g&p ch9

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TRUE

Most citizens and financial statement users do not have a clear understanding of the financial reporting
entity whose financial position, results of operations, and cash flows are included in an annual
financial report.

true

According to the guidance of GASB Concepts Statement 3, financial information can be
communicated by recognition in the financial statements, disclosure in the notes to the financial
statements, presentation as required supplementary information, or presentation as supplementary
information.

FALSE

State and local governments should prepare only those financial reports required by law—generally
year-end financial statements.

FALSE

A financial reporting entity is defined as a primary government, as well as all other organizations that
have an operational relationship with the primary government.
FALSE

true

A component unit is dependent on the primary government if the primary government is obligated for
its debt.

FALSE

Comprehensive annual financial reports of state and local governments should include (1) an
introductory section, (2) a financial section, and (3) a supplemental section.

FALSE

The MD&A should provide information that is prospective in nature.

true

Statistical tables included in comprehensive annual financial reports should provide social and
economic data, in addition to financial data, to assist financial statement users in better understanding
the activities and condition of the government.

FALSE

The accounting system used by a state or local government must make it possible to prepare financial
statements as required by the Financial Accounting Standards Board.

FALSE

Under GASB standards, the financial statements that report on business-type activities at the
government-wide level include the statement of net assets, statement of activities, and statement of
cash flows.

TRUE

Fiduciary activities are not reported in the government-wide financial statements under GASB
standards.

FALSE

Other comprehensive bases of accounting (OCBOA) are considered generally accepted accounting
principles (GAAP) for state and local governments.

FALSE

In converting from the modified accrual basis of accounting information in a governmental fund
to accrual basis for the government-wide statements, capital assets acquired by a governmental
fund are deducted from fund balance—governmental funds to arrive at net assets of governmental
activities.

FALSE

In preparation of government-wide statements, converting information recorded using the modified
accrual basis of accounting to the accrual basis, where appropriate, is conceptually preferable to using
information directly from the accounting system to prepare the statements.

TRUE

GASB reporting objectives emphasize the role of accountability in external financial reporting, and
describe accountability as the "paramount objective from which all other objectives must flow."

TRUE

One of the required reconciliations in converting governmental fund financial statements to
governmental activities statements at the government-wide level is to adjust for internal service funds'
assets, liabilities, operating income (loss), and transfers.

To provide information that can be used to assess a government's accountability

Which of the following is an objective of financial reporting by state and local governments?
A. The same as the objectives of financial reporting by business enterprises.
B. To report on the legal requirements imposed on the government by its elected officials.
C. To provide information that can be used to assess a government's accountability.
D. To fulfill the government's statutory duty to report on cash received and cash disbursed.

The primary government provides advice regarding the PCU's budget.

Which of the following factors would not indicate that a potential component unit (PCU) is dependent
on the primary government?
A. The primary government provides advice regarding the PCU's budget.
B. The primary government is obligated to provide financial support to the PCU.
C. The primary government is obligated for the PCU's debt.
D. The primary government is entitled to the PCU's resources.

Officials of the primary government appoint a majority of the members of the PCU's governing
board and the primary government is able to impose its will on the PCU.

Which of the following circumstances would indicate that a potential component unit (PCU) should be
included as part of the governmental financial reporting entity?
A. The primary government does not approve the operating budget of the potential component unit.
B. Officials of the primary government appoint a majority of the members of the governing board of
the PCU.
C.
The PCU has sufficient operational and financial dependence that the primary government can
impose its will on the PCU.
D
.
Officials of the primary government appoint a majority of the members of the PCU's governing
board and the primary government is able to impose its will on the PCU.

integration of government-wide financial reporting and fund accounting.

Which of the following best describes the GASB financial reporting model for state and local
governments?
A. Required comprehensive annual financial reports for all public entities.
B. Integration of government-wide financial reporting and fund accounting.
C. Cash basis accounting.
D. Focus on individual funds.

As supplementary information in the comprehensive annual financial report (CAFR).

Combining financial statements for nonmajor funds of a government should be included in
A. The basic financial statements.
B. The notes to the financial statements.
C. As supplementary information in the comprehensive annual financial report (CAFR).
D. As part of the statistical section of the comprehensive annual financial report (CAFR).

Letter of transmittal.

Which of the following would not be included within the financial section of the comprehensive
annual financial report (CAFR)?
A. Letter of transmittal.
B. Management's discussion and analysis (MD&A).
C. Independent auditor's report.
D. Required supplementary information (RSI).

A forecast of revenues and expenditures for the next three fiscal years

Which of the following kinds of information would not be provided by Management's discussion and
analysis (MD&A)?
A. A narrative explanation of the contents of the CAFR.
B. A description of the government's financial condition.
C. A forecast of revenues and expenditures for the next three fiscal years.
D. A discussion of economic factors and the budget and tax rates approved for the next year.

Operating grants and contributions

Which of the following is a required program revenue category in the government-wide statement of
activities?
A. Special assessments.
B. Operating grants and contributions.
C. Sales taxes.
D. Transfers.

Acquisition of a building to be used by the police department.

Which of the following would increase the balance in net assets—invested in capital assets, net of
related debt?
A. Acquisition of a building to be used by the police department.
B. Issuance of long-term debt to be used to acquire equipment for the police department.
C.
A gift of land to the city restricted by the donor to be used by the city airport, which is accounted
for as an enterprise fund.
D. Recording annual depreciation on capital assets.

The potential component unit raises taxes without the approval of the primary government

Which of the following is evidence of fiscal independence for the purpose of considering whether one
legally separate organization is a component unit of another?
A. The potential component unit is precluded from issuing long-term debt.
B. The potential component unit raises taxes without the approval of the primary government.
C. The budget of the potential component unit must be approved by the primary government.
D.
The board or council of the potential component unit includes members of the primary
government's management team.

Government-wide financial statements plus fund financial statements plus notes.

What constitutes the basic financial statements of a government?
A. Financial section of the comprehensive annual financial report (CAFR).
B. Government-wide financial statements plus notes.
C. Government-wide financial statements plus fund financial statements plus notes.
D.
Government-wide financial statements plus fund financial statements plus notes plus required
supplementary information (RSI).

Eliminating receivables and payables between governmental and enterprise funds

Which of the following actions is not required to convert data from the governmental fund financial
statements to enable preparation of the government-wide financial statements?
A. Adding annual depreciation expense proportionately to functional expense categories.
B. Eliminating interfund payables and receivables between governmental funds.
C. Aggregating fund information.
D. Eliminating receivables and payables between governmental and enterprise funds.

Function and character.

What is the minimum level of detail required for expenditures presented in the governmental fund
statement of revenues, expenditures, and changes in fund balance?
A. Program and object.
B. Function and character.
C. Program and department.
D. Character and object.

Statistical section

Which of the following is one of the three sections of a comprehensive annual financial report?
A. Statistical section.
B. Single audit section.
C. Supplementary section.
D. Investment section

Economic resources measurement focus and the accrual basis of accounting

Government-wide financial statements present the government's financial position using
A. Total financial resources measurement focus and the accrual basis of accounting.
B. Economic resources measurement focus and the accrual basis of accounting.
C. Current financial resources measurement focus and the modified accrual basis of accounting.
D. Current financial resources measurement focus and the cash basis of accounting.

Statement of net assets and statement of activities

The government-wide financial statements required by GASB standards are a
A. Statement of net assets and statement of cash flows.
B. Statement of net assets, statement of activities, and statement of cash flows.
C. Statement of net assets and statement of activities.
D. Statement of activities and statement of cash flows

Government-wide financial statements

Infrastructure assets and long-term liabilities issued to finance infrastructure should be reported in
the
A. Letter of transmittal.
B. Fund financial statements.
C. Management's discussion and analysis.
D. Government-wide financial statements.

In aggregate amounts in a single column in the fund financial statements

Under GASB standards, nonmajor funds are reported
A. In the management's discussion and analysis preceding the financial statements.
B. In aggregate amounts in a single column in the fund financial statements.
C. In a note disclosure following the financial statements.
D. In the government-wide financial statements.

Discretely presented component unit.

The Clinton school district is a legally separate organization, but two of its seven board members are
also city council members and the district is financially dependent upon the city. The school district
should be reported as a
A. Blended component unit.
B. Component unit by note disclosure.
C. Discretely presented component unit.
D. Primary government.

The library is a component unit.

Balsam City's library board is appointed by the city council which has agreed to subsidize the
operating costs of the library at a material amount to be determined each year. In addition, the city is
paying debt service on general obligation bonds issued to construct the library. Based on generally
accepted accounting principles (GAAP) criteria for defining the reporting entity:
A. The library is a component unit.
B. The library is not a component unit.
C.
Financial data for the library's General Fund should be blended with the financial data for the city's
special revenue funds.
D. The library can avoid being a component unit by establishing itself as a legally separate
organization.

Proprietary but not governmental funds.

The comprehensive annual financial report (CAFR) of a government should contain a statement of
revenues, expenses, and changes in net assets for
A. Both proprietary and governmental funds.
B. Governmental but not proprietary funds.
C. Proprietary but not governmental funds.
D. Both proprietary and fiduciary funds.

Capital outlays.

Which of the following items are typically reported differently between the governmental fund
statements and the Governmental Activities column of the government-wide statements?
A. Capital outlays.
B. Cash collected on property taxes receivable.
C. Accounts payable and other accrued expenses.
D. Inventories.

Providing information via newsletters

Which of the following is not one of the methods recommended by the GASB for communicating
information to external users of government financial reports?
A. Providing information via newsletters.
B. Recognition in the financial statements.
C. Presentation as required supplementary information.
D. Disclosure in the notes to the financial statements.

Popular report

Some governments provide to their citizens highly condensed financial information, budget
summaries, and narrative descriptions. This report is called a(an)
A. Comprehensive annual financial report.
B. Basic financial statements.
C. Required supplementary information.
D. Popular report.

component units

a separate government or agency that is combined for purposes of reporting the whole entity

financial accountability

the responsibility that exists when a primary government appoints a voting majority of an organizations governing board and is able to impose its will on the organization or b there is a potential for the organization to provide financial benefits or impose a financial burden on the primary government

primary governments

a state government general purpose local government or special purpose government that is independent of other state or local governments

other stand alone governments

a legally separate governmental organization that does not have a separately elected government body

financial reporting entity

primary government and all related component units

always added to fund balances governmental funds

capital assets used under governmental activities

always be subtracted from fund balances governmental funds

long term liabilities that are not payable in current period

may be added to or subtracted from fund balances

net assets of internal funds that are primarily governmental in nature

always be subtracted from fund balances governmental funds

accrued interest payable not due in current period

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