Section 4B - Format and content of CAFR

Question 1

Which of the following best describes the general disclosure principle?

1. Disclosure in the notes to the financial statements is needed only when the meaningful information is not provided elsewhere therein.
2. Disclosure in the notes to the financial statements is needed only when management feels it is necessary to supplement information presented on the face of the financial statements.
3. Certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements.
4. Certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements and the MD&A.

Answer 1

Certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements.

Per GASB 2300.103, certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements.

Disclosure in the MD&A or “elsewhere” are not alternatives for disclosure provided by the GASB Codification. Note disclosure includes “essential,” not “supplemental,” information that is not displayed on the face of the financial statements.

Question 2

Certain information may be presented either on the face of the financial statements or in the notes. t/f

If information that is required to be disclosed is not presented on the face of the financial statements, that information is required to be presented in the notes to the financial statements. T/F

Answer 2

true

true

Question 3

The Governmental Funds Balance Sheet is classified as:

a required supplementary schedule.

All of the answer choices are correct.

other.

a basic financial statement.

Answer 3

a basic financial statement.

The Governmental Funds Balance Sheet is a basic financial statement.

Question 4

The financial section of the comprehensive annual financial report (CAFR) includes the following:

a. Independent ___report
b. Management’s ___:
c. Basic ___
d. __to the F/S
e. Required ___information
f. ___statements
g. ___Fund Statements
h. S___

Answer 4

Auditor

MD&A

F/S

Notes

Supplementary

Combining

individual

Schedules

Question 5

Basic financial statements are:

1. ___statement of net position,
2. ___statement of activities,
3. ____balance sheet,
4. ____statement of revenues, expenditures, and change in fund balances,
5. P___funds statement of net position,
6. P___funds statement of revenues, expenses, and changes in fund net position,
7. P___funds statement of cash flows,
8. f___funds statement of net position,
9. f___funds statement of changes in fiduciary net position, and
10. ___to financial statements.

Answer 5

Gov Wide

Gov. Wide

Gov Funds

Gov Funds

Propiertary Fund

Propiertary Fund

Propiertary Fund

Fiduciary

Fiduciary

Notes

Question 6

The City of Smithville’s Management’s Discussion and Analysis is classified as:

essential statistical information.

required supplementary information.

other.

basic financial statement.

Answer 6

required supplementary information.

The management’s discussion and analysis, or MD&A, is a component of the required supplemental information. The MD&A should introduce the basic financial statements and provide an analytical overview of the government’s financial activities.

Question 7

Management’s discussion and analysis (MD & A) is presented ___to the basic financial statements both to introduce those statements and as an ___overview of the government’s financial activities. The MD & A differs from a ___letter in several ways:.

First, it relates only to the ____(not to the CAFR (comprehensive annual financial report) as a whole) and must always accompany those statements—even when issued separate from the CAFR

The MD & A must be based only on currently known ____, ___ or ___, whereas the transmittal letter can discuss the implications of events that might happen or decisions that are not yet made

Answer 7

prior , analytical , transmittal

basic financial statements

facts, conditions, or decisions

Question 8

The MD & A should do the following:

Focus on the primary government and distinguish information pertaining to the primary government from that of its discretely presented ___..

Present both a ___ and ___analysis of the state and local government’s (SLG) activities and status.

Discuss the current-year results compared with the prior year with emphasis on the current year t/f

Answer 8

component units

short-term and a long-term

true

Question 9

The MD & A should do the following:

Cover the following topic areas (and no other topic areas):

(1) A brief discussion of the___
(2) Presentation of___
(4) An analysis of balances and transactions of ___funds
(5) An analysis of significant ___between (a) original and final budget amounts and (b) final budget amounts and actual budget results for the General Fund (or its equivalent)
(6) A description of capital ___activity and long-term ___activity during the year
(7) Information about the assessed conditions of and ___ vs ___maintenance/preservation expenditures
(8) A description of currently known ___ , ___, or ___that are expected to have a material effect on financial position (net position) or results of operations (revenues, expenses, and other changes in net position)

Answer 9

basic financial statements

gov wide financial info

individual

variances

asset , debt

actual versus estimated

facts, decisions, or conditions

Question 10

What basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures, and changes in fund balances?

Accrual basis of accounting

Modified accrual basis of accounting

Modified cash basis of accounting

Cash basis of accounting

Answer 10

Modified accrual basis of accounting

Modified accrual accounting (revenues and expenditures reporting using the flow of current financial resources measurement focus) is used in the governmental funds.

The government-wide statements are presented on the accrual (revenue and expense) basis—even for governmental activities—and use the economic resources measurement focus.

Question 11

A town’s basic financial statements include information for major and nonmajor governmental funds. There were no internal service or enterprise funds. One of the nonmajor funds is the Road Tax fund, which accounts for a share of tax moneys remitted by the state on a prorated basis. Individual fund statements with prior-year comparative data would have to be presented for the Road Tax fund if:

1. the town has opted to present budgetary data as required supplementary information rather than as part of the basic financial statements.
2. every governmental fund must be reported individually.
3. the Road Tax fund is the town’s only special revenue fund.
4. state law requires prior-year comparative data for any individual fund receiving a prorated share of state tax collections.

Answer 11

state law requires prior-year comparative data for any individual fund receiving a prorated share of state tax collections.

As a nonmajor fund, the financial information for the Road Tax fund is combined with other nonmajor funds in the basic financial statements. Individual fund financial statements would be required to demonstrate compliance with state law in this case.

Whether shown in RSI or as part of the basic financial statements, the budgetary data would not otherwise show the details of individual, nonmajor funds. In combining nonmajor funds, it does not matter if only one of the governmental funds was a special revenue fund.

Because the focus of fund financial reporting is on major funds, nonmajor funds should be aggregated and do not need to be shown individually.

Question 12

Answer 12

$80,000

The water utility fund of Hill City would report the 3-month T-bill ($30,000) and the 3-year T-note ($50,000) as cash and cash equivalents.

GASB 2450.106 notes that investments with original maturities, to the entity holding the investment, of three months or less, generally qualify as cash equivalents.

The 3-year T-note was purchased on 6/15/X3 and matures on 8/31/X3; therefore, it was purchased by Hill City within three months from maturity and can be considered a cash equivalent.

Question 13

Answer 13

$1,980,000

The timing of collection of revenues does not affect revenue recognition in the entity-wide (government-wide) statement of activities. Revenues are recognized after deducting estimated uncollectibles, discounts, etc.

Therefore, the amount reported as revenues in the current year will be the net realizable value of the tax levy for the current year. In this question, the amount is the levy amount ($2,000,000) less the estimated uncollectible amount ($2,000,000 × 1%, or $20,000), which equals $1,980,000.

Timing of revenue collection does affect revenue recognition in governmental funds financial statements. When modified accrual accounting is used, revenues must also be “available.”

Question 14

An unrestricted grant received from another government to support enterprise fund operations should be reported as:

nonoperating revenues.

operating revenues.

contributed capital.

revenues and expenditures.

Answer 14

nonoperating revenues.

Proprietary funds of governments, including enterprise funds, report unrestricted grants and restricted operating grants as nonoperating revenues. Restricted capital grants are reported as capital contributions. Neither contributed capital nor expenditures are reported for proprietary funds.

Question 15

Which of the following is a required part of a local government’s management’s discussion and analysis (MD&A) as part of its financial statements?

The MD&A should present condensed financial information from the fund financial statements.

The MD&A should include an analysis for each fund.

The MD&A should be presented with other required supplementary information.

The MD&A should compare current-year results to the prior year with emphasis on the current year.

Answer 15

The MD&A should compare current-year results to the prior year with emphasis on the current year.

Management’s discussion and analysis (MD&A) is presented prior to the basic financial statements as an analytical overview.

The MD&A focuses on the primary government and distinguishes information pertaining to the primary government from that of its discretely presented component units; it presents both a short-term and a long-term analysis of the local government’s activities and status; and it discusses the current-year results compared with the prior-year results, discussing both positive and negative aspects of the comparisons.

The MD&A is not presented with other RSI (required supplementary information), it does not need to include an analysis of each fund, and it does not present condensed fund information.

Question 16

Which basis of accounting is required for a city’s government-wide financial statements?

Accrual

Cash

Modified cash

Modified accrual

Answer 16

Accrual

The government-wide financial statements report governmental activities, business-type activities, the primary government totals, and discretely presented component units. All data in the government-wide statements are presented on the accrual (revenue and expense) basis—even for governmental activities.

Note: The fund financial statements report on major governmental funds and major enterprise funds, rather than on governmental fund types and the enterprise fund type, and use the modified accrual basis of accounting.

Question 17

Which of the following should be included in the introductory section of a local government’s comprehensive annual financial report?

Management letter

Letter of transmittal

Auditor’s report

Engagement letter

Answer 17

Letter of transmittal

The comprehensive annual financial report (CAFR) has a template specified by the GASB. While not a “fill in the blank” type of template, it does specify by section what is to be included in each section.

The letter of transmittal is specified as part of the introduction section.

The other three items listed are not part of the introduction.

Question 18

The sections of the comprehensive annual financial report (CAFR) are as follows:

a. Introductory—includes ___letter
b. Financial—includes the independent ___report and contains management’s ___ nad ___, ____financial statements, ___financial statements, ___to the financial statements, required ___information, combining financial statements, and S___
c. ____—includes additional financial, economic, and demographic information

Answer 18

transmittal

Auditor, MD&A, gov-wide, fund, notes, supplementary, combining, schedules

statistical

Question 19

Dogwood City’s water enterprise fund received interest of $10,000 on long-term investments. How should this amount be reported on the statement of cash flows?

Operating activities

Noncapital financing activities

Investing activities

Capital and related financing activities

Answer 19

Investing activities

GASB 2450.124 states, in part: “Cash inflows from investing activities include:

• “Receipts from collections of loans (except program loans) made by the governmental enterprise and sales of other entities’ debt instruments (other than cash equivalents) that were purchased by the governmental enterprise.
• “Receipts from sales of equity instruments and from returns of investment in those instruments.
• “Interest and dividends received as returns on loans (except program loans), debt instruments of other entities, equity securities, and cash management or investment pools.
• “Withdrawals from investment pools that the governmental enterprise is not using as demand accounts.”

Question 20

GASB 2450.124 states, in part: “Cash inflows from investing activities include:

• “Receipts from collections of ___(except program loans) made by the governmental enterprise and sales of other entities’ debt instruments (other than cash equivalents) that were purchased by the governmental enterprise.
• “Receipts from sales of ___instruments and from returns of investment in those instruments.
• “__ and ___received as returns on loans (except program loans), debt instruments of other entities, equity securities, and cash management or investment pools.
• “Withdrawals from___that the governmental enterprise is not using as demand accounts.”

Answer 20

loans

equity

Interest and dividends

investment pools

Question 21

Mornington County reported a $4,200 net increase in fund balance for governmental funds. During the year, Mornington purchased general capital assets of $43,000 and recorded depreciation expense of $17,000. What amount should Mornington report as the change in net position for governmental activities?

$26,000

$47,200

$16,000

$30,200

Answer 21

$30,200

The reconciliation of the $4,200 increase in governmental fund balances (modified accrual basis) to the government-wide change in net position (full accrual basis) involves adding back the expenditure recorded in the governmental funds when the capital assets were purchased (+$43,000) and subtracting the depreciation expense required with full accrual (−$17,000).

Question 22

Required reconciliations.

Governments are required to present a reconciliation between the _____ and ___ column of the corresponding government-wide financial statement.

Likewise, a reconciliation of the ___fund total columns from the proprietary fund financial statements (except the ____statement) and the ____activities column in the government-wide financial statements must be prepared.

RANDOM

Internal service funds are ___from the major funds reporting requirements.

Answer 22

governmental funds statements and the governmental activities

enterprise , cash flow , biz type activities

Exempted

Question 23

Which of the following statements is correct concerning financial reporting for a governmental entity?

A statement of cash flows should be presented for proprietary funds only.

No statement of cash flows is required.

Either the direct or indirect method of presenting cash flows from operating activities may be used.

A combined statement of cash flows should be presented for proprietary and fiduciary funds.

Answer 23

A statement of cash flows should be presented for proprietary funds only.

Governments should present a statement of cash flows for proprietary funds using the direct method of presenting cash flows from operating activities

Question 24

Civic Town’s basic financial statements included information for the nonmajor governmental funds in combined form. The aggregated data included expenditures summarized by major functional classifications. Narrative explanations are needed to accompany the combining statements of revenues, expenditures, and changes in fund balances to provide greater detail and assure the reader’s understanding of the statements. The narrative should appear:

directly on the combining statements, on divider pages or in a separate section.

in the required supplementary information following the financial statements.

in the notes to the financial statements.

in a separate section of management’s discussion and analysis.

Answer 24

directly on the combining statements, on divider pages or in a separate section.

Narrative explanations of combining and individual fund statements should be presented on divider pages, directly on the statements and schedules, or in a separate section according to GASB 2200.211. Notes to the financial statements, RSI, or MD&A are not options for locating these narratives.

Question 25

The combining and individual fund financial statements are presented only in the \_\_\_

Answer 25

comprehensive annual financial report (CAFR).

Question 26

The combining and individual fund financial statements are presented only in the comprehensive annual financial report (CAFR). \_\_\_**statements** are, in essence, individual fund statements presented side-by-side in adjacent columns with a total column. b. **\_\_\_\_statements** present data for a single fund in more detail than is presented in the basic financial statements or combining statements. They are required only when such additional detail is considered necessary for fair \_\_\_in the CAFR at the individual fund \_\_\_level, but they are also used to present prior-year and budgetary comparison data for individual funds. c. **\_\_\_\_explanations** of combining and individual fund statements should provide information not included in such \_\_\_or in the statements' \_\_\_. The narrative explanations should be presented on \_\_\_pages, \_\_on the statements and schedules or in a separate \_\_\_.

Answer 26

Combining Individual Fund Narrative explanations disclosure , materiality statements , notes, divider , directly, section

Question 27

Marta City's school district is a legally separate entity, but two of its seven board members are also city council members and the district is financially dependent upon the city. The school district's financial activity should be reported in the city's financial statements by: primary government. blended unit. discrete presentation. note disclosure.

Answer 27

discrete presentation. Because the school district is financially dependent on the city, it is considered a component unit, not a separate primary government. Component unit financial information is generally included in the financial statements of the primary government but presented separately from the financial data of the primary government. Because only two of the seven school board seats are occupied by council members, the governing body of the school board is not “substantially the same” as the city council. Thus, the blending method is not required. **Discrete presentation should be used unless the financial activities of the two entities are so intertwined as to make them substantially the same entity.**

Question 28

**Incorporating component unit data**. Component units (CU) that meet certain criteria are considered in substance part of the \_\_\_\_(PG); \_\_\_\_is used to incorporate their data into the report of the PG.

Answer 28

primary government blending

Question 29

Incorporating component unit data. Component units (CU) that meet certain criteria are considered in substance part of the primary government (PG); blending is used to incorporate their data into the report of the PG: **Blending presentation:** (1) Proprietary-type component unit data should be \_\_\_just as if it were for another proprietary fund of the same type of the primary government. (2) Governmental-type component unit data should be included just as if the CU funds were funds of the same type of the PG—except that the component unit's General Fund should be reported as a \_\_\_fund of the PG.

Answer 29

included special revenue

Question 30

**The circumstances requiring blending are ANY of the following:** ## Footnote (1) The PG and CU governing bodies are substantively the \_\_\_and either there is a financial \_\_\_relationship present or the management of the PG has operational \_\_for the CU at the level of management below the governing body. (a) A PG and a CU have substantively the same \_\_\_if a voting majority of the PG (b) \_\_\_means that the PG manages the CU essentially the same way it does its departments and agencies. (2) The CU serves or benefits solely the \_\_\_. (3) The PG is expected to repay the \_\_\_of the CU. (4) The CU is incorporated as a \_\_\_in which the PG is the sole corporate member.

Answer 30

same , benefit/burden , responsibility governing body Operational responsibility PG total liabilities not-for-profit corporation

Question 31

**Discrete presentation.** Other CUs, including all affiliated tax-exempt entities whose resources are entirely for the benefit of the PG, are \_\_\_presented. (1) Discretely presented CUs are reported only in \_\_\_. The financial statements should allow users to distinguish between the PG and its component units. This is accomplished by reporting the CU data in a separate \_\_column and row to the right of or below the PG data in the government-wide financial statements. (2) If major discretely presented CUs are not reported in separate columns in the government-wide financial statements, the reporting entity basic financial statements must also include: * (a) CU \_\_\_statements presenting major discretely presented component units or * (b) CU condensed \_\_\_statements.

Answer 31

discretely government-wide financial statements discrete combining summary

Question 32

Valley Town’s public school system is administered by a separately elected board of education. The board of education is not organized as a separate legal entity and does not have the power to levy taxes or issue bonds. Valley’s city council approves the school system’s budget. How should Valley report the public school system’s annual financial results? Discrete presentation, no; Blended, no Discrete presentation, yes; Blended, yes Discrete presentation, yes; Blended, no Discrete presentation, no; Blended, yes

Answer 32

Discrete presentation, no; Blended, yes **Blending** of financial results is allowed as the public school system and the city are not separate legal entities. The city is responsible for the finances of the school system (the school board has no authority to levy taxes or issue bonds). **Discrete presentation** is for affiliated entities whose resources are entirely for the benefit of the primary government. The school system does not operate for the sole benefit of the town.

Question 33

Any organization that is included in the reporting entity (other than the primary government) is referred to as a \_\_\_ Each general purpose unit of government (e.g., state, county, city, and town) is a primary government. Legally separate, special purpose units of governments such as school districts or airport authorities are primary governments if they meet all three of the following criteria: 1. Has a popularly \_\_\_governing body 2. Is a \_\_\_legal entity 3. Is fiscally \_\_\_

Answer 33

component unit. elected separate independent

Question 34

Note disclosures. The notes to the reporting entity's financial statements should include: a. a brief description of the CUs and their \_\_\_to the PG as well as information on how to obtain the separate \_\_\_of individual CUs,\_\_\_ b. the rationale for including each component unit and whether it is \_\_\_\_, \_\_\_presented, or a \_\_\_component unit, and c. those CU disclosures that are essential to \_\_\_presentation of the reporting entity's basic financial statements.

Answer 34

relationships , financial statements blended, discretely, fiduciary fair

Question 35

A number of the functional areas of Roseburg's governmental activities, including General Government, Support Services, and Administration, include expenses that actually benefit other functions. For example, the Finance Department not only collects business taxes that benefit governmental activities, it handles the billings of the Water Enterprise Fund. Roseburg has developed a detailed cost allocation scheme that reallocates some of these expenses to the other governmental and business-like functions that benefit. These allocated, indirect expenses should be reported on the statement of activities: separately at the bottom of the statement of activities. as a transfer from function to function. in a column separate from the direct expenses. combined with the direct operating expenses of benefiting function.

Answer 35

**in a column separate from the direct expenses.** Governments choosing to allocate indirect expenses should report them in a column separate from the direct expenses to enhance comparability with other governments that do not allocate. Therefore, the direct and indirect expenses should not be combined for reporting purposes. Special and extraordinary expenses are reported separately at the bottom of the statement of activities. Transfers are appropriate between governmental funds or to display transactions, not cost allocation, between the governmental activities and business-like activities of a government.

Question 36

Which of the following is one of the three standard sections of a governmental comprehensive annual financial report? Statistical Investment Actuarial Single audit

Answer 36

Statistical The CAFR (comprehensive annual financial report) of a government includes three sections: Introductory, Financial, and Statistical.

Question 37

During the current year, Wythe County levied $2,000,000 property taxes, 1% of which is expected to be uncollectible. During the year, the county collected $1,800,000 and wrote off $15,000 as uncollectible. What amount should Wythe County report as property tax revenue in its government-wide statement of activities for the current year? $1,985,000 $1,800,000 $2,000,000 $1,980,000

Answer 37

$1,980,000 The government-wide statement of activities is prepared using full accrual accounting and the economic resources measurement focus, which requires revenues to be recognized when due to the government regardless of the date of receipt. The estimated collectible revenue in this case is 99% of the property tax levy, or $1,980,000. That $15,000 of the expected uncollectible $20,000 (1% of the levy) is written off does not change the revenue recognition. Property taxes are considered an “imposed nonexchange revenue.”

Question 38

The letter of transmittal and the statistical section are classified as: basic financial statement. required supplementary schedule. other. All of the answer choices are correct.

Answer 38

other. ## Footnote The letter of transmittal and the statistical section required for a CAFR and GFOA's certificate are neither basic statements nor required supplemental information.

Question 39

Land and other real estate held as investments by endowments in a government's permanent fund should be reported at: historical cost. fair value less costs of disposal. fair value. the lower of cost and net realizable value.

Answer 39

fair value. ## Footnote Land and other real estate held as investments by endowments in a government permanent fund should be reported at fair value, not historical cost or the lower of cost and NRV (net realizable value). There is no requirement to deduct the cost of disposal from fair value.

Question 40

The following transactions were among those reported by Cliff County's water and sewer enterprise fund for 20X1: * Proceeds from sale of revenue bonds $5,000,000 * Cash received from customer households 3,000,000 * Capital contributed by subdividers 1,000,000 In the water and sewer enterprise fund's statement of cash flows for the year ended December 31, 20X1, what amount should be reported as cash flows from capital and related financing activities? 1. $8,000,000 2. $5,000,000 3. $9,000,000 4. $6,000,000

Answer 40

$6,000,000 ## Footnote The proceeds from the sale of revenue bonds and the capital contributed by subdividers are classified as capital and related financing activities: $5,000,000 + $1,000,000 = $6,000,000. The cash received from customers is recorded as part of operating revenues.

Question 41

A city had to make significant repairs to a building damaged by flooding of a nearby river. Damage due to flooding is not unusual but has been infrequent in the last few years. How should the city's general fund report the cost of the repairs in its fund financial statements? As a special item As an other financing use As an extraordinary item As an expenditure

Answer 41

As an expenditure * The city's general fund should report the cost of the repairs in its fund financial statements as an expenditure. * An expenditure is a use of funds (i.e., payment of cash) by a government for goods or services, or to attain new assets, improve existing ones, or reduce a liability. * Other financing sources or other financing uses are transfers of resources between and among funds (interfund transfers). * Extraordinary items are transactions or events that are both unusual in nature and infrequent in occurrence. * Special items are transactions or events that are either unusual in nature or infrequent in occurrence and under the control of management.

Question 42

\_\_\_\_are transactions or events that are both unusual in nature and infrequent in occurrence. \_\_\_\_are transactions or events that are either unusual in nature or infrequent in occurrence and under the control of management.

Answer 42

Extraordinary items Special Items

Question 43

A city government reported a $9,000 increase in net position in the motor pool internal service fund, a $12,000 increase in net position in the water enterprise fund, and a $7,000 increase in the employee pension fund. The motor pool internal service fund provides service primarily to the police department. What amount should the city report as the change in net position for business-type activities in its statement of activities? $12,000 $28,000 $9,000 $21,000

Answer 43

$12,000 ## Footnote Only the water enterprise fund is a business-type activity which provides services to the general public for a fee; the pension fund and the internal service fund are not business-type activities. The city should report $12,000 as the change in net position.

Question 44

A summary reconciliation between fund financial statements and government-wide financial statements is required at the bottom of the fund statements or in an accompanying schedule. For the governmental activities portion of the government-wide statement of net position, the reconciliation should tie with the fund balance(s) of: all governmental funds. all governmental and fiduciary funds that provide services to the governmental functions. the general fund. all governmental and internal service funds that provide services to the governmental functions.

Answer 44

all governmental and internal service funds that provide services to the governmental functions. The governmental activities portion of the government-wide statements reports the functions also reported in the general and other governmental funds. Internal service funds providing services for governmental functions are also included. Fiduciary fund information is not shown within the government-wide financial statements.

Question 45

A city government reported a $14,000 increase in net position in the printing internal service fund, a $31,000 increase in net position in the sewer enterprise fund, and a $25,000 increase in the employee pension fund. The printing internal service fund provides service primarily to the city’s administrative office. What amount should the city report as the change in net position for business-type activities in its statement of activities? $31,000 $70,000 $39,000 $25,000

Answer 45

$31,000 Only the sewer enterprise fund is a business-type activity which provides services to the general public for a fee; the pension fund and the printing internal service fund are not business-type activities. The city should report $31,000 as the change in net position.

Question 46

The statement of activities of the government-wide financial statements is designed primarily to provide information to assess which of the following? Financial accountability Operational accountability Fiscal accountability Functional accountability

Answer 46

Operational accountability Governmental fund reporting covers sources, uses, and balances of current financial resources, and budgetary accounting enables financial and fiscal accountability. Both fund-based and government-wide financial reporting facilitate functional accountability as both classify costs by major service or responsibility areas. Only the government-wide statement of activities reports the government's operations using all economic resources. Thus, the statement of activities is designed primarily to promote the assessment of operational accountability.

Question 47

State and local governments have various sources of revenue. When revenues are received from charges to users for services provided, these revenues are classified as: program revenues. general revenues and program revenues. general revenues. specific revenues.

Answer 47

program revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Revenues derived from those who purchase, use, or directly benefit from the goods or services of a program, even those beyond the reporting government's boundaries, are always considered program revenues.

Question 48

Which of the following is considered part of the required supplementary information for general purpose external financial reporting of a local government? Fund financial statement Combining nonmajor fund statement Notes to the financial statements Management discussion

Answer 48

Management discussion GASB Statement 34 requires governments to present the management's discussion and analysis (MD&A) section as required supplementary information (RSI); since the purpose of MD&A is to introduce the basic financial statements and provide an analytical overview of the government's financial activities, it precedes the basic financial statements in the CAFR (comprehensive annual financial report). In addition to MD&A, this statement requires budgetary comparison schedules to be presented as RSI and also requires RSI for governments that use the modified approach for reporting infrastructure assets.

Question 49

A Building Authority was created by the city and organized as a separate legal entity. The Authority is governed by a five-person board appointed for 6-year terms by the mayor, subject to city council approval. The authority uses the proceeds of its tax-exempt bonds to finance the construction or acquisition of general capital assets for the city only. The bonds are secured by the lease agreement with the city and will be retired through lease payments from the city. **_Which of the following describes the city's reporting of the Building Authority?_** 1. The Building Authority is a component unit and will be reported as discretely presented in the city's financial statements. 2. The Building Authority is a component unit and will be reported as blended with the city's funds. 3. The Building Authority is a component unit and the city will make a note disclosure only. 4. The Building Authority is not a component unit of the city and will not be reported by the city.

Answer 49

The Building Authority is a component unit and will be reported as blended with the city's funds. * The Authority is a component unit of the city. The Authority's governing body is appointed by the city and the lease constitutes the imposition of a financial burden on the city. * A component unit should be included in the reporting entity or primary government's financial statements using the blending method if the component unit's governing body is the same as the primary government; if the component unit provides services entirely or almost entirely to the primary government; or if the component unit's debt is expected to be repaid with resources provided by the primary government even if provided through a lease arrangement. * The Authority will be reported using the blending method because the Authority provides services entirely to the city and its debt will be repaid with city resources over time. * Only one of the three criteria needs to be met for the blending method to be used. In this case, two of the three criteria were met.

Question 50

When preparing the balance sheet of governmental funds statements: The \_\_\_fund is always considered a major fund. Nonmajor funds are aggregated into a column entitled “\_\_\_ Governmental Funds.” Each \_\_\_fund should have a separate column on the statement.

Answer 50

general Other major

Question 51

Which of the following statements about program revenues is incorrect? Program revenues can be derived directly from the program. Program revenues can be derived from parties outside the reporting government’s constituency. Program revenues come solely from those who are the constituent of the reporting government. Program revenues reduce the cost of the function so not as much general revenue is required from the reporting government.

Answer 51

Program revenues come solely from those who are the constituent of the reporting government. Programs are financed with program revenues and general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Financing from outside parties that is restricted to a specific program or programs is considered program revenue.

Question 52

Chase City uses an internal service fund for its central motor pool. The assets and liabilities account balances for this fund that are not eliminated normally should be reported in the government-wide statement of net position as: fiduciary activities. business-type activities. note disclosures only. governmental activities.

Answer 52

governmental activities. The governmental activity which is the predominant user of the internal service funds absorbs and reports the assets and liabilities of an internal service fund that are not eliminated. In most situations, this will be the governmental activities. (GASB 2200.147–.150)

Question 53

The FASB has jurisdiction over entities with which of the following characteristics? Power to enact and enforce a tax levy Exempt from federal taxation Body corporate and politic or exempt from federal taxation Body corporate and politic

Answer 53

Exempt from federal taxation The joint FASB/GASB definition of governmental organizations that is included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), indicates that bodies corporate and politic and entities with the power to enact and enforce a tax levy are governments. Not-for-profit organizations that are not governmental are exempt from federal taxation.

Question 54

Which of the following statements about the statistical section of the Comprehensive Annual Financial Report (CAFR) of a governmental unit is true? Statistical tables may not include nonaccounting information. The statistical section is not part of the basic financial statements. The statistical section is an integral part of the basic financial statements. Statistical tables may not cover more than two fiscal years.

Answer 54

The statistical section is not part of the basic financial statements.. The statistical section of a CAFR is outside the financial section of the report and is considered to be supplementary information. The statistical tables present comparative data for several periods of time and may contain nonaccounting data.

Question 55

Which event(s) should be included in a statement of cash flows for a governmental entity? 1. Cash inflow from issuing bonds to finance city hall construction 2. Cash outflow from a city utility representing payments in lieu of property taxes II only I only Both I and II Neither I nor II

Answer 55

II only ## Footnote The cash inflow from issuing bonds to finance city hall construction is a cash inflow for a governmental fund. Governmental funds do not prepare a statement of cash flows since the measurement focus is financial resources. The cash outflow from a city utility representing payments in lieu of property taxes is a cash outflow from operating activities for an enterprise fund. Enterprise funds prepare a statement of cash flows.

Question 56

A city government levies a tax on its citizens for improvements to roads. How should the city report the tax in its statement of activities? In special items reported separately from general revenue By type of tax in program revenues As program-specific contributions in program revenues By type of tax in general revenues

Answer 56

By type of tax in general revenues * **All taxes of the reporting government, even if restricted to a specific program, are general revenues.** * The format of the government-wide statement of activities should be viewed as having two distinct parts. * The upper portion of the statement focuses on cost of services and reports both the total expenses and the net revenues or net expenses of the government by function. * The lower portion of the statement intends to report how the net program expenses incurred during the year compare with general revenues. The statement is not intended to report net income, and no net income number is presented.

Question 57

Which of the following information is needed to prepare the budgetary comparison schedules for a local government? Description of the local government’s budgeting process Computation of variances from budget to actual Explanation of variances Original budget

Answer 57

**Original budget** A budgetary comparison statement is required only for the General Fund and for each major special revenue fund. Additionally, this statement may be presented as a schedule in required supplementary information instead of as a basic financial statement. The statement must * (1) be presented using the budgetary basis of accounting and * (2) include columns for the original budget adopted, the final budget, and for actual amounts on the budgetary basis of accounting. The variance column, based on actual versus the revised budget, is optional.

Question 58

A budgetary comparison statement is required only for the \_\_\_Fund and for each major \_\_\_\_\_\_fund. Additionally, this statement may be presented as a schedule in \_\_\_\_instead of as a basic financial statement. The statement must * (1) be presented using the \_\_\_basis of accounting and * (2) include columns for the \_\_budget adopted, the \_\_\_budget, and for \_\_\_amounts on the budgetary basis of accounting. * The variance column, based on actual versus the revised budget, is required by GASB. t/f

Answer 58

General ,special revenue, required supplementary information budgetary original adopted, final, actual False - it is optional

Question 59

The three internal service funds of a town were presented in a single column in the basic financial statements. The town's internal service funds supplied goods and services to the various governmental functions of the town. Combining the internal service funds in this way simplified: the conversion of the fund-based information to the government-wide financial statement format. the preparation and presentation of the combining fund statements. the preparation of the notes to the financial statements. the presentation of the budgetary schedules.

Answer 59

the conversion of the fund-based information to the government-wide financial statement format. * Although classified as proprietary funds, the internal service funds of this town would be reported in the governmental activities column in the government-wide financial statements. * Presenting them in a single column facilitates the preparation of the government-wide statements as the internal service fund operations of the town would be considered governmental activities and the enterprise operations would be considered business-like activities. * Internal service funds are exempted from the major funds reporting requirements. * All enterprise funds could be shown in a single column in the basic financial statements if none would need to be shown separately as a major fund. * This aggregation does not change the notes disclosures required. Budgetary accounting, required for governmental funds, is not required for internal service funds.

Question 60

An entity having which of the following characteristics may not be a governmental organization? Power to enact and enforce a tax levy Body corporate and politic or exempt from federal taxation Body corporate and politic Exempt from federal taxation

Answer 60

Exempt from federal taxation ## Footnote Entities having status as bodies corporate and politic and entities with the power to enact and enforce a tax levy are each considered governmental organizations (joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments, paragraph 1.01). However, many nongovernmental organizations are exempt from federal taxation.

Question 61

An organization is normally considered a governmental organization if: the organization is exempt from federal taxation. None of the answer choices are correct. the organization is exempt from federal taxation and a controlling majority of the members of its governing board are appointed by state government officials. a controlling majority of the members of its governing board are appointed by state government officials.

Answer 61

a controlling majority of the members of its governing board are appointed by state government officials. ## Footnote The joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), states that an organization is a government if “a controlling majority of the members of the organization's governing body” are appointed or approved “by officials of one or more state or local governments.” In contrast, many nongovernmental organizations are exempt from federal taxation

Question 62

At the end of the fiscal year, a state government reported capital assets of $20 million, accumulated depreciation of $5 million, restricted assets of $3 million, and liabilities of $7 million. What amount should the government report as the total net position in its government-wide financial statements? $11 million $15 million $8 million $18 million

Answer 62

$11 million ## Footnote Net position is the residual of all other elements presented in a statement of financial position. The basic premise applies to full accrual accounting statements. **To avoid confusion, the GASB does not use the terms “net assets” or “fund balance.”** The increase or decrease in net position from one period to another should match that net change in the resources flows statement. The accounting equation for net position is Financial assets + Deferred outflows – Related liabilities – Deferred inflows, or $20 million + $3 million – $5 million – $7 million = $11 million.

Question 63

Brailsford County develops its government-wide financial statements using a worksheet to convert fund-based financial information at year-end. The $38,000 total fund balance for governmental funds is reclassified as net position. Brailsford also reported net position for the following funds: * Printing internal service fund $20,800 * Sewer enterprise fund 32,700 * Employee pension fund 16,500 The motor pool internal service fund provides service to the general fund departments. Before posting other conversions and adjustments, what amount should Brailsford show as net position for governmental activities? 1. $91,200 2. $38,000 3. $75,300 4. $58,800

Answer 63

$58,800 The net position of internal service funds are reported with governmental activities in government-wide statements because the activities accounted for in them are usually more governmental than business-type in nature. Thus, in this example, the total amount shown as net position for governmental activities is the $38,000 total net position derived from the governmental funds plus the $20,800 balance in the printing internal service fund. If enterprise funds are the predominant or only participants in an internal service fund, then the internal service fund would be reported along with the enterprise funds. Enterprise funds are reported as business-type activities in government-wide statements. Fiduciary funds (the pension fund) are not reported in the government-wide statements.

Question 64

The combining fund statements are: part of the comprehensive financial report but not part of the basic financial statements. part of the required supplementary information but not part of management's discussion and analysis. part of both the required supplementary information and management's discussion and analysis. part of both the comprehensive financial report and basic financial statements.

Answer 64

part of the comprehensive financial report but not part of the basic financial statements. ## Footnote .The basic financial statements required of state and local governments report fund financial statements for governmental and proprietary funds, focusing on major funds with nonmajor fund information aggregated or combined. The details of the aggregation of nonmajor funds are shown in the combining fund statements, which are not considered part of the basic financial statements but that are included in the financial section of comprehensive annual financial report. The financial statements are not reported as notes or required supplementary information.

Question 65

A government has the following liabilities at the end of the year: * General obligation bonds $1,500,000 * Compensated absences 120,000 * Salaries payable 40,000 What amount of liabilities should be reported in the governmental activities column of the government-wide statement of net position? 1. $160,000 2. $1,660,000 3. $1,540,000 4. $40,000

Answer 65

$1,660,000 The amount of liabilities reported in the governmental activities column of the government-wide statement of net position is $1,660,000 ($1,500,000 + $120,000 + $40,000). Governmental activities include all current and noncurrent governmental fund assets and liabilities, general capital assets (including infrastructure such as streets, roads, and bridges), general long-term liabilities, and the assets and liabilities of internal service activities that provide the majority of their services to general government departments.

Question 66

Which of the following are included in a local government's government-wide financial statements? Statement of net position and statement of activities Statement of net position and statement of revenues, expenditures, and changes in fund balances Statement of net position; statement of revenues, expenditures, and changes in fund balances; and statement of activities Statement of activities

Answer 66

Statement of net position and statement of activities The government-wide financial statements consist of a statement of net position and a statement of activities. A statement of revenues, expenditures, and changes in fund balances is a required financial statement for the governmental funds, but not a government-wide financial statement.

Question 67

Management's discussion and analysis, MD&A, to be issued with the financial statements of a state or local government should provide the user with each of the following, except: a careful pro forma presentation of the implications of current year's decisions for future financial statements. information about the primary government and matters related to a component unit if deemed appropriate in the managers' professional judgment. an objective and easily readable analysis based on currently known facts, decisions, or conditions. a fact-based analysis providing positive and negative aspects of comparisons with prior years.

Answer 67

a careful pro forma presentation of the implications of current year's decisions for future financial statements. ## Footnote While managers may wish to discuss implications and contingent outcomes of current decisions, these matters should be presented elsewhere in the comprehensive annual financial report, such as the letter of transmittal or in other supplementary information. The other answer choices consist of MD&A requirements discussed in GASB 2200.106–.109.

Question 68

Which of the following is a minimum required report for the basic financial statements of a government entity? Budgetary comparison schedules Fund financial statements Required supplementary information Management's discussion and analysis

Answer 68

Fund financial statements Of the answer choices provided, only the fund financial statements are a minimum required report for the basic financial statements. The required basic financial statements include the following: 1. Government-wide financial statements, including the statement of net position and statement of activities 2. Governmental funds financial statements, including the balance sheet; statement of revenues, expenditures, and changes in fund balances; and general fund and major special revenue funds statement of revenues, expenditures, and changes in fund balances 3. Proprietary funds financial statements 4. Fiduciary funds (and fiduciary component units) financial statements

Question 69

The required basic financial statements include the following: 1. \_\_\_financial statements, including the statement of net position and statement of activities 2. Governmental \_\_\_financial statements, including the balance sheet; statement of revenues, expenditures, and changes in fund balances; and general fund and major special revenue funds statement of revenues, expenditures, and changes in fund balances 3. \_\_\_funds financial statements 4. \_\_\_funds (and fiduciary component units) financial statements

Answer 69

Government-wide Funds Proprietary Fiduciary

Question 70

South City School District has a separately elected governing body that administers the public school system. The district's budget is subject to the approval of the city council. The district's financial activity should be reported in the City's financial statements by: inclusion as a footnote only. blending only. discrete presentation. either blending or inclusion as a footnote.

Answer 70

discrete presentation. . Discrete presentation should be used for this presentation of financial information unless the financial activities of the two entities are so intertwined as to make them substantially the same entity. Since this does not appear to be the case in this question, discrete presentation of the information is required.

Question 71

For which of the following funds do operating transfers affect the results of operations? Governmental funds, yes; Proprietary funds, yes Governmental funds, no; Proprietary funds, yes Governmental funds, no; Proprietary funds, no Governmental funds, yes; Proprietary funds, no

Answer 71

Governmental funds, yes; Proprietary funds, yes Consider that if an item impacts operations, then it should be a factor in the final results of operations. Governmental and proprietary funds require a statement of revenues and expenditures; fiduciary funds do not.

Question 72

A special-purpose unit of government such as a school board is considered a primary government if it meets which of the following criteria? 1. It has a separately elected governing body. 2. It is legally separate. 3. It is fiscally independent of other state and local governments. I or II and III I , II, and III I or II or III I and II or III

Answer 72

I , II, and III In order for an entity to be considered a primary government it must meet all three of the following criteria: 1. It has a separately elected governing body. 2. It is legally separate. 3. It is fiscally independent of other state and local governments

Question 73

Which format must an enterprise fund use to report cash flow operating activities in the statement of cash flows? Indirect method, beginning with change in net assets Indirect method, beginning with operating income Direct method Either direct or indirect method

Answer 73

Direct method GASB 2450.128 clarifies that, for proprietary funds, a statement of cash flows should be presented using the direct method. This contrasts with practice in not-for-profit and for-profit entities that follow FASB guidance allowing the use of either the indirect or the direct method. Thus, the other answer choices would not apply to the enterprise fund of a government.

Question 74

A summary reconciliation between fund financial statements and government-wide financial statements is required at the bottom of the fund statements or in an accompanying schedule. Assume that internal service funds provide goods and services for governmental functions. For the business-type activities portion of the government-wide statement of net position, the reconciliation should tie with the fund balance(s) of: all enterprise funds and discretely presented component units. all enterprise funds. all enterprise and fiduciary funds that provide support services to the business-type activities. all proprietary funds both enterprise and internal service.

Answer 74

all enterprise funds. * The business-like activities portion of the government-wide financial statements report the functions also reported in the enterprise funds and internal service funds providing goods and services to the enterprise funds. * In this problem, the internal service funds provide goods and services only for governmental functions. * Fiduciary fund information is not shown within the government-wide financial statements. * Discretely presented component unit information is shown separate from the governmental and business-like activities portions on the government-wide financial statements.

Question 75

Which of the following is necessary for a government to use the modified approach for infrastructure capital assets? 1. The system or subsystem of assets is managed using an asset management system with specified characteristics, and the government documents that the system or subsystem is being preserved at a target condition level determined by the reporting government. 2. The government documents that the system or subsystem is being preserved at a target condition level determined by the reporting government. 3. The system or subsystem of assets is managed using an asset management system with specified characteristics. 4. None of the answer choices are correct.

Answer 75

The system or subsystem of assets is managed using an asset management system with specified characteristics, and the government documents that the system or subsystem is being preserved at a target condition level determined by the reporting government. In order to use the modified approach for infrastructure capital assets, the system or subsystem of assets is managed using an asset management system with specified characteristics and government must document that the system or subsystem is being preserved at a target condition level determined by the reporting government. Both conditions must be met.

Question 76

for a government to use the modified approach for infrastructure capital assets, it is; A system or subsystem of assets is managed using an asset management system with specified \_\_\_, and the government documents that the system or subsystem is being preserved at a \_\_\_condition level determined by the \_\_\_\_government. GASB Statement 34 requires governments to present the management's discussion and analysis (MD&A) section as required supplementary information (RSI); since the purpose of MD&A is to introduce the basic financial statements and provide an analytical overview of the government's financial activities, it precedes the basic financial statements in the CAFR (comprehensive annual financial report). In addition to MD&A, \_\_\_comparison schedules are to be presented as RSI and also requires RSI for governments that use the \_\_\_approach for reporting infrastructure assets.

Answer 76

characteristics target , reporting budgetary , modified

Question 77

Clover City's government-wide financial statements should: report information about the overall government without displaying individual funds or fund types. be prepared using the modified accrual basis of accounting. not distinguish between governmental and business-type activities. include information about fiduciary activities.

Answer 77

report information about the overall government without displaying individual funds or fund types. * The government-wide financial statements consist of a statement of net position and a statement of activities. * Those statements should “report information about the overall government without displaying individual funds or fund types” (GASB 2200.110). * The statements should be prepared using the accrual basis of accounting and distinguish between governmental and business-type activities. Information about fiduciary funds should not be included in the statements.

Question 78

Palm City uses the modified approach for reporting eligible infrastructure assets. In which of the following components of its basic financial statements, if any, would Palm report this information? Required supplementary information Statement of activities Not required to report Letter of transmittal

Answer 78

Required supplementary information GASB Statement 34 requires governments that use the modified approach for reporting eligible infrastructure assets to present the following in the required supplementary information (RSI) section: the assessed condition for the three most recent condition assessments (with the assessment dates), and the estimated annual amount at the beginning of the fiscal year to maintain and preserve the target condition level established versus amounts actually expensed for each of the past five reporting periods.

Question 79

Which of the following statements is required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)? Management's discussion and analysis (MD&A) and required supplementary information (RSI) only Statement of net position only The financial statements required for governmental funds, including MD&A The financial statements required for proprietary funds such as enterprise funds, including MD&A and RSI

Answer 79

**The financial statements required for proprietary funds such as enterprise funds, including MD&A and RSI** Special-purpose governments engaged only in business-type activities are required to report by presenting the financial statements required for proprietary funds (enterprise funds and internal service funds) including notes, MD&A, and RSI.

Question 80

Which of the following funds should be reported as part of local government's governmental activities column in its government-wide statements? Pension trust Private-purpose trust Custodial Debt service

Answer 80

Debt service * The government-wide financial statements do not report the information that is included in the fiduciary funds. * Custodial, private-purpose trust, and pension trust are all fiduciary funds * . The debt service fund reports the payment of interest on the government's general long-term debt such as general obligation bonds * . Interest expense on general long-term debt should be reported in the government-wide statement of activities.

Question 81

State and local governments must report budgetary comparisons showing both the original and final appropriated budgets for the reporting period as well as actual inflows, outflows, and balances stated on the government's budgetary basis. If the budgetary perspective does not significantly differ from the fund reporting perspective, this budgetary comparison statement: may be included in the management's discussion and analysis (MD&A), the basic financial statements, or the required supplementary information (RSI). may be included in the basic financial statements or in the required supplementary information (RSI). must be included in required supplementary information (RSI). must be included in the basic financial statements.

Answer 81

**may be included in the basic financial statements or in the required supplementary information (RSI).** 1. Governments with significant budgetary perspective differences that preclude providing budgetary comparisons for the general fund and each major specific revenue fund are required to present budgetary comparison schedules as required supplementary information (RSI). 2. Other governments are encouraged to provide the budgetary comparison statement as RSI but may include it as part of the basic financial statements. 3. Budgetary comparison statements are not listed among the items to be included in management's discussion and analysis (MD&A).

Question 82

Governments with significant budgetary perspective differences that preclude providing budgetary comparisons for the general fund and each major specific revenue fund are required to present budgetary comparison schedules as \_\_\_. Other governments are encouraged to provide the budgetary comparison statement as RSI but may include it as part of the \_\_\_

Answer 82

required supplementary information (RSI) basic f/s

Question 83

In addition to the comprehensive annual financial report, CAFR, Brown Township wishes to provide users with a minimum set of general-purpose external financial statements. These statements should include: government-wide and fund financial statements, notes to the financial statements and management's discussion and analysis. government-wide and fund financial statements. government-wide and fund financial statements and notes to the financial statements. government-wide and fund financial statements, notes to the financial statements, management's discussion and analysis and other required supplementary information.

Answer 83

government-wide and fund financial statements, notes to the financial statements, management's discussion and analysis and other required supplementary information. The minimum requirements for general purpose external financial statements are illustrated in GASB 2200.103 and comprise MD&A, government-wide and fund financial statements with the notes to the financial statements, and RSI other than MD&A. Governments should prepare and publish a comprehensive annual financial report (CAFR), which includes information additional to the basic general-purpose financial statements.

Question 84

Cy City's Municipal Solid Waste Landfill Enterprise Fund was established when a new landfill was opened January 3, 2006. The landfill is expected to close December 31, 2027. Cy's 2006 expenses would include a portion of which of the year 2027 expected disbursements? 1. Cost of a final cover to be applied to the landfill 2. Cost of equipment to be installed to monitor methane gas buildup II only Both I and II I only Neither I nor II

Answer 84

Both I and II .GASB L10.103 states that both the costs of a final cover to be applied to the landfill, and costs of postclosing monitoring equipment should be included in the estimated total current cost of landfill closure and postclosure care. GASB L10.106 states that for landfills using proprietary fund accounting, a portion of the estimated total current cost of landfill closure and postclosure care should be recognized as an expense and liability in each period that the landfill accepts solid waste.

Question 85

Which of the following is information required by GAAP that governments must disclose related to debt and lease obligations? Principal and interest requirements to maturity, presented separately, for each of the four subsequent fiscal years and in 5-year increments thereafter Principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in 5-year increments thereafter Principal and interest requirements to maturity, presented separately, for each of the three subsequent fiscal years and in 5-year increments thereafter Principal and interest requirements to maturity, presented separately, for the subsequent fiscal year and in 5-year increments thereafter

Answer 85

Principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in 5-year increments thereafter GASB 1500.129 requires disclosure of principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in 5-year increments thereafter.

Question 86

Which of the following activities should be excluded when governmental fund financial statements are converted to government-wide financial statements? Government activities Proprietary activities Fiduciary activities Enterprise activities

Answer 86

Fiduciary activities * The government-wide financial statements display information about the reporting government as a whole. * The statements would report the governmental activities reported in the governmental funds and the proprietary and enterprise activities accounted for in enterprise funds. * The fiduciary activities are not considered part of the operations of the government itself and would not be included in the government-wide financial reports.

Question 87

If a city government is the primary reporting entity, which of the following is an acceptable method to present component units in its combined financial statements? Government-wide presentation Discrete presentation Consolidation Cost method

Answer 87

Discrete presentation ## Footnote Component units, legally separate organizations for which a primary government's elected officials are accountable, may appear in a government's financial statements in either discrete or blended presentation. In discrete presentation, users can distinguish between the component unit and the primary government, while in blended presentation the component unit is treated as an integral part of the primary government.

Question 88

State and local governments have various sources of revenue. When revenues are received from all types of taxes, these revenues are classified as: specific revenues. general revenues. program revenues. general revenues and program revenues.

Answer 88

general revenues. 1. Programs are financed with program revenues and general revenues. 2. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry as a whole; they reduce the net cost of the function to be financed from the government's general revenues. 3. All revenues are general revenues unless they are required to be reported as program revenues. 4. All taxes are general revenues.

Question 89

State and local governments have various sources of revenue. When revenues restricted to a particular function are derived from parties outside the reporting government's constituency, these revenues are classified as: general revenues. specific revenues. program revenues. general revenues and program revenues.

Answer 89

program revenues. * Programs are financed with program revenues and general revenues. * Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. * Financing from outside parties that is restricted to a specific program or programs is considered program revenue.

Question 90

For the purposes of defining the governmental financial reporting entity, a component unit of the primary government may not be: All of the choices listed may be component units. a not-for-profit organization. a governmental organization. a for-profit organization.

Answer 90

All of the choices listed may be component units. * All of the listed organizations—governmental, not-for-profit, and for-profit—may be a component unit of the primary government. * For the purposes of defining the governmental financial reporting entity, it is not required that the component unit of the primary government be a governmental or not-for-profit organization. * A for-profit corporation could be a component unit if the elected officials of the primary government are financially accountable.

Question 91

All of the following statements regarding notes to the basic financial statements of governmental entities are true except: notes that are considered essential to the basic financial statements need to be presented. it is acceptable to present notes in a very extensive format. the notes contain disclosures related only to required supplementary information. some notes presented by governments are identical to notes presented in business financial statements.

Answer 91

the notes contain disclosures related only to required supplementary information. * In the notes to the financial statements, both businesses and governments should include a note that summarizes the accounting policies related to the specific statements presented. * The notes are considered an integral part of the statements. * Although unnecessary and immaterial items should not be included, the extensive list of items a government should address in the notes of its financial statements covers material additional to “required supplementary information.” * Therefore, only “the notes contain disclosures related only to required supplementary information” is not true; GASB 2200.104 states that both notes and required supplementary information are required.

Question 92

A for-profit corporation could be a component unit if the elected officials of the primary government are \_\_\_

Answer 92

financially accountable.

Question 93

Nox City develops its government-wide financial statements using a worksheet to convert fund-based financial information at year-end. The $25,000 total fund balance for governmental funds is reclassified as net position. Nox also reported net position for the following funds: 1. Motor pool internal service fund $ 9,000 2. Water enterprise fund 12,000 3. Employee pension fund 7,000 The motor pool internal service fund provides service to the general fund departments. Before posting other conversions and adjustments, what amount should Nox show as net position for governmental activities? $46,000 $34,000 $25,000 $41,000

Answer 93

$34,000 * The net position of internal service funds are reported with governmental activities in government-wide statements because the activities accounted for in them are usually more governmental than business-type in nature. * Thus, in this example, the total amount shown as net position for governmental activities is the $25,000 total net position derived from the governmental funds plus the $9,000 balance in the motor pool internal service fund. * If enterprise funds are the predominant or only participants in an internal service fund, then the internal service fund would be reported along with the enterprise funds. * Enterprise funds are reported as business-type activities in government-wide statements * . Fiduciary funds (the pension fund) are not reported in the government-wide statements.

Question 94

In the government-wide financial statements, what is the correct revenue classification of fines and forfeitures? Operating grants and contributions Charges for services General revenues Capital grants and contributions

Answer 94

Charges for services The GASB has prescribed that fines and forfeitures are included in charges for services. They result from direct charges to those who are directly affected by a program or service, even though they receive no benefit.

Question 95

* In order to remain economically stable, Bradford County believes it needs to maintain the many trails in the county that attract tourists to come and visit. * A Trail Preservation Coalition was created by the county and organized as a separate legal entity. * The Coalition is governed by a three-person board appointed for 4-year staggered terms by the county commission. * The coalition uses the proceeds of its tax-exempt bonds to finance the maintenance or construction of new trails for the county only. The Coalition owns a building it leases to the county. The bonds are secured by the lease agreement with the county and will be retired through lease payments from the county. Which of the following statements is correct? 1. The Trail Preservation Coalition is a component unit and the county will make a note disclosure only. 2. The Trail Preservation Coalition is a component unit and will be reported as discretely presented in the county's financial statements. 3. The Trail Preservation Coalition is not a component unit of the county and will not be reported by the county. 4. The Trail Preservation Coalition is a component unit and will be reported as blended with the county's funds.

Answer 95

The Trail Preservation Coalition is a component unit and will be reported as blended with the county's funds.

Question 96

State and local governments have various sources of revenue. When revenues are received from Unrestricted Grants, these revenues are classified as: general revenues. specific revenues. program revenues. general revenues and program revenues.

Answer 96

general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Grants and contributions are considered program revenues if restricted to a specific or to several specific programs. Otherwise, they are reported as general revenues.

Question 97

On the statement of activities for government-wide financial reporting, revenues are all considered general revenues unless they are required to be reported as program revenues. Program revenues reported separately from general revenues consist of: 1. charges for services provided by a specific program. 2. program-specific grants and contributions. 3. taxes levied for a specific purpose. II and III I and III I and II I, II, and III

Answer 97

I and II GASB 2200.140 states that all revenues are general revenues unless they are required to be reported as program revenues. All taxes, even those levied for a specific purpose, are general revenues. Program revenues consist of charges for services and program-specific grants and contributions.

Question 98

Which of the following is the most correct statement regarding the scope of a government's MD&A? 1. Information that does not relate to the required topics of MD&A may be included in the MD&A, provided it replicates information contained elsewhere, such as in the letter of transmittal or in other forms of supplementary information. 2. Governments should present any information they believe is needed to support their analysis of financial position and results of operations. 3. Governments should only present that information needed to support their analysis of financial position and results of operations prescribed by GASB Statement 34 for MD&A. 4. Any information presented within a CAFR in the form of an analysis of financial position must be replicated in the MD&A, even when provided elsewhere, such as in the letter of transmittal or in other forms of supplementary information.

Answer 98

Governments should only present that information needed to support their analysis of financial position and results of operations prescribed by GASB Statement 34 for MD&A. GASB 2200.109, which codifies elements of GASB Statement 34, indicates that MD&A “should be confined to the topics discussed” in the included list. Footnote 8 adds that information about other than the prescribed topics should be provided elsewhere in the financial statements.

Question 99

* Civic Town has a number of enterprise funds, some reported as major funds in the basic financial statements and some considered as nonmajor funds, reported in aggregated form. * One of these nonmajor funds, the Airport fund, accounts for the operations of a small airport used intermittently by hobbyists. * Due the requirements of a grant, Airport fund expenses must be reported in more detail than the other nonmajor enterprise funds with which the Airport fund is aggregated. _This information can best be shown in the comprehensive annual financial report by:_ 1. providing schedules supporting Airport fund information. 2. adding information about the Airport fund to the required supplementary information. 3. including the Airport fund in the combining fund statements of governmental funds. 4. including the Airport fund in the combining funds statements of the enterprise funds.

Answer 99

providing schedules supporting Airport fund information. * The question makes it clear that the expense categories in the combining enterprise funds statements are not detailed enough for the grant reporting. * The additional detail is not one of the items required as supplementary information. * The Airport fund would not be included in the combining fund statements of governmental funds because it is an enterprise fund. * The additional detail should be shown in a schedule in order to show compliance with finance-related legal and contractual provisions.

Question 100

Required supplementary information (RSI), other than management's discussion and analysis, may include the following: 1. \_\_\_schedules for the general fund and major special revenue funds (if not presented as basic financial statements) 2. Information on infrastructure \_\_\_assets reported using the \_\_\_approach 3. Schedules of changes in the \_\_\_and of employer \_\_\_for pension plans and other postemployment benefit plans

Answer 100

Budgetary comparison capital assets, modified liability, contributions, OPEB

Question 101

Blue City's finance staff is analyzing expenses for presentation on the government-wide statement of activities. The City has some notes payable that clearly benefit specific governmental functions, but most of the city's long-term debt consists of general long-term liabilities. How should the interest on the debt be reported? Combine all interest payments together and report on a separate line as a direct expense. Combine all interest payments together and report separately at the bottom of the statement. Report the interest from the notes payable benefiting specific functions as a direct expense of those functions and include the remaining interest in the cost allocations of indirect expense. Report the interest from the notes payable benefiting specific functions as a direct expense of those functions and report the remaining interest as a separate line as an indirect expense

Answer 101

**Report the interest from the notes payable benefiting specific functions as a direct expense of those functions and report the remaining interest as a separate line as an indirect expense.** * Interest that clearly derives from borrowing that is essential to support a program should be reported as a direct expense of that program, and interest that does not qualify as a direct expense should be reported as a separate line. * The two types of interest should not be combined. Interest is reported as a component of other functions or a separate line, but not at the bottom of the statement. * Although interest on long-term debt is usually an indirect expense, it should be reported as a separate line and not allocated.

Question 102

Which of the following would be reported as program revenues on a local government's government-wide statement of activities? Proceeds from the sale of a capital asset used for a specific function Taxes levied for a specific function Charges for services Interest revenues

Answer 102

Charges for services * Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. * Charges for services are always program revenues. Taxes are always general revenues, even if restricted to a particular program. * Financing provided by the government itself is usually a general revenue. * Proceeds from the sale of a capital asset and investment revenues are provided by the government itself.

Question 103

A city government would report each of the following categories in its government-wide statement of net position except: business-type activities. component units. fiduciary activities. governmental activities.

Answer 103

fiduciary activities. The government-wide financial statements report governmental activities, business-type activities, the primary government totals, and discretely presented component units. Fiduciary funds and fiduciary component units are not included in these statements.

Question 104

Polk County’s solid waste landfill operation is accounted for in a governmental fund. Polk used available cash to purchase equipment that is included in the estimated current cost of closure and postclosure care of this operation. How would this purchase affect the long-term asset and the long-term liability amounts in Polk’s general fund? Asset amount, increase; Liability amount, decrease Asset amount, increase; Liability amount, no effect Asset amount, no effect; Liability amount, decrease Asset amount, no effect; Liability amount, no effect

Answer 104

Asset amount, no effect; Liability amount, no effect ## Footnote Certain costs, which result in disbursements near or after the date that the landfill stops accepting solid waste and during the postclosure period, should be included in the estimated total current cost of closure and postclosure care, regardless of their capital or operating nature. Since the equipment would not be capitalized under this guideline, there would not be any effect on assets. No liabilities are created because available cash was used.

Question 105

Tree City reported a $1,500 net increase in fund balance for governmental funds. During the year, Tree purchased general capital assets of $9,000 and recorded depreciation expense of $3,000. What amount should Tree report as the change in net position for governmental activities? $10,500 $7,500 $1,500 $(4,500)

Answer 105

$7,500 ## Footnote The reconciliation of the $1,500 increase in governmental fund balances (modified accrual basis) to the government-wide change in net position (full accrual basis) involves adding back the expenditure recorded in the governmental funds when the capital assets were purchased (+ $9,000) and subtracting the depreciation expense required with full accrual (− $3,000).

Question 106

Answer 106

$0 ## Footnote General long-term liabilities should be reported in the governmental activities column in the government-wide statement of net position, not the government-wide statement of activities. Further, bonds which will be serviced by an enterprise fund should be reported in the business-type activities column of the government-wide statement of net position. The bonds for the garbage collection enterprise fund and the revenue bonds for the zoo would also be reported in each enterprise fund.

Question 107

The finance director of Wish Town is trying to streamline operations and notes that extensive effort is invested each year in preparing the comprehensive annual financial report. Since so many of the same items need to be addressed each year in the MD&A (management's discussion and analysis), several simplifying strategies have been considered. Which of the following should be avoided? Be careful to restrict information discussed in MD&A to the specific items listed by the GASB standards Simply use “boilerplate” language and cut and paste each year's MD&A using the same text Focus the MD&A discussion on the primary government Use condensed information derived from government-wide financial statements comparing to prior-year results

Answer 107

Simply use “boilerplate” language and cut and paste each year's MD&A using the same text In GASB 2200.109, managers are clearly encouraged to avoid “boilerplate” discussion in preparing the annual MD&A. The MD&A should focus on the primary government, be restricted to specifically listed information, and use condensed financial information for year-to-year comparisons.

Question 108

A government-wide statement of net position must include which of the following? Prior-year comparative financial data A consolidation of all government-wide activities Primary government fiduciary fund data A distinction between governmental and business-type activities

Answer 108

A distinction between governmental and business-type activities * The government-wide financial statements report governmental activities, business-type activities, the primary government totals, and discretely presented component units. * All data in the government-wide statements are presented on the accrual (revenue and expense) basis and use the economic resources measurement focus * . Fiduciary funds and fiduciary component units are not included in these statements. * Governmental activities and business-type activities are reported separately.

Question 109

What is the basic criterion used to determine the reporting entity for a governmental unit? Scope of public services Financial accountability Special financing arrangement Geographic boundaries

Answer 109

Financial accountability GASB 2100.111 states that “the financial reporting entity consists of the primary government and organizations for which the primary government is **financially accountable**.... In addition, the primary government may determine through the exercise of management's professional judgment that the inclusion of an organization that does not meet the financial accountability criteria is necessary in order to prevent the reporting entity's financial statements from being misleading.” Thus, the basic criterion for determining whether another organization should be part of the reporting entity is financial accountability.

Question 110

The basic financial statements of a general purpose government should include: 1. government-wide financial statements and fund financial statements. 2. fund financial statements and the notes to the financial statements. 3. government-wide financial statements, fund financial statements, and the notes to the financial statements. 4. government-wide financial statements and the notes to the financial statements.

Answer 110

**government-wide financial statements, fund financial statements, and the notes to the financial statements.** ## Footnote The basic financial statements include government-wide financial statements, fund financial statements, and the notes to the financial statements per GASB 2200.102. The minimum requirements for general purpose external financial reporting include, in addition to the basic financial statements, management's discussion and analysis, and required supplementary information other than management's discussion and analysis.

Question 111

Hunt Community Development Agency (HCDA), a financially independent authority, provides loans to commercial businesses operating in Hunt County. This year, HCDA made loans totaling $500,000. How should HCDA classify the disbursements of loans on the cash flow statement? Capital and related financing activities Noncapital financing activities Investing activities Operating activities

Answer 111

Operating activities * Normally, loan activities are classified as investing activities. * The Development Agency's loans, however, are not intended to be investments, but are undertaken instead to fulfill a governmental responsibility. * Therefore, for cash flow reporting purposes, these loans are the primary operating activity of the governmental enterprise. The related cash flows should be classified as operating activities. * All loans made and collected (including interest) should be considered operating cash outflows and inflows, respectively.

Question 112

Which of the following statements regarding fiduciary funds is true? Revenues and expenses are reported in the statement of changes in net position for investment trust funds. Fiduciary funds and fiduciary component units are not reported in the government-wide financial statements. Private-purpose trust funds are governmental funds. Custodial funds are not required to report a statement of changes in net position.

Answer 112

Fiduciary funds and fiduciary component units are not reported in the government-wide financial statements. Fiduciary funds and fiduciary component units represent assets held in a trust or custodial capacity by the government. They may not be used to support government programs and, as such, are not reported in the government-wide financial statements. Custodial funds are required to report a statement of changes in net position in the fund financial statements. Private-purpose trust funds are fiduciary funds, not governmental funds. Investment trust funds do not report revenues and expense in the statement of changes in net position; additions and deductions are reported.

Question 113

In preparing Chase City's reconciliation of the statement of revenues, expenditures, and changes in fund balances to the government-wide statement of activities, which of the following items should be subtracted from changes in fund balances? Capital assets purchases Payment of long-term debt principal Book value of capital assets sold during the year Internal service fund increase in net position

Answer 113

Book value of capital assets sold during the year * . In preparing government-wide financial statements, internal service fund assets and liabilities would be added to those of governmental activities, requiring an addition, not subtraction, to net position. * When capital assets were sold, the entire sales price would have been an increase to governmental fund balances, but only the gain on sale would be an addition to net position. **Therefore, the book value of capital assets sold during the year is the only item requiring a subtraction to reconcile to the changes in net position.**

Question 114

A government entity is required to include a statement of cash flows in which of the following financial statements? Proprietary fund financial statements Fiduciary fund financial statements Government-wide financial statements Governmental fund financial statements

Answer 114

Proprietary fund financial statements * .Proprietary fund financial statements include statement of net position; statement of revenues, expenses, and changes in net position; and statement of cash flows. * The statement focuses on major enterprise funds and on the internal service fund type, and the direct method of presenting cash flows from operating activities is required. * GASB requires that the statement classify cash flows in four activities categories (operating, noncapital financing, capital and related financing, and investing) and requires that all financing activities be classified as either noncapital or capital and related, depending on whether they are solely for capital asset construction, acquisition, or improvement.

Question 115

Financial statements. Three proprietary fund financial statements are required: 1. Statement of\_\_\_ 2. Statement of\_\_\_\_ 3. Statement of \_\_\_

Answer 115

net position revenues, expenses, and changes in net position cash flow