FAR: Gov't Accounting: 2/18/2018 Flashcards Preview

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Flashcards in FAR: Gov't Accounting: 2/18/2018 Deck (11):

According to GASB's conceptual framework, the legally adopted annual budget has significant financial reporting implications. Which of the following is not one of the significant financial reporting implications?

1) Expression of public policy
2) To demonstrate that the budget is prepared on the GAAP basis
3) Expression of financial intent
4) Is a form of control

To demonstrate that the budget is prepared on the GAAP basis

GASB Concepts Statement No. 1 lists the following four financial reporting implications associated with the legally adopted annual budget: (1) expression of public policy, (2) expression of financial intent, (3) form of control, and (4) it may provide a basis for evaluating performance (if the government established service efforts and accomplishment goals as part of its budget process). Since budgets are usually prepared according to requirements of state and local laws, the budget is not required to be prepared on the GAAP basis. Many state and local governments prepare the budget on the cash basis. When this occurs, the budget-to-actual statement is presented on the budget basis (i.e., cash basis) and a reconciliation of the cash basis to the GAAP basis is included in the notes to the basic financial statements.


Interperiod equity is an objective of financial reporting for governmental entities. According to the Governmental Accounting Standards Board, is interperiod equity fundamental to public administration, and is it a component of accountability?

Yes, Yes

GASB Concepts Statement No. 1 states that interperiod equity is a basic component of accountability and fundamental to public administration.


Which event(s) is(are) supportive of interperiod equity as a financial reporting objective of a governmental unit?

I. A balanced budget is adopted.

II. Residual equity transfers out equal residual equity transfers in.

1) I only
2) II only
3) Both I and II
4) Neither I nor II

I only

The adoption of a balanced budget supports interperiod equity because it is an attempt to ensure that the current generation of citizens does not shift the burden of paying for current-year services to future-years' taxpayers (GASB Concepts Statement 1).

Residual equity transfers are nonrecurring or nonroutine transfers of equity between funds (GASB Codification 1800.102). These transfers occur within one accounting period and do not support interperiod equity as an objective of financial reporting.


Which of the following items is recognized for governmental activities in the government-wide statement of activities and not in the statement of revenues, expenditures, and changes in fund balance for governmental funds?

1) Transfers between governmental funds
2) Property tax revenue for an amount deferred because it was not available
3) A state grant awarded and received for road repairs that were completed this fiscal year
4) Salaries payable at the end of the current year that will be paid at the beginning of the subsequent year

Property tax revenue for an amount deferred because it was not available

This question focuses on the difference between governmental activities in government-wide financial statements that are prepared on the accrual basis of accounting and governmental fund-level financial statements that are prepared on the modified accrual basis of accounting. Transfers between governmental funds are eliminated in deriving the government-wide financial statements. (Note that transfers between governmental funds and enterprise funds are reclassified as “internal balances” in the government-wide statement of net position.) Property tax revenue that is not currently available is not reported at the governmental fund level but is reported in the government-wide statements—this is a very common reconciliation item between governmental fund balance and government-wide net position.


Which of the following activities would most likely be accounted for in a proprietary fund?

1) Street, curb, and sidewalk maintenance and repairs
2) Wastewater and sewerage services
3) Police protection
4) Tax assessor and collection activities

Wastewater and sewerage services

Wastewater and sewerage services are usually provided on a service-fee basis; therefore, they are accounted for in an enterprise fund - one of the two types of proprietary funds. Enterprise funds are also referred to as "business type" funds and use full accrual accounting. Routine street, curb, and sidewalk maintenance and repairs are usually accounted for in either the general fund, when financed by general revenues, or in a special revenue fund, when financed by resources dedicated for that purpose (e.g., a half-cent sales tax approved by the voters for street repairs).


Which of the following statements about the differences between U.S. GAAP and IFRS in determining whether or not to consolidate an entity is/are correct?

1. IFRS guidelines for determining the eligibility of an entity to be consolidated are more principles-based than are U.S. GAAP guidelines.

11. In assessing an investor's level of ownership of an investee, both U.S. GAAP and IFRS consider outstanding securities that are exercisable or convertible into voting shares.

111. Under both U.S. GAAP and IFRS, there are circumstances under which a majority-owned subsidiary does not have to be consolidated.

1) I only.
2) I and II only.
3) I and III only.
4) I, II, and III.

I and III only.

While Statement I (and Statement III) is correct, Statement II is not correct. Under IFRS, the guidelines for determining whether or not to consolidate an entity are more principles-based than are U.S. GAAP (Statement I). Under IFRS, the basic guideline is that an entity must be consolidated when another entity has the ability to govern the financial and operating policies of the entity to obtain benefits from it. U.S. GAAP has a specific two-tiered assessment process that must be followed to determine whether or not an entity should be consolidated. While IFRS does consider outstanding securities that are exercisable or convertible in assessing an investor's level of ownership, U.S. GAAP does not consider such securities in assessing level of ownership (Statement II).


Todd City formally integrates budgetary accounts into its general fund. Todd uses an internal service fund to account for the operations of its data processing center, which provides services to Todd's other governmental units.

During the year ending December 31, 2005, Todd's special revenue fund received a state grant to buy a bus and an additional grant for bus operation in 2005. In 2005, only 90% of the capital grant was used for the bus purchase, but 100% of the operating grant was disbursed.

Todd has incurred the following long-term obligations:

General obligation bonds issued for the water and sewer fund, which will service the debt.
Revenue bonds to be repaid from admission fees collected from users of the municipal recreation center.
These bonds are expected to be paid from enterprise funds and secured by Todd's full faith, credit, and taxing power as further assurance that the obligations will be paid.

Todd's 2005 expenditures from the general fund include payments for structural alterations to a firehouse and furniture for the mayor's office.

In reporting the state grants for the bus purchase and operation, what should Todd include as grant revenues for the year ending December 31, 2005?

90% of the capital grant: Yes or NO
100% of the capital grant: Yes or NO
Operating grant: Yes or NO

Yes, No, Yes

Todd City should recognize the grants as revenues in the accounting period when they are susceptible to accrual. For grants, the expenditure of resources is a prime factor in determining eligibility for accrual. All of the operating grant has been spent; therefore, 100% should be recognized as revenue.

Since only 90% of the capital grant has been spent, only 90% can be recognized as revenue.


The orientation of accounting and reporting for all proprietary funds of governmental units is

1) Income determination.
2) Project.
3) Flow of funds.
4) Program.

Income determination.

Proprietary funds account for activities of the governmental unit that are similar to activities conducted by commercial enterprises. The orientation of accounting and reporting for proprietary funds is similar to that used in private businesses. The accrual basis of accounting is used, and the measurement focus is on income determination, financial position, and cash flow (GASB Codification 1300.102). In contract, "Flow of funds" is the focus for governmental type funds.


Assuming no outstanding encumbrances at year's end, closing entries for which of the following situations would increase the unassigned fund balance at year's end?

1) Actual revenues were less than estimated revenues.
2) Estimated revenues exceed actual appropriations.
3) Actual expenditures exceed appropriations.
4) Appropriations exceed actual expenditures.

Appropriations exceed actual expenditures.

Assuming that both actual and budgetary transactions are closed to the fund balance, closing appropriations, a credit balance account, would increase the fund balance whereas closing expenditures, a debit balance account, would decrease the fund balance.



Shared revenues received by an Enterprise Fund of a local government for operating purposes should be recorded as:

1) Operating Revenues.
2) Nonoperating Revenues.
3) Other Financing Sources.
4) Interfund Transfers.

Nonoperating Revenues

Enterprise Funds do NOT have a category for Resources Received called Other Financing Sources.

Shared Revenues received by a Proprietary Fund for operating purposes should be recorded as Non-Operating Revenues in the period in which they are earned and become measurable.



Maple Township issued the following bonds during the year ended June 30, Year 1:

Bond issued for the Garbage Collection Enterprise Fund that will service the debt $500,000
Revenue bonds to be repaid from admission fees collected by the Township Zoo Enterprise Fund 350,000

What amount of these bonds should be accounted for in Maple's Proprietary Funds?

1) $0
2) $350,000
3) $500,000
4) $850,000


Both bond issues are for Enterprise Funds, a type of proprietary fund, which account for their own long-term debt. $850,000 will be reported in the financial statements for proprietary funds.