2-16. Multiple Choice. LO2-1) through LO2-4) Choose the best answer. 1. Government financial reports should be useful in assessing a government's accountability. Three objectives of government financial reporting identify how financial reporting can be useful in assessing a government's accountability. Which of the following is not related to one of the objectives? a. Providing information on operating results for the current period. b. Providing information on meeting current year service performance goals. c. Providing information related to the provision of services in accordance with legally adopted budgets. d. Providing information on ability of the government to meet obligations as they come due. 2. Which of the following statements is true regarding the basic financial statements of a state or local government? a. Separate columns should be provided in the government-wide financial statements for governmental activities and business-type activities. b. Governmental fund and proprietary fund financial statements should provide a separate column for each major fund. c. Aggregate information about all nonmajor governmental funds should be reported in a single column of the governmental fund financial statements and all nonmajor enterprise funds should be reported in a single column of proprietary fund financial statements. d. All of the above. 3. A member of the city council does not understand why governments need to use funds. He believes it makes reporting too complex and that funds should be eliminated. What explanation would you use to help explain why funds are needed? a. Funds are necessary to allow the government to provide information about governmental activities separate from business-type activities. b. Funds are necessary to allow the city council to have increased budgetary control over the amounts spent by the government. c. Funds are necessary to help increase transparency by showing that legal constraints on spending certain revenues for the specific purpose for which the revenues were intended are being met. d. The city council person is correct: page 65 There is no required reason for fund accounting, it increases difficulty in understanding financial reports, and the city should consider eliminating funds. 4. The measurement focus and basis of accounting that should be used for the government-wide financial statements are Basis of Measurement Focus Accounting Current financial a. Modified accrual resources Current financial b. Accrual resources c. Economic resources Modified accrual d. Economic resources Accrual 5. Which of the following amounts that are identified at the end of the fiscal year would be classified as an assigned fund balance? a. Resources the city manager has set aside for a major street repair. b. A federal grant that is to be used for playground equipment. c. Significant amounts of inventory. d. Endowment resources that the city must maintain in perpetuity. 6. Which of the following statements about major funds is true? a. Major funds are determined based on the size of the fund or management discretion. b. Major funds are reported only in governmental fund financial statements. c. Major funds are reported on the fund and government-wide financial statements. d. A fund that is at least 10 percent of the total revenues of all governmental and proprietary funds would be considered a major fund. 7. Assets and liabilities of activities for which the government is acting in either a custodial or trustee capacity for individuals, organizations, or other governments should be reported in a. The fiduciary column of the government-wide financial statements. b. The fiduciary fund financial statements. c. Both government-wide and fiduciary fund statements. d. Neither government-wide nor fiduciary fund statements.. 8. Under the modified accrual basis of accounting a. Revenues are recognized at the time an exchange transaction occurs. b. Expenditures are recognized as the cost of an asset expires or is used up in providing government services. c. Revenues are recognized when current financial resources become measurable and available to pay current-period obligations. d. Expenses are recognized when an obligation occurs for costs incurred in providing services. 9. Financial information about an internal service fund should be reported in the proprietary fund financial statements and the a. Governmental Activities column of the government-wide financial statements. b. Business-type Activities column of the government-wide financial statements. c. Either a or b, depending on whether the internal service fund predominantly serves governmental activities or business-type activities. d. None of the above. 10. A certain city reports the following page 66 year-end total assets: General Fund Library Fund (a special revenue fund) Debt Service Fund $18,400,000 2,900,000 2,600,000 Total governmental funds 26,300,000 Total governmental and enterprise 51,250,000 funds combined Based on this information, which funds should be reported as major funds? a. General Fund only. b. General Fund and Library Fund. c. General Fund and Debt Service Fund. d. All three funds should be reported as major funds. 11. On the government-wide statement of net position, which of the following statements is false? a. Governmental funds are reported under the Governmental Activities column. b. Enterprise funds are reported under the Business-type Activities column. c. Some types of component units are reported as a separate column. d. Fiduciary funds are reported as a separate column. 12. Under modified accrual accounting, revenues are recognized when management defines them as available for paying current-period obligations. Management considers its definition of the term available to be essential to the financial statement users' understanding of revenues recognized on the statement. How would management communicate to users its definition of available? a. As a note to the financial statements. b. As required supplementary information. c. As other supplementary information. d. As a disclosure on the face of the financial statement. 13. How does the GASB recommend governments report budgetary information? a. As a required financial statement. b. As a note disclosure. c. As required supplementary information. d. As other supplementary information. 14. Where should a deferred inflow of resources be reported on the financial statements? a. The liabilities section on the statement of net position. b. After the liabilities section on the statement of net position. c. After the general revenues on the statement of activities. d. As a note disclosure in the financial statements because it is deferred. 15. Which of the following fund(s) will generally be the only fund(s) that can report a positive unassigned fund balance? a. General Fund. b. General Fund and special revenue funds. c. General Fund and capital projects funds. d. All governmental funds