GAC Financial Analysis & Reporting 3 — Questions and Answers
Question 1: A city's general fund shows a $500,000 fund balance deficit. Which component of fund balance is most likely to cause this?
- Restricted fund balance
- Committed fund balance
- Nonspendable fund balance
- Unassigned fund balance (Correct answer)
Correct answer: Unassigned fund balance
Only the unassigned fund balance classification can be negative; deficits in the general fund are reported as negative unassigned fund balance under GASB 54.
Question 2: Which of the following would be classified as a program revenue on the government-wide Statement of Activities?
- Property tax levy
- Sales tax collections
- Federal grant restricted to highway maintenance (Correct answer)
- General obligation bond proceeds
Correct answer: Federal grant restricted to highway maintenance
Program revenues are directly linked to a specific function or program, such as a restricted federal grant for highway maintenance, and offset that program's expenses.
Question 3: Under GASB standards, infrastructure assets reported using the modified approach are NOT required to be:
- Documented in an asset management system
- Depreciated (Correct answer)
- Assessed at least every three years
- Maintained at a condition level established by the government
Correct answer: Depreciated
The modified approach allows governments to expense preservation costs rather than depreciate infrastructure assets, provided condition assessment requirements are met.
Question 4: What is the primary purpose of a reconciliation between fund financial statements and government-wide financial statements?
- To adjust for intergovernmental transfers
- To explain differences arising from measurement focus and basis of accounting (Correct answer)
- To eliminate internal service fund balances
- To consolidate all component units
Correct answer: To explain differences arising from measurement focus and basis of accounting
The reconciliation bridges the modified accrual, current financial resources basis used in governmental funds to the accrual, economic resources basis used in government-wide statements.
Question 5: A government issues $10M in general obligation bonds at a premium of $500,000. How should the premium be reported in governmental fund statements?
- As other financing source (Correct answer)
- As long-term liability
- As deferred inflow of resources
- As revenue
Correct answer: As other financing source
In governmental fund accounting, bond premiums are reported as other financing sources in the period received because they represent a current financial resource.
Question 6: Which GASB standard governs accounting and financial reporting for postemployment benefits other than pensions (OPEB)?
- GASB Statement No. 68
- GASB Statement No. 75 (Correct answer)
- GASB Statement No. 87
- GASB Statement No. 96
Correct answer: GASB Statement No. 75
GASB Statement No. 75 establishes standards for reporting OPEB obligations, requiring governments to recognize the net OPEB liability on the face of financial statements.
Question 7: In the context of governmental financial analysis, what does a high debt service-to-revenue ratio generally indicate?
- Strong fiscal health and capacity to issue new debt
- Greater financial flexibility to fund services
- A large portion of revenues is committed to debt repayment (Correct answer)
- Capital assets are being replaced efficiently
Correct answer: A large portion of revenues is committed to debt repayment
A high debt service-to-revenue ratio means a significant share of incoming revenues must be used to pay principal and interest, leaving fewer resources for services.
GAC Financial Analysis & Reporting 3
A city's general fund shows a $500,000 fund balance deficit.
Which component of fund balance is most likely to cause this?