Multiple Choice Questions
1. What amount of liability should the city recognize on fund-based financial statements at December 31, Year 1? Assume that all remaining vacations will be taken in July.
a. It depends on whether the employees work at governmental activities or business-type activities.
b. $–0–.
c. $40,000.
d. $52,000.
2. The City of Wilson receives a large sculpture valued at $240,000 as a gift to be placed in front of the municipal building. Which of the following is true for reporting the gift on the governmentwide financial statements?
a. A capital asset of $240,000 must be reported.
b. No capital asset will be reported.
c. If conditions are met, recording the sculpture as a capital asset is optional.
d. The sculpture will be recorded but only for the amount paid by the city.
3. In problem 12, which of the following statements is true about reporting a revenue?
a. A revenue will be reported.
b. Revenue is reported but only if the asset is reported.
c. If the asset is not capitalized, no revenue should be recognized.
d. As a gift, no revenue would ever be reported.
4. Assume in problem 12 that the city reports the work as a capital asset. Which of the following is true?
a. Depreciation is not recorded because the city has no cost.
b. Depreciation is not required if the asset is viewed as being inexhaustible.
c. Depreciation must be recognized because the asset is capitalized.
d. Because the property was received as a gift, recognition of depreciation is optional.
5. A city builds sidewalks throughout its various neighborhoods at a cost of $200,000. Which of the following is not true?
a. Because the sidewalks qualify as infrastructure, the asset is viewed in the same way as land so that no depreciation is recorded.
b. Depreciation is required unless the modified approach is utilized.
c. The modified approach recognizes maintenance expense in lieu of depreciation expense for qualifying infrastructure assets.
d. The modified approach is allowed only if the city maintains the network of sidewalks at least at a predetermined condition.
6. Which of the following is true about use of the modified approach?
a. It can be applied to all capital assets of a state or local government.
b. It is used to adjust depreciation expense either up or down based on conditions for the period.
c. It is required for infrastructure assets.
d. For qualified assets, it eliminates the recording of depreciation.
7. Which of the following is true about the management's discussion and analysis (MD&A)?
a. It is an optional addition to the comprehensive annual financial report, but the GASB encourages its inclusion.
b. It adds a verbal explanation for the numbers and trends presented in the financial statements.
c. It appears at the very end of a government's comprehensive annual financial report.
d. It replaces a portion of the fund-based financial statements traditionally presented by a state or local government.
8. Which of the following is not necessary for a special purpose local government to be viewed as a primary government for reporting purposes?
a. It must have a separately elected governing body.
b. It must have specifically defined geographic boundaries.
c. It must be fiscally independent.
d. It must have corporate powers to prove that it is legally independent.
9. An accountant is trying to determine whether the school system of the City of Abraham is fiscally independent. Which of the following is not a requirement for being deemed fiscally independent?
a. Holding property in its own name.
b. Issuing bonded debt without outside approval.
c. Passing its own budget without outside approval.
d. Setting taxes or rates without outside approval.
10. An employment agency for individuals with disabilities works closely with the City of Hanover. The employment agency is legally separate from the city but still depends on it for financial support. How should Hanover report the employment agency in its comprehensive annual financial report?
a. Not at all because the agency is legally separate.
b. As a part of the General Fund.
c. As a component unit.
d. As a related organization.