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March 5, 2013
From: Joe
Practice Test:
ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS
The following is a test that I recently gave to my State and Local Government Accounting class here at the university. I am delighted to share it (and the answers) with you in exchange for a small donation to Project Hope. It is important in life that we do not focus solely on ourselves. We are delighted now to be helping Project Hope and even a small donation from you helps when added to our other generous candidates. We here atCPAreviewforFREE have shared our free questions and answers with hundreds of thousands of candidates over the years.
When I wrote this test, I tried to set it at the level of what I thought my students would see on the CPA Exam. I chose not to write multiple-choice questions (as they would have seen on the CPA Exam itself) but rather as true-false questions. The reason was that I wanted to cover a very wide range of topics and it is easier to do that using true-false. If you know any college accounting students, forward this newsletter to them so they can practice for their next Governmental Accounting quiz or test.
If you stop and think about it, a traditional multiple-choice question is merely four true-false questions where one is true and three are false. So, I never apologize for using true-false questions.
After you finish studying accounting for state and local governments or you feel you are ready now, please take the test below just to see how you do. You will see 38 questions that you have never seen before which is a good way to evaluate your knowledge. My students took between 40 minutes and 75 minutes to finish this test. It is my guess (and it really is a guess) that missing 11 or less would be equal to passing this portion of the CPA Exam.
TEST INSTRUCTIONS:
Take the test and then send an email to us with the single word "Answers" in the body and we'll provide the answers to the test. Read over the questions that you miss. Pay close attention to those answers. You certainly do not need to be perfect but you need to work on getting more and more questions correct.
BEGIN AND GOOD LUCK:
Assume you are the controller for the City of Havisham. The city has a fiscal year ending December 31, 2013. IF the city was to produce financial statements right now, the following figures would be included:
--Governmental Activities: Assets = $800,000, Liabilities = $300,000, and Change in Net Assets for the period = increase of $100,000
--Business-Type Activities: Assets = $500,000, Liabilities = $200,000, and Change in Net Assets for the period = increase of $60,000
--Governmental Funds: Assets = $300,000, Liabilities = $100,000, and Change in Fund Balances = increase of $40,000
--Proprietary Funds: Assets = $700,000, Liabilities = $300,000, and Change in Net Assets for the period = increase of $70,000
Other information: The city council is viewed as the highest level of decision-making authority for the government. Where applicable, current financial resources are viewed by the government as available if collected within 75 days of the end of a fiscal year.
For each of the following, indicate whether the statement is True or False. The following questions are all independent of each other.
(1) – TRUE or FALSE – In the information provided above, an error has apparently been made that must be corrected because the amount of proprietary fund assets ($700,000) cannot be greater than the amount of business-type activity assets ($500,000).
(2) – TRUE or FALSE – A separate governmental fund (such as money held for the construction of Highway 61) is holding assets totaling $32,000. Based on that information, this fund must be reported as a major fund.
(3) – TRUE or FALSE – Investments are given to the city with a value of $5,000,000. All income earned from these investments must be used to construct a small library in one of the local neighborhoods but the investments must be held forever. When the investments are received, revenue of $5,000,000 is reported in the Permanent Fund.
(4) – TRUE or FALSE – Investments are given to the city with a value of $5,000,000. All income earned from these investments must be used to construct a small library in one of the local neighborhoods. If the money is not properly spent, it must be returned. Near the end of 2013, income of $600,000 is earned. Construction will not begin until 2015. Deferred revenue of $600,000 must be reported in a Capital Projects Fund.
(5) – TRUE or FALSE – The city starts a bus system to help eliminate traffic congestion. Passengers are charged a nickel for each trip although that fee will not come close to covering the cost of the bus system or pay for its debts. Because the fee will not cover the cost of this operation, the bus system is reported as a part of the General Fund rather than as a separate Enterprise Fund.
(6) – TRUE or FALSE – The city council passes its annual budget for all General Fund activities. Revenues are expected to be $1,000,000 and approved expenditures are $900,000. These budgetary amounts are recorded through a journal entry at the beginning of the year (an entry that is removed at the end of the year). In recording this budget, an estimated revenue account is debited for $1,000,000.
(7) – TRUE or FALSE – The city council passes its annual budget for all General Fund activities. Revenues are expected to be $1,000,000 and approved expenditures are $900,000. These budgetary amounts are recorded through a journal entry at the beginning of the year (that entry is removed at the end of the year). In recording this budget, an expenditures account is debited for $900,000.
(8) – TRUE or FALSE – In government-wide financial statements, pension trust funds are included within the governmental activities.
(9) – TRUE or FALSE – The government bought a three-year insurance policy on January 1, 2013 for its school system. If the purchases method had been used, the amount of expenditures reported by the city would be larger for that year than if the consumption method had been used.
(10) – TRUE or FALSE – An income tax is classified as derived tax revenue.
(11) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in income taxes on income earned during 2013. Starting on January 1, 2014, the city will collect $1,000 per day for the next 98 days (the final balance will prove uncollectible). As a result, the reported change in net assets for the governmental activities in the government-wide statements for 2013 will go up by $98,000.
(12) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in income taxes on income earned during 2013. Starting on January 1, 2014, the city will collect $1,000 per day for the next 98 days (the final balance will prove uncollectible). As a result, the reported liabilities for the governmental funds in the fund financial statements as of December 31, 2013, will go up by $23,000.
(13) – TRUE or FALSE – The police department ordered some equipment in October 2013 for $43,000. It was received on December 29, 2013, but at a cost of $44,000. In the General Fund, the encumbrance account was credited for $44,000 and the expenditure account was debited for $44,000 to indicate the switch from monetary commitment to a liability.
(14) – TRUE or FALSE – The police department ordered some equipment in October 2013 for $43,000. The equipment was not received prior to the end of 2013. The police chief authorized the department to accept and pay for the equipment when it arrived in 2014. In reporting fund financial statements at the end of 2013, a fund balance committed amount should be reported on the balance sheet for the governmental funds of $43,000.
(15) – TRUE or FALSE – A cash amount of $32,000 is transferred from the General Fund to a Capital Projects Fund. On the statement of activities, for the government-wide financial statements, this transaction is shown as both a transfer in and a transfer out.
(16) – TRUE or FALSE – A cash amount of $32,000 is transferred from the General Fund to an Internal Service Fund to pay for some work that was done by the print shop for the school system. On the statement of revenues, expenditures, and other financing sources and uses for the Governmental Funds (in the fund financial statements), this transaction will be reported as an other financing use.
(17) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in property taxes which were assessed on December 29, 2013, solely to finance government operations in 2014. Starting on January 1, 2014, the city will collect $1,000 per day for the next 98 days (the final balance will prove uncollectible). The reported change in net assets for the governmental activities in the government-wide statements reported at the end of 2013 will go up by $98,000.
(18) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in property taxes which were assessed on December 29, 2013 solely to finance government operations in 2014. Starting on January 1, 2014, the city will collect $1,000 per day for the next 98 days (the final balance will prove uncollectible). The change in fund balances reported for the Governmental Funds at the end of 2013 will go up by $60,000.
(19) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in property taxes which were assessed on December 29, 2013, solely to finance government operations in 2014. The government collected $5,000 on December 30, 2013 and the rest in the first four weeks of 2014. On government-wide financial statements for the governmental activities as of December 31, 2013, the total liability balance will be increased by $5,000.
(20) – TRUE or FALSE – Assume that after the figures on page one of this test were determined, you learned that the city was entitled to $100,000 in property taxes which were assessed on December 29, 2013, solely to finance government operations in 2014. The government collected $5,000 on December 30, 2013 but the rest will not be collected until June of 2014. On fund financial statements for the Governmental Funds as of December 31, 2013, the total liability balance will be increased by $5,000.
(21) – TRUE or FALSE – Investments are given to the city with a value of $5,000,000. All income earned from these investments must be used to construct a small library in one of the local neighborhoods but the investments must be held forever. In 2013, income of $480,000 was received from these investments. However, none of this money has yet been spent. On fund financial statements, the year-end balance sheet for the Governmental Funds must show a “fund balance – restricted” of $5,000,000 and a “fund balance – committed” of $480,000.
(22) – TRUE or FALSE – The city bought some land several years ago for $220,000. At the very end of 2013, the land is sold for cash of $250,000. The net asset total in the government-wide financial statements goes up by $220,000 more than the fund balance total for the Governmental Funds.
(23) – TRUE or FALSE – The city incurs an expense on December 30, 2013, of $90,000 that will not be paid for 4 months. On the 2013 financial statements, there is a reconciliation that starts with the total change in fund balances for the Governmental Funds and works down to end with the total change in the net assets for the Governmental Activities. Because of differences between modified accrual accounting and accrual accounting, this $90,000 must be subtracted as part of this reconciliation.
(24) – TRUE or FALSE – On December 30, 2013, the city issues $400,000 in long-term bonds for face value to finance school operations. On the 2013 financial statements, there is a reconciliation that starts with the total change in fund balances for the Governmental Funds and works down to end with the total change in the net assets for the Governmental Activities. As a result of the bond issuance, this $400,000 must be subtracted as part of this reconciliation.
(25) – TRUE or FALSE – On December 30, 2013, the city spends $900,000 on a sidewalk. On the 2013 financial statements, there is a reconciliation that starts with the total change in fund balances for the Governmental Funds and works down to end with the total change in net assets for the Governmental Activities. As a result of this acquisition, this $900,000 must be subtracted as part of this reconciliation.
(26) – TRUE or FALSE – A discretely presented component unit is shown in the government-wide financial statements as if it were one of the funds within the government.
(27) – TRUE or FALSE – All of the board of directors for a nature museum are appointed by the city. This fact alone makes this nature museum a component unit of the city.
(28) – TRUE or FALSE – The city appoints none of the governing board of a parks commission. This fact alone prohibits this parks commission from being a component unit of the city.
(29) – TRUE or FALSE – The city has a school system with a separately elected governing board (elected by the public). This fact alone makes the school system a special purpose government with its own financial reporting to be made.
(30) – TRUE or FALSE – The city council officially passes a budget for its General Fund activities. In studying this budget as it is presented within the CAFR, a citizen will find the following three columns: the budgetary figures as initially passed, the budgetary figures as amended during the period, and the actual results for the period.
(31) – TRUE or FALSE – The modified approach applies only to infrastructure assets.
(32) – TRUE or FALSE – The modified approach has become widely used in state and local government accounting over the last few years.
(33) – TRUE or FALSE – The state of Virginia requires the city to buy equipment to monitor its air quality. The state gives the city $100,000 to help pay for the equipment acquisitions. This grant is known as a voluntary nonexchange transaction so that revenue is recognized when all eligibility requirements are met.
(34) – TRUE or FALSE – The city’s school system charges its students a $10 per person fee each year. In recording this revenue in the government-wide financial statements on the statement of activities, it should be shown as miscellaneous revenue directly under the general revenues.
(35) – TRUE or FALSE – The city receives a work of art worth $100,000 as a gift and also spends $70,000 in cash to buy a second art work. Both art works will be exhibited publicly and properly protected and preserved. The city council passes a resolution that if either item is ever sold the proceeds will be used to buy replacement art works. Both of the art works are viewed as inexhaustible. The city has the option to report both of these pieces of art as expenses rather than as assets in the government-wide financial statements.
(36) – TRUE or FALSE – A city constructs curbing for a neighborhood in a special assessment project in which the individuals whose property is being benefitted will pay the money for the work. The city has no legal responsibility at all for this work so it is recorded in an Agency Fund. The money collected should be reported as program revenues on the statement of activities in the government-wide financial statements.
(37) – TRUE or FALSE – Assume that the city issues 30 day tax anticipation notes on December 30, 2013, just to finance the government until new taxes are collected. These notes are issued at their face value of $500,000. On the 2013 financial statements, there is a reconciliation that starts with the total change in fund balances for the Governmental Funds and works down to end with the total change in the net assets for the Governmental Activities. As a result of the bond issuance, this $500,000 must be subtracted as part of this reconciliation.
(38) – TRUE or FALSE – On January 1, 2013, assume that the city received a grant for $130,000 with the money to be used to supplement the salaries of the police and fire department workers. The money will not be received by the city until after the salaries have been paid. On December 30, 2013, all $130,000 is paid to appropriate workers and the city applies for reimbursement to receive the grant money. It will be received within the next month. The $130,000 revenue is recognized in the government-wide financial statements in 2013 but not in the fund financial statements for 2013.
Joe Hoyle
President, CPAreviewforFREE
3 comments:
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