GAC Financial Analysis & Reporting 2 — Questions and Answers
Question 1: Under GASB Statement No. 34, which financial statement presents the government-wide net position at year-end?
- Statement of Cash Flows
- Statement of Net Position (Correct answer)
- Statement of Activities
- Balance Sheet of Governmental Funds
Correct answer: Statement of Net Position
GASB 34 requires a Statement of Net Position for government-wide reporting that displays assets, deferred outflows, liabilities, deferred inflows, and net position.
Question 2: A government reports a $2M increase in tax revenue but has a corresponding $2M increase in deferred inflows. What is the net effect on revenues recognized?
- $2M increase in revenues
- $0 net effect on revenues (Correct answer)
- $2M decrease in revenues
- $4M increase in revenues
Correct answer: $0 net effect on revenues
When revenue is offset entirely by deferred inflows (unavailable revenue), the net recognized revenue is zero because the inflow is deferred to a future period.
Question 3: Which ratio is most commonly used to assess a government's short-term liquidity in governmental fund financial statements?
- Debt service coverage ratio
- Quick ratio
- Current ratio (Correct answer)
- Operating ratio
Correct answer: Current ratio
The current ratio (current assets divided by current liabilities) is the primary measure of a governmental fund's short-term liquidity.
Question 4: In a government's Management Discussion and Analysis (MD&A), which information is REQUIRED by GASB standards?
- Five-year trend analysis of revenues
- Comparison of current year to prior year financial results (Correct answer)
- Projected revenues for the next fiscal year
- A list of all outstanding debt instruments
Correct answer: Comparison of current year to prior year financial results
GASB requires the MD&A to include a comparative analysis of current-year versus prior-year financial results as part of required supplementary information.
Question 5: What does a negative unrestricted net position in a government-wide statement typically indicate?
- The government has more cash than liabilities
- Long-term obligations exceed unrestricted available resources (Correct answer)
- The government has violated GAAP requirements
- Capital assets are fully depreciated
Correct answer: Long-term obligations exceed unrestricted available resources
A negative unrestricted net position signals that long-term liabilities (such as pension obligations or bonds) exceed the liquid resources not tied to specific purposes.
Question 6: Under GASB 87, how are lease receivables initially measured by a governmental lessor?
- At fair market value of the underlying asset
- At the present value of lease payments expected to be received (Correct answer)
- At the historical cost of the leased property
- At the sum of all future undiscounted lease payments
Correct answer: At the present value of lease payments expected to be received
GASB 87 requires lessors to record a lease receivable at the present value of expected future lease payments, using the interest rate implicit in the lease when determinable.
Question 7: Which fund type uses the economic resources measurement focus and accrual basis of accounting?
- General Fund
- Special Revenue Fund
- Capital Projects Fund
- Enterprise Fund (Correct answer)
Correct answer: Enterprise Fund
Proprietary funds, including enterprise funds, use the economic resources measurement focus and full accrual basis, mirroring private-sector accounting.
GAC Financial Analysis & Reporting 2
Under GASB Statement No. 34, which financial statement presents the government-wide net position at year-end?