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Chapter 02

Principles of Accounting and Financial Reporting for State and

Local Governments

True / False Questions

1. Governmental activities are to e classi!ed as governmental or usiness"t#pe.

$rue False 2. Governmental funds are identical to governmental activities% proprietar# funds are

identical to usiness"t#pe activities% and !duciar# funds are identical to !duciar#

activities of a government.

$rue False

&. 'nl# those governmental and proprietar# funds that meet the GAS( si)e criteria forma*or funds are reported in separate columns of the governmental and proprietar#fund !nancial statements.

$rue False +. ,conomic resources are cash or items e-pected to e converted into cash during the

current period% or soon enough thereafter to pa# current period liailities.

$rue False . Governmental funds account for assets ut not the liailities.

$rue False

/. $he t#pes of funds that ma# e used in governmental accounting are classi!ed intothe three categories of governmental% proprietar#% and !duciar#.

$rue False

. $he governmental funds categor# includes the General Fund% special revenue funds%det service funds% capital pro*ects funds% and internal service funds.

$rue False

. Governments can% in part% demonstrate operational accountailit# # reportingproprietar# and !duciar# fund !nancial information% as ell as all government"ide!nancial information% using an economic resources measurement focus and theaccrual asis of accounting.

$rue False

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3. All capital assets ac4uired # or used # a fund should e reported in the fundalance sheet or statement of net position.

$rue False 10. (ecause udgetar# accounts are used # governments% government !nancial

statements can never e said to e in accord ith generall# accepted accountingprinciples.

$rue False

11. $he ma-imum sets of fund !nancial statements a government ould present arethree.

$rue False

12. 5hen revenues are legall# restricted # e-ternal resource providers or committed #enaling legislation for particular operating purposes% a private purpose trust fund iscreated.

$rue False 1&. A det service fund is used to account for !nancial resources segregated for the

purpose of ma6ing principal and interest pa#ments on general long"term det.

$rue False 1+. A deferred in7o of resources is de!ned as 8an ac4uisition of net assets # the

government that is applicale to a future reporting period.8

$rue False 1. ,-penditures are never recorded in governmental funds.

$rue False

1/. 9eferred out7o of resources is a t#pe of asset that is uni4ue to government.

$rue False 1. Revenues is an e-ample of hat the GAS( terms an in7o of resources.

$rue False

1. An e-penditure is an e-ample of hat the GAS( terms an out7o of resources.

$rue False 13. 9eferred in7o of resources and deferred out7o of resources ould e shon in

separate sections of a government:s statement of net position.

$rue False



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20. ;n accordance ith GAS( standards% a deferred in7o of resources is reported on the!nancial statements the same as an unearned revenue.

$rue False 21. $he GAS( concept statements indicate that an asset that is going to e converted to

cash should e reported at a remeasured amount at the !nancial statement date.

$rue False 22. Proprietar# funds primaril# provide services to the general pulic for a fee.

$rue False

2&. A permanent endoment is an e-ample of a nonspendale fund alance.

$rue False 2+. Assigned fund alances can e either positive or negative.

$rue False

2. $he General Fund is the onl# fund that can have a positive unassigned fund alance.

$rue False 2/. $he positive fund alance in a special revenue fund must at a minimum e reported

as assigned.

$rue False

2. <onma*or funds are not reported on the fund !nancial statements.

$rue False

Multiple Choice Questions

2. 5hich of the folloing is true regarding !nancial reporting for internal service funds=

A. ;nternal service funds are reported in the governmental fund !nancial statements.

(. ;nternal service funds are aggregated and reported as a ma*or fund in theproprietar# fund !nancial statements.

C. ;nternal service funds are generall# reported in the (usiness"t#pe Activities columnof the government"ide !nancial statements.

9. ;nternal service funds are generall# reported in the Governmental Activities columnof the government"ide !nancial statements.

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23. 5hich of the folloing is not a characteristic of a fund as de!ned # GAS( standards=

A. An accounting entit#.

(. A !scal entit#.

C. A reporting entit#.9. A self"alancing set of accounts.

&0. ;n accounting for state and local governments the modi!ed accrual asis is re4uiredfor

A. Proprietar# and !duciar# funds.

(. Governmental funds.

C. Governmental and !duciar# funds.

9. Governmental and internal service funds.

&1. >nder the modi!ed accrual asis of accounting% revenues should e recogni)ed hen

A. ,arned.

(. Collected in cash.

C. Authori)ed # the udget ordinance.

9. ?easurale and availale.

&2. $he accrual asis of accounting applicale to proprietar# fund t#pes re4uires thate-change revenues e recogni)ed hen

A. ,arned.




&&. 5hich of the folloing funds is a governmental fund"t#pe=

A. Private"purpose trust fund.

(. ;nternal service fund.

C. Permanent fund.

9. ,nterprise fund.

&+. Financial resources set aside to pa# principal and interest on general long"term detma# e accounted for in hich of the folloing fund t#pes=


(. 9et service fund.

C. Principal and interest trust fund.

9. ;nternal service fund.

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&. According to GAS( standards transfers should e recogni)ed

A. 5hen earned.

(. 5hen collected in cash.

C. 5hen authori)ed # the udget ordinance.

9. ;n the period the interfund receivale and pa#ale arise.

&/. Generall# accepted accounting principles applicale to state and local governmentsre4uire that

A. 'nl# governmental funds and proprietar# funds should e estalished.

(. 'nl# those funds re4uired # la% GAS( standards% and sound !nancialadministration should e estalished.

C. 'nl# those funds re4uired # la and sound !nancial administration should eestalished.

9. All categories of funds must e estalished.

&. 5hich of the folloing is a proprietar# fund=

A. Special revenue fund.

(. ;nvestment trust fund.

C. 9et service fund.

9. ;nternal service fund.

&. 5hich of the folloing is a !duciar# fund=

A. ;nvestment trust fund.

(. Special revenue fund.


9. ,nterprise fund.

&3. 5hich of the folloing funds ould e most appropriate hen accounting for anactivit# that provides goods or services to the pulic for a fee that is intended toma6e the activit# self"supporting=


(. ,nterprise fund.

C. ;nternal service fund.

9. Special revenue fund.

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+0. 5hich of the folloing funds should e used if resources provided # a federal grantmust e segregated and used for counseling of #outhful o@enders=


(. ,nterprise fund.

C. ;nternal service fund.9. Special revenue fund.

+1. 5hich of the folloing funds ould e used to account for an activit# that providescentrali)ed purchasing and sales of goods or services to other departments oragencies of the government on a cost"reimursement asis=

A. ,nterprise fund.

(. Fiduciar# fund.


9. Permanent fund.

+2. 5hich of the folloing funds ould record depreciation of capital assets=


(. Permanent fund.


9. Agenc# fund.

+&. Capital assets used # departments accounted for # the General Fund of agovernmental unit should e accounted for in

A. $he General Fund.

(. $he governmental activities *ournal.

C. $he usiness"t#pe activities *ournal.

9. $he general capital assets fund.

++. Capital assets used # an enterprise fund should e accounted for in the

A. ,nterprise fund and depreciation on the capital assets should e recorded.

(. (usiness"t#pe activities *ournal ut no depreciation on the capital assets should erecorded.

C. Governmental activities *ournal and depreciation on the capital assets should erecorded.

9. ,nterprise fund ut no depreciation on the capital assets should e recorded.



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+. 5hich of the folloing funds are proprietar# funds=

A. ,nterprise funds% investment trust funds% pension trust funds% and the GeneralFund.

(. ,nterprise funds and internal service funds.

C. ;nternal service funds% special revenue funds% and enterprise funds.9. Proprietar# funds are not used in governmental accounting.

+/. 5hich of the folloing funds are governmental funds=

A. General Fund% special revenue funds% capital pro*ects funds% det service funds%and private"purpose trust funds.

(. General Fund% special revenue funds% private"purpose trust funds.

C. General Fund% special revenue funds% det service funds% capital pro*ects funds%and permanent funds.

9. General Fund% special revenue funds% capital pro*ects funds% det service funds%and internal service funds.

+. $he activities of a ater utilit# department% hich o@ers its services to the generalpulic on a user charge asis% should e accounted for in

A. An enterprise fund.

(. A special revenue fund.

C. $he General Fund.

9. An internal service fund.

+. $he measurement focus and asis of accounting that are most unli6e those used #usiness entities are those used #

A. Governmental funds.

(. Fiduciar# funds.

C. Proprietar# funds.

9. Contriution funds.

+3. 5hich of the folloing governmental funds must e reported as a ma*or fund=


(. An# fund ith total assets% liailities% revenues% or e-penditures that are 10 ormore of the General Fund and or more of total General Fund and (usiness"t#pe

Activities.C. $he government ma# opt to include or e-clude an# fund it choses as a ma*or fund.

9. 'nl# the General Fund and special revenue funds that meet the 10 and si)ecriteria.

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0. $he asis of accounting that should e used in preparing fund !nancial statements isB

Governmental funds Proprietar# funds Fiduciar# funds

A ?odi!ed accrual Accrual ?odi!ed accrual

( ?odi!ed accrual ?odi!ed accrual ?odi!ed accrual

C ?odi!ed accrual Accrual Accrual9 Accrual Accrual Accrual

A. Choice A

(. Choice (

C. Choice C

9. Choice 9

1. A ma*or governmental fund is one that has one or more elements De.g.% assets%liailities% revenues% or e-penditures that is at leastB

A. Five percent of the corresponding elementDs of total governmental funds and 10percent of the corresponding elementDs of total governmental and enterprisefunds comined.

(. $en percent of the corresponding elementDs of total governmental funds and 10percent of the corresponding elementDs of total governmental and enterprisefunds comined.

C. Five percent of the corresponding elementDs of total governmental funds and !vepercent of the corresponding elementDs of total governmental and enterprisefunds comined.

9. $en percent of the corresponding elementDs of total governmental funds and percent of the corresponding elementDs of total governmental and enterprise

funds comined.2. A cit# received resources that the state indicates can onl# e used for pulic or6s

pro*ects% such as road construction. Assuming the resources have not een e-pended# #ear end% ho ould the resources the cit# received e shon in the cit#:s fundalances=

A. Spendale"9esignated Fund (alance.

(. Spendale"Committed Fund (alance.

C. Spendale"Restricted Fund (alance.

9. Spendale"Assigned Fund (alance.

&. 5hich of the folloing ould e reported as a nonspendale fund alance=

A. ;nventor#.

(. Restricted assets.

C. Assets hose use is limited.

9. Capital assets.

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+. >nder GAS( standards hich of the folloing funds can report a positive amount forunassigned fund alance=

A. Capital pro*ects fund.


C. General Fund.9. All of the aove.

. >se the folloing information to determine hether the 9evelopment SpecialRevenue and the 9et Service Funds should e reported as ma*or funds ased onasset amounts provided. 9evelopment Special Revenue Fund Assets E+0%000 9etService Fund Assets E10%000 $otal Governmental Fund Assets E%00%000 $otalGovernmental Fund and ,nterprise Fund Assets E%0%000

A. $he 9evelopment Special Revenue Fund should e reported as ma*or.

(. $he 9et Service Fund should e reported as ma*or.

C. (oth the 9evelopment Special Revenue Fund and the 9et Service Fund should e

reported as ma*or.9. <either the 9evelopment Special Revenue Fund nor the 9et Service Fund should

e reported as ma*or.

/. 5hich of the folloing is not one of the seven elements de!ned # the GAS( conceptstatements=

A. 9eferred in7o of resources.

(. ,-penses.

C. Assets.

9. <et position.

. $he GAS( concept statements indicate that in certain instances a remeasured valuefor an asset or liailit# should e reported on the !nancial statements. 5hich of thefolloing is not one of the methods recommended # the GAS( for remeasuredamounts=

A. istorical cost.

(. Loer of cost or mar6et.

C. Fair value.

9. Replacement cost.

Short Answer Questions

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. $he folloing are categories of funds descried in Chapter 2B A. Governmental funds

(. Proprietar# funds C. Fiduciar# funds

For each of the folloing descriptive phrases% indicate the t#pe of fund from the listaove that est matches # placing the appropriate letter in the lan6 space ne-t tothe phrase.

1. ;ncludes permanent funds held in trust to e used for pulic purpose

2.Sometimes referred to as income determination% usiness"li6e% or commercial"t#pe funds

&.An# fund held # a government in an agent or trustee relationship for an e-ternalpart#

+.>sed hen the government collect ta-es or amounts e4ueathed from privateciti)ens

. ,nterprise and internal service funds



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3. $he folloing are fund alance classi!cations descried in Chapter 2B A. <onspendale

(. SpendaleHRestricted C. SpendaleHCommitted 9. SpendaleHAssigned

,. SpendaleH>nassigned For each of the folloing scenarios% indicate ho the# ould e classi!ed for fund

alance reporting purposes using the classi!cation list aove. Place the appropriateletter in the lan6 space ne-t to each scenario.

1.(ond proceeds of E1%000%000 that must e used for construction of a !resustation remain unspent at the end of the !scal #ear.

2. Prepaid rent of E/%000 remains at the end of the !scal #ear.

&. $he cit# council adopted a plan to set aside 2 of revenues over the ne-t three#ears to help uild cash reserves. At the end of the !scal #ear 2 of the revenuesere set aside.

+.

$he state transportation department provided E1%000%000 in state funds to e

used for street idening. At the end of the !scal #ear E0%000 remainedunspent.

. $he count# received a E&%000%000 endoment during the #ear.



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/0. Folloing are some of the count#Is governmental funds. $he count# has as6ed #ou todetermine is an# of the funds listed should e classi!ed as ma*or funds ased on theGAS( si)e criteria. Clearl# indicate hich fundDs #ou elieve should e classi!ed asma*or and provide support for #our choiceDs.

General

Fund

Special

RevenueFund

Debt

ServiceFund

Total of all

Governmental Funds

Total of all

Governmental!nterprise Funds

Assets 12%000%000 1%000%000 00%000 1%000%000 21%000%000

Liailities &%000%000 20%000 &0%000 +%0%000 %30%000

Revenues 10%000%000 /00%000 1%+0%000 1&%0%000 1%12&%000

,-pendituresJ,-penses

3%3%000 2%000 1%&00%000 1&%+/0%000 1/%//%000

!ssa" Questions

/1. List the asic !nancial statements re4uired # GAS( standards and rie7# e-plaintheir purposes.



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/2. 8$he primar# purpose of an accounting s#stem for a state or a local government is toma6e it possile for !nancial statements to demonstrate compliance ith !nance"related legal and contractual provisions.8 ,-plain h# #ou elieve this statement toe correct or incorrect.

/&. ,-plain the di@erence eteen measurement focus and asis of accounting. Also%e-plain the di@erence eteen the economic resources measurement focus and thecurrent !nancial resources measurement focus as ell as the di@erence eteen theaccrual and modi!ed accrual ases of accounting. 5hich funds and government"ide

activities use each focus and each asis=

/+. List the seven fund !nancial statements that are re4uired as part of the asic!nancial statements # GAS( standards. 5hat measurement focus and asis ofaccounting should e used in preparing each of these statements=

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/. ,-plain the nature of the three ma*or activit# categories of a state or localgovernmentB governmental activities% usiness"t#pe activities% and !duciar#activities. Provide e-amples of each.

//. 9escrie the comprehensive annual !nancial report DCAFR. 5hat are the sections ofthe report and hich components of the organi)ation should it include= ;s a CAFRre4uired=

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Chapter 02 Principles of Accounting and Financial Reporting forState and Local Governments Anser Ke#

True / False Questions

1. Governmental activities are to e classi!ed as governmental or usiness"t#pe.

TR#!

AACSB: Knowledge application AICPA: FN Reporting

Accessibility: Keyboard NavigationBlooms: Remember

Dic!lty: " #asy $earning %b&ective: '()'" #*plain t+e nat!re o, t+e t+ree ma&or activity categories o, a state or local

government: governmental activities- b!siness)type activities- and .d!ciary activities/

0opic: Financial reporting model

2. Governmental funds are identical to governmental activities% proprietar# funds areidentical to usiness"t#pe activities% and !duciar# funds are identical to !duciar#activities of a government.

FA$S!


Accessibility: Keyboard NavigationBlooms: 1nderstandDic!lty: ( 2edi!m

$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integratedacco!nting and .nancial reporting model- incl!ding: #lements and meas!rement approac+es ,or t+e elements

o, t+e .nancial statements7 3overnment)wide .nancial statements7 F!nd .nancial statements7 De.nition o, ,!nd and principles o, ,!nd acco!nting7 0ypes o, ,!nds in eac+ ,!nd category and c+aracteristics o, eac+ ,!ndtype/


&. 'nl# those governmental and proprietar# funds that meet the GAS( si)e criteriafor ma*or funds are reported in separate columns of the governmental andproprietar# fund !nancial statements.

FA$S!


Accessibility: Keyboard NavigationBlooms: 1nderstand

Dic!lty: ( 2edi!m$earning %b&ective: '()'8 Disc!ss t+e nat!re o, ma&or ,!nd reporting and t+e criteria !sed to determine

w+et+er a ,!nd s+o!ld be reported as a ma&or ,!nd/0opic: Reporting ma&or ,!nds

+. ,conomic resources are cash or items e-pected to e converted into cash duringthe current period% or soon enough thereafter to pa# current period liailities.

FA$S!

AACSB: Knowledge application

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AICPA: FN Reporting Accessibility: Keyboard Navigation

Blooms: Remember Dic!lty: " #asy


o, t+e .nancial statements7 3overnment)wide .nancial statements7 F!nd .nancial statements7 De.nition o, ,!nd and principles o, ,!nd acco!nting7 0ypes o, ,!nds in eac+ ,!nd category and c+aracteristics o, eac+ ,!nd

type/0opic: Financial reporting model

. Governmental funds account for assets ut not the liailities.

FA$S!



Dic!lty: " #asy $earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated

acco!nting and .nancial reporting model- incl!ding: #lements and meas!rement approac+es ,or t+e elementso, t+e .nancial statements7 3overnment)wide .nancial statements7 F!nd .nancial statements7 De.nition o,

,!nd and principles o, ,!nd acco!nting7 0ypes o, ,!nds in eac+ ,!nd category and c+aracteristics o, eac+ ,!ndtype/


/. $he t#pes of funds that ma# e used in governmental accounting are classi!edinto the three categories of governmental% proprietar#% and !duciar#.

TR#!







. $he governmental funds categor# includes the General Fund% special revenuefunds% det service funds% capital pro*ects funds% and internal service funds.

FA$S!



Dic!lty: " #asy






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. Governments can% in part% demonstrate operational accountailit# # reportingproprietar# and !duciar# fund !nancial information% as ell as all government"ide!nancial information% using an economic resources measurement focus and theaccrual asis of accounting.

TR#!






3. All capital assets ac4uired # or used # a fund should e reported in the fundalance sheet or statement of net position.

FA$S!






10. (ecause udgetar# accounts are used # governments% government !nancial

statements can never e said to e in accord ith generall# accepted accountingprinciples.

FA$S!






11. $he ma-imum sets of fund !nancial statements a government ould present arethree.

TR#!



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Dic!lty: 8 9ard$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated




12. 5hen revenues are legall# restricted # e-ternal resource providers or committed# enaling legislation for particular operating purposes% a private purpose trustfund is created.

FA$S!






1&. A det service fund is used to account for !nancial resources segregated for thepurpose of ma6ing principal and interest pa#ments on general long"term det.

TR#!




acco!nting and .nancial reporting model- incl!ding: #lements and meas!rement approac+es ,or t+e elements



1+. A deferred in7o of resources is de!ned as 8an ac4uisition of net assets # thegovernment that is applicale to a future reporting period.8

TR#!



Dic!lty: " #asy




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1. ,-penditures are never recorded in governmental funds.

FA$S!


Accessibility: Keyboard Navigation





1/. 9eferred out7o of resources is a t#pe of asset that is uni4ue to government.

FA$S!







1. Revenues is an e-ample of hat the GAS( terms an in7o of resources.

TR#!







1. An e-penditure is an e-ample of hat the GAS( terms an out7o of resources.

TR#!







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13. 9eferred in7o of resources and deferred out7o of resources ould e shon inseparate sections of a government:s statement of net position.

TR#!







20. ;n accordance ith GAS( standards% a deferred in7o of resources is reported onthe !nancial statements the same as an unearned revenue.

FA$S!







21. $he GAS( concept statements indicate that an asset that is going to e convertedto cash should e reported at a remeasured amount at the !nancial statementdate.

TR#!







22. Proprietar# funds primaril# provide services to the general pulic for a fee.

FA$S!







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2&. A permanent endoment is an e-ample of a nonspendale fund alance.

TR#!







2+. Assigned fund alances can e either positive or negative.

FA$S!







2. $he General Fund is the onl# fund that can have a positive unassigned fundalance.

TR#!






2/. $he positive fund alance in a special revenue fund must at a minimum ereported as assigned.

TR#!



$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated



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2. <onma*or funds are not reported on the fund !nancial statements.

FA$S!



Dic!lty: " #asy $earning %b&ective: '()'8 Disc!ss t+e nat!re o, ma&or ,!nd reporting and t+e criteria !sed to determine


Multiple Choice Questions

2. 5hich of the folloing is true regarding !nancial reporting for internal servicefunds=

A. ;nternal service funds are reported in the governmental fund !nancialstatements.

(. ;nternal service funds are aggregated and reported as a ma*or fund in theproprietar# fund !nancial statements.

C. ;nternal service funds are generall# reported in the (usiness"t#pe Activitiescolumn of the government"ide !nancial statements.

D% ;nternal service funds are generall# reported in the Governmental Activitiescolumn of the government"ide !nancial statements.




w+et+er a ,!nd s+o!ld be reported as a ma&or ,!nd/0opic: Internal service ,!nd

23. 5hich of the folloing is not a characteristic of a fund as de!ned # GAS(standards=

A. An accounting entit#.

(. A !scal entit#.

C% A reporting entit#.

9. A self"alancing set of accounts.





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0opic: De.nition o, a ,!nd

&0. ;n accounting for state and local governments the modi!ed accrual asis isre4uired for

A. Proprietar# and !duciar# funds.

&% Governmental funds.

C. Governmental and !duciar# funds.

9. Governmental and internal service funds.



Dic!lty: " #asy



type/0opic: 2odi.ed accr!al basis o, acco!nting

&1. >nder the modi!ed accrual asis of accounting% revenues should e recogni)edhen

A. ,arned.



D% ?easurale and availale.






0opic: 2odi.ed accr!al basis o, acco!nting

&2. $he accrual asis of accounting applicale to proprietar# fund t#pes re4uires that

e-change revenues e recogni)ed hen

A% ,arned.





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0opic: Foc!s and basis o, acco!nting ,or ,!nd .nancial statements

&&. 5hich of the folloing funds is a governmental fund"t#pe=


(. ;nternal service fund.

C% Permanent fund.

9. ,nterprise fund.







&+. Financial resources set aside to pa# principal and interest on general long"termdet ma# e accounted for in hich of the folloing fund t#pes=


&% 9et service fund.

C. Principal and interest trust fund.9. ;nternal service fund.







&. According to GAS( standards transfers should e recogni)ed

A. 5hen earned.

(. 5hen collected in cash.

C. 5hen authori)ed # the udget ordinance.

D% ;n the period the interfund receivale and pa#ale arise.


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type/


&/. Generall# accepted accounting principles applicale to state and localgovernments re4uire that

A. 'nl# governmental funds and proprietar# funds should e estalished.

&% 'nl# those funds re4uired # la% GAS( standards% and sound !nancialadministration should e estalished.

C. 'nl# those funds re4uired # la and sound !nancial administration should eestalished.

9. All categories of funds must e estalished.

AACSB: Knowledge application AICPA: FN Reporting Accessibility: Keyboard Navigation





&. 5hich of the folloing is a proprietar# fund=

A. Special revenue fund.(. ;nvestment trust fund.


D% ;nternal service fund.







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&. 5hich of the folloing is a !duciar# fund=

A% ;nvestment trust fund.



9. ,nterprise fund.






0opic: Reporting in an agency or tr!stee capacity

&3. 5hich of the folloing funds ould e most appropriate hen accounting for an

activit# that provides goods or services to the pulic for a fee that is intended toma6e the activit# self"supporting=


&% ,nterprise fund.


9. Special revenue fund.



$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integratedacco!nting and .nancial reporting model- incl!ding: #lements and meas!rement approac+es ,or t+e elementso, t+e .nancial statements7 3overnment)wide .nancial statements7 F!nd .nancial statements7 De.nition o,



+0. 5hich of the folloing funds should e used if resources provided # a federalgrant must e segregated and used for counseling of #outhful o@enders=


(. ,nterprise fund.


D% Special revenue fund.





type/



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+1. 5hich of the folloing funds ould e used to account for an activit# that providescentrali)ed purchasing and sales of goods or services to other departments oragencies of the government on a cost"reimursement asis=

A. ,nterprise fund.

(. Fiduciar# fund.

C% ;nternal service fund.

9. Permanent fund.





type/0opic: Internal service ,!nd

+2. 5hich of the folloing funds ould record depreciation of capital assets=


(. Permanent fund.

C% ;nternal service fund.

9. Agenc# fund.



Blooms: 1nderstandDic!lty: ( 2edi!m$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated



0opic: Internal service ,!nd

+&. Capital assets used # departments accounted for # the General Fund of agovernmental unit should e accounted for in


&% $he governmental activities *ournal.

C. $he usiness"t#pe activities *ournal.9. $he general capital assets fund.





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++. Capital assets used # an enterprise fund should e accounted for in the

A% ,nterprise fund and depreciation on the capital assets should e recorded.(. (usiness"t#pe activities *ournal ut no depreciation on the capital assets should

e recorded.

C. Governmental activities *ournal and depreciation on the capital assets shoulde recorded.

9. ,nterprise fund ut no depreciation on the capital assets should e recorded.







+. 5hich of the folloing funds are proprietar# funds=

A. ,nterprise funds% investment trust funds% pension trust funds% and the GeneralFund.

&% ,nterprise funds and internal service funds.

C. ;nternal service funds% special revenue funds% and enterprise funds.

9. Proprietar# funds are not used in governmental accounting.







+/. 5hich of the folloing funds are governmental funds=

A. General Fund% special revenue funds% capital pro*ects funds% det service funds%and private"purpose trust funds.

(. General Fund% special revenue funds% private"purpose trust funds.

C% General Fund% special revenue funds% det service funds% capital pro*ects funds%and permanent funds.

9. General Fund% special revenue funds% capital pro*ects funds% det service funds%and internal service funds.


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+. $he activities of a ater utilit# department% hich o@ers its services to the generalpulic on a user charge asis% should e accounted for in

A% An enterprise fund.

(. A special revenue fund.

C. $he General Fund.

9. An internal service fund.



Blooms: 1nderstandDic!lty: ( 2edi!m




+. $he measurement focus and asis of accounting that are most unli6e those used# usiness entities are those used #

A% Governmental funds.

(. Fiduciar# funds.C. Proprietar# funds.

9. Contriution funds.





type/0opic: Common elements between governmental and ,or)pro.t .nancials

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+3. 5hich of the folloing governmental funds must e reported as a ma*or fund=

A% $he General Fund.

(. An# fund ith total assets% liailities% revenues% or e-penditures that are 10 ormore of the General Fund and or more of total General Fund and (usiness"

t#pe Activities.C. $he government ma# opt to include or e-clude an# fund it choses as a ma*or

fund.

9. 'nl# the General Fund and special revenue funds that meet the 10 and si)e criteria.





0. $he asis of accounting that should e used in preparing fund !nancial statementsisB

Governmental funds Proprietar# funds Fiduciar# funds

A ?odi!ed accrual Accrual ?odi!ed accrual

( ?odi!ed accrual ?odi!ed accrual ?odi!ed accrual

C ?odi!ed accrual Accrual Accrual

9 Accrual Accrual Accrual

A. Choice A(. Choice (

C% Choice C

9. Choice 9

AACSB: Knowledge application AICPA: FN ReportingBlooms: Remember





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1. A ma*or governmental fund is one that has one or more elements De.g.% assets%liailities% revenues% or e-penditures that is at leastB

A. Five percent of the corresponding elementDs of total governmental funds and10 percent of the corresponding elementDs of total governmental and

enterprise funds comined.(. $en percent of the corresponding elementDs of total governmental funds and

10 percent of the corresponding elementDs of total governmental andenterprise funds comined.

C. Five percent of the corresponding elementDs of total governmental funds and!ve percent of the corresponding elementDs of total governmental andenterprise funds comined.

D% $en percent of the corresponding elementDs of total governmental funds and percent of the corresponding elementDs of total governmental and enterprisefunds comined.




$earning %b&ective: '()'8 Disc!ss t+e nat!re o, ma&or ,!nd reporting and t+e criteria !sed to determinew+et+er a ,!nd s+o!ld be reported as a ma&or ,!nd/

0opic: Reporting ma&or ,!nds

2. A cit# received resources that the state indicates can onl# e used for pulic or6spro*ects% such as road construction. Assuming the resources have not eene-pended # #ear end% ho ould the resources the cit# received e shon in thecit#:s fund alances=

A. Spendale"9esignated Fund (alance.

(. Spendale"Committed Fund (alance.

C% Spendale"Restricted Fund (alance.

9. Spendale"Assigned Fund (alance.





type/0opic: Restricted ,!nd balances

&. 5hich of the folloing ould e reported as a nonspendale fund alance=

A% ;nventor#.

(. Restricted assets.

C. Assets hose use is limited.

9. Capital assets.




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Blooms: 1nderstandDic!lty: ( 2edi!m




+. >nder GAS( standards hich of the folloing funds can report a positive amountfor unassigned fund alance=

A. Capital pro*ects fund.


C% General Fund.

9. All of the aove.






. >se the folloing information to determine hether the 9evelopment SpecialRevenue and the 9et Service Funds should e reported as ma*or funds ased onasset amounts provided. 9evelopment Special Revenue Fund Assets E+0%0009et Service Fund Assets E10%000 $otal Governmental Fund Assets E%00%000

$otal Governmental Fund and ,nterprise Fund Assets E%0%000

A. $he 9evelopment Special Revenue Fund should e reported as ma*or.

(. $he 9et Service Fund should e reported as ma*or.

C. (oth the 9evelopment Special Revenue Fund and the 9et Service Fund shoulde reported as ma*or.

D% <either the 9evelopment Special Revenue Fund nor the 9et Service Fundshould e reported as ma*or.

AACSB: Knowledge application AICPA: FN 2eas!rement

Accessibility: Keyboard NavigationBlooms: Apply

Dic!lty: 8 9ard$earning %b&ective: '()'8 Disc!ss t+e nat!re o, ma&or ,!nd reporting and t+e criteria !sed to determinew+et+er a ,!nd s+o!ld be reported as a ma&or ,!nd/




7/23/2019 TBChap002- 100%


/. 5hich of the folloing is not one of the seven elements de!ned # the GAS(concept statements=

A. 9eferred in7o of resources.

(. ,-penses.

C. Assets.D% <et position.







. $he GAS( concept statements indicate that in certain instances a remeasuredvalue for an asset or liailit# should e reported on the !nancial statements. 5hichof the folloing is not one of the methods recommended # the GAS( forremeasured amounts=

A. istorical cost.

&% Loer of cost or mar6et.

C. Fair value.

9. Replacement cost.







Short Answer Questions

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. $he folloing are categories of funds descried in Chapter 2B A. Governmental funds (. Proprietar# funds C. Fiduciar# funds

For each of the folloing descriptive phrases% indicate the t#pe of fund from thelist aove that est matches # placing the appropriate letter in the lan6 spacene-t to the phrase.

1. ;ncludes permanent funds held in trust to e used for pulic purpose

2.Sometimes referred to as income determination% usiness"li6e% or commercial"t#pe funds

&.An# fund held # a government in an agent or trustee relationship for ane-ternal part#

+.>sed hen the government collect ta-es or amounts e4ueathed from privateciti)ens

. ,nterprise and internal service funds

1. A% 2. (% &. C% +. C% . (

AACSB: Knowledge application AICPA: FN ReportingBlooms: Remember





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3. $he folloing are fund alance classi!cations descried in Chapter 2B A. <onspendale (. SpendaleHRestricted C. SpendaleHCommitted 9. SpendaleHAssigned

,. SpendaleH>nassigned For each of the folloing scenarios% indicate ho the# ould e classi!ed for fundalance reporting purposes using the classi!cation list aove. Place theappropriate letter in the lan6 space ne-t to each scenario.

1.(ond proceeds of E1%000%000 that must e used for construction of a !resustation remain unspent at the end of the !scal #ear.

2. Prepaid rent of E/%000 remains at the end of the !scal #ear.

&. $he cit# council adopted a plan to set aside 2 of revenues over the ne-t three#ears to help uild cash reserves. At the end of the !scal #ear 2 of therevenues ere set aside.

+.

$he state transportation department provided E1%000%000 in state funds to e

used for street idening. At the end of the !scal #ear E0%000 remainedunspent.

. $he count# received a E&%000%000 endoment during the #ear.

1. (% 2. A% &. 9% +. (% . A.


Blooms: Apply

Dic!lty: 8 9ard$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated




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/0. Folloing are some of the count#Is governmental funds. $he count# has as6ed #outo determine is an# of the funds listed should e classi!ed as ma*or funds asedon the GAS( si)e criteria. Clearl# indicate hich fundDs #ou elieve should eclassi!ed as ma*or and provide support for #our choiceDs.

GeneralFund

SpecialRevenue

Fund

DebtService

Fund

Total of allGovernmen

tal Funds

Total of all

Governmental!nterprise

Funds

Assets 12%000%000 1%000%000 00%000 1%000%000 21%000%000

Liailities &%000%000 20%000 &0%000 +%0%000 %30%000

Revenues 10%000%000 /00%000 1%+0%000 1&%0%000 1%12&%000

,-pendituresJ,-penses

3%3%000 2%000 1%&00%000 1&%+/0%000 1/%//%000

9et Service Fund $he si)e criteria states that a fund must e at least 10 of thetotal of all governmental funds for at least one of the elements Dassets% liailities%revenues% e-pendituresJe-penses% and it must e at least of the total of allgovernmental funds and enterprise funds for the same element. $he det servicefund meets the si)e criteria for revenues since 10 of the total of all governmentalfunds is E1%&%000 and of the total of all governmental and enterprise funds isE/%10% oth of hich the det service fund e-ceeds. D$he thresholds for theother three elements areB assetsH10 is E1%00%000% is E1%00%000M liailitiesH10 is E+%000% is E23+%00M e-pendituresJe-pensesH10 is E1%&+/%000% is E&&%20. General Fund the General Fund is ala#s classi!ed as a ma*or fund and it meetsthe si)e criteria for all of the elements%

AACSB: Knowledge application AICPA: FN 2eas!rement

Blooms: Apply Dic!lty: 8 9ard

$earning %b&ective: '()'8 Disc!ss t+e nat!re o, ma&or ,!nd reporting and t+e criteria !sed to determinew+et+er a ,!nd s+o!ld be reported as a ma&or ,!nd/


!ssa" Questions



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/1. List the asic !nancial statements re4uired # GAS( standards and rie7# e-plaintheir purposes.

$he asic !nancial statements include to government"ide !nancial statements%

seven fund !nancial statements% and notes thereto. $he government"idestatements are a statement of net position and statement of activities designed toreport on the operational accountailit# of the government as a hole. $he fund!nancial statements that follo are designed to report on the government:s !scalaccountailit# for spending according to legal udgets% las% and agreements ithresource providers. A alance sheet and statement of revenues% e-penditures% andchanges in fund alance are re4uired for governmental"t#pe funds% as ell as areconciliation of the change in fund alances to change in net position at thegovernment"ide level. A statement of net positionM a statement of revenues%e-penses% and changes in fund net positionM and statement of cash 7os arere4uired for proprietar#"t#pe funds. A statement of net position and statement ofchanges in net position are re4uired for !duciar# funds.

AACSB: Comm!nication AICPA: FN ReportingBlooms: Remember





/2. 8$he primar# purpose of an accounting s#stem for a state or a local government isto ma6e it possile for !nancial statements to demonstrate compliance ith!nance"related legal and contractual provisions.8 ,-plain h# #ou elieve this

statement to e correct or incorrect.

$he statement is not correct. $he GAS( speci!es that a governmental accountings#stem must ma6e it possile oth to prepare statements in conformit# ith GAAPand to prepare legal compliance reports. $he former are the asic !nancialstatements on hich auditors e-press an opinionM the latter are special purposereports that ma# or ma# not e accompanied # auditors: reports.

AACSB: Comm!nication AICPA: FN ReportingBlooms: 1nderstand

Dic!lty: ( 2edi!m$earning %b&ective: '()'( #*plain t+e 3overnmental Acco!nting Standards Board4s 53ASB6 integrated




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/&. ,-plain the di@erence eteen measurement focus and asis of accounting. Also%e-plain the di@erence eteen the economic resources measurement focus andthe current !nancial resources measurement focus as ell as the di@erenceeteen the accrual and modi!ed accrual ases of accounting. 5hich funds andgovernment"ide activities use each focus and each asis=

?easurement focus descries hat is measuredM that is% the nature of theresources% claims against resources% and 7os of resources that are measured andreported # a fund or activit#. $he asis of accounting descries hen things aremeasured. $he economic resources measurement focus reports on the alancesand 7os of oth current and noncurrent assets and liailities% hereas the current!nancial resources focus reports onl# on the alances and 7os of current assetsand liailities. $he accrual asis of accounting recogni)es revenues hen earnedand e-penses hen incurred% here the modi!ed accrual asis recogni)esrevenues hen measurale and availale for current spending and e-penditureshen a current liailit# has een incurred. Governmental funds use the current!nancial resources measurement focus% and proprietar# and !duciar# funds use

the economic resources measurement focus. Governmental funds use the modi!edaccrual asis of accounting. Proprietar# and !duciar# funds use the accrual asisof accounting. Governmental and usiness"t#pe activities at the government"idelevel report on net position and activities using the economic resourcesmeasurement focus and the accrual asis of accounting.

AACSB: Comm!nication AICPA: FN ReportingBlooms: 1nderstandDic!lty: ( 2edi!m




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/+. List the seven fund !nancial statements that are re4uired as part of the asic!nancial statements # GAS( standards. 5hat measurement focus and asis ofaccounting should e used in preparing each of these statements=

$hese seven fund statements are re4uired in the asic !nancial statementsDassuming that an entit# has funds in each of the three fund t#pesB N (alance sheet"governmental funds N Statement of revenue% e-penditures% and changes in fund alances"governmental funds N Statement of net position"proprietar# funds N Statement of revenues% e-penses% and changes in fund net position"proprietar#funds N Statement of cash 7os"proprietar# funds N Statement of !duciar# net position N Statement of changes in !duciar# net position

;n addition% a reconciliation of D1 the total fund alance of governmental fundsfrom the alance sheet"governmental funds to the governmental activities netposition from the government"ide statement of net position% and D2 the changein total fund alances of governmental funds from the statement of revenue%e-penditures% and changes in fund alances"governmental funds to the change ingovernmental activities net position from the government"ide statement ofactivities% are re4uired on the face of the !nancial statements or as separateschedules. $he governmental funds are accounted for using the current !nancial resourcesmeasurement focus and modi!ed accrual asis of accounting. $he proprietar# and!duciar# funds are accounted for using the economic resources measurementfocus and accrual asis of accounting De-cept for certain liailities of de!ned

ene!t pension plans and related postemplo#ment healthcare plans.






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/. ,-plain the nature of the three ma*or activit# categories of a state or localgovernmentB governmental activities% usiness"t#pe activities% and !duciar#activities. Provide e-amples of each.

Governmental activities are those core governmental services% together ithgeneral administrative support. ,-amples include pulic safet#% pulic or6s De.g.%road and ridge maintenance% par6s and recreation% cultural% and social services.(usiness"t#pe activities are those that are self"supporting through user charges forservices the# provide% although operating susidies from general ta- revenues arenot uncommon. $#pical e-amples include pulic utilities% such as ater and seer%transportation s#stems% golf courses% and simming pools. Fiduciar# activities arethose in hich the government acts in a !duciar# capacit#% either as an agent ortrustee% for parties outside the government. ,-amples include trust funds thatene!t individuals and organi)ations outside of the government.

AACSB: Comm!nication AICPA: FN ReportingBlooms: 1nderstandDic!lty: ( 2edi!m

$earning %b&ective: '()'" #*plain t+e nat!re o, t+e t+ree ma&or activity categories o, a state or localgovernment: governmental activities- b!siness)type activities- and .d!ciary activities/


//. 9escrie the comprehensive annual !nancial report DCAFR. 5hat are the sectionsof the report and hich components of the organi)ation should it include= ;s aCAFR re4uired=

$he CAFR is recommended% ut not re4uired. $he CAFR is comprised of threesectionsB D1 introductor# section% D2 !nancial section% and D& statistical section.All activities of the primar# government and its component units should eincluded in the reporting entit# covered # the CAFR. $he minimum !nancialreporting re4uirements include D1 ?9ampMA% D2 asic !nancial statements% andD& re4uired supplementar# information other than the ?9ampMA.




,!nd and principles o, ,!nd acco!nting7 0ypes o, ,!nds in eac+ ,!nd category and c+aracteristics o, eac+ ,!nd


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