Placeholder

ACC 410 Week 7 Quiz 5

$12.00

Quantity:

Product Description

ACC 410 Week 7 Quiz 5

Chapter 11

Issues of Reporting, Disclosure, and Financial Analysis

 

 

TRUE/FALSE (CHAPTER 11)

 

  1. Governments must combine their blended component units into both the fund and government-wide statements.

 

  1. Governments must combine their discretely presented component units into both the fund and the government-wide statements.

 

  1. A related organization is a contractual arrangement whereby two or more participants agree to carry out a common activity and share its risks and rewards.

 

  1. A primary government can impose its will on a potential component unit if it has the authority to modify or approve the unit’s budget.

 

  1. The comprehensive annual financial report (CAFR) is divided into three main sections: the table of contents section, the auditors’ report section, and the financial section.

 

  1. The typical audit is designed to cover all information included in the CAFR.

 

  1. There are only two government-wide statements: the statement of net position and the statement of activities.

 

  1. Required notes are an essential element of the basic financial statements.

 

  1. Required supplementary information (RSI) is considered part of the basic financial statements.

 

  1. Public colleges and universities must adhere to the same GASB pronouncements as other types of governments.

 

  1. When a component unit is blended into the financial statements of a primary government, the resulting fund financial statements will include two general funds.

 

  1. Internal service funds are presented in a single column in the proprietary fund financial statements, even if one or more of them is a major fund.

 

13,  In its CAFR, a government should report upon individual internal service funds in combining financial statements.

 

  1. It is unacceptable for a special-purpose government that is a component unit of a general-purpose government to issue its own “stand-alone” financial report.

 

  1. One ratio measure of fiscal effort is Revenue from own sources/Intergovernmental revenues.
    MULTIPLE CHOICE (CHAPTER 11)

 

 

  1. The financial reporting entity is composed of
    1. The primary government.
    2. The primary government and all legally separate governments for which the primary government is financially accountable.
    3. The primary government and all legally separate organizations for which the primary government is financially accountable.
    4. The primary government, all legally separate organizations for which the primary government is financially accountable, and any organizations whose omission would cause the primary government’s financial statements to be misleading or incomplete.

 

  1. Which of the following is NOT a primary government?
    1. A state government.
    2. A general-purpose local government with the ability to determine its own budget.
    3. A general-purpose local government whose tax levies must be approved by the state.
    4. A special-purpose local government whose tax levies must be approved by the state.

 

  1. Which of the following is necessary for a special-purpose local government to be considered a primary government?
  1. It must operate for a single purpose.
  2. It must have a separately elected governing body.
  3. It must tax its citizens with ad valorem taxes.
  4. It must be fiscally dependent on another government.

 

  1. Which of the following is necessary for a government to be considered fiscally independent?
  2. It must be able to hire its own management.
  3. It must be able to issue bonds that are tax-exempt.
  4. It must not be subsidized by another government.
  5. It must be able to levy taxes and/or set rates for its services.

 

  1. Which of the following is a necessary characteristic of a component unit?
  2. It is fiscally dependent on a primary government.
  3. The primary government provides services that are used by both organizations.
  4. The primary government can impose its will on the unit or the unit has the potential to provide a financial benefit to or impose a financial burden on the primary government.
  5. The primary government appoints a voting majority of the component unit’s governing body or a voting majority of the unit’s governing body is composed of officials of the primary government.

 

  1. The Marigold School District, a legally separate school district that has a separately elected governing body, cannot enter into any debt agreements without the approval of the county commission. Marigold School District would be considered a(n):
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. A county commission appoints a voting majority of the members of the board of a particular organization. The county commission cannot impose its will upon the organization.  There is no potential for the organization to provide any financial benefit to the county nor is there any potential for the organization to impose any financial burden on the county.  The organization is an example of a(n):
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The State University Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the State University. The existing university foundation board members elect new members of the board.  The foundation provides scholarships to students of the State University, but the foundation receives no financial support from the university.  The Foundation is an example of:
  2. Primary government.
  3. Related organization.
  4. Affiliated organization.
  5. None of the above.

 

  1. The governor of the state appoints the members of the Game and Fish Commission. The members of the commission serve ten-year terms and can be removed only for cause.  State law prohibits the reappointment of a commissioner.  The commission receives no tax dollars.  It is supported entirely by licenses and fees paid by hunters and anglers.  The only bonds that can legally be issued by the commission are revenue bonds backed by the licenses and fees paid by the sportsmen.  The Game and Fish Commission is not a 501(c)(3) organization and does not have separate legal status.  The Game and Fish Commission is an example of a:
  2. Primary government.
  3. Component unit.
  4. Related Organization.
  5. None of the above.

 

  1. Of the following powers possessed by Government A, which is an indication that Government A can impose its will on Government B? Government A:
  2. Can dismiss Government B’s chief operating officer.
  3. Can review Government B’s budget.
  4. Can remove appointed members of Government B’s governing board only for cause.
  5. Issues debt on behalf of Government B.

 

 

  1. 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?
  2. The governing documents state that, if dissolved, the assets of Government B will become the property of Government A.
  3. 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.
  4. Government A has agreed to provide financial support to Government B if Government B operates at a deficit but in the entire 75 years that Government B has operated, it has never operated at a loss.
  5. The governing documents state that once Government B has equity in excess of a certain amount, 50 percent of all future operating profits will be used to reduce bonded debt of Government A.

 

  1. The State has a legally separate State Building Authority which has a board appointed by the Governor. The authority issues debt in its own name, holds title to buildings in its own name, and leases its building exclusively to the State.  The authority would be considered a(n)
    1. Primary government.
    2. Component unit.
    3. Related organization.
    4. Affiliated organization.

 

  1. The State has a legally separate State Building Authority which has a board appointed by the governor. The authority issues debt in its own name, holds title to buildings in its own name, and leases its building exclusively to the state.  In what manner would the authority be included in the State’s basic financial statements?
  1. Discretely presented.
  2. Note disclosure only.
  3. Not included in any manner.

 

  1. The city created a legally separate housing authority to provide low-income housing to residents of the city. The city issues debt for the housing authority in the name of the city, but the housing authority is responsible for repayment of the debt.  The housing authority is governed by a board composed of all five members of the city council.  Actions can be taken by the authority upon receiving an affirmative vote by a simple majority of the board.  The housing authority would be considered a(n):
  2. Primary Government.
  3. Component Unit.
  4. Related Organization.
  5. Affiliated Organization.

 

 

  1. The city created a legally separate housing authority to provide low-income housing to residents of the city. The city issues debt for the housing authority in the name of the city, but the housing authority is responsible for repayment of the debt.  The housing authority is governed by a board composed of all five members of the city council.  The authority can take action based on the affirmative vote of a simple majority of the board.  In what manner would the authority be included in the city’s basic financial statements?
  2. Discretely presented.
  3. Note disclosure only.
  4. Not included in any manner.

 

  1. The county created a legally separate county hospital authority. Members of the board of the county hospital are elected in county-wide elections. The county must approve the budget of the hospital, but the hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.  All revenues of the hospital are user fees.  The county hospital would be considered a(n)
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The county created a legally separate county hospital authority. Members of the board of the county hospital are elected in county-wide elections.  The county must approve the budget of the hospital, but the hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.  All revenues of the hospital are user fees.  In what manner would the hospital be included in the county’s basic financial statements?
  1. Discretely presented.
  2. Note disclosure only.
  3. Not included in any manner.

 

  1. The county created a legally separate county hospital authority. Members of the board of the county hospital are elected in county-wide elections. The hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.  All revenues of the hospital are user fees.  The county hospital would be considered a(n)
  2. a) Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The county created a legally separate county hospital authority. Members of the board of the county hospital are elected in county-wide elections.  The hospital receives no financial support from the county, except that the county pays the hospital bills for county indigents.  All revenues of the hospital are user fees.  In what manner would the hospital be included in the county’s basic financial statements?
  2. Discretely presented.
  3. Note disclosure only.
  4. Not included in any manner.

 

 

  1. The city created a legally separate port authority. Members of the board of the port authority are elected in general city elections. The port authority receives no tax dollars; it is supported entirely by user fees.  The port authority determines its budget, sets user fees, and has the power to issue bonded debt.  The authority would be considered a(n)
    1. Primary government.
    2. Component unit.
    3. Related organization.
    4. Affiliated organization.

 

  1. The city created a legally separate port authority. Members of the board of the port authority are elected in general city elections.  The port authority receives no tax dollars; it is supported entirely by user fees.  The port authority determines its budget, sets user fees, and has the power to issue bonded debt.  In what manner would the port authority be included in the city’s basic financial statements?
  1. Discretely presented.
  2. Note disclosure only.
  3. Not included in any manner.

 

  1. Two cities entered into a contractual agreement to operate a landfill. The cities each contributed the necessary assets to operate the landfill in proportion to their populations. First City has the ability to appoint five members of the seven-person governing body of the landfill.  The appointees serve for six-year terms, cannot be reappointed, and can be removed only for cause.  First City has no obligation to contribute to the landfill if the landfill revenues are insufficient to cover current operating costs. The landfill would be considered a(n)
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. Two cities entered into a contractual agreement to operate a landfill. The cities each contributed the necessary assets to operate the landfill in proportion to their populations. Each city has the ability to appoint two members of the governing body of the landfill, and each has an equity interest in the arrangement. The assets contributed by First City were primarily in the form of property and equipment that had been used in general government activities.  In what manner would the landfill be included in First City’s government-wide financial statements?
  2. As an investment.
  3. Discretely presented.
  4. Note disclosure only.
  5. Not included in any manner.

 

 

  1. Two cities entered into a contractual agreement to operate a landfill. The cities each contributed the necessary assets to operate the landfill in proportion to their populations. Each city has the ability to appoint two members of the governing body of the landfill.  The assets contributed by First City were primarily in the form of property and equipment that had been used in general government activities.  In what manner would the landfill be included in First City’s fund financial statements?
  2. In a governmental fund only.
  3. In the schedule of changes in capital assets only.
  4. In a proprietary fund only.
  5. Not be recognized in the financial statements.

 

  1. The city created a legally separate entity to operate a county hospital. The city council appoints a voting majority of the board of the hospital.  The city cannot impose its will on the hospital and there is no potential for a financial benefit or financial burden to the city.  The county hospital would be a(n)
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The city created a legally separate entity to operate a county hospital. The city council appoints a voting majority of the board of the hospital.  The city cannot impose its will on the hospital and there is no potential for a financial benefit or financial burden to the city.  In what manner would the hospital be included in the city’s basic financial statements?
  2. Discretely presented.
  3. Only by note disclosure of the relationship.
  4. Not included in any manner.

 

  1. The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the purpose of raising funds to provide financial assistance to the library. Members of the board of the foundation are elected by the existing foundation board members.  The foundation provides financial assistance to the library, but the foundation receives no financial support from the library.  If dissolved, all of the foundation assets would revert to the library.  The foundation would be considered a(n)
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The Friends of the City Public Library Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the purpose of raising funds to provide financial assistance to the library. Members of the board of the foundation are elected by the existing foundation board members.  The foundation provides financial assistance to the library, but the foundation receives no financial support from the library.  If dissolved, all of the foundation assets would revert to the library.  In what manner should the foundation be presented in the financial statements of the library?
  2. Discretely presented.
  3. Note disclosure only.
  4. Not included in any manner.

 

  1. The Hospital Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the Hospital Medical School. Members of the board of the Hospital Foundation are elected by the existing board of trustees. The foundation provides scholarships to students of the Hospital Medical School, but the foundation receives no financial support from the hospital.  The foundation would be considered a(n)
  2. Primary government.
  3. Component unit.
  4. Related organization.
  5. Affiliated organization.

 

  1. The Hospital Foundation is a legally separate, tax-exempt 501(c)(3) entity organized for the purpose of raising funds to provide scholarships only to academically qualified students at the Hospital Medical School. Members of the board of the Hospital Foundation are elected by the existing board of trustees.  The foundation provides scholarships to students of the Hospital Medical School, but the foundation receives no financial support from the Hospital.  In what manner would the Hospital include the foundation in its financial statements?
  2. Discretely presented.
  3. Note disclosure only.

 

  1. A comprehensive annual financial report (CAFR) for Homer City need not include which of the following sections?
  1. Condensed summary data.
  2. Introductory section.
  3. Financial section.
  4. Statistical section.

 

  1. The introductory section of a CAFR includes which of the following?
  2. Auditor’s opinion on the basic financial statements.
  3. Basic financial statements.
  4. Letter of transmittal.
  5. MD&A and other RSI.

 

  1. The financial section of a CAFR includes:
  2. MD&A and other RSI.
  3. Statistical section.
  4. Letter of transmittal.
  5. GFOA certificate of achievement.

 

  1. Which of the following statements is not a required part of the basic financial statements of Carlton City?
  1. Government-wide statement of net position.
  2. Statement of revenues, expenditures, and changes in fund balances for all governmental funds.
  3. Statement of revenues, expenses, and changes in net assets for all fiduciary funds.
  4. Statement of cash flows for all proprietary funds.

 

 

  1. The auditor’s report generally refers to information in which of the following sections of the CAFR?
  2. The introductory section, the financial section, and the statistical section.
  3. The introductory and the financial sections only.
  4. The statistical and the financial sections only.
  5. The financial section only.

 

  1. Government-wide financial statements include which of the following?
  2. Balance sheet and income statement.
  3. Balance sheet, income statement, and statement of cash flows.
  4. Statement of net position and statement of activities.
  5. Statement of net position, statement of activities, and statement of cash flows.

 

  1. Fund financial statements include which of the following for a governmental fund?
  2. Statement of net position and statement of changes in net position.
  3. Statement of net position, statement of changes in net position, and statement of cash flows.
  4. Balance sheet; statement of revenue, expenditures, and changes in fund balance; and statement of cash flows.
  5. Balance sheet; and statement of revenue, expenses, and changes in fund balance.

 

  1. Fund financial statements for fiduciary funds include which of the following?
  1. Balance sheet and income statement.
  2. Balance sheet, income statement, and a statement of cash flows.
  3. Statement of fiduciary net assets and a statement of changes in fiduciary net assets.
  4. Statement of fiduciary net assets, statement of changes in fiduciary net assets, and statement of cash flows.

 

  1. For a government that depreciates infrastructure, RSI likely would not include which of the following?
  1. MD&A.
  2. Actual to budget comparison.
  3. Information about infrastructure condition.
  4. Details of pension actuarial valuations.

 

  1. With regard to combining statements, which of the following statements is true?
  1. Combining statements for nonmajor governmental funds are optional.
  2. Combining statements for nonmajor governmental funds are required.
  3. Combining statements for nonmajor internal service funds are optional.
  4. Combining statements for all internal service funds are optional.

 

 

  1. Eland City Council has adopted a policy of aggressively pursuing grants and other resource inflows from other levels of government. Over the past several years, the proportion of total city revenues that comes from other levels of government has steadily increased. As a consequence of these increased revenues, the city has begun offering a number of new services to citizens.  In assessing the financial condition of the city, an analyst would conclude which of the following?
  2. The increasing reliance on intergovernmental revenues has increased the financial viability of the city.
  3. The increasing reliance on intergovernmental revenues can be a negative fiscal characteristic.
  4. The increasing reliance on intergovernmental revenues is irrelevant in assessing the financial condition of the city.
  5. The increasing reliance on intergovernmental revenues is a sign of poor management on the part of the city council.

 

  1. Which of the following is generally considered to be a positive fiscal characteristic for a city?
  2. A high, or increasing, ratio of intergovernmental revenues to total revenues.
  3. A low percentage of restricted revenues to total revenues.
  4. A high proportion of one-time revenues to total revenues.
  5. A low ratio of property tax revenues to total revenues.

 

  1. Which of the following is generally considered to be a positive fiscal characteristic for a city?
  2. An increasing amount of payroll costs.
  3. An increasing amount of expenditures for specific functions.
  4. An increasing percentage of nondiscretionary expenditures.
  5. An increasing percentage of discretionary expenditures.

 

  1. Which of the following would generally be considered an indication of future economic concern for a city?
  2. A decreasing percentage of revenue raised by the city as a proportion of total appraised value of property.
  3. A decreasing percentage of revenue raised by the city as a proportion of median family income.
  4. An increasing population base.
  5. An increasing industrial base in a variety of industries.

 

  1. A city’s Revenue from own sources/Median family income ratio is a measure of its
  2. a) Adequacy of revenues
  3. b) Fiscal effort
  4. c) Stability of revenues
  5. d) Liquidity

 

  1. When a government’s Unassigned fund balance/Total operating revenues ratio is high
  2. a) It is a sign of fiscal strength.
  3. b) It indicates the government is spending too little.
  4. c) It indicates the government is taxing too much.
  5. d) Any of the above may be indicated.

 

  1. A special-purpose government that engages only in a single governmental-type program
  2. a) Need not prepare fund financial statements.
  3. b) May combine fund and government-wide statements into a single statement.
  4. c) May present a government-wide income statement in a business format showing expenses deducted from revenues.
  5. d) Should be reported upon as a blended component unit of a general-purpose government.

 

  1. A special-purpose government that engages in more than one program or in both governmental-type and business-type programs
  2. a) May combine fund and government-wide statements into a single statement.
  3. b) Should be reported upon as one or more discretely presented component units of a general-purpose government.
  4. c) May present a government-wide income statement in a business format showing expenses deducted from revenues.
  5. d) Should prepare both government-wide and fund statements, similar to those required of general-purpose governments.

 

  1. A government’s financial condition
  2. a) Is another term for its financial position as reported in the government-wide statement of net position.
  3. b) Is its ability to finance its services and satisfy its obligations on a continuing basis.
  4. c) Can adequately be assessed from the financial section of its CAFR.
  5. d) Depends primarily upon the national economy.

 

50. Which of the following would NOT be classified as required supplementary information (RSI)?a)      MD&A.

b)   Information about infrastructure condition (for governments that do not depreciate infrastructure).

c)   Letter of transmittal included in a government’s CAFR.

d)   Multi-year schedule of funding progress for a government’s pension plan.
PROBLEMS (CHAPTER 11)

 

1.      Parsley City joined with two other cities to create a regional landfill authority.  The initial cash investment by each community was as follows:

Parsley City     $15 million

Sage City         $10 million

Rosemary City $  5 million

The landfill will be governed by a seven-member board—two members chosen by each mayor and one member chosen by majority vote of the six mayoral appointees.  During the first year of operation the landfill, which receives no tax dollars, generated an excess of revenues over expenses of $120,000.  Record the journal entries Parsley City should make under each of the mutually exclusive situations listed below, assuming that all participants have an equal equity interest in the authority.  Indicate in which fund the entry is being made.

 

  1. Assume that Parsley City appropriates the $15 million contribution from its general fund resources.
  2. Assume that Parsley City uses the resources available in its city utility enterprise fund to make the contribution.

 

 

2.      For each of the following independent cases state whether or not the entity described should be included in the financial statements of the primary government and if so, how?  Be concise but adequately defend your answer using GASB criteria.

 

  1. The Planning and Development Authority is a separate legal entity with a five-member board appointed as follows: one member appointed by the school district, one member appointed by the city, one member appointed by the county, and two members elected by the three appointed members. The Planning and Development Authority received a $50,000 grant from the state.  The money was used to make loans to businesses agreeing to relocate to the immediate area.  Repayments of the principal and interest by borrowers are available for lending to new entities.
  2. The state created a Public Building Authority, a separate legal entity. The governor appoints a voting majority of the authority’s board.  The authority issues bonds, backed by the buildings financed with the proceeds.  The authority leases the buildings to the state and uses the proceeds of those leases to service the debt on the bonds.
  3. Boxer County Hospital is built on land donated to the hospital by the US Bureau of Land Management (a federal agency). The hospital board members elect replacements to the board without outside nominations.  The hospital is a separate legal entity and is entirely supported by revenues generated by the hospital.  The county commission must approve the budget each year, but has never questioned any item in the budget.
  4. Members of State University’s board of trustees are elected in a statewide general election. The state provides approximately one-half of the operating revenues necessary to finance the university’s programs.  The university is a separate legal entity and state laws apply to the conduct of its business.

 

 

 

  1. Based on the data from the general fund presented below, assess (as best you can) the financial/fiscal condition of Karla city. As much as possible, justify your answer with quantitative data.

 

(000’s omitted)

Population (increasing slowly)                                          86

Appraised value of taxable property                                  $120,000

Total general fund revenues                                  $  25,000

General fund property tax revenue                        $  11,000

Intergovernmental revenues                                   $    4,000

Miscellaneous revenues                                         $    8,000

Total general fund expenditures

(including debt service)                                     $  20,000

Current expenditures                                             $  21,300

Capital outlay                                                        $    1,600

Debt service expenditures                                      $       100

Operating transfer-in                                              $       600

Operating transfer-out                                            $   (4,600)

Unassigned fund balance                                       $  13,000

Cash and investments                                            $  15,000

Current liabilities                                                   $    1,400

 

 

  1. The data below were taken from the CAFRs of two cities.

 

 
Oak City
Maple City
Population 19,000 115,000
Value of taxable property $860,678,900 $1,075,890,100
Annual property tax levy $16,787,068 $54,991,385
Total general fund revenues $57,166,696 $77,171,776
General fund tax revenues $43,977,949 $54,991,385
Intergovernmental revenues $6,188,029 $17,293,415

 

 

REQUIRED:  Based on this limited information

  1. Which city has the greater resources?
  2. Which city imposes a greater tax burden on its citizens based on
  • Per capita total general fund revenues?
  • Per capital property taxes?
  • Property taxes as a percentage of property values?
    1. Which city receives more assistance from other governments?

 

 

 

  1. Gonzalo City has prepared all of the elements of its CAFR. REQUIRED: Numbering from one to ten, indicate the order in which each of these elements should appear in the city’s CAFR.

 

____          Auditor’s report

____          Letter of transmittal

____          Required supplementary information other than MD&A

____          Government-wide financial statements

____          Notes to financial statements

____          Combining statements for nonmajor funds

____          Combining statements for major discretely presented component units

____          Management’s Discussion and Analysis (MD&A)

____          Statistical tables

____          Governmental fund statements

 

  1. Koch County has two component units—an Electric Utility and a Housing Authority. In its separate financial statements, the Electric Utility reports using a single enterprise fund.  The Housing Authority reports using a general fund, a special revenue fund, and a debt service fund.

 

  1. Assuming that both component units meet the criteria for presentation as discretely presented component units
  • Where should their financial information be presented in the county’s financial report?
  • How would the Housing Authority’s general fund be reported?

 

  1. Assuming that the Electric Utility meets the criteria for reporting as a major component unit, what is the most likely way in which the city would meet the additional disclosure requirement for the utility? What are two other ways that the disclosure requirements could be met?

c.   Assuming that the Housing Authority meets the criteria for presentation as a blended component unit

·         Where should the authority’s financial information be presented?

  • How would the authority’s general fund be reported?

 

  1. A city established an airport authority as a municipal corporation under state law for the purpose of acquiring, maintaining, operating, and financing airports. The authority’s governing board consists of five members–four appointed by the mayor of the city and one appointed by the board of county commissioners.  The board members may not be removed by the appointing officials, except for cause through an impeachment process.

 

The authority is authorized to issue bonds, to levy taxes, to own property in its own name, to determine its budget, and to establish rates.  All debt issued is payable from revenues derived solely from the operation of the authority.  The city has no obligation for the debt of the authority.  The authority’s board controls the day-to-day operations of the organization.  The authority has sole responsibility for financing its deficits and has sole control of its surplus funds.

 

Should the city include the authority in its financial statements as a component unit?  How, if at all, should it report the authority?  Explain and justify citing the specific criteria that you used to make your determination.

 

·         ESSAYS (CHAPTER 11)

 

  1. The state established the State Housing Authority to finance construction of low-income housing. The authority, a state corporation, is governed by an independent board of directors, the members of which are appointed by the governor.  They can be removed only for cause.  The board of directors has complete control over the authority’s operations.  The director is hired by the board and reports to the board; the director cannot be removed by the governor. Although the state constitution limits the state to $2 million of bonds outstanding, the authority issued $970 million in bonds to finance construction projects.  In earlier years, the authority issued debt that was backed by the taxing power of the state (moral obligation debt).  The newer bonds are revenue bonds only.

 

The authority uses the proceeds of the debt it issues to make loans to finance housing construction.  Debt is serviced from monies received in repayment of loans made by the authority.

 

Do you believe the state should include the authority in its reporting entity?  If so, how?  Justify your answer using the GASB Financial Reporting Entity criteria.

 

  1. A comprehensive annual financial report (CAFR) includes a statistical section. What kinds of information are found in the statistical section?    To what use would a reader put the information found in the statistical section?  In your opinion, is the statistical section worth the effort put into its preparation?

 

  1. GASB reporting standards require that legally separate component units be included on the face of the financial statements of the primary government. Small City created a legally separate City Utility Service.  The Small City council appoints the utility board members, authorizes the bonds of the utility, and approves its budget.  Small City’s general fund revenues are $58 million; the revenues of the utility are $100 million (the utility owns a generating plant and sells its excess power to other communities).  Discuss the appropriate reporting for the City Utility Service.  Do you think that this presentation is meaningful?  Why or why not?

 

  1. What are four types of information that must be presented in Management’s Discussion and Analysis (MD&A)? From which financial statement, if any, is each type of information derived?

 

  1. Government colleges and universities have several reporting options under GAAP. What are they?  What financial statements would be presented under each?  What basis of accounting would be used?

 

Chapter 17

Federal Government Accounting

 

 

TRUE/FALSE (CHAPTER 17)

 

  1. If the U.S. Department of the Treasury, GAO, or OMB objects to a FASAB standard, it is returned to the FASAB for reconsideration.
  2. Federal operations consist of five fund types—the general fund, special funds, trust funds, capital funds, and revolving funds.
  3. Proprietary accounts are used to report the business-type activities of the federal government.
  4. Stewardship assets are long-lived assets that are not given balance sheet recognition by the federal government.
  5. The federal agency balance sheet and statement of net cost are prepared on the full accrual basis of accounting.
  6. FASAB requires nonexchange revenues to reported on both the accrual and the cash basis of accounting.
  7. The federal government recognizes social insurance commitments (e.g. social security) to beneficiaries as liabilities only when payments are due.
  8. Federal agencies recognize the cost of loan guarantees when it is probable that borrowers will default on their payments.
  9. Military assets are required to be capitalized and depreciated until war is declared.
  10. Pronouncements of the IFAC’s International Public Sector Accounting Standards Board (IPSASB) state that third-world governments should prepare cash-basis financial statements. .
  11. All members of the FASAB are federal employees.

12, The AICPA has granted the FASAB exclusive authority to established GAAP for federal entities.

13. The unified budget of the federal government excludes Social Security, which is considered “off-budget.”

14. Natural disasters, such as hurricanes, may result in recognized liabilities of the federal government.

15. FASAB standards preclude disclosure of investments in human capital in federal financial reports.
MULTIPLE CHOICE (CHAPTER 17)

 

  1. Which of the following is a unique characteristic of the federal government that necessitates special accounting and reporting practices?
  2. The types of its expenditures.
  3. The size of its obligations.
  4. The extent of its powers.
  5. The range of its influence.

 

  1. Which of the following is a function of the U.S. Department of the Treasury?
  2. Adjudicating claims for and against the federal government.
  3. Monitoring the execution of the federal budget.
  4. Overseeing the central accounting and reporting systems.
  5. Apportioning federal appropriations.

 

  1. Which of the following is a responsibility of the Office of Management and Budget?
  2. Assisting the president in preparing the federal budget.
  3. Resolving bid protests that challenge government contract awards.
  4. Keeping track of monetary assets and liabilities.
  5. Arranging for audits of federal agencies

 

  1. The amount of its budgeted resources that a federal agency currently has available for spending is its
  2. Cash balance.
  3. Unencumbered obligations.

 

  1. The CFO of the United States is
  2. A position within OMB.
  3. A position within GAO.
  4. A position in the Department of the Treasury.
  5. A cabinet position reporting to the U.S. president.
  6. Which of the following has the responsibility for auditing all federal agencies and programs?
  7. The Department of the Treasury.

 

 

  1. The Government Accountability Office (GAO) is part of which branch of the federal government?
  2. Executive branch.
  3. Judicial branch.
  4. Legislative branch.
  5. None of the above; it is independent of all three branches of the federal government.

 

  1. Which of the following is a role that GAO plays in the accounting and information management policy of the United States?
  2. Prescribing standards for auditing and evaluating government programs.
  3. Developing integrated accounting systems that comply with applicable accounting standards.
  4. Apportioning federal appropriations.
  5. Reviewing federal agencies’ spending plans.

 

  1. Federal government accounting standards are the responsibility of which federal government agency?
  2. The Department of the Treasury.
  3. The Office of Management and Budget.
  4. The Government Accountability Office.
  5. All of the above.

 

  1. The Federal Accounting Standards Advisory Board is responsible for
  2. Reviewing FASB and GASB standards.
  3. Setting federal accounting standards.
  4. Implementing federal accounting standards.
  5. Developing federal auditing standards.

 

  1. Which of the following is a true statement about the Federal Accounting Standards Advisory Board?
  2. It is a sub-agency of the OMB.
  3. It is a shared jurisdiction board created following an agreement by three federal agencies.
  4. It is an executive office function.
  5. It was created by and reports to Congress.

 

  1. Which of the following categories is included in the Objectives of Federal Financial Reporting?
  2. Operating performance.
  3. Congressional performance.
  4. Executive performance.
  5. Audit performance.

 

  1. Federal operations are accounted for in four types of funds. Which of the following is one of the types of funds used?
  2. Capital funds.
  3. Revolving funds.
  4. Special revenue funds.
  5. Fiduciary funds.

 

 

  1. Federal government capital expenditures can be accounted for in which of the federal funds?
  2. General fund
  3. Special funds.
  4. Trust funds.
  5. All of the above.

 

  1. Which of the following types of expenditures are not accounted for in the federal government’s general fund?
  2. Operating expenditures.
  3. Capital expenditures.
  4. Interest on public debt.

 

  1. Which of the following is a false statement about federal special funds?
  2. They are maintained primarily to account for resources that are designated for specific programs or activities.
  3. They are typically financed by dedicated fees.
  4. They account for resources used to pay for national defense.
  5. They are included in the unified budget of the federal government.

 

  1. Which of the following funds is/are included in the category federal trust funds?
  2. Old-Age and Survivors Insurance Fund (Social Security).
  3. Supplementary Medical Insurance Fund (Medicare).
  4. Neither (a) nor (b).
  5. Both (a) and (b).

 

  1. Federal government trust funds are
  2. Composed of funds restricted by the donor/contributor.
  3. Like endowment funds—only the income, not the principal, can be expended.
  4. Any funds designated by law as trust funds.
  5. Composed of funds that by law are dedicated to certain activities or programs.

 

  1. Which of the following federal fund types is most similar to a state or local government’s enterprise fund?
  2. General fund.
  3. Special funds.
  4. Trust funds.
  5. Revolving funds.

 

  1. The U.S. Postal Service is accounted for in which of the following fund types?
  2. General fund.
  3. Special fund.
  4. Trust fund.
  5. Revolving fund.

 

 

  1. The unified budget of the federal government was originally intended to include which of the following fund types?
  2. General fund, all special funds, all trust funds, and all revolving funds.
  3. General fund, all special funds, some trust funds, and all revolving funds.
  4. General fund, some special funds, some trust funds, and all revolving funds.
  5. General fund, all special funds, and all revolving funds.

 

  1. Which of the following federal government accounting terms is most similar to an encumbrance, as that term is used in state and local government accounting?

 

  1. Which of the following federal government accounting terms is most similar to an appropriation, as that term is used in state and local government accounting?

 

  1. Which of the following is NOT a criterion for a federal government “component” to be considered a reporting entity and therefore required to issue a financial report?
  2. There is a management responsible for controlling and deploying the component’s outputs and outcomes and for executing its budget. It is held accountable for its performance.
  3. The component is of sufficient size and significance that its financial statements would provide a meaningful representation of its operations and financial condition.
  4. The component is of sufficient cohesiveness of operations that its financial statements would provide a meaningful representation of a specific program or type of activity.
  5. Users are interested in the information to be reported in its financial statements and could use it to make resource allocation and related decisions.

 

  1. The Financial Report of the United States Government is prepared on which of the following bases of accounting?
  2. Modified accrual.

 

  1. The United States Government Combined Statement of Receipts, Outlays, and Balances is prepared on which of the following bases of accounting?
  2. Modified accrual.

 

 

  1. Which of the following is NOT one of the basic government-wide federal financial statements?
  2. Balance sheet.
  3. Statement of operations and changes in net position.
  4. Statement of net cost
  5. Statement of custodial assets.

 

  1. Which of the following is NOT a main section of the Financial Report of the United States Government?
  2. Introductory section including letter of transmittal and MD&A.
  3. Other stewardship information section.
  4. Required supplemental information section.
  5. Statistical section.

 

  1. Which of the following is NOT a basic financial statement for a federal agency?
  2. Balance sheet.
  3. Statement of budgetary esources.
  4. Statement of financing.
  5. Statement of stewardship assets.

 

  1. The FASAB requires that federal government agencies accrue nonexchange revenues when a specifically identifiable, legally enforceable claim to resources arises, to the extent that collection is probable and the amount is measurable. Thus, fines and penalties should be accrued
  2. Upon expiration of the period during which the offender may contest a court summons.
  3. When the offender pays the fine before a court date.
  4. When the court imposes a fine.
  5. Any of the above would meet the criteria.
  6. Under FASAB standards, nonexchange revenues do NOT include
  7. Taxes and duties.
  8. Fines and penalties.
  9. Sales to other government entities.
  10. Donations received by federal museums.

 

  1. FASAB requires that federal agencies capitalize certain assets. Which of the following assets should be capitalized?
  2. Stewardship assets such as national parks and national forests.
  3. Assets such as weapons systems and space exploration equipment.
  4. Heritage assets that have only historical, artistic, or cultural significance.
  5. Human capital.

 

  1. The FASAB allows entities to value inventories held for sale at which of the following values?
  2. Historical cost, using FIFO.
  3. Historical cost, using weighted average.
  4. Latest acquisition cost.
  5. All of the above.

 

 

  1. If a federal entity reports inventories held for sale at latest acquisition cost, it must also report an allowance for unrealized holding gains or losses. The allowance should be calculated as the difference between
  2. Latest acquisition cost and FIFO historical cost.
  3. Latest acquisition cost and weighted average historical cost.
  4. Latest acquisition cost and LIFO historical cost.
  5. Either a) or b).

 

  1. The allowance for unrealized holding gains that appears in the cost of goods sold section of a federal financial statement effectively does which of the following?
  2. Adjusts the latest acquisition cost inventory valuation to the historical cost valuation.
  3. Increases the cost of goods sold by the increase in market value of the inventory.
  4. Decreases the cost of goods sold by the increase in market value of the inventory.
  5. Adjusts the historical cost valuation to the latest acquisition cost inventory valuation.

 

  1. The federal government is required to recognize liabilities from nonexchange transactions
  2. When an exchange takes place.
  3. When the event occurs and the anticipated outflows of resources are both probable and measurable.
  4. When due.
  5. When formally acknowledged and an amount is due and payable as a result.

 

  1. The federal government has declared a specific area a “natural disaster” area, making residents of the area eligible for payments from the federal government. When should the liability for such payments be recorded?
  2. When an exchange takes place.
  3. When the event occurs and the anticipated outflows of resources can be estimated.
  4. When anticipated outflows of resources are both probable and measurable.
  5. When formally acknowledged and an amount is due and payable as a result.

 

  1. Amounts due to social security beneficiaries should be “booked” (recorded as a liability)
  2. As beneficiaries earn benefits.
  3. When beneficiaries reach the eligibility age for benefits..
  4. When benefits become due and payable.
  5. When the government formally acknowledges that benefits are due and payable.

 

  1. When the federal government makes a direct loan at an interest rate below the prevailing Treasury rate (a subsidized loan), an asset should be recorded for which of the following amounts?
  2. The face amount of the loan.
  3. The present value of the future principal and interest payments discounted at the stated rate.
  4. The present value of the future principal and interest payments discounted at the comparable Treasury rate.
  5. No asset should be recorded.

 

 

  1. When the federal government makes a direct loan at an interest rate below the prevailing Treasury rate (a subsidized loan), an expense should be recorded for which of the following amounts?
  2. The difference between the face value of the loan and the present value of the estimated net cash receipts.
  3. The difference between the present value of the estimated net cash receipts at the stated rate of interest and the present value of the net cash receipts at the prevailing interest rate.
  4. The fair value of the loans.
  5. No expense is recognized.

 

  1. When the federal government guarantees a loan made by a private lender, the federal government should record a liability for which of the following amounts?
  2. The face amount of the loan.
  3. The present value of the anticipated payments to the private lender discounted at the government agency’s rate.
  4. The present value of the anticipated payments to the private lender discounted at the lender’s rate.
  5. No liability should be recorded.

 

  1. The Government Performance and Results Act of 1993 requires federal agencies to do which of the following?
  2. Develop strategic plans and operational objectives.
  3. Develop measures of performance.
  4. Report on the extent to which they have met their objectives.
  5. All of the above.

 

  1. Which of the following is a NOT a true statement with regard to accounting and reporting for federal government agencies versus accounting and reporting for state and local governments?
  2. In their respective government-wide statements, state and local governments use the accrual basis of accounting whereas federal agencies use the cash basis of accounting.
  3. State and local governments record appropriations whereas federal agencies record apportionments.
  4. Federal agencies use a dual-track method of accounting for proprietary accounts and budgetary accounts; state and local governments use both budgetary and proprietary accounts only in governmental funds.
  5. The budget is recorded in the general ledger of a state or local government, but not in the general ledger of a federal agency.

 

  1. Which of the following statements is true of the International Public Sector Accounting Standards Board?
  2. a) It has been authorized by the United Nations to set accounting and financial reporting standards for all countries with representation in the U.N.
  3. b) It has indicated that a country’s financial statements should be on a cash basis or a modified accrual basis of accounting, consistent with the country’s tradition, until all countries’ accounting systems are more advanced.
  4. c) It has indicated that the public sector standards promulgated by the GASB are broadly consistent with IPSASB standards.
  5. d) It has shown little interest in convergence of its standards for governments with those promulgated by the International Accounting Standards Board for businesses.

 

  1. The International Public Sector Accounting Standards Board has issued standards calling for which of the following?
  2. a) The capitalization and depreciation of governments’ infrastructure assets.
  3. b) The expensing of borrowing costs no earlier than when cash is disbursed.
  4. c) The recognition of inventories as an expense using the purchases method.
  5. d) The preparation of budgets on the accrual basis.

 

  1. Under FASAB standards, government agencies should recognize liabilities for grants
  2. a) When Congress passes the related legislation.
  3. b) When the grant announcement is made.
  4. c) When the announcement is formally acknowledged by the grantee.
  5. d) When payments are due.
  6. When should federal entities recognize liabilities for natural disasters?
  7. a) When the disaster occurs.
  8. b) When the financial effect of the disaster is known or can be estimated.
  9. c) When the government acknowledges financial responsibility and an amount is due and payable.d) The federal government does not accept responsibility for Acts of God.

 

 

 

PROBLEMS (CHAPTER 17)

 

  1. The federal government’s general fund reports the following transactions during 2014. Prepare journal entries to record each of these transactions.  If no entry is required, write “No entry required.”

 

  1. The general fund contracts with a construction firm to build an Afghan and Iraqi war memorial based on a design selected by the Afghan and Iraqi War Veterans Commission. The estimated cost of the project is $3.5 million.
  2. The general fund makes a $750,000 progress payment on the Afghan and Iraqi War Memorial contract.
  3. The general fund purchases new window treatments for the living areas of the White House. The cost is $650,000.
  4. The general fund reviews and accepts a design for the 2015 White House Christmas ornament and is billed $500,000 for the design cost.
  5. The general fund contracts for the manufacture of 1.5 million 2015 Christmas ornaments. The manufacturing cost for each ornament is $2.00.  The ornaments are paid for and will be available for sale in the White House beginning in August 2015.
  6. The general fund elects to record its inventory of assets held for sale at historical cost.

 

 

 

 

  1. A federal agency established to provide direct loans for older Americans enrolled in school or college made a three-year, 3 percent direct loan of $3,000 to be repaid in three equal annual installments of $1,060.59. The prevailing Treasury rate on short- and intermediate-term securities is 6 percent.  Prepare journal entries to record the loan and the three payments.  If no entry is required, write “No entry required.”

 

Present value factors, if needed

Present value of an annuity for 3 periods @ 6%                        =  2.67301

Present value of an annuity for 3 periods @ 3%            =  2.82861

Present value of $1, @ 6%, 3 periods                             =    .83962

Present value of $1, @ 3%, 3 periods                             =    .91513

 

 

 

  1. A federal agency was established to provide loan guarantees for students. At the beginning of Year 1 the agency guarantees $100,000 of student loans.  The payments that the agency estimates it will have to make to lenders as a result of student defaults are as listed below.  The agency uses a discount rate of 6 percent.  Prepare the necessary journal entries to record the loan guarantee expense in Year 1 and the payment to the lenders in Year 2 of $400 on defaulted loans.  If no entry is required, write “No entry required.”

 

Present value factors, if needed, at 6%                  PV of $1          PV of an Annuity

1 period                       .94340               .94340

2 periods                      .89000             1.83339

3 periods                      .83962             2.67301

4 periods                      .79209             3.46511

5 periods                      .74726             4.21236

 

Estimates made at the end of year 1                      Estimates made at the end of Year 2

End of Year                       Amount                       End of Year                 Amount

1                      $400                                    2                          $200

2                      $200                                    3                          $100

  • $100

 

 

 

 

  1. A federal environmental agency engaged in the following transactions during a particular year.
  2. It billed corporations for which it provided services $160 million. Of this, it collected $140 million.
  3. It levied $150 million in fines and penalties against corporations. Of this, $90 million was collected in cash. Of the balance, the protest period has expired on $35 million, which the agency expects to collect in the following year. The remaining $25 million is in dispute and court dates have not yet been set.
  4. It collected an additional $20 million in fines and penalties that had been assessed by federal courts in the previous period.
  5. It received cash donations of $3 million and pledges of an additional $2 million. The agency’s counsel advises that the pledges are not legally enforceable.
  6. Prepare journal entries to record the revenues and collections.
  7. Show how the revenues and related receivables would be reported on the agency’s balance sheet and statement of net cost (i.e., an operating statement).

 


ESSAYS (CHAPTER 17)

 

  1. Why is the FASAB named an “advisory board”? What happens if the GAO or the OMB rejects one of its standards?

 

  1. One of the major problems encountered by the FASAB in setting standards for the federal government-wide financial statements is how to classify future benefit payments to social security beneficiaries. What are the underlying issues related to social security?  How has the FASAB resolved the issues?  How is social security information presented in federal financial statements?

 

  1. One of the more difficult issues to address in state and local government accounting is the reporting entity. A similar issue exists at the federal level.  Discuss the financial reporting entity issue at the federal level.

 

  1. The federal government maintains a dual system of accounts. What are the two types of accounts?  Why does the federal government keep two types?

 

  1. What is meant by a “unified budget”? Why are Social Security and Postal Service receipts and disbursements not included in the unified budget?

 

  1. The FASAB has explained that government liabilities are attributable to “events.” What are “events”?  What types of events has FASAB identified? Give some examples of each type.  When should liabilities be recognized for each type of event?