorized by the budget ordinance.
C. Collected in cash.
D. Measurable and available.
47. The modified accrual basis of accounting applicable to governmental fund types requires that revenues
be recognized when
A. Earned.
B. Authorized by the budget ordinance.
C. Measurable and available.
D. Collected in cash.
48. According to the "Measurement Focus and Basis of Accounting in the Basic Financial Statements"
principle, transfers should be recognized
A. When earned.
B. In the period the interfund receivable and payable arise.
C. When authorized by the budget ordinance.
D. When collected in cash.
49. Comparisons of budgeted versus actual revenues and expenditures are
A. Optional under GASB standards for all funds.
B. Required by GAAP for internal management reports only; not permitted for external financial
reporting.
C. Required by GAAP for all governmental fund types.
D. Required by GAAP for the General Fund and major special revenue funds for which an annual

budget has been legally adopted.

6


50. In accounting for state and local governments the modified accrual basis is recommended for
A. Proprietary and fiduciary funds.
B. Proprietary funds only.
C. Governmental funds only.
D. All funds.
51. An example of a proprietary fund is a (an)
A. Special revenue fund.
B. Investment trust fund.
C. Internal service fund.
D. Debt service fund.
52. An example of a "fiduciary" fund is a (an)
A. Special revenue fund.
B. Investment trust fund.
C. Debt service fund.
D. Enterprise fund.
53. In order for the accounting system of a local government to be in conformity with generally accepted
accounting principles
A. Only governmental funds, and proprietary funds should be provided.
B. Only those funds required by law, GASB standards, and sound financial administration should be
provided.
C. Only those funds required by law should be provided.
D. All categories of funds must be provided.
54. Which of the following funds is a governmental fund-type?
A. Private-purpose trust fund.
B. Internal service fund.

C. Permanent fund.
D. Enterprise fund.
55. Which of the following funds is a proprietary fund-type?
A. Private-purpose trust fund.
B. Enterprise.
C. Permanent fund.
D. Capital projects fund.
56. In which of the following funds would it not be appropriate to record depreciation of capital assets?
A. Special revenue fund.
B. Enterprise.
C. Internal service.
D. Pension trust.
57. Capital assets used by departments accounted for by the General Fund of a governmental unit should be
accounted for in
A. The General Fund.
B. The governmental activities journal.
C. The business-type activities journal.
D. The general capital assets fund.

7


58. Financial reporting by fund type
A. Means that all assets and all liabilities of each government must be accounted for by one of the fund
types set forth in the GASB Codification.
B. Is optional under GAAP, but is generally required by state laws for governments.
C. Is the same kind of accounting used by business organizations.
D. Is required by generally accepted accounting principles for state and local governments.
59. A fund that is used to account for the financing of goods or services provided by one department or
agency to other departments or agencies of the governmental unit, or to other governments, on a

cost-reimbursement basis is properly classified as a (an)
A. Enterprise fund.
B. Proprietary fund.
C. Internal service fund.
D. Both B and C are correct.
60. Capital assets of an enterprise fund should be accounted for in the
A. Enterprise fund and depreciation on the capital assets should be recorded.
B. Business-type activities journal but no depreciation on the capital assets should be recorded.
C. Governmental activities journal and depreciation on the capital assets should be recorded.
D. Enterprise fund but no depreciation on the capital assets should be recorded.
61. Which of the following funds are proprietary funds?
A. Enterprise funds, investment trust funds, pension trust funds, and the General Fund.
B. Enterprise funds and internal service funds.
C. Internal service funds, special revenue funds, and enterprise funds.
D. None of the above funds; proprietary funds are not used in governmental accounting.
62. 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, capital projects funds, debt service funds, and permanent funds.
C. General Fund and special revenue funds, private-purpose trust funds.
D. General Fund, special revenue funds, capital projects funds, debt service funds, and internal service
funds.
63. 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
64. The measurement focus and basis of accounting for fiduciary funds are most similar to
A. Governmental funds.

B. Permanent funds.
C. Proprietary funds.
D. None of the above.

8


65. Which of the following organizations should be included as part of the governmental reporting entity?
A. A primary government.
B. Other legally separate organizations for which the primary government is financially accountable.
C. Other organizations for which the nature and significance of their relationship with the primary
government are such that exclusion would cause the reporting entity's financial statements to be
misleading or incomplete.
D. All of the above.
66. Under GASB reporting entity standards, a component unit is
A. Organizations for which the nature and significance of their relationship with the primary government
are such that exclusion would cause the reporting entity's financial statements to be misleading or
incomplete.
B. A legally separate organization that is financially independent of a primary government and on which
the primary government cannot impose its will.
C. A large department of a primary government.
D. Both A and B are component units.
67. The measurement focus that should be used in preparing fund financial statements is:

A. Item A
B. Item B
C. Item C
D. Item D
68. The basis of accounting that should be used in preparing fund financial statements is:

A. Item A
B. Item B
C. Item C
D. Item D
69. Program revenues and general revenues are distinguished on the government-wide statement of activities
under GASBS 34.
True

False

70. Fund equity of the General Fund is reported as net assets in the balance sheets for governmental funds.
True

False

9


71. Interfund transfers and debt issue proceeds received by the General Fund would be recorded as other
financing sources.
True

False

72. All purchases of goods and services by a General Fund and all interfund transfers are recorded as
Expenditures.
True

False

73. GASBS 34 requires that a combined statement of revenues, expenditures, and changes in fund
balances--budget and actual be presented and that the statement include the General Fund, and major
special revenue funds for which annual budgets have been legally adopted.
True

False

74. All decreases in fund financial resources, other than for repayment of fund liabilities, are termed
"expenditures."
True

False

75. Budgetary accounts used in the General Fund include Estimated Revenues, Revenues, Appropriations,
Encumbrances, and Expenditures.
True

False

76. An encumbrance represents a liability incurred pursuant to authority given in an appropriation.
True

False

77. Government-wide financial statements include funds.
True

False

78. Revenues and expenditures reported in the budgetary comparison schedule must be reported on the

budget basis in the "budget" column and on the GAAP basis in the "actual" column.
True

False

79. The amounts reported for revenues and expenditures in the "Actual" column of the budgetary
comparison schedule or statement must not differ from those reported in the statement of revenues,
expenditures, and changes in fund balance prepared on a GAAP basis.
True

False

80. Governmental funds have always been reported on the economic resources measurement focus.
True

False

81. Which of the following is a budgetary account?
A. Encumbrances.
B. Reserve for Encumbrances.
C. Expenditures.
D. Revenues.

10


82. When the budget for the General Fund is recorded, the required journal entry will include
A. A credit to Estimated Revenues.
B. A debit to Encumbrances.
C. A credit to Appropriations.

D. Both A and C.
83. When the budget of a government is recorded and Appropriations exceeds Estimated Revenues, the
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.
84. Which of the following accounts is not a budgetary account of a governmental fund?
A. Reserve for Inventory of Supplies.
B. Encumbrances.
C. Estimated Revenues.
D. Estimated Other Financing Sources.
85. The estimated revenues control account of a government is credited when
A. The budgetary accounts are closed: Yes; Revenues are recorded: No
B. The budgetary accounts are closed: No; Revenues are recorded: No
C. The budgetary accounts are closed: No; Revenues are recorded: Yes
D. The budgetary accounts are closed: Yes; Revenues are recorded: Yes
86. When is it appropriate to use a fund other than the General Fund?
A. When generally accepted accounting principles (GAAP) require the use of some other fund.
B. When sound financial administration supports the use of some other fund.
C. When the use of some other fund is legally required.
D. All of the above.
87. The Expenditures control account of a government is debited when
A. The budget is recorded.
B. Supplies previously encumbered are received.
C. Supplies are ordered.
D. The invoice is paid.
88. Which of the following accounts of a government is credited when a purchase order is approved?
A. Reserve for Encumbrances.
B. Encumbrances.

C. Vouchers Payable.
D. Appropriations.
89. Which of the following best describes the purpose behind the other financial sources/uses category?
A. The category is used to distinguish interfund activity from transactions and events involving parties
outside the financial reporting entity.
B. The category is used to distinguish program revenues from general revenues.
C. The category is used to isolate certain nonroutine inflows and outflows that might otherwise distort
revenue and expenditure trend analysis.
D. Other financial sources are equivalent to gains and other financing uses are equivalent to losses.

11


90. Under which basis of accounting for a government should revenues be recognized in the accounting
period in which they are measurable and available?
A. Accrual basis: No; Modified accrual basis: No
B. Accrual basis: Yes; Modified accrual basis: No
C. Accrual basis: Yes; Modified accrual basis: Yes
D. Accrual basis: No; Modified accrual basis: Yes
91. The expenditure classification "Public Safety" is an example of which of the following types of
classifications?
A. Activity.
B. Object.
C. Character.
D. Function.
92. When supplies ordered for use in an activity accounted for in the General Fund of a government are
received at an actual price that is more than the estimated price on the purchase order, the Encumbrance
account is
A. Debited for the estimated price on the purchase order.
B. Credited for the estimated price on the purchase order.

C. Debited for the actual price for the supplies received.
D. Credited for the actual price for the supplies received.
93. A statement of revenues, expenditures, and changes in fund balances--budget and actual is
A. Required by GAAP for the General Fund, special revenue funds, and all other governmental fund
types for which an annual budget has been adopted.
B. Required by GAAP for internal management reports only; not permitted for external financial
reporting.
C. Required by GAAP for all governmental fund types.
D. Optional under GASBS 34, as long as a budgetary comparison schedule is presented.
94. The account "Interfund Transfers In" would be classified in a General Fund statement of revenues,
expenditures, and changes in fund balance as a (an)
A. Revenue.
B. Other financing use.
C. Other financing source.
D. Current liability.
95. The expenditure classification "Capital Outlays" is an example of which of the following types of
classification?
A. Function.
B. Character.
C. Object.
D. Both B and C are correct.
96. When the budget of a government is adopted and Estimated Revenues exceed Appropriations, the excess
is
A. Credited to Fund Balance.
B. Debited to Fund Balance.
C. Debited to Reserve for Encumbrances.
D. Credited to Reserve for Encumbrances.

12

97. Which of the following steps in the acquisition of goods and services by an activity accounted for by the
General Fund occurs first?
A. Disbursement.
B. Appropriation.
C. Encumbrance.
D. Expenditure.
98. When equipment that is to be used by an activity accounted for by the General Fund of a government is
received, it should be recorded in the General Fund as a (an)
A. Capital Asset.
B. Appropriation.
C. Encumbrances.
D. Expenditure.
The County Commission of Brook County adopted its General Fund budget for the year ending June 30,
comprising estimated revenues of $3,200,000 and appropriations of $2,900,000. Brook County utilizes
the budgetary accounts required by GASB standards.
99. The journal entry to record budgeted revenues will include
A. A debit to Revenues Receivable, $3,200,000.
B. A credit to Estimated Revenues, $3,200,000.
C. A debit to Estimated Revenues, $3,200,000.
D. None of the above; only a memorandum entry is necessary.
100.The journal entry to record budgeted appropriations will include
A. A credit to Appropriations, $2,900,000.
B. A credit to Encumbrances, $2,900,000.
C. A debit to Estimated Expenditures, $2,900,000.
D. None of the above; only a memorandum entry is necessary.
101.The budgeted excess of estimated revenues over appropriations will be recorded as
A. A credit to Surplus Revenues, $300,000.
B. A debit to Estimated Excess Revenues, $300,000.
C. A credit to Fund Balance, $300,000.

D. A memorandum entry only.
102.Expenditures for supplies ordered by a special revenue fund were inadvertently recorded in the accounts
of the General Fund in the amount of $100. Upon reimbursement of the $100, later the same month, the
journal entry for the General Fund would include
A. A credit to Encumbrances.
B. A credit to Expenditures.
C. A credit to Interfund Transfers In.
D. A credit to Fund Balance.
103.What adjustments are needed before data from the governmental fund financial statements can be
incorporated into the government-wide financial statements?
A. Conversion from the current financial resources measurement focus to the economic resources
measurement focus.
B. Conversion from the modified accrual basis of accounting to the accrual basis of accounting.
C. Aggregation of funds into activities.
D. All of the above.

13


104.Which of the following statements is false about expenses that are directly related to a government
function or program?
A. They are reported in the government-wide statement of activities at the government-wide level.
B. They do not include interest on general long-term liabilities.
C. They are reported in the statement of activities at the government-wide level to the right of program
revenue in order to arrive at a net cost of the function or program.
D. They include depreciation expense on capital assets that are clearly identified with a function or
program.
105.Which of the following are reported in the functions/programs section of the statement of activities at the
government-wide level where they reduce the net expense of each function or program to produce a net
revenue?

A. General revenues.
B. Program revenues.
C. Indirect revenues.
D. None of the above.
106.Extraordinary items and special items are reported
A. With normal recurring general revenues.
B. As separate line items in the Function/Programs section of the statement of activities.
C. As separate line items below General Revenue in the statement of activities.
D. Before General Revenues.
107.Which of the following assets could appear in the governmental fund balance sheet?
A. Taxes receivable.
B. Capital assets.
C. Deferred charge for issuance of bonds costs.
D. Infrastructure assets.
108.Program revenues
A. Reduce the net cost of the program or function.
B. May originate from parties outside the government's constituency.
C. May originate directly from the program or functional category itself.
D. All of the above.
109.When the budget for the General Fund is recorded, the required journal entry will include
A. A credit to Estimated Revenues.
B. A debit to Encumbrances.
C. A credit to Appropriations.
D. Both A and C.
110.The Reserve for Encumbrances account is properly termed a
A. Long-term liability.
B. Budgetary account.
C. Current liability if paid within a year; otherwise a long-term debt.
D. Reservation of fund equity.

14


111.The expenditure classification "Current Expenditures" is an example of which of the following types of
classifications?
A. Activity.
B. Object.
C. Function.
D. Character.
112.Comparisons of budgeted versus actual revenues and expenditures are
A. Required by GAAP for the General Fund and major special revenue funds for which an annual
budget has been legally adopted.
B. Required by GAAP for all governmental fund types.
C. Required by generally accepted accounting principles (GAAP) for internal management reports only;
not permitted for external financial reporting.
D. Optional under GASB standards for all funds.
113.Which of the following statements is true regarding the required disclosure of budgetary information?
A. All budgetary disclosures should be presented in the notes to the financial statements.
B. There is one specific format for presenting the budgetary comparison statement.
C. The budgetary reconciliation must focus on the operating statement, but not the statement of position.
D. Budgetary comparisons are required supplementary information (RSI).
114.The encumbrances control account of a city is decreased when
A. Goods are ordered: No; Goods are received: No
B. Goods are ordered: Yes; Goods are received: No
C. Goods are ordered: Yes; Goods are received: Yes
D. Goods are ordered: No; Goods are received: Yes
115.Which of the following fund types uses the current financial resources measurement focus and modified
accrual basis of accounting?
A. Enterprise fund.
B. Special revenue fund.

C. Investment trust fund.
D. Pension trust fund.
116.Encumbrances outstanding at year-end in a city's General Fund should be reported as a
A. Fund balance designation in the General Fund.
B. Liability in the General Fund.
C. Reserve of fund balance in the General Fund.
D. Liability in the governmental activities column on the government-wide statement of net assets.
117.Which of the following will decrease the fund balance of a government at the end of the fiscal year?
A. Appropriations are more than expenditures and reserve for encumbrances.
B. Appropriations are more than expenditures and encumbrances.
C. Appropriations are less than estimated revenues.
D. Appropriations are less than expenditures and encumbrances.
118.Which of the following fund types is most likely to have a legally adopted annual budget?
A. Permanent fund.
B. General fund.
C. Pension trust fund.
D. Capital projects fund.

15


119.A liability is recorded in governmental funds when the:
A. Goods or services are ordered.
B. Goods or services are received.
C. Vouchers are approved for payment.
D. Invoices are paid.
120.Which of the following terms refers to an actual cost rather than an estimate?
A. Budget.
B. Encumbrance.
C. Expenditure.

D. Appropriation.
121.For what funds do budgetary comparisons need to be presented in connection with the basic financial
statements?
A. General Fund.
B. General Fund and major funds.
C. All governmental funds with legally adopted annual budgets.
D. General Fund and major special revenue funds for which a budget is legally adopted.
122.When computers are ordered by the mayor's office, the purchase order should be recorded in the General
Fund as a debit to:
A. Encumbrance.
B. Equipment.
C. Expenditures.
D. Appropriations.
123.The appropriations account of a governmental fund is credited when
A. The budgetary accounts are closed.
B. The budget is recorded.
C. Supplies are purchased.
D. Expenditures are recorded.
124.The Expenditures control account of a government is credited when:
A. Supplies are ordered.
B. Supplies previously encumbered are received.
C. The budget is recorded.
D. Temporary accounts are closed out at the end of the year.
125.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. A reconciliation of required budgetary basis to GAAP basis should be included.
C. Column headings in the budgetary comparison schedule should indicate if the government uses a

non-GAAP budgetary basis.
D. All of the above statements are true.

16


Ch1-3 Key
1.

General purpose governments provide a wide range of services to their residents, such as public
safety, road maintenance, and health and welfare.
TRUE
Content: Concept
Level: Easy
Wilson - Chapter 01 #1

2.

Examples of special purpose governments include public schools, libraries, and water supply plants
that receive tax revenue to finance the services they provide.
TRUE
Content: Concept
Level: Medium
Wilson - Chapter 01 #2

3.

The Governmental Accounting Standards Board (GASB) is the body authorized to establish
accounting 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.
Content: Concept
Level: Easy
Wilson - Chapter 01 #3

4.

A characteristic common to governmental and not-for-profit organizations is the absence of defined
ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of
a 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 from
resource providers who do not expect to receive either repayment or economic benefits proportionate
to the resources provided and operating purposes that are other than to provide goods or services at a
profit and absence of defined ownership interests.
Content: Concept
Level: Easy
Wilson - Chapter 01 #4

1


5.

The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles and
standards 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.
Content: Concept

Level: Easy
Wilson - Chapter 01 #5

6.

Interperiod equity refers to the concept that current-year revenues are sufficient to pay for services
provided that year, so that future taxpayers will not be required to assume the burden for services
previously provided.
TRUE
Interperiod equity is a significant part of accountability of the government to its taxpayers, both
current and future.
Content: Concept
Level: Easy
Wilson - Chapter 01 #6

7.

The FASB, GASB, and FASAB all base their standards on both internal and external financial
reporting.
FALSE
While it is true that the FASAB sets standards for both internal and external users of financial
information, the FASB and GASB base their standards only on external financial reporting.
Content: Concept
Level: Medium
Wilson - Chapter 01 #7

8.

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

TRUE
In addition to these two statements, there are two required basic financial statements for
governmental funds, three for proprietary funds, and two for fiduciary funds, as illustrated and
described in this chapter.
Content: Concept
Level: Medium
Wilson - Chapter 01 #8

2


9.

The government-wide financial statements are intended to report on fiscal accountability.
FALSE
The fund financial statements for governmental funds are focused on fiscal accountability, the
remaining fund financial statements and the government-wide financial statements are intended to
help users assess operational accountability.
Content: Concept
Level: Medium
Wilson - Chapter 01 #9

10.

The minimum requirements for general purpose external financial reporting are (1) management's
discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the
financial statements, and (3) required supplementary information (RSI, other than the MD&A).
TRUE
Although the three items listed are the minimum requirements, most governments, as a matter of
public record, prepare a comprehensive annual report (CAFR). The CAFR provides, in addition to

the minimum requirements, other supplementary financial information about individual funds and
nonmajor funds, as well as statistical information relating to the entity's economic condition.
Content: Concept
Level: Medium
Wilson - Chapter 01 #10

11.

The Governmental Accounting Standards Board has the responsibility for setting accounting and
financial reporting standards for
A. State and local government entities and governmentally-related units and agencies, such as
utilities, authorities, hospitals, and colleges and universities.
B. Governments; such as federal agencies, states, cities, counties, villages, and townships.
C. Not-for-profit organizations.
D. All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #11

12.

The Financial Accounting Standards Board has the responsibility for setting accounting and financial
reporting standards for
A.
B.
C.
D.

All federal and state organizations.
All not-for-profit organizations that are nongovernmental and business entities.

All not-for-profit organizations.
Both B) and C) are correct.
Content: Concept
Level: Easy
Wilson - Chapter 01 #12

3


13.

The body that has been established to recommend accounting and financial reporting standards for
the federal government is the
A.
B.
C.
D.

Financial Accounting Standards Board (FASB).
Governmental Accounting Standards Board (GASB).
Cost Accounting Standards Board (CASB).
Federal Accounting Standards Advisory Board (FASAB).
Content: Concept
Level: Easy
Wilson - Chapter 01 #13

14.

The GASB has identified which of the following as the "cornerstone" of all financial reporting in
government?

A.
B.
C.
D.

Understandability.
Representational faithfulness.
Accountability.
Interperiod equity.
Content: Concept
Level: Easy
Wilson - Chapter 01 #14

15.

Which of the following distinguishes governments from nongovernmental not-for-profit
organizations?
A.
B.
C.
D.

Absence of profit motive.
The power to enact and enforce a tax levy.
Resource providers do not expect benefits proportional to the resources provided.
Absence of a defined ownership interest that can be sold, transferred, or redeemed.
Content: Concept
Level: Medium
Wilson - Chapter 01 #15

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 adopted
budget.
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.
Content: Concept
Level: Medium
Wilson - Chapter 01 #16

17.

The minimum requirements for general purpose external financial reporting include:
A.
B.
C.
D.

Management's discussion and analysis (MD&A).
Government-wide and fund basic financial statements, including the notes thereto.
Required supplementary information (other than the MD&A).
All of the above.
Content: Concept
Level: Easy
Wilson - Chapter 01 #17

4

18.

The three sections recommended by GASB for inclusion in the Comprehensive Annual Financial
Report (CAFR) are:
A.
B.
C.
D.

Introductory, financial, and statistical.
Letter of transmittal, MD&A, and financial.
Introductory, MD&A, and financial.
Letter of transmittal, financial, and supplementary.
Content: Concept
Level: Easy
Wilson - Chapter 01 #18

19.

Which of the following would be included in a properly prepared comprehensive annual financial
report (CAFR) but not in the minimum requirements for general purpose financial reporting specified
by GASBS 34?
A.
B.
C.
D.

Management Discussion and Analysis (MD&A).

Statistical information.
Notes to the financial statements.
Fund financial statements.
Content: Concept
Level: Easy
Wilson - Chapter 01 #19

20.

Combining financial statements of a governmental entity should be included in
A.
B.
C.
D.

A comprehensive annual financial report (CAFR).
The basic financial statements.
The notes to the financial statements.
Any of the above is acceptable under GAAP.
Content: Concept
Level: Medium
Wilson - Chapter 01 #20

21.

Which of the following would not be included in the introductory section of a comprehensive annual
financial report?
A.
B.
C.

D.

Title and contents page.
Letter of transmittal.
Management discussion and analysis.
Reference to other sections of the CAFR so readers desiring detailed information can find it
conveniently.
Content: Concept
Level: Easy
Wilson - Chapter 01 #21

22.

Which of the following is information that should be included in the financial section of a
comprehensive annual financial report?
A.
B.
C.
D.

The auditor's report.
The basic financial statements.
Notes to the financial statements.
All of these should be included.
Content: Concept
Level: Easy
Wilson - Chapter 01 #22

5

23.

The section of the comprehensive annual financial report that presents tables and charts showing
social and economic data in addition to financial trends and the fiscal capacity of the government is
the:
A.
B.
C.
D.

Introductory section.
Statistical section.
Management discussion and analysis section.
Financial section.
Content: Concept
Level: Easy
Wilson - Chapter 01 #23

24.

On what should the government-wide financial statements report?
A.
B.
C.
D.

Net assets and results of financial operations of the government as a whole.
Operational accountability.
The cost of government services.

All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #24

25.

The fund financial statements for governmental funds should include a
A.
B.
C.
D.

Balance sheet for governmental funds.
Statement of revenues, expenses, and changes in fund net assets.
Statement of cash flows.
All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #25

26.

On what should the fund financial statements report?
A.
B.
C.
D.

Net assets and results of financial operations of the government as a whole.

Fiscal accountability.
Cost of government services.
All of the above.
Content: Concept
Level: Easy
Wilson - Chapter 01 #26

27.

Which of the following groups normally would not be considered a primary user of a state or local
government's general-purpose external financial statements?
A.
B.
C.
D.

Citizens.
Managers.
Investors and creditors.
None of the above; that is, all these groups are considered primary users.
Content: Concept
Level: Easy
Wilson - Chapter 01 #27

6


28.

Which of the following reconciliations is required in the basic financial statements of a state or local

government?
A. Total fund balances on the balance sheet--governmental funds to total governmental activities net
assets on the government-wide statement of net assets.
B. Total net assets on the statement of net assets--proprietary funds to total business-type activities
net assets on the government-wide statement of net assets.
C. Total net assets on the statement of fiduciary net assets to total fiduciary activities net assets on
the government-wide statement of net assets.
D. All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #28

29.

Members of the Governmental Accounting Standards Board are appointed by the:
A.
B.
C.
D.

Financial Accounting Standards Board.
Governmental Accounting Standards Board.
American Institute of Certified Public Accountants.
Financial Accounting Foundation.
Content: Concept
Level: Easy
Wilson - Chapter 01 #29

30.

Which of the following organizations designated the FASAB as the authoritative standard setting
body for the federal government and its agencies?
A.
B.
C.
D.

Financial Accounting Foundation.
American Institute of Certified Public Accountants.
Government Finance Officers Association.
Securities and Exchange Commission.
Content: Concept
Level: Medium
Wilson - Chapter 01 #30

31.

Which of the following is always subject to GASB jurisdiction?
A.
B.
C.
D.

A hospital.
A college or university.
A public school district.
All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #31

32.

Recognizing revenues when measurable and available for paying current obligations and
expenditures when incurred describes which basis of accounting?
A.
B.
C.
D.

Accrual.
Modified accrual.
Modified cash.
Budgetary.
Content: Concept
Level: Medium
Wilson - Chapter 01 #32

7


33.

Enterprise funds are primarily distinguished from internal service funds by the:
A.
B.
C.
D.

Type of customers they serve.

Different basis of accounting they use.
Different kinds of financial statements used to present their financial information.
All of the above.
Content: Concept
Level: Medium
Wilson - Chapter 01 #33

34.

Governmental funds are identical to governmental activities, proprietary funds are identical to
business-type activities, and fiduciary funds are identical to fiduciary activities of a government.
FALSE
There is a similarity among these pairs of terms; however, they are not a one-to-one match. For
example, activities and funds may use different measurement focuses and bases of accounting; and
the internal service fund is a proprietary fund, but most often will be reported along with
governmental activities, not business-type activities.
Content: Concept
Level: Easy
Wilson - Chapter 02 #1

35.

Major funds are those that are relatively large or significant with respect to other funds.
TRUE
Footnote 7 in the chapter describes the criteria for a fund to be classified as major. The fund must
meet two tests: (1) total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental or enterprise fund are at least 10 percent of the corresponding total of assets, liabilities,
revenues, or expenditures/expenses for all funds of that category or type (total governmental or total
enterprise funds), and (2) total assets, liabilities, revenues, or expenditures/expenses of the individual
governmental fund or enterprise fund are at least 5 percent of the corresponding total for all

governmental and enterprise funds combined. Funds may also be reported as major if government
managers feel they are particular importance to financial statement users.
Content: Concept
Level: Medium
Wilson - Chapter 02 #2

36.

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.
FALSE
The definition provided describes current financial resources, not economic resources. Governmental
type funds report on the inflows and outflows of current financial resources; proprietary and fiduciary
funds report on the inflows and outflows of economic resources.
Content: Concept
Level: Easy
Wilson - Chapter 02 #3

8


37.

A fund is an accounting and a fiscal entity.
TRUE
Each fund has its own chart of accounts, general journal, general ledger from which trial balances and
financial statements are prepared so it is considered an accounting entity. Funds are also fiscal
entities as they report on operations for a period and close out temporary accounts (e.g., revenues,
expenditures, and transfers), at the end of each fiscal period.
Content: Concept

Level: Easy
Wilson - Chapter 02 #4

38.

The types of funds that may be used in governmental accounting are classified into three categories
of activities performed by governments: governmental, business-type, and fiduciary.
TRUE
Illustration 2-1 shows the relationship between activities and fund types.
Content: Concept
Level: Easy
Wilson - Chapter 02 #5

39.

All short-term liabilities of the government should be accounted for in the General Fund.
FALSE
Other governmental funds, proprietary funds, and fiduciary funds are likely to record and report
short-term liabilities, such as accounts payable and accrued expenses.
Content: Concept
Level: Easy
Wilson - Chapter 02 #6

40.

Governments can demonstrate fiscal accountability by adopting an annual budget, using the
accounting system to provide for budgetary control, and presenting budgetary comparisons to actual
results in the appropriate financial statements.
TRUE
One of the 13 principles from the NCGA Statement No. 1 adopted by the GASB to promote

accountability by governments is No. 10 "Budgets, Budgetary Control, and Budgetary Comparisons."
Content: Concept
Level: Easy
Wilson - Chapter 02 #7

9