GAC Governmental Financial Reporting & Analysis 2 — Questions and Answers
Question 1: Which financial statement in a government's CAFR presents revenues, expenditures, and changes in fund balances for governmental funds?
- Statement of Net Position
- Statement of Activities
- Statement of Revenues, Expenditures, and Changes in Fund Balances (Correct answer)
- Statement of Cash Flows
Correct answer: Statement of Revenues, Expenditures, and Changes in Fund Balances
The Statement of Revenues, Expenditures, and Changes in Fund Balances is the operating statement for governmental funds, using the modified accrual basis.
Question 2: Under GASB standards, which basis of accounting is used for proprietary funds?
- Modified accrual basis
- Cash 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.
Question 3: A city's General Fund reports an unreserved fund balance of $5M and a reserved fund balance of $2M. What is the total fund balance?
- $3 million
- $5 million
- $7 million (Correct answer)
- $10 million
Correct answer: $7 million
Total fund balance equals unreserved ($5M) plus reserved ($2M) fund balances, totaling $7 million.
Question 4: Which component of the CAFR provides narrative overview and analysis of the government's financial activities for the year?
- Notes to Financial Statements
- Management's Discussion and Analysis (MD&A) (Correct answer)
- Statistical Section
- Introductory Section
Correct answer: Management's Discussion and Analysis (MD&A)
MD&A is required supplementary information that provides an objective analysis of the government's financial activities and position.
Question 5: Under GASB 54, which fund balance classification represents amounts that are constrained to specific purposes by external parties or constitutional provisions?
- Nonspendable
- Restricted (Correct answer)
- Committed
- Assigned
Correct answer: Restricted
Restricted fund balance is constrained by externally imposed requirements from creditors, grantors, contributors, or laws and regulations.
Question 6: What does the 'infrastructure reporting' option under GASB 34 allow governments to do?
- Exclude all infrastructure from financial statements
- Use the modified approach as an alternative to depreciation for eligible infrastructure assets (Correct answer)
- Report infrastructure only in the notes
- Capitalize infrastructure only if cost exceeds $1 million
Correct answer: Use the modified approach as an alternative to depreciation for eligible infrastructure assets
The modified approach allows governments to expense maintenance rather than depreciate infrastructure assets if they maintain the assets at a predetermined condition level.
Question 7: Which ratio best measures a government's ability to cover its current liabilities with current assets?
- Debt service coverage ratio
- Current ratio (Correct answer)
- Quick ratio
- Operating ratio
Correct answer: Current ratio
The current ratio (current assets divided by current liabilities) measures short-term liquidity and ability to meet near-term obligations.
GAC Governmental Financial Reporting & Analysis 2
Which financial statement in a government's CAFR presents revenues, expenditures, and changes in fund balances for governmental funds?