Advertisement Upgrade to remove ads

Advanced Financial Accounting Multiple Choice Questions

Encumbrances would not appear in which fund?

a. Capital projects
b. Special revenue
c. General
d. Enterprise

d. Enterprise

Roy City received a gift, the principal of which is to be invested in perpetuity with the income to be used to support the local library. In which fund should this gift be recorded?

a. Permanent fund
b. Investment trusts fund
c. Private-purpose trusts fund
d. Special revenue fund

a. Permanent fund

During the current year, the Finn Foundation, a nongovernmental not for-profit organization, received a $1,000,000 permanent endowment from Chris. Chris stipulated that the income must be used to provide recreational activities for the elderly. The endowment reported income of $80,000 in the current year. What amount of permanently restricted contribution revenue should Finn report at the end of the current year?

a. $1,080,000
b. $1,000,000
c. $ 80,000
d. $0

b. $1,000,000

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

a. Proprietary activities
b. Fiduciary activities
c. Government activities
d. Enterprise activities

b. Fiduciary activities

Pann, a nongovernmental not-for profit organization, provides food and shelter to the homeless. Pann received a $15,000 gift with the stipulation that the funds be used to buy beds. In which net asset class should Pann report the contribution?

a. Endowment
b. Temporarily restricted
c. Permanently restricted
d. Unrestricted

b. Temporarily restricted

Nongovernmental not-for-profit organizations are required to provide which of the following external financial statements?

a. Statement of financial position, statement of activities, statement of cash flows
b. Statement of financial position, statement of comprehensive income, statement of cash flows
c. Statement of comprehensive income, statement of cash flows, statement of gains and losses
d. Statement of cash flows, statement of comprehensive income, statement of unrelated business income

a. Statement of financial position, statement of activities, statement of cash flows

Fenn Museum, a nongovernmental not-for-profit organization, had the following balances in its statement of functional expenses:

Education $300,000
Fundraising 250,000
Mgmt & general 200,000
Research 50,000

What amount should Fenn report as expenses for support services?

a. $350,000
b. $450,000
c. $500,000
d. $800,000

b. $450,000

Jonn City entered into a capital lease for equipment during the year. How should the asset obtained through the lease be reported in Jonn City's government-wide statement of net assets?

a. General capital asset
b. Other financing use
c. Expenditure
d. Not reported

a. General capital asset

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?

a. Capital assets purchases
b. Payment of long-term debt principal
c. Internal service fund increase in net assets
d. Book value of capital assets sold during the year

d. Book value of capital assets sold during the year

A nongovernmental not-for-profit organization received a $2 million gift from a donor who specified it be used to create an endowment fund that would be invested in perpetuity. The income from the fund is to be used to support a specific program in the second year and beyond. An investment purchased with the gift earned $40,000 during the first year. At the end of the first year, the fair value of the investment was $2,010,000. What is the net effect on temporarily restricted net assets at year end?

a. $0
b. $10,000 increase
c. $40,000 increase
d. $50,000 increase

d. $50,000 increase

Toigo Co. purchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows:
November 20 $1.25
December 31 1.20
January 20 1.17

How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31?

a. A gain of $40,000 as a separate component of stockholders' equity
b. A gain of $40,000 in the income statement
c. A gain of $25,000 as a separate component of stockholders' equity
d. A gain of $25,000 in the income statement

d. A gain of $25,000 in the income statement

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?

a. Consolidation
b. Cost method
c. Discrete presentation
d. Government-wide presentation

c. Discrete presentation

A company reported $6 million of goodwill in last year's statement of financial position. How should the company account for the reported goodwill in the current year?

a. Determine the current year's amortizable amount and report the current-year's amortization expense.
b. Determine whether the fair value of the reporting unit is greater than the carrying amount and report a gain on goodwill in the income statement.
c. Determine whether the fair value of the reporting unit is less than the carrying amount and report an impairment loss on goodwill in the income statement.
d. Determine whether the fair value of the reporting unit is greater than the carrying amount and report the recovery of any previous impairment in the income statement.

c. Determine whether the fair value of the reporting unit is less than the carrying amount and report an impairment loss on goodwill in the income statement.

Which of the following is included in other comprehensive income?

a. Unrealized holding gains and losses on trading securities.
b. Unrealized holding gains and losses that result from a debt security being transferred into the held-to-maturity category from the available-for-sale category.
c. Foreign currency translation adjustments.
d. The difference between the accumulated benefit obligation and the fair value of pension plan assets.

c. Foreign currency translation adjustments.

In Soan County's general fund statement of revenues, expenditures, and changes in fund balances, which of the following has an effect on the excess of revenues over expenditures?

a. Purchase of fixed assets.
b. Payment to a debt-service fund.
c. Special items.
d. Proceeds from the sale of capital assets.

a. Purchase of fixed assets.

How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its statement of revenues, expenses, and changes in net assets?

a. Operating revenues.
b. Nonoperating revenues.
c. Capital contributions.
d. Other financing sources.

b. Nonoperating revenues.

What is the major difference between an exchange transaction and a non-exchange transaction for governmental units?

a. The relationship between the amount of value given and received.
b. Time requirements and whether the transaction is required by law.
c. Purpose restrictions placed upon fund balances.
d. Whether resources acquired can be further exchanged.

a. The relationship between the amount of value given and received.

A nongovernmental not-for-profit animal shelter receives contributed services from the following individuals valued at their normal billing rate: Veterinarian provides volunteer animal care $8,000 Board members volunteer to prepare books for audit 4,500 Registered nurse volunteers as receptionist 3,000 Teacher provides volunteer dog walking 2,000 What amount should the shelter record as contribution revenue?

a. $8,000
b. $11,000
c. $12,500
d. $14,500

c. $12,500

Whitestone, a nongovernmental not-for-profit organization, received a contribution in December, Year 1. The donor restricted use of the contribution until March, Year 2. How should Whitestone record the contribution?

a. Footnote the contribution in Year 1 and record as income when it becomes available in Year 2.
b. No entry required in Year 1 and record as income in Year 2 when it becomes available.
c. Report as income in Year 1
d. Report as deferred income in Year 1.

c. Report as income in Year 1

A nongovernmental, not-for-profit organization received the following donations of corporate stock during the year: Donation 1 Donation 2 Number of shares 2,000 3,000 Adjusted basis $8,000 $5,500 Fair market value at time of donation 8,500 6,000 Fair market value at year end 10,000 4,000 What net value of investments will the organization report at the end of the year?

a. $12,000
b. $13,500
c. $14,000
d. $14,500

c. $14,000

King City Council will be establishing a library fund. Library fees are expected to cover 55% of the library's annual resource requirements. King has decided that an annual determination of net income is desirable in order to maintain management control and accountability over library. What type of fund should King establish in order to meet their measurement objectives?

a. Special revenue fund.
b. General fund.
c. Internal service fund.
d. Enterprise fund.

d. Enterprise fund.

Which of the following statements are required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)?

a. Statement of net assets only.
b. Management's Discussion and Analysis (MD&A) and Required Supplementary Information (RSI) only.
c. The financial statements required for governmental funds, including MD&A.
d. The financial statements required for enterprise funds, including MD&A and RSI.

d. The financial statements required for enterprise funds, including MD&A and RSI.

Brandon County's general fund had the following transactions during the year: Transfer to a debt service fund $100,000 Payment to a pension trust fund 500,000 Purchase of equipment 300,000 What amount should Brandon County report for the general fund as other financing uses in its governmental funds statement of revenues, expenditures, and changes in fund balances?

a. $100,000
b. $400,000
c. $800,000
d. $900,000

a. $100,000

During the current year, the local humane society, a nongovernmental not-for-profit organization, received a $100,000 permanent endowment from Cobb. Cobb stipulated that the income must be used to care for older horses that can no longer race. The endowment reported income of $8,000 in the current year. What amount of unrestricted contribution revenue should the humane society report for the current year?

a. $108,000
b. $100,000
c. $8,000
d. $0

d. $0

How should operating expenses for a nongovernmental not-for-profit organization be reported?

a. Change in temporarily restricted net assets.
b. Change in unrestricted net assets.
c. Change in permanently restricted net assets.
d. Contra-account to associated revenues.

b. Change in unrestricted net assets.

Jordan Co. had the following gains during the current period:

Gain on disposal of business segment $500,000
Foreign currency translation gain 100,000

What amount of extraordinary gain should be presented on Jordan's income statement for the current period?

a. $0
b. $100,000
c. $500,000
d. $600,000

a. $0

A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating

Salaries Sales to
expense external customers
a. Yes Yes
b. Yes No
c. No Yes
d. No No

Salaries Sales to
expense external customers
a. Yes Yes

Harland County received a $2,000,000 capital grant to be equally distributed among its five municipalities. The grant is to finance the construction of capital assets. Harland had no administrative or direct financial involvement in the construction. In which fund should Harland record the receipt of cash?

a. Agency fund.
b. General fund.
c. Special revenue fund.
d. Private purpose trust fund.

a. Agency fund.

Which of the following funds should be reported as part of local government's governmental activities column in its government-wide statements?

a. Debt service.
b. Agency.
c. Private-purpose trust.
d. Pension trust.

a. Debt service.

Which format must an enterprise fund use to report cash flow operating activities in the statement of cash flows?

a. Indirect method, beginning with operating income.
b. Indirect method, beginning with change in net assets.
c. Direct method.
d. Either direct or indirect method.

c. Direct method.

Tang City received land from a donor who stipulated that the land must remain intact, but any income generated from the property may be used for general government services. In which fund should Tang City record the donated land?

a. Special revenue.
b. Permanent.
c. Private-purpose trust.
d. Agency.

b. Permanent.

Nack City received a donation of a valuable painting. Nack planned to add the painting to its collection and display it in the protected exhibition area of city hall. Nack had a policy that if such donated art works were sold, the proceeds would be used to acquire other items for its collections. Which of the following would be correct regarding the donated painting?

a. Must be capitalized and depreciated.
b. Must be capitalized but not depreciated.
c. May be capitalized, but it is not required, and it must be depreciated.
d. May be capitalized, but it is not required, and depreciation is not required.

d. May be capitalized, but it is not required, and depreciation is not required.

How should a nongovernmental not-for-profit organization report depreciation expense in its statement of activities?

a. It should not be included.
b. It should be included as a decrease in unrestricted net assets.
c. It should be included as an increase in temporarily restricted net assets.
d. It should be reclassified from unrestricted net assets to temporarily restricted net assets, depending on donor-imposed restrictions on the assets.

b. It should be included as a decrease in unrestricted net assets.

Arkin Corp. is a nongovernmental not-for-profit organization involved in research. Arkin's statement of functional expenses should classify which of the following as support services?

a. Salaries of staff researchers involved in research.
b. Salaries of fundraisers for funds used in research.
c. Costs of equipment involved in research.
d. Costs of laboratory supplies used in research.

b. Salaries of fundraisers for funds used in research.

A nongovernmental not-for-profit organization's statement of activities is similar to which of the following for-profit financial statements?

a. Balance sheet.
b. Statement of cash flows.
c. Statement of retained earnings.
d. Income statement.

d. Income statement.

Which of the following not-for-profit entities is required to prepare a statement of functional expense?

a. An art museum.
b. A shelter for the homeless.
c. A private foundation.
d. A public golf course.

b. A shelter for the homeless.

Gridiron University is a private university. A successful alumnus has recently donated $1,000,000 to Gridiron for the purpose of funding a "center for the study of sports ethics." This donation is conditional upon the university raising matching funds within the next 12 months. The university administrators estimate that they have a 50% chance of raising the additional money. How should this donation be accounted for?

a. As a temporarily restricted support.
b. As unrestricted support.
c. As a refundable advance.
d. As a memorandum entry reported in the footnotes.

c. As a refundable advance.

During the current fiscal year, Foxx, a nongovernmental not-for-profit organization, received unrestricted pledges of $300,000. Of the pledged amount, $200,000 was designated by donors for use during the current year, and $100,000 was designated for next year. Five percent of the pledges are expected to be uncollectible. What amount should Foxx report as restricted support (contributions) in the statement of activities for the current year?

a. $200,000
b. $190,000
c. $100,000
d. $95,000

d. $95,000

Gordon Ltd., a 100% owned British subsidiary of a U.S. parent company, reports its financial statements in local currency, the British pound. A local newspaper published the following U.S. exchange rates to the British pound at year end:
Current rate: $1.50
Historical rate (acquisition): 1.70 Average rate: 1.55
Inventory (FIFO): 1.60

Which currency rate should Gordon use to convert its income statement to U.S. dollars at year end?

a. 1.50
b. 1.55
c. 1.60
d. 1.70

b. 1.55

Which of the following funds of a governmental unit records depreciation?

a. Capital projects fund.
b. Debt service fund.
c. Internal service fund.
d. Special revenue fund.

c. Internal service fund.

What is the measurement focus and the basis of accounting for the government-wide financial statements?
Measurement focus Basis of accounting
a. Current financial resources Modified accrual
b. Economic resources Modified accrual
c. Current financial resources Accrual
d. Economic resources Accrual

d. Economic resources Accrual

Powell City purchased a piece of equipment to be used by a department financed by the general fund. How should Powell report the acquisition in the general fund?

a. As an expenditure.
b. Capitalize, depreciation is optional.
c. Capitalize, depreciation is required.
d. Capitalize, depreciation is not permitted.

a. As an expenditure.

A state had general obligation bonds outstanding that required payment of interest on July 1 and January 1 of each year. State law allowed for the general fund to make debt payments without the use of a fiscal agent. The fiscal year ended June 30. Which of the following accounts would have decreased when the state paid the interest due on July 1?

a. Interest expenditures.
b. Interest payable.
c. Interest expense.
d. Fund balance.

d. Fund balance.

All of the following statements regarding notes to the basic financial statements of governmental entities are true, except:

a. The notes contain disclosures related to required supplementary information.
b. Some notes presented by governments are identical to notes presented in business financial statements.
c. Notes that are considered essential to the basic financial statements need to be presented.
d. It is acceptable to present notes in a very extensive format.

a. The notes contain disclosures related to required supplementary information.

A county's balances in the general fund included the following: Appropriations $435,000 Encumbrances 18,000
Expenditures 164,000
Vouchers payable 23,000
What is the remaining amount available for use by the county?

a. $230,000
b. $248,000
c. $253,000
d. $271,000

c. $253,000

Budget: Appropriations $435,000
Activity: Expenditures (164,000) Encumbrances (18,000)
Available appropriations $253,000

Which of the following items is an example of imposed nonexchange revenue for a governmental entity?

a. Personal income taxes.
b. Retail sales tax.
c. Federal grant money.
d. Property taxes.

d. Property taxes.

Hann School, a nongovernmental not-for-profit organization, spent $1 million of temporarily restricted cash to acquire land and building. How should this be reported in the statement of activities?

a. Increase in unrestricted net assets.
b. Increase in temporarily restricted net assets.
c. Increase in permanently restricted net assets.
d. Decrease in permanently restricted net assets.

a. Increase in unrestricted net assets.

Which of the following comprise functional expense categories for a nongovernmental not-for-profit organization?

a. Program services, management and general, and fund-raising.
b. Membership dues, fund-raising, and management and general.
c. Grant expenses, program services, and membership development.
d. Membership development, professional fees, and program services.

a. Program services, management and general, and fund-raising.

Settam, a nongovernmental not-for-profit organization, received a donation of stock with donor-stipulated requirements as follows: Shares valued at $8,000,000 are to be sold with the proceeds used for renovation.
Shares valued at $2,000,000 are to be retained with the dividends used to support current operations.
What amount should Settam include as unrestricted net assets as a result of this donation?

a. $0
b. $2,000,000
c. $8,000,000
d. $10,000,000

a. $0

How should unconditional pledges received by a nongovernmental not-for-profit organization that will be collected over more than one year be reported?

a. Long-term pledges receivable, valued at the expected collection amount.
b. Pledges receivable, valued at their present values.
c. Deferred revenue, valued at present value.
d. Pledges receivable, valued at the amount pledged.

b. Pledges receivable, valued at their present values.

How should a nongovernmental, not-for-profit organization report donor-restricted cash contributions for long-term-purposes in its statement of cash flows?

a. Operating activity inflow.
b. Investing activity inflow.
c. Financing activity inflow.
d. As a noncash transaction.

c. Financing activity inflow.

In the preparation of the statement of activities for a nongovernmental not-for-profit organization, all expenses are reported as decreases in which of the following net asset classes?

a. Total net assets.
b. Unrestricted net assets.
c. Temporarily restricted net assets.
d. Permanently restricted net assets

b. Unrestricted net assets.

Johan Co. has an intangible asset, which it estimates will have a useful life of 10 years, while Abco Co. has goodwill, which has an indefinite life. Which company should report amortization in its financial statements?
Johan Abco
a. Yes Yes
b. Yes No
c. No Yes
d. No No

Johan Abco
b. Yes No

Which of the following transactions is an expenditure of a governmental unit's general fund?

a. Contribution of enterprise fund capital by the general fund.
b. Operating subsidy transfer from the general fund to an enterprise fund.
c. Routine employer contributions from the general fund to a pension trust fund.
d. Transfer from the general fund to a capital projects fund.

c. Routine employer contributions from the general fund to a pension trust fund.

In a not-for-profit organization, which of the following should be included in total expenses?

Grants to other
Organizations Depreciation
a. Yes Yes
b. Yes No
c. No No
d. No Yes

a. Yes Yes

RST Charities received equities securities valued at $100,000 as an unrestricted gift. During the year, RST received $5,000 in dividends from these securities; at year end, the securities had a fair market value of $110,000. By what amount did these transactions increase RST's net assets?

a. $100,000
b. $105,000
c. $110,000
d. $115,000

d. $115,000

Equity security received $100,000
Change in market value 10,000
FMV at year end 110,000
Dividends received 5,000
Total $115,000

The Turtle Society, a nongovernmental not-for-profit organization, receives numerous contributed hours from volunteers during its busy season. Chris, a clerk at the local tax collector's office, volunteered ten hours per week for 24 weeks transferring turtle food from the port to the turtle shelter. His rate of pay at the tax office is $10 per hour, and the prevailing wage rate for laborers is $6.50 per hour. What amount of contribution revenue should Turtle Society record for this service?

a. $0
b. $840
c. $1,560
d. $2,400

a. $0

Goodwill should be tested for value impairment at which of the following levels?

a. Each identifiable long-term asset.
b. Each reporting unit.
c. Each acquisition unit.
d. Entire business as a whole.

b. Each reporting unit.

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set