CPA Governmental & Not-for-Profit Accounting 2 — Questions and Answers
Question 1: Which governmental fund is used to account for the accumulation of resources for and the payment of general long-term debt principal and interest?
- Capital Projects Fund
- Debt Service Fund (Correct answer)
- Special Revenue Fund
- Internal Service Fund
Correct answer: Debt Service Fund
The Debt Service Fund accounts for financial resources set aside for repayment of general long-term debt obligations including principal and interest.
Question 2: Under the modified accrual basis, property tax revenues are recognized when they are:
- Levied by the government
- Collected in cash
- Measurable and available within 60 days after year-end (Correct answer)
- Billed to property owners
Correct answer: Measurable and available within 60 days after year-end
Under modified accrual, property taxes are recognized as revenue when measurable and available, with GASB generally defining available as collectible within 60 days of year-end.
Question 3: A not-for-profit hospital receives a $500,000 donation restricted by the donor for equipment purchases. Before the equipment is purchased, this amount should be classified as:
- Revenue without donor restrictions
- Net assets with donor restrictions (Correct answer)
- A liability
- Deferred revenue
Correct answer: Net assets with donor restrictions
Donor-restricted contributions are recorded as net assets with donor restrictions until the restriction is satisfied through expenditure for the specified purpose.
Question 4: Which GASB concept requires governments to report on their fiscal accountability by using the modified accrual basis in fund statements?
- Operational accountability
- Fiscal accountability (Correct answer)
- Economic accountability
- Stewardship accountability
Correct answer: Fiscal accountability
Fiscal accountability focuses on whether the government raised and spent resources in accordance with the budget and legal requirements, which is served by fund-level modified accrual reporting.
Question 5: In governmental accounting, which of the following would be recorded as an expenditure rather than an expense?
- Depreciation of general capital assets (Correct answer)
- Interest accrued on revenue bonds
- Salaries payable to government employees
- Loss on sale of equipment
Correct answer: Depreciation of general capital assets
Governmental funds do not record depreciation because they use current financial resources focus; capital asset costs are recorded as expenditures when purchased, not depreciated over time.
Question 6: The Comprehensive Annual Financial Report (CAFR) required of governments includes which three sections?
- Introductory, Financial, and Statistical (Correct answer)
- Budget, Financial, and Audit
- Management, Financial, and Notes
- Executive, Legislative, and Financial
Correct answer: Introductory, Financial, and Statistical
A CAFR (now often called the Annual Comprehensive Financial Report) contains an Introductory section, a Financial section (with audited statements), and a Statistical section with trend data.
Question 7: Under FASB ASC 958 for not-for-profits, which of the following is required to be presented in the statement of cash flows?
- Operating, Investing, and Financing activities (Correct answer)
- Only operating and investing activities
- Restricted and unrestricted activities separately
- Fund-by-fund cash activity
Correct answer: Operating, Investing, and Financing activities
Not-for-profit organizations follow FASB standards requiring a statement of cash flows with operating, investing, and financing activity classifications, similar to for-profit entities.
CPA Governmental & Not-for-Profit Accounting 2
Which governmental fund is used to account for the accumulation of resources for and the payment of general long-term debt principal and interest?