Certified Public Accountant Governmental & Not-for-Profit Accounting 2 — Questions and Answers
Question 1: Under GASB standards, which basis of accounting do proprietary funds (enterprise and internal service funds) use?
- Modified accrual basis
- Cash basis
- Full accrual basis (Correct answer)
- Tax basis
Correct answer: Full accrual basis
Proprietary funds use full accrual accounting because they are business-like activities that follow a capital maintenance (economic resources) measurement focus.
Question 2: A county receives bond proceeds to construct a new courthouse. These resources should be accounted for in which fund?
- General Fund
- Special Revenue Fund
- Capital Projects Fund (Correct answer)
- Debt Service Fund
Correct answer: Capital Projects Fund
Capital Projects Funds account for financial resources restricted to the acquisition or construction of major capital facilities, such as a courthouse.
Question 3: Which of the following government activities would be classified as a business-type activity in government-wide statements?
- Fire department operations
- Public library
- Municipal water utility (Correct answer)
- Public school district
Correct answer: Municipal water utility
Business-type activities are government services financed primarily through user charges, such as a water utility, and are reported separately in government-wide statements.
Question 4: What is the term for the residual interest in a government's assets after deducting liabilities and adjusting for deferred items, used in government-wide statements?
- Fund balance
- Net position (Correct answer)
- Retained earnings
- Stockholders' equity
Correct answer: Net position
Net position is the GASB equivalent of equity for governmental entities, representing the residual interest after deducting liabilities and adding deferred outflows of resources.
Question 5: Under FASB ASC 958, a donation requiring the principal to be maintained in perpetuity with only investment income available for spending creates:
- Net assets without donor restrictions
- A conditional contribution liability
- Net assets with donor restrictions (Correct answer)
- Board-designated net assets
Correct answer: Net assets with donor restrictions
An endowment gift requiring principal preservation in perpetuity creates net assets with donor restrictions, as the donor has placed permanent restrictions on the use of the funds.
Question 6: Which characteristic most clearly distinguishes a contribution from an exchange transaction in not-for-profit accounting?
- The contribution must be in cash
- The resource provider receives no direct commensurate value in return (Correct answer)
- The contribution must be unconditional
- The contributor must be an individual, not a corporation
Correct answer: The resource provider receives no direct commensurate value in return
A contribution is defined as an unconditional transfer where the provider receives no commensurate value in return; exchange transactions involve reciprocal transfers of equivalent value.
Question 7: Under GASB Statement No. 34, the Management's Discussion and Analysis (MD&A) section of a government's financial report is classified as:
- Basic financial statements
- Required supplementary information (RSI) (Correct answer)
- Optional supplementary information
- Notes to financial statements
Correct answer: Required supplementary information (RSI)
Under GASB 34, the MD&A is required supplementary information (RSI) that precedes the basic financial statements and provides an analytical overview of financial activities.
Certified Public Accountant Governmental & Not-for-Profit Accounting 2
Under GASB standards, which basis of accounting do proprietary funds (enterprise and internal service funds) use?