CGFO Governmental Accounting & Financial Reporting 5 — Questions and Answers
Question 1: Which basis of accounting must be used for proprietary fund statements under GASB?
- Cash basis
- Modified accrual basis
- Full accrual basis (Correct answer)
- Budgetary basis
Correct answer: Full accrual basis
Proprietary funds use the full accrual basis of accounting, recognizing revenues when earned and expenses when incurred regardless of cash flow timing.
Question 2: A government sells a capital asset with a book value of $200,000 for $150,000. How is this reported in the government-wide Statement of Activities?
- As a $200,000 expenditure and $150,000 revenue
- As a $50,000 loss on disposal within the relevant function's expenses (Correct answer)
- As a special item if it is unusual and infrequent
- As a reduction of the capital projects fund balance
Correct answer: As a $50,000 loss on disposal within the relevant function's expenses
Gains and losses on disposal of capital assets are reported within the function that used the asset in the government-wide Statement of Activities.
Question 3: What distinguishes a 'special item' from an 'extraordinary item' in governmental financial reporting under GASB 34?
- Special items are both unusual and infrequent; extraordinary items are neither
- Special items are significant transactions within management's control; extraordinary items are both unusual in nature and infrequent in occurrence (Correct answer)
- They are identical; GASB uses the terms interchangeably
- Extraordinary items must exceed $1 million to qualify
Correct answer: Special items are significant transactions within management's control; extraordinary items are both unusual in nature and infrequent in occurrence
Special items are significant transactions or events within management's control that are either unusual in nature or infrequent, while extraordinary items are both unusual and infrequent and outside management's control.
Question 4: Under the GASB hierarchy, which source has the highest authority for governmental accounting standards?
- AICPA Audit and Accounting Guides
- GASB Statements (Correct answer)
- GASB Technical Bulletins
- GASB Implementation Guides
Correct answer: GASB Statements
GASB Statements are the highest level of authoritative GAAP for state and local governments, followed by GASB Interpretations, then Technical Bulletins and Implementation Guides.
Question 5: A county issues $10 million in revenue bonds backed solely by water utility fees. In which fund should these bonds be reported?
- General Fund long-term debt account group
- Debt Service Fund
- Enterprise Fund (Water Utility) (Correct answer)
- Capital Projects Fund
Correct answer: Enterprise Fund (Water Utility)
Revenue bonds backed by enterprise fund revenues are reported as liabilities of the enterprise fund (proprietary fund), not in governmental funds or a separate debt service fund.
Question 6: Which GASB statement establishes requirements for reporting on the financial condition of pension plans maintained by governmental employers?
- GASB 34
- GASB 45
- GASB 67 (Correct answer)
- GASB 87
Correct answer: GASB 67
GASB 67 establishes financial reporting requirements for pension plans themselves (the plan), while GASB 68 covers the employer side of defined benefit pensions.
Question 7: When a government restates prior-period financial statements due to a material error, where is the cumulative effect reported?
- As a prior-period adjustment to the beginning net position or fund balance (Correct answer)
- As an extraordinary item in the current period's statement of activities
- As an operating expense in the current period
- In a supplementary schedule only, with no impact on the primary statements
Correct answer: As a prior-period adjustment to the beginning net position or fund balance
Material prior-period errors are corrected by restating the beginning net position or fund balance of the earliest period presented, with disclosure of the nature and amount.
CGFO Governmental Accounting & Financial Reporting 5
Which basis of accounting must be used for proprietary fund statements under GASB?