Chapter 1
Introduction to Accounting and Financial Reporting
Multiple Choice
Exercise 1: For each of the following, select the letter corresponding with the best answer:
1. The private sector organization that has been given primary authority to set accounting and financial reporting standards for state and local governments is the:
a.Financial Accounting Standards Board.
b.Governmental Accounting Standards Board.
c.Federal Accounting Standards Advisory Board.
d.American Institute of Certified Public Accountants.
2. The private sector organization that has been given primary authority to set accounting and financial reporting standards for private sector, not-for-profit organizations is the:
a.Financial Accounting Standards Board.
b.Governmental Accounting Standards Board.
c.Federal Accounting Standards Advisory Board.
d.American Institute of Certified Public Accountants.
3. The organization that has been given primary authority to set accounting and
financial reporting standards for the federal government and its agencies is the:
a.Financial Accounting Standards Board.
b.Governmental Accounting Standards Board.
c.Federal Accounting Standards Advisory Board.
d.American Institute of Certified Public Accountants.
4. The hierarchy of GAAP for not-for-profit governmental entities is established by the:
a.Financial Accounting Standards Board.
b.Governmental Accounting Standards Board.
c.Federal Accounting Standards Advisory Board.
d.American Institute of Certified Public Accountants.
5. Objectives of financial accounting and reporting have been established by the:
a.Financial Accounting Standards Board.
b.Governmental Accounting Standards Board.
c.Federal Accounting Standards Advisory Board.
d.All of the above.
6. In comparing internal service funds to enterprise funds, which of the following is (are) true?
a.Internal service funds use modified accrual and enterprise funds accrual accounting.
b.Internal service funds account for the sale of services and enterprise funds account for the sale of goods.
c.Internal service funds sell predominately to other government departments and enterprise funds sell predominantly to external parties.
d.Internal service funds use the current financial resources measurement focus, while enterprise funds use the economic resources measurement focus.
7. The government-wide financial statements include a:
a.Statement of net position and a statement of activities.
b.Statement of net position and a statement of changes in net position.
c.Statement of net position and a statement of revenues, expenditures, and changes in fund balances.
d.Balance sheet, an income statement, and a statement of cash flows.
8. Governmental funds include:
a.General, internal service, debt service, capital projects, and permanent funds.
b.General, special revenue, debt service, and capital projects funds.
c.Enterprise and internal service funds.
d.General, special revenue, debt service, capital projects, and permanent funds.
9. Governmental funds use the:
a.Economic resources measurement focus and modified accrual basis of accounting.
b.Current financial resources measurement focus and accrual basis of accounting.
c.Economic resources measurement focus and accrual basis of accounting.
d.Current financial resources measurement focus and modified accrual basis of accounting.
10. Which of the following is true regarding accounting for fixed assets of state and local governmental units?
a.Fixed assets are to be recorded at historical cost.
b.Fixed assets are to be reported and depreciated in the government-wide financial statements.
c.Fixed assets are to be reported and depreciated in the proprietary fund financial statements but not in the governmental fund financial statements.
d.All of the above are true.
Exercise 2: For each of the following, select the letter corresponding with the best answer:
1. Which of the following organizations would not have accounting and financial reporting principles established by the Financial Accounting Standards Board:
a.St. Mary’s CatholicHospital.
b.CookCountyHospital.
c.YaleUniversity, a private institution.
d.Boy Scouts of America.
2. Objectives adopted by the Governmental Accounting Standards Board include which of the following?
a.Financial reporting plays an important role in fulfilling government’s duty to be publicly accountable in a democratic society.
b.Financial reports are used to compare actual financial results with the legally adopted budget.
c.Financial reports are used to assess financial conditions and results of operations.
d.All of the above.
3. According to GASB Concepts Statement No. 3, which of the following is true regarding RSI?
- The RSI is an alternative to the notes for disclosing information.
- GASB Statements do not establish standards for reporting RSI.
- RSI is information considered essential for understanding the context of the financial statements and the notes.
- RSI is information considered useful for understanding the context of the financial statements and the notes.
4. Proprietary fund financial statements include:
a.Statement of net position; statement of revenues, expenses, and changes in net position; and statement of cash flows.
b.Statement of net position; statement of revenues, expenditures, and changes in fund balances; and statement of cash flows.
c. Statement of net position and statement of changes in net position.
d. Statement of net position and statement of revenues, expenditures, and changes in fund balances.
5. Which of the following statements would not be prepared using full accrual accounting?
a.Government-wide statements of activities.
b.Proprietary fund statement of revenues, expenses, and changes in fund net assets.
c.Governmental fund statement of revenues, expenditures, and changes in fund balances.
d.Fiduciary fund statement of changes in net assets.
6. Which of the following is not a governmental fund?
a.General.
b.Private-purpose.
c.Special revenues.
d.Debt service.
7. Which of the following fund types uses the same measurement focus and basis of
accounting as the General Fund?
a.Enterprise.
b.Pension and other employee benefit.
c.Internal service.
d.Permanent.
8. Which of the following is not true regarding the reporting of infrastructure by state and local governmental units?
a.Infrastructure must be recorded as fixed assets in the government-wide statements.
b.Infrastructure includes such assets as roads, bridges, tunnels, and water and sewer systems.
c.Infrastructure may be either depreciated or reported using the modified approach outlined by the GASB.
d.None of the above; all are true.
9. GASB Concepts Statement No. 3 establishes a hierarchy for reporting. In which of the reporting formats is it permitted to present management predictions or forecasts?
a.Basic financial statements.
b.Notes to the financial statements.
c.Required supplementary information.
d.None of the above.
10. Which of the following is not true regarding accounting and financial reporting for long-term debt and other long-term liabilities by state and local governmental units?
a.Long-term debt and other long-term liabilities are to be reported in the government-wide statement of net position.
b.Long-term debt and other long-term liabilities are to be reported in the proprietary fund statement of net position.
c.Long-term debt and other long-term liabilities are to be reported in the governmental fund balance sheet.
d.None of the above; all are true.