Governmental and Nonprofit Accounting: Theory and Practice, 9e Update (Freeman) Chapter 13 Financial ReportingThe Basic Financial Statements

and Required Supplementary Information 1) When preparing external financial statements that are in accordance with generally accepted accounting principles, a government is required to prepare A) Basic financial statements, management's discussion and analysis, and other required supplementary information. B) A comprehensive annual financial report. C) None of the above. D) Both items A and B. Answer: A 2) Governmental activities in the government-wide financial statements would potentially report the following equity classifications except A) Restricted net assets. B) Restricted fund balance. C) Unrestricted net assets. D) Invested in capital assets, net of related debt. E) Each of the above classifications are proper equity classifications for government-wide activities. Answer: B 3) Equity in a fiduciary fund is, by nature, considered to be A) Committed. B) Assigned. C) Designated. D) Restricted. E) None of the above Answer: D 4) If the General Fund has committed fund balance, then the governmental activities column will automatically have A) Committed net assets. B) Restricted net assets. C) Designated net assets. D) Invested in capital assets, net of related debt. E) None of the above as there is no direct connection between committed fund balance and a particular net asset classification. Answer: E

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5) Which of the following statements concerning the notes to the financial statements is true? A) The notes to the financial statements are an integral part of the basic financial statements. B) The notes to the financial statements are considered to be required supplementary information. C) The auditor's opinion generally does not extend to the notes to the financial statements. D) All of the above statements are true. Answer: A 6) Fiduciary funds are reported A) In both the fund financial statements and the government-wide financial statements. B) As required supplementary information. C) By fund type in the government-wide financial statements. D) By fund type in the fund financial statements. Answer: D 7) A city determines that it has three major governmental funds, including the General Fund, and two major enterprise funds. The city will A) Always have three major governmental funds and two major enterprise funds. B) Evaluate each year which funds are major and which funds are considered to be nonmajor. C) Only be required to show a separate column for the General Fund. D) Be able to report all of the major funds in one column on the respective fund financial statements. Answer: B 8) Assume that a governmental entity has, in addition to the General Fund, four other governmental funds. Upon applying the quantitative criteria to determine the minimum requirements for major fund reporting it is determined that two of those four funds meet the criteria. At a minimum, the governmental entity will report how many major funds? A) zero B) two C) three D) four E) five Answer: C 9) A city has, in addition to the General Fund, three other governmental funds. Two of those three governmental funds have been deemed to be major funds. At most, how many funds may be reported as major funds. A) zero B) one C) two D) three E) four Answer: E 10) The General Fund levies taxes of $3,750,000 during the fiscal year, 1% of which is deemed
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to be uncollectible. $3,650,000 was collected or met the availability criteria. How much revenue should be recorded in the government-wide financial statements? A) $3,613,500 B) $3,650,000 C) $3,712,500 D) $3,750,000 Answer: C 11) Interest expense for governmental activities at the government-wide level should be reported A) As part of the function for which the financing was beneficial. B) As part of the general government function. C) In total as capitalized interest. D) As an indirect expense not allocated to a functional area. Answer: D 12) In the government-wide financial statements, pass-through grants would be reported as A) Program revenues. B) General revenues. C) Other financing sources. D) Operating revenues. Answer: A 13) Each of the following would be considered required supplementary information except A) Management's discussion and analysis. B) Budgetary comparison information that is eligible for basic financial statement presentation but not included therein. C) A letter of transmittal. D) Disclosures for governments that use the modified approach to infrastructure accounting and reporting. Answer: C 14) The government-wide financial statements do not include A) Discretely presented component units. B) Governmental fund information. C) Business-type activities. D) Net assets. E) All of the above are included in the government-wide financial statements. Answer: B

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15) Capital assets used by General Fund departments and functions would be reported in A) The note disclosures. B) Governmental activities column of the government-wide financial statements. C) The General Fund. D) All of the above. E) Both items A and B. Answer: E 16) The government-wide financial statements report all of the following equity classifications except A) Restricted net assets. B) Retained earnings. C) Unrestricted net assets. D) Invested in capital assets, net of related debt. E) All of the above are common equity classifications in the government-wide financial statements. Answer: B 17) Assume that the following is found on the statement of activities of a local municipality: Public safety expenses of $2,755,500 Public safety charges for services of $20,500 Public safety operating grants and contributions of $105,000 Public safety capital grants and contributions of $75,000 General government charges for services of $455,500 Property tax general revenues of $2,905,000 Unrestricted grants of $300,000 Net (expense) revenue for the public safety function would be A) $350,000. B) $1,105,500. C) $(2,555,000). D) $2,555,000. E) $(805,500). Answer: C

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18) Assume that the town of Beatrice earned the following during the year: Charges for services in public works of $289,000 Public safety operating grants of $100,000 Property taxes of $1,950,000 Interest earned on restricted grants of $5,750 Interest earned on unrestricted grants of $3,250 Public works capital grants of $310,000 Sales taxes of $425,000 Based on this information and assuming all revenues were earned, governmental activities general revenues for the year would be A) $3,083,000. B) $704,750. C) $1,950,000. D) $2,378,250. E) $2,384,000. Answer: D 19) A governmental entity has a General Fund, four Special Revenue Funds, two Debt Service Funds, a Permanent Fund, two Enterprise Funds, three Internal Service Funds, and two Pension Trust Funds. Using the criteria from GASB Statement No. 34 to identify major funds, the government discovers that two of the Special Revenue Funds and one Enterprise Fund meet the minimum criteria to be a major fund. How many individual governmental funds may be reported as major funds? A) three B) four C) eight D) twelve E) fifteen Answer: C 20) Hannah Township has a General Fund, two Capital Projects Funds, one Permanent Fund, two Enterprise Funds, two Internal Service Funds, three Pension Trust Funds, and one PrivatePurpose Trust Fund. Assuming all governmental and enterprise funds meet the major fund criteria, how many columns will the proprietary fund statement of net assets have? A) two B) three C) four D) five E) eight Answer: A

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21) Which of the following types of revenue would always be reported as a general revenue in the government-wide financial statements? A) Interest earned on a capital grant B) Charges for services C) Operating grant D) Property taxes E) Both items A and B. F) Both items C and D. Answer: D 22) Net assets restricted for capital projects could be reported for A) Governmental activities. B) Business-type activities. C) Capital projects funds. D) All of the above. E) Both items A and B. Answer: E 23) A city reports three Pension Trust Funds, one Private-Purpose Trust Fund, one Investment Trust Fund, and three Agency Funds. How many columns would the City's statement of fiduciary net asset would report? A) two B) three C) four D) six E) eight Answer: C 24) Government A issued general obligation bonds to finance the construction of a new fire station. In the current year, the government incurred $107,000 of interest expense on the debt issuance. This amount will be reported on the government-wide statement of activities as A) Expenses of the general government function. B) Expenses of the public safety function. C) Interest expenses of the governmental activities. D) An offset to interest earnings in the General Fund. E) None of the above. Answer: C

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25) Sales taxes levied by a county government are shared with the local municipal government. The municipal government chooses to use the intergovernmental revenues for drug enforcement activities. In the government-wide statement of activities, the municipal government would report the sales taxes as A) Unrestricted grants and contributions general revenue. B) Operating grant and contribution program revenue. C) Capital grant and contribution program revenue. D) A transfer in general revenue. E) None of the above. Answer: A 26) Depreciation was calculated for the police department's vehicle fleet. The expense will be reported A) As depreciation expenditure in the General Fund. B) As depreciation expense in the General Fund. C) As depreciation expense in the public safety function of governmental activities. D) As unallocated depreciation expense for governmental activities. E) Both items B and C. Answer: C 27) Capital assets are not reported A) In governmental activities. B) In business-type activities. C) In Internal Service Funds. D) In the Enterprise Funds. E) In the General Fund. F) In either items C or E. Answer: E 28) Which of the following funds would not be eligible for major fund reporting? A) General Fund B) Enterprise Fund C) Debt Service Fund D) Internal Service Fund E) All of the above could be reported as a major fund. Answer: D 29) The minimum requirements for general purpose external financial reporting does not include A) Fund financial statements. B) A transmittal letter. C) Management's discussion and analysis. D) Required supplementary information. Answer: B

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30) The government-wide statements include A) Statement of Net Assets. B) Statement of Activities. C) Statement of Cash Flows. D) Both items A and B. E) All of the above. Answer: D 31) The government-wide statement of net assets must include a column for each of the following except A) Governmental activities. B) Business-type activities. C) Component units. D) Fiduciary activities. E) All of the above are included in the government-wide financial statements. Answer: D 32) For general purpose external financial reporting, component unit information A) Is not presented. B) Is included in the government-wide statements only. C) Is included in the fund financial statements only. D) Is included in both the government-wide and the fund financial statements. Answer: B 33) The government-wide statement of net assets would report the following component of net assets except A) Unrestricted net assets. B) Restricted net assets. C) Invested in capital assets net of related debt. D) Designated net assets. Answer: D 34) In the government-wide statement of net assets, interfund receivables and payables A) Should not be reported. B) Should only be reported for balances payable between governmental activities and businesstype activities. C) Eliminated in the total primary government column. D) Both items B and C. Answer: D

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35) Which of the following are reported only in the government-wide statements, not in the fund financial statements? A) Nonfiduciary component units B) General government long-term debt C) General government capital assets D) All of the above. Answer: D 36) In the government-wide statements, business-type activities include A) Primarily only Enterprise Fund operations. B) Primarily only Internal Service Fund operations. C) Both a government's Enterprise Fund and all of its Internal Service Fund activities. D) A government's Enterprise Fund, Internal Service Fund, and nonexpendable trust fund activities. Answer: A 37) Which of the following classifications is not used in the government-wide statement of activities? A) General revenues B) Extraordinary items C) Transfers D) Nonoperating revenues E) All of the above are common classifications in the government-wide financial statements. Answer: D 38) Which of the following may NOT be reported as transfers in a government-wide statement of activities? A) Transfers between governmental activities and business-type activities. B) Transfers between a primary government and a blended component unit. C) Transfers between a primary government and a discretely presented component unit. D) All of the above may be included in a government-wide statement of activities. Answer: C 39) In the statement of activities, depreciation is reported on A) All depreciable capital assets of the government except infrastructure assets that use the modified approach. B) All depreciable capital assets of the government. C) Only depreciable capital assets of business-type activities of the government. D) Only depreciable capital assets of governmental activities of the government. Answer: A

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40) Which of the following cannot be classified as program revenues? A) Contributions B) Grants C) Charges for services D) Taxes. Answer: D 41) Which of the following would not be classified as charges for services? A) Operating special assessments B) Licenses and permits C) Fines and forfeitures D) None, all of the above would be classified as charges for services. Answer: D 42) The fund financial statements included in the basic financial statements include separate balance sheets (or statements of net assets) for all of the following except A) Fiduciary funds. B) Governmental funds. C) Proprietary funds. D) Discretely presented component units. Answer: D 43) In the fund financial statements, a government should include a separate column for all of the following except A) Each major Enterprise Fund. B) Each major Internal Service Fund. C) Each major Capital Projects Fund. D) Each major Permanent Fund. E) The General Fund. Answer: B 44) Which governmental fund must always be reported in a separate column in the governmental fund financial statements? A) Capital Projects Fund B) Debt Service Fund C) General Fund D) Special Revenue Fund Answer: C 45) Which of the following is true? A) Major fund reporting is required for Enterprise Funds B) Major fund reporting is required for Internal Service Funds C) Major fund reporting is required for Agency Funds D) Major fund reporting is require for Private-purpose Trust Funds Answer: A 46) In the proprietary fund financial statements, a government should include a separate column
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for A) Each major Enterprise Fund. B) A total column for all Enterprise Funds. C) The Internal Service Fund type. D) Each major Enterprise Fund, the nonmajor Enterprise Funds in the aggregate and the Internal Service Funds in the aggregate. Answer: D 47) For governmental funds, the minimum financial statements required to be presented in the fund financial statements include a A) Balance sheet. B) Statement of revenues, expenditures, and changes in fund balances (GAAP basis). C) Budgetary comparison statement for all fund with annual budgets. D) Both items A and B. Answer: D 48) A budgetary comparison schedule is required for A) The General Fund and all major governmental funds with legally adopted annual budgets. B) The General Fund and all major Special Revenue Funds with legally adopted annual budgets. C) The General Fund only. D) All governmental funds. Answer: B 49) Which financial statement may be presented as required supplementary information? A) Government-wide statement of cash flows B) General Fund and major Special Revenue Funds statement of revenues, expenditures, and changes in fund balancesbudget and actual C) Proprietary fund statement of cash flows D) None of the above. Answer: B 50) A city's basic financial statements must be accompanied by A) A transmittal letter. B) Management's discussion and analysis. C) Both a transmittal letter and management's discussion and analysis. D) Either a transmittal letter or management's discussion and analysis. Answer: B

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51) Topics to be covered in the management's discussion and analysis A) Are limited to a specific list of topics in GASB Statement No. 34. B) Must, at a minimum, cover the specific list of topics in GASB Statement No. 34 but may include additional topics that management considers significant. C) Are determined based upon management's judgment. D) Can only include topics not in the specific list in GASB Statement No. 34 if agreed to by both management and the auditors. Answer: A 52) Management's discussion and analysis A) Does not have to cover any budgetary issues. B) May not include charts and graphs. C) Must discuss significant variations between the original budget and the final budget. D) Must discuss significant variations between the final budget and actual results. E) Both items C and D. Answer: E 53) Which special purpose governments must present management's discussion and analysis? A) Those engaged in both governmental and business-type activities. B) Those engaged in only fiduciary activities. C) Those engaged in a single governmental program. D) All special purpose governments must present management's discussion and analysis. Answer: D 54) Which of the following special purpose governments do not have to present governmentwide financial statements? A) Those engaged in both governmental and business-type activities. B) Those engaged in only governmental activities. C) Those engaged in only business-type activities. D) All special purpose governments must present government-wide financial statements. Answer: C 55) A government that uses the modified approach to account for qualifying assets should report A) All infrastructure asset related costs for the year as expenses. B) All infrastructure asset related costs for the year as assets. C) All infrastructure asset related costs for the year as expenses, unless they were additions or qualitative improvements. D) All infrastructure asset related costs for the year as assets unless incurred in disposing of an infrastructure asset. Answer: C

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56) A government that uses the modified approach will A) Not report depreciation expense on infrastructure assets. B) Capitalize all costs related to infrastructure assets. C) Expense all costs related to infrastructure assets. D) Both items A and B. Answer: A

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