CGFO Revenue Administration 2 — Questions and Answers
Question 1: Which method of revenue recognition is required for governmental funds under GASB standards?
- Accrual basis when earned
- Modified accrual basis when measurable and available (Correct answer)
- Cash basis when received
- Full accrual when billed
Correct answer: Modified accrual basis when measurable and available
Governmental funds use modified accrual, recognizing revenue when it is measurable and available to finance current-period expenditures.
Question 2: A local government imposes a special assessment on property owners to fund a sidewalk construction project. This revenue is best classified as:
- Tax revenue
- Intergovernmental revenue
- Charges for services
- Special assessment revenue (Correct answer)
Correct answer: Special assessment revenue
Special assessments are levies on benefiting property owners for specific capital improvements and are reported separately from general taxes.
Question 3: Under GASB Statement No. 33, which condition must be met before a government recognizes grant revenue using the expenditure-driven model?
- The grant award letter must be signed
- Eligible expenditures must be incurred (Correct answer)
- The grantor must be a federal agency
- The budget must be appropriated
Correct answer: Eligible expenditures must be incurred
Expenditure-driven (reimbursement) grants require the recipient to incur qualifying expenditures before the revenue eligibility condition is met.
Question 4: A government collects $500,000 in property taxes but expects 3% to be uncollectible. How should the uncollectible amount be reported?
- As a bad debt expense on the income statement
- As a reduction of revenue via an allowance for uncollectible taxes (Correct answer)
- As a general fund expenditure
- As an interfund transfer
Correct answer: As a reduction of revenue via an allowance for uncollectible taxes
Governments establish an allowance for uncollectible taxes, which reduces gross tax revenue to reflect the net realizable amount.
Question 5: Which type of government revenue is most directly tied to the ability-to-pay principle?
- User fees for water service
- Progressive income tax (Correct answer)
- Special assessments
- Impact fees
Correct answer: Progressive income tax
Progressive income taxes impose higher rates on higher earners, directly applying the ability-to-pay principle to government revenue.
Question 6: A city receives a state shared revenue payment in January for the prior fiscal year's sales tax collections. Under modified accrual, when should the revenue be recognized?
- When the original sales occurred in the prior year
- In the period when received in January
- In the prior fiscal year if available within 60 days after year-end (Correct answer)
- Only after formal legislative appropriation
Correct answer: In the prior fiscal year if available within 60 days after year-end
Under modified accrual, revenue is available if received within a specified period (often 60 days) after the fiscal year-end, allowing prior-year recognition.
Question 7: Which revenue source is typically the most stable and predictable for local governments?
- Sales tax
- Income tax withholding
- Property tax (Correct answer)
- Hotel/motel tax
Correct answer: Property tax
Property tax is anchored to assessed real estate values, which change slowly, making it the most stable local government revenue source.
CGFO Revenue Administration 2
Which method of revenue recognition is required for governmental funds under GASB standards?