1) A primary characteristic that distinguishes not-for-profit entities from business entities is A. the need to generate revenues equal to or in excess of expenditures or expenses. B. the correlation between revenues generated and demand for goods or services. C. the need to provide goods or services. D. the importance of the budget in the governing process. 2) The most significant financial document provided by a governmental entity is the A. operating budget. B. cash flow statement. C. balance sheet. D. operating statement. 3) Which of the following characteristics distinguishes a governmental or not-for-profit entity from a business entity? A. Revenues are always indicative of the demand for goods and services. B. The mission of the entity will determine the goods or services provided. C. There is a direct link between revenues generated and expenditures or expenses incurred. D. Capital assets are used to produce revenues and save costs. 4) As used by GASB, interperiod equity refers to which of the following? Financial reporting should A. demonstrate whether resources were obtained and used in accordance with the entitys legally adopted budget. B. provide information to assist users in assessing the governments economy, efficiency, and effectiveness. C. demonstrate compliance with finance-related contractual requirements. D. provide information to determine whether current revenues were sufficient to pay for current services. 5) The GASB is the primary standard-setting body for all A. governments and not-for-profit entities. B. state and local governments and not-for-profit entities. C. governments. D. state and local governments. 6) Given a specific set of data, the basis of accounting selected by or imposed on a governmental entity will least affect which of the following? A. Determining whether or not certain economic events occurred B. Determining the annual payments to a government-sponsored pension plan C. Determining whether or not the governmental entity has a balanced budget D. Determining whether or not the governmental entity has the ability to issue debt 7) For which of the following funds would flexible budgeting be most valuable? A. Agency B. Enterprise C. Special revenue D. Capital project 8) Which of the following is a primary benefit of a performance budget? A. It encourages planning by requiring management to anticipate every type of expenditure. B. It provides decision-makers with detailed information. C. It facilitates control by establishing rigid spending mandates. D. It encourages accomplishing objectives by associating expenditures with outcomes. 9) Which of the following is the best reason for preparing budgets for governmental entities on the cash basis? A. Cash basis budgeting helps achieve interperiod equity. B. Cash basis budgeting more accurately reflects the economic effect of fiscal activities. C. Cash basis budgeting helps ensure that the government will receive no more in revenues than is required to disburse. D. Cash basis budgeting helps a government plan have cash on hand to pay bills. 10) The basic financial statements of a city do NOT include which of the following? A. Government-wide Statement of Net Assets B. Separate balance sheets for governmental and proprietary funds C. Government-wide Statement of Activities D. Government-wide Statement of Cash Flows 11) Under the GASB Statement No. 34 reporting model for governmental entities, the government-wide Statement of Net Assets will display which of the following? A. Assets, Liabilities, and Net Assets B. Assets, Liabilities, and Owners Equity C. Assets, Liabilities, and Fund Balances D. Assets, Liabilities, and Fund Equity 12) Which of the following funds is accounted for on the modified accrual basis of accounting? A. General B. Pension trust C. Internal service D. Proprietary 13) Several years ago, Durham City issued $1 million in zero coupon bonds due and payable in 2010. The bonds were sold at an amount to yield investors 6% over the life of the bonds. During the current year, how much interest expenditures would Durham City recognize related to these bonds? A. Difference between the present value of the bonds at the beginning of the period and the present value of the bonds at the end of the period B. None C. Face amounts of bonds times 6% D. Book value of bonds times 6% 14) As used in governmental accounting, expenditures are decreases in A. Net Assets. B. Net Economic Resources. C. Net Financial Resources. D. Net Cash. 15) Which of the following funds would use the modified accrual basis of accounting in preparing its fund financial statements? A. City Motor Pool Internal Service Fund B. City Employee Pension Trust Fund C. City Hall Capital Project Fund D. City Electric Utility Enterprise Fund 16) Employees of the City of Orleans earn 10 days paid leave for each 12 months of employment. The city has a policy that employees must take their vacation days during the year following the year in which it is earned. If they do NOT take vacation in the allotted period, they forfeit the benefit. Traditionally, employees have taken 80% of the vacation days earned. During the current year, employees earned $400,000 in vacation pay. Assuming the city maintains its records in a manner to facilitate the preparation of its fund financial statements, which of the following entries is the correct entry in the General Fund to record the vacation pay earned during the current period? A. Debit Expenditures: $320,000; Credit Vacation Pay Payable: $320,000 B. No entry required. C. Debit Expenses: $400,000; Credit Vacation Payable: $400,000 D. Debit Expenditures: $400,000; Credit Vacation Payable: $400,000 17) Employees of the General Fund of Scott City earn 10 days of vacation for each 12 months of employment. The city permits employees to carry the vacation days forward as long as they wish. During the current year, employees earned $800,000 of vacation benefits, of which the city estimates that $500,000 will be taken in the next year, with the balance being carried forward. Assuming that the city maintains its records in a manner that facilitates the preparation of its fund financial statements, which of the following entries is the correct entry in the General Fund to record the vacation pay earned during the current period? A. Debit Vacation Expense: $800,000; Credit Vacation Pay Payable: $800,000 B. No entry required. C. Debit Expenditures: $500,000; Credit Vacation Pay Payable: $500,000 D. Debit Expenditures: $800,000; Credit Vacation Pay Payable: $800,000 18) Assume the City of Juneau maintains its records to facilitate the preparation of its government-wide financial statements. The city pays its employees biweekly on Friday. The fiscal year ended on Wednesday, June 30. Employees were paid on Friday, June 25. The employees paid from the General Fund earned $120,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). They will earn $80,000 on Thursday and Friday (July 1 and 2). What entry, if any, should be made on June 30? A. Debit Expenses: $120,000; Credit Wages and Salaries Payable: $120,000 B. No entry is required. C. Debit Expenditure: $200,000; Credit Wages and Salaries Payable: $200,000 D. Debit Expenditures: $120,000; Credit Wages and Salaries Payable: $120,000 19) As used in defining the modified accrual basis of accounting, the term available means A. collection in cash is reasonably assured. B. collected within the current period or expected to be collected soon enough to pay liabilities of the current period. C. will be received in cash within 60 days of years end. D. received in cash. 20) Under the modified accrual basis of accounting, derived nonexchange revenues are recognized when A. the underlying exchange transaction occurs. B. the underlying exchange transaction occurs, and they are measurable and available to finance expenditures of the current period. C. they are measurable and available to finance expenditures of the current period. D. they are earned. 21) The modified accrual basis of accounting is used in presenting the fund financial statements of governmental funds because it A. is the superior method of accounting for the economic resources of any entity. B. provides information as to whether or not the entity achieved interperiod equity. C. is budget-oriented while facilitating comparisons among entities. D. results in accounting measurements based on the substance of transactions. 22) The city issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund. At the date of issue, the appropriate entry in the Internal Service Fund is a $2 million debit to cash and a $2 million credit to A. Bonds Payable. B. Capital Contribution (Revenues). C. Capital Contributed (Revenues) and show $2 million as an addition to the Schedule of Changes in Long-term Obligations. D. No entry in the proprietary fund: Show $2 million as an addition to the Schedule of Changes in Long-term Obligations. 23) Which of the following is a valid reason for governmental entities to engage in business-type activities? A. The entity does not want control over the activity. B. The activity competes with general government activities. C. The entity does not want to subsidize the activity. D. The entity may provide services more cheaply or efficiently than can a private firm. 24) Which of the following is a key reason for using business accounting to account for proprietary fund activities? A. The modified accrual basis of accounting captures all the resources and obligations associated with an activity. B. Depreciation is not recognized in business accounting in governments and surveys of statement users indicate that information on depreciation is not of high priority to governmental decision-makers. C. The measurement focus on all economic resources is more consistent with GASB objectives that financial reporting should provide information to determine whether current revenues were sufficient to pay for current services. D. Business-type accounting facilitates comparisons with governmental activities. 25) In previous years, Center City received a $400,000 gift of cash and investments. The donor specified that the earnings from the gift must be used to beautify city-owned parks and the principal must be reinvested. During the current year, the earnings from this gift were $24,000. The earnings should generally be considered revenue to which of the following funds? A. Special revenue B. Private-purpose trust C. Agency D. Permanent 26) Which of the following would NOT be accounted for in a fiduciary fund of a governmental entity? A. Nonexpendable resources held for the benefit of other governmental units B. Nonexpendable resources held for the benefit of the government holding resources C. Expendable resources held for the benefit of other governmental units D. Funds held as an agent for other entities 27) What basis of accounting is used to account for transactions of a governmental private-purpose trust fund? A. Cash basis of accounting B. Full accrual basis of accounting C. Budgetary basis of accounting D. Modified accrual basis of accounting 28) The city created a legally separate Housing Authority to provide low-income housing to residents. The city issues debt for the authority in the name of the city, but the authority is responsible for repayment of the debt. The authority is governed by a board composed of all 5 members of the City Council. Actions may be taken by the authority upon receiving an affirmative vote by a majority of the board. The authority would be considered a(n) A. related organization. B. primary government. C. affiliated organization. D. component unit. 29) Of the following powers possessed by Government A, which is NOT an indication that Government B should be included as a component unit of Government A? A. Government A has agreed to provide financial support to Government B if Government B operates at a deficit; but, in the 75 years that Government B has operated, it has never operated at a loss. B. The governing documents state that, if dissolved, the assets of Government B will become the property of Government A. C. The governing documents state that, once Government B has equity in excess of a certain amount, 50% of all future operating profits will be used to reduce the bonded debt of Government A. D. Government A issues revenue bonds in its name backed by the revenues of a project to be undertaken by Government B. Government A is neither legally nor morally liable for repayment. 30) The county created a legally separate county hospital authority. Members of the board are elected in county-wide elections. The county must approve the hospital budget, but the hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents. All revenues are user fees. In what manner would the hospital be included in the countys Basic Financial Statements? A. Note disclosure only B. Blended C. Not included in any manner D. Discretely presented