Question 1

Which of the following factors would not indicate that a potential component unit (PCU) imposes a financial burden or provides a financial benefit to the primary government?
A) The primary government is entitled to its share of any dividends distributed by the PCU.
B) The primary government is obligated to provide financial support to the PCU.
C) The primary government is obligated for the PCU's debt.
D) The primary government is entitled to the PCU's resources.

Accepted Answer

Factors indicating a financial burden or benefit to the primary government from a potential component unit (PCU) include obligations for the PCU's debt, entitlement to the PCU's resources, and obligations to provide financial support. However, being entitled to a share of any dividends distributed by the PCU does not inherently indicate a financial burden but rather a potential financial benefit.

Question 2

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR)?
A) Expenditure trend information.
B) Revenue capacity information.
C) Demographic and economic information.
D) Debt capacity information.

Accepted Answer

Expenditure trend information is typically found in the financial section of the CAFR, not the statistical section. The statistical section usually includes revenue capacity information, demographic and economic information, and debt capacity information, among others, to provide a broader context of the government's financial health over time.

Question 3

A not-for-profit organization could be reported as a component unit of a primary government.

Accepted Answer

A not-for-profit organization could be reported as a component unit of a primary government if the primary government is financially accountable for the organization or if the organization provides services entirely or almost entirely to the primary government. In this case, the not-for-profit organization would be included in the primary government's financial statements as a component unit.

Question 4

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets?
A) Use of tax revenues to acquire a police department building.
B) Issuance of long-term debt to be used to acquire equipment for the police department.
C) A gift of land to the city restricted by the donor to be used by the city airport, which is accounted for as an enterprise fund.
D) Recording annual depreciation on capital assets.

Accepted Answer

The use of tax revenues to acquire a police department building would increase the governmental activities balance in Net Position-Net Investment in Capital Assets because it represents a capital expenditure that is accounted for in the government-wide financial statements as a governmental activity.

Question 5

According to the Bureau of Census, which of the following would be considered a special district?
A) Colyer Township.
B) Milborne Independent School District.
C) Hieher City.
D) Johnston Building Authority.

Accepted Answer

Special districts are independent, special-purpose governmental units that exist separately from local governments such as counties, municipalities, and townships. The Johnston Building Authority fits this description as it is likely a special-purpose entity created to manage specific functions or services.

Question 6

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)?
A) Letter of transmittal.
B) Management's discussion and analysis (MD&A).
C) Independent auditor's report.
D) Required supplementary information (RSI).

Accepted Answer

The letter of transmittal is not part of the financial statements and would typically be included in the introductory section of the CAFR. The financial section includes the MD&A, independent auditor's report, and RSI.

Question 7

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?
A) Adding annual depreciation expense proportionately to functional expense categories.
B) Eliminating interfund payables and receivables between governmental funds.
C) Aggregating fund information.
D) Eliminating receivables and payables between governmental and enterprise funds.

Accepted Answer

Eliminating receivables and payables between governmental and enterprise funds is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements. The other options (A, B, and C) are necessary steps in converting data for government-wide financial statements.

Question 8

Which of the following would not be provided by management's discussion and analysis (MD&A)?
A) A narrative explanation of the contents of the CAFR.
B) A description of the government's financial condition.
C) A forecast of revenues and expenditures for the next three fiscal years.
D) A discussion of economic factors and the budget and tax rates approved for the next year.

Accepted Answer

MD&A provides information about the government's financial condition, economic factors, and budget and tax rates for the next year. However, it does not provide a forecast of revenues and expenditures for the next three fiscal years. This information is typically included in the government's financial plan or budget document.

Question 9

The GASB requires that interim financial reports be prepared on a semiannual basis at a minimum.

Accepted Answer

The Governmental Accounting Standards Board (GASB) does not specifically require that interim financial reports be prepared on a semiannual basis. The frequency of interim reporting is generally determined by the needs of the stakeholders and regulations of the specific government entity.

Question 10

Which of the following is one of the three sections of a comprehensive annual financial report?
A) Statistical section.
B) Single audit section.
C) Supplementary section.
D) Investment section.

Accepted Answer

The three sections of a comprehensive annual financial report are the introductory section, financial section, and statistical section. The single audit section and supplementary section may be included in the financial section, while the investment section is usually part of the notes to the financial statements.

Question 11

An example of information found in the statistical section of the comprehensive annual financial report (CAFR) is demographic information such as unemployment rates, and personal income of citizens.

Accepted Answer

Demographic information such as unemployment rates and personal income can be found in the statistical section of the comprehensive annual financial report (CAFR).

Question 12

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?
A) The potential component unit is precluded from issuing long-term debt.
B) The potential component unit raises its own taxes without the approval of the primary government.
C) The potential component unit names its board of directors without the approval of the primary government.
D) The potential component unit sets user charges with the approval of the primary government.

Accepted Answer

Fiscal independence refers to the ability of an organization to generate and use its own revenue streams without reliance on the primary government. Option B indicates that the potential component unit raises its own taxes without the approval of the primary government, which is a strong indication of fiscal independence. Option A is incorrect because the inability to issue long-term debt does not necessarily reflect fiscal independence. Option C is incorrect because the primary government typically has some level of involvement in the appointment of a potential component unit's board of directors. Option D is incorrect because the approval of the primary government to set user charges indicates a certain level of dependence.

Question 13

Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the government financial reporting entity?
A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of the PCU.
D) Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Accepted Answer

A PCU should be included in the government financial reporting entity if the primary government appoints a majority of the governing board and can impose its will on the PCU, indicating control and accountability.

Question 14

Which of the following is a required program revenue category in the government-wide statement of activities?
A) Special assessments.
B) Operating grants and contributions.
C) Sales taxes.
D) Transfers.

Accepted Answer

Operating grants and contributions are a required program revenue category in the government-wide statement of activities. Special assessments, sales taxes, and transfers are not required program revenue categories in this statement.

Question 15

What constitutes the basic financial statements of a government?
A) Financial section of the comprehensive annual financial report (CAFR).
B) Government-wide financial statements plus notes.
C) Government-wide financial statements plus fund financial statements plus notes.
D) Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).

Accepted Answer

The basic financial statements of a government include the government-wide financial statements, which provide a broad overview of the government's financial position, and the fund financial statements, which provide more detailed information about individual funds. Both sets of statements are accompanied by notes that further explain the information presented. Together, these statements and accompanying notes make up the core set of financial statements in a government's comprehensive annual financial report (CAFR).

Question 16

Which of the following statements or schedules is most likely to be prepared by a government as an interim financial report?
A) A government-wide statement of activities.
B) A governmental funds balance sheet.
C) A schedule of budgeted and actual expenditures.
D) A schedule of cash flows for governmental funds.

Accepted Answer

A schedule of budgeted and actual expenditures would be the most likely interim financial report prepared by a government as it provides information on actual spending compared to budgeted amounts over a specific period. The other options are more comprehensive financial statements that cover a longer period of time and require more time to prepare.

Question 17

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

Accepted Answer

The two methods for presenting component units in financial statements are "blended" and "discrete" presentation, not aggregated and disaggregated.

Question 18

To be reported as a major component unit, a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

Accepted Answer

The criteria for reporting a component unit as a major component unit are not based on the same 10 percent and 5 percent size requirements as major funds. Instead, the determination is based on the nature and significance of the relationship between the component unit and the primary government, among other considerations.

Question 19

Under GASB standards, if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare?
A) Five.
B) Six.
C) Seven.
D) Nine.

Accepted Answer

A government with six governmental funds and two enterprise funds would prepare seven basic financial statements under GASB standards. The financial statements include:

1. Government-wide financial statements (consisting of a statement of net position and a statement of activities);
2. Fund financial statements (separate statements for each governmental fund and each enterprise fund);
3. Notes to the financial statements;
4. Required supplementary information (RSI) other than MD&A for the government-wide financial statements;
5. MD&A for the government-wide financial statements.

Question 20

Combining financial statements for nonmajor funds of a government should be included:
A) In the basic financial statements.
B) In the notes to the financial statements.
C) As a part of the financial section of the comprehensive annual financial report (CAFR).
D) As part of the statistical section of the comprehensive annual financial report (CAFR).

Accepted Answer

Combining financial statements for nonmajor funds of a government are typically included as part of the financial section of the Comprehensive Annual Financial Report (CAFR). This section provides detailed financial information beyond the basic financial statements, offering a more comprehensive view of a government's financial activities and balances for nonmajor funds.

Quiz 9: Financial Reporting of State and Local Governments

Which of the following factors would not indicate that a potential component unit (PCU) imposes a financial burden or provides a financial benefit to the primary government?

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR) ?

A not-for-profit organization could be reported as a component unit of a primary government.

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets?

According to the Bureau of Census, which of the following would be considered a special district?

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR) ?

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?

Which of the following would not be provided by management's discussion and analysis (MD&A) ?

The GASB requires that interim financial reports be prepared on a semiannual basis at a minimum.

Which of the following is one of the three sections of a comprehensive annual financial report?

An example of information found in the statistical section of the comprehensive annual financial report (CAFR) is demographic information such as unemployment rates, and personal income of citizens.

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?

Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the government financial reporting entity?

Which of the following is a required program revenue category in the government-wide statement of activities?

What constitutes the basic financial statements of a government?

Which of the following statements or schedules is most likely to be prepared by a government as an interim financial report?

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

To be reported as a major component unit, a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

Under GASB standards, if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare?

Combining financial statements for nonmajor funds of a government should be included: