Accounting for Governmental and Nonprofit Entities Reck 16th Edition Test Bank

Accounting for Governmental and Nonprofit Entities

Reck 16th Edition Test Bank

To download the complete and accurate content document, go to:

https://testbankbell.com/download/accounting-for-governmental-and-nonprofit-entities
-reck-16th-edition-test-bank/

Visit TestBankBell.com to get complete for all chapters

ch9

Student: ___________________________________________________________________________

1. Most citizens and financial statement users do not have a clear understanding of the financial reporting entity
whose financial position, results of operations, and cash flows are included in an annual financial report.
True False

2. State and local governments should prepare only those financial reports required by law--generally year-end
financial statements.
True False

3. Comprehensive annual financial reports of state and local governments should include (1) an introductory
section, (2) a financial section, and (3) a supplemental section.
True False

4. The MD&A should provide information that is prospective in nature.

True False

5. Statistical tables included in comprehensive annual financial reports should include only financial data
needed to support information given in the financial statements.
True False

6. A component unit is dependent on the primary government when the primary government is obligated for its
debt.
True False

7. The accounting system used by a state or local government must make it possible to prepare financial
statements as required by the Financial Accounting Standards Board.
True False
8. Under GASBS 34, the financial statements that report on business-type activities at the government-wide
level include the statement of net assets, statement of activities, and statement of cash flows.
True False

9. GASBS 34 reporting requires combined financial statements as part of the comprehensive annual financial
reports.
True False

10. Fiduciary activities are not reported in the government-wide financial statements under GASBS 34.
True False

11. Other comprehensive bases of accounting (OCBOA) are considered generally accepted accounting
principles (GAAP) for state and local governments.
True False

12. In converting from the modified accrual basis of accounting information in a governmental fund to accrual
basis for the government-wide statements, capital assets acquired by a governmental fund are deducted from
fund balance--governmental funds to arrive at net assets of governmental activities.
True False

13. In preparation of government-wide statements, converting information recorded using the modified accrual
basis of accounting to the accrual basis, where appropriate, is conceptually desirable.
True False

14. GASB reporting objectives emphasize the role of accountability in external financial reporting, and describe
accountability as the "paramount objective from which all other objectives must flow."
True False

15. One of the required reconciliations in converting governmental fund financial statements to governmental
activities statements at the government-wide level is to adjust for internal service funds' assets, liabilities,
operating income (loss), and transfers.
True False
16. What is the objective of financial reporting by state and local governments?
A. The same as the objectives of financial reporting by business enterprises.
B. To report on the legal requirements imposed on the government by its elected officials.
C. To assist governments to discharge their duty to be publicly accountable in a democratic society.
D. To fulfill the government's statutory duty to report on cash received and cash disbursed.

17. A component unit is dependent on the primary government when the

A. Primary government is entitled to its resources.
B. Primary government is obligated to provide financial support.
C. Primary government is obligated for its debt.
D. All of the above.

18. Which of the following circumstances would indicate that a potential component unit (PCU) should be
included as part of the governmental financial reporting entity?
A. The primary government does not approve the operating budget of the potential component unit.
B. Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C. The PCU has sufficient operational and financial dependence that the primary government can impose its
will on the PCU.
D. Both B and C occurring together indicate that the PCU should be included in the reporting entity.

19. Which of the following best describes the current state of financial reporting for state and local
governments?
A. Required comprehensive annual financial reports for all public entities.
B. Focus on individual funds.
C. Cash basis accounting.
D. Integration of government-wide financial reporting and fund accounting.

20. Combining financial statements for nonmajor funds of a government should be included in
A. The basic financial statements.
B. The notes to the financial statements.
C. A comprehensive annual financial report (CAFR).
D. Any of the above is acceptable under generally accepted accounting principles (GAAP).

21. Which of the following would not be included within the financial section of the comprehensive annual
financial report (CAFR)?
A. Management's discussion and analysis (MD&A).
B. Management's letter of transmittal.
C. Independent auditor's report.
D. Required supplementary information (RSI).
22. What is the paramount objective of general purpose external financial reporting?
A. Reliability.
B. Relevance.
C. Accountability.
D. Understandability.

23. The responsibility of governments to justify that their actions in the current period have complied with
public decisions concerning the raising and spending of public monies in the short-term is know as:
A. Operational accountability.
B. Fiduciary responsibility.
C. Legal accountability.
D. Fiscal accountability.

24. Which of the following is a required program revenue category in the government-wide statement of
activities?
A. Grants--capital.
B. Charges for services.
C. Grants--operating.
D. All of the above.

25. Which of the following would increase the balance in net assets--invested in capital assets, net of related
debt?
A. Acquisition of a building to be used by the police department.
B. Issuance of long-term debt to be used to acquire equipment for the police department.
C. A gift of land to the city restricted by the donor to be used as a park.
D. None of the above.

26. Which of the following is evidence of fiscal independence for the purpose of considering whether one entity
is a component unit of another?
A. The potential component unit is precluded from issuing long-term debt.
B. The potential component unit raises taxes without the approval of the primary government.
C. The budget of the potential component unit is approved by the primary government.
D. The board or council of the potential component unit includes any members of the primary government's
management team.
27. What adjustments are needed before data from the governmental fund financial statements can be
incorporated into the government-wide financial statements?
A. Conversion from the current financial resources measurement focus to the economic resources measurement
focus.
B. Conversion from the modified accrual basis of accounting to the accrual basis of accounting.
C. Aggregation.
D. All of the above.

28. What constitutes the basic financial statements of a government?

A. Financial section of the comprehensive annual financial report (CAFR).
B. Government-wide financial statements plus notes.
C. Government-wide financial statements plus fund financial statements plus notes.
D. Government-wide financial statements plus fund financial statements plus notes plus required supplementary
information (RSI).

29. What is the minimum level of detail required for expenditures presented in the governmental fund statement
of revenues, expenditures, and changes in fund balance?
A. Program and object.
B. Function and character.
C. Program and department.
D. Character and object.

30. Which of the following is one of the basic sections of a comprehensive annual financial report?
A. Financial section.
B. Single audit section.
C. Supplementary section.
D. Investment section.

31. Government-wide financial statements present the government's financial position using
A. Total financial resources measurement focus/accrual basis of accounting.
B. Economic resources measurement focus/accrual basis of accounting.
C. Current financial resources measurement focus/modified accrual basis of accounting.
D. Current financial resources measurement focus/cash basis of accounting.

32. Required government-wide statements are a

A. Statement of net assets and statement of cash flows.
B. Statement of net assets, statement of activities, and statement of cash flows.
C. Statement of net assets and statement of activities.
D. Statement of activities and statement of cash flows.
33. Infrastructure assets and long-term liabilities will be reported in the
A. Letter of transmittal.
B. Fund financial statements.
C. Management's discussion and analysis.
D. Government-wide financial statements.

34. Nonmajor funds are reported

A. In the management's discussion and analysis preceding the financial statements.
B. In a single column in the fund financial statements.
C. In a note disclosure following the financial statements.
D. In the government-wide financial statements.

35. The comprehensive annual financial report (CAFR) of a government should contain a statement of
revenues, expenses, and changes in net assets for
A. Both proprietary and governmental funds.
B. Governmental but not proprietary funds.
C. Proprietary but not governmental funds.
D. Neither governmental nor proprietary funds.

36. Culver City's school district is a legally separate entity, but two of its seven board members are also city
council members and the district is financially dependent upon the city. The school district should be reported
as a
A. Blended unit.
B. Note disclosure.
C. Discrete presentation.
D. Primary government.

37. Balsam City's library board is appointed by the city council which has agreed to subsidize the operating
costs of the library at a material amount to be determined each year. In addition, the city is paying debt service
on general obligation bonds issued to construct the library. Based on generally accepted accounting principles
(GAAP) criteria for defining the reporting entity:
A. The library is a component unit.
B. The city is the primary government.
C. Financial data for the library's General Fund should be blended with the financial data for the city's special
revenue funds.
D. Both A and B are correct.
38. Which of the following items typically differ between governmental fund statements and governmental
activities at the government-wide level?
A. Cash collected on property taxes receivable.
B. Capital outlays.
C. Accounts payable and other accrued expenses.
D. Inventories.

39. Which of the following is not one of the typical placement methods for communicating information to
external users of government financial reports?
A. Recognition in the financial statements.
B. Disclosure in the notes to the financial statements.
C. Presentation as required supplementary information
D. All of the above are used by governments.

40. A report to citizens prepared by some governments to provide highly condensed financial information,
budget summaries, and narrative descriptions is called a (an)
A. Comprehensive annual financial report.
B. Basic financial statement.
C. Popular report.
D. Supplementary report.
41. The following are key terms in Chapter 9 that relate to the reporting entity:
A. Blended presentation
B. Component units
C. Discrete presentation
D. Financial reporting entity
E. Jointly governed organizations
F. Joint venture
G. Other stand-alone governments
H. Primary governments
For each of the following definitions, indicate the key term from the list above that best matches by placing the
appropriate letter in the blank space next to the definition.
_____ 1. A separate government or agency that is combined for purposes of reporting on the whole entity
_____ 2. Reporting financial data of a component unit in a manner similar to that in which the financial data of
the primary government are presented
_____ 3. A state government, general purpose local government, or special purpose government that is
independent of other state or local governments
_____ 4. A legally separate governmental organization that does not have a separately elected government body
_____ 5. Primary government and all related units

42. For the following items that require reconciliation between governmental funds financial statements and
governmental activities financial statements at the government-wide level according to GASBS 34, indicate
whether the reconciliation will A) always be subtracted from fund balances--governmental funds, B) always be
added to fund balances--governmental funds, or C) may be added to or subtracted from fund
balances--governmental funds in arriving at net assets of governmental activities.
_____ 1. Capital assets used in governmental activities
_____ 2. Long-term liabilities that are not payable in the current period
_____ 3. Net assets of internal service funds that are primarily governmental in nature
_____ 4. Accrued interest payable not due in the current period
43. What is meant by the term "reporting entity" in accounting for state and local governments?

44. "Interim financial reports are needed for state and local governments even though external users of financial
reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or
why not?

45. Describe the objective of financial reporting by state and local governments.

46. In your own words, describe the nature of a component unit as it is related to a primary government. Provide
some examples and describe the financial reporting for a component unit.

47. Describe what government-wide statements are intended to convey to readers and contrast that with fund
financial statements.
48. Describe the process for capturing the fund accounting information required for government-wide financial
statements.

49. Describe some items requiring adjustments when modified accrual basis accounting information must be
converted to accrual basis accounting in preparation of government-wide statements.

50. Explain why other comprehensive bases of accounting (OCBOA) may be used by a state or local
government instead of GASBS 34 standards which are generally accepted accounting principles (GAAP).
ch9 Key

1. Most citizens and financial statement users do not have a clear understanding of the financial reporting entity
whose financial position, results of operations, and cash flows are included in an annual financial report.
TRUE

Most citizens and even accountants whose experience is primarily with business sector entities have little
understanding of the overlapping layers of general purpose and special purpose governmental organizations that
have some jurisdiction over them. The first note to the audited financial statements will include a description of
the reporting entity following the criteria established in GASB Codification 2100.

Content: Concept
Level: Easy
Wilson - Chapter 09 #1

2. State and local governments should prepare only those financial reports required by law--generally year-end
financial statements.
FALSE

Governments should prepare whatever statements are required by law, but some financial information may be
needed daily by administrators. Also, complete interim financial statements are usually desired at regular
intervals by administrators, legislators, news media, and others concerned with current information about
aspects of the financial management of the unit. Governments concerned with reporting in conformity with
GAAP need, as a minimum, to prepare the basic financial statements, notes thereto, and management's
discussion and analysis as illustrated and discussed in Chapter 9.

Content: Concept
Level: Medium
Wilson - Chapter 09 #2

3. Comprehensive annual financial reports of state and local governments should include (1) an introductory
section, (2) a financial section, and (3) a supplemental section.
FALSE

The first two sections are required in GASB standards for a comprehensive annual financial report; however,
the third section is a statistical section, not a supplemental section.

Content: Concept
Level: Easy
Wilson - Chapter 09 #3
4. The MD&A should provide information that is prospective in nature.
FALSE

Because the MD&A is required supplementary information it should present information based on known facts
at the date of the annual report.

Content: Concept
Level: Medium
Wilson - Chapter 09 #4

5. Statistical tables included in comprehensive annual financial reports should include only financial data
needed to support information given in the financial statements.
FALSE

GASBS 44 requires that information should be presented in five categories: (1) financial trends information, (2)
revenue capacity information, (3) debt capacity information, (4) demographic and economic information, and
(5) operating information.

Content: Concept
Level: Medium
Wilson - Chapter 09 #5

6. A component unit is dependent on the primary government when the primary government is obligated for its
debt.
TRUE

Other signals that a component unit is dependent upon a primary government include the primary government is
entitled to a component unit's resources and the primary government provides financial support to the
component unit.

Content: Concept
Level: Medium
Wilson - Chapter 09 #6
7. The accounting system used by a state or local government must make it possible to prepare financial
statements as required by the Financial Accounting Standards Board.
FALSE

The accounting system must make it possible to present fairly the financial position and results of financial
operations of the government as a whole, as well as fund financial activity and compliance with finance-related
legal and contractual provisions in conformity with generally accepted accounting principles promulgated by
the Government Accounting Standards Board (GASB), not FASB.

Content: Concept
Level: Medium
Wilson - Chapter 09 #7

8. Under GASBS 34, the financial statements that report on business-type activities at the government-wide
level include the statement of net assets, statement of activities, and statement of cash flows.
FALSE

The government-wide statements of net assets and statement of activities will have a column to represent
business-type activities, however, there is no requirement to present a statement of cash flows in the
government-wide statements.

Content: Concept
Level: Medium
Wilson - Chapter 09 #8

9. GASBS 34 reporting requires combined financial statements as part of the comprehensive annual financial
reports.
FALSE

Combined financial statements is a term used prior to GASBS 34. Two government-wide financial reports that
consolidate governmental and business-type activities are required in GASBS 34's general purpose external
financial reports.

Content: Concept
Level: Hard
Wilson - Chapter 09 #9
10. Fiduciary activities are not reported in the government-wide financial statements under GASBS 34.
TRUE

Only governmental and business-type activities are reported on the two government-wide financial statements:
statement of net assets and statement of activities. Fiduciary activities represent assets and liabilities that by
definition do not belong to the government. Accordingly, the GASB requires that information about fiduciary
activities be excluded from the government-wide financial statements.

Content: Concept
Level: Medium
Wilson - Chapter 09 #10

11. Other comprehensive bases of accounting (OCBOA) are considered generally accepted accounting
principles (GAAP) for state and local governments.
FALSE

OCBOA are not generally accepted and, if used by a state or local government, are considered special reports
and it should be made clear that the presentation is not intended to be GAAP.

Content: Concept
Level: Medium
Wilson - Chapter 09 #11

12. In converting from the modified accrual basis of accounting information in a governmental fund to accrual
basis for the government-wide statements, capital assets acquired by a governmental fund are deducted from
fund balance--governmental funds to arrive at net assets of governmental activities.
FALSE

Capital assets acquired by governmental funds are financial uses of resources. As such, in converting to accrual
the amount of the capital assets acquired should be added back to total fund balances--governmental funds to
arrive at net assets of governmental activities.

Content: Concept
Level: Medium
Wilson - Chapter 09 #12
13. In preparation of government-wide statements, converting information recorded using the modified accrual
basis of accounting to the accrual basis, where appropriate, is conceptually desirable.
FALSE

It is conceptually better to have government-wide, accrual based accounting information available on demand
throughout the year, or at least monthly, to meet the needs of external financial statement users.

Content: Concept
Level: Medium
Wilson - Chapter 09 #13

14. GASB reporting objectives emphasize the role of accountability in external financial reporting, and describe
accountability as the "paramount objective from which all other objectives must flow."
TRUE

This statement reflects GASB Concepts Statement No. 1.

Content: Concept
Level: Medium
Wilson - Chapter 09 #14

15. One of the required reconciliations in converting governmental fund financial statements to governmental
activities statements at the government-wide level is to adjust for internal service funds' assets, liabilities,
operating income (loss), and transfers.
TRUE

There are nine reconciling items in converting governmental fund statements to governmental activities
statements at the level presented in Chapter 9.

Content: Concept
Level: Medium
Wilson - Chapter 09 #15

16. What is the objective of financial reporting by state and local governments?
A. The same as the objectives of financial reporting by business enterprises.
B. To report on the legal requirements imposed on the government by its elected officials.
C. To assist governments to discharge their duty to be publicly accountable in a democratic society.
D. To fulfill the government's statutory duty to report on cash received and cash disbursed.

Content: Concept
Level: Easy
Wilson - Chapter 09 #16
17. A component unit is dependent on the primary government when the
A. Primary government is entitled to its resources.
B. Primary government is obligated to provide financial support.
C. Primary government is obligated for its debt.
D. All of the above.

Content: Concept
Level: Medium
Wilson - Chapter 09 #17

18. Which of the following circumstances would indicate that a potential component unit (PCU) should be
included as part of the governmental financial reporting entity?
A. The primary government does not approve the operating budget of the potential component unit.
B. Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C. The PCU has sufficient operational and financial dependence that the primary government can impose its
will on the PCU.
D. Both B and C occurring together indicate that the PCU should be included in the reporting entity.

Content: Concept
Level: Medium
Wilson - Chapter 09 #18

19. Which of the following best describes the current state of financial reporting for state and local
governments?
A. Required comprehensive annual financial reports for all public entities.
B. Focus on individual funds.
C. Cash basis accounting.
D. Integration of government-wide financial reporting and fund accounting.

Content: Concept
Level: Medium
Wilson - Chapter 09 #19

20. Combining financial statements for nonmajor funds of a government should be included in
A. The basic financial statements.
B. The notes to the financial statements.
C. A comprehensive annual financial report (CAFR).
D. Any of the above is acceptable under generally accepted accounting principles (GAAP).

Content: Concept
Level: Medium
Wilson - Chapter 09 #20
21. Which of the following would not be included within the financial section of the comprehensive annual
financial report (CAFR)?
A. Management's discussion and analysis (MD&A).
B. Management's letter of transmittal.
C. Independent auditor's report.
D. Required supplementary information (RSI).

Content: Concept
Level: Medium
Wilson - Chapter 09 #21

22. What is the paramount objective of general purpose external financial reporting?
A. Reliability.
B. Relevance.
C. Accountability.
D. Understandability.

Content: Concept
Level: Medium
Wilson - Chapter 09 #22

23. The responsibility of governments to justify that their actions in the current period have complied with
public decisions concerning the raising and spending of public monies in the short-term is know as:
A. Operational accountability.
B. Fiduciary responsibility.
C. Legal accountability.
D. Fiscal accountability.

Content: Concept
Level: Medium
Wilson - Chapter 09 #23

24. Which of the following is a required program revenue category in the government-wide statement of
activities?
A. Grants--capital.
B. Charges for services.
C. Grants--operating.
D. All of the above.

Content: Concept
Level: Medium
Wilson - Chapter 09 #24
25. Which of the following would increase the balance in net assets--invested in capital assets, net of related
debt?
A. Acquisition of a building to be used by the police department.
B. Issuance of long-term debt to be used to acquire equipment for the police department.
C. A gift of land to the city restricted by the donor to be used as a park.
D. None of the above.

Content: Concept
Level: Medium
Wilson - Chapter 09 #25

26. Which of the following is evidence of fiscal independence for the purpose of considering whether one entity
is a component unit of another?
A. The potential component unit is precluded from issuing long-term debt.
B. The potential component unit raises taxes without the approval of the primary government.
C. The budget of the potential component unit is approved by the primary government.
D. The board or council of the potential component unit includes any members of the primary government's
management team.

Content: Concept
Level: Medium
Wilson - Chapter 09 #26

27. What adjustments are needed before data from the governmental fund financial statements can be
incorporated into the government-wide financial statements?
A. Conversion from the current financial resources measurement focus to the economic resources measurement
focus.
B. Conversion from the modified accrual basis of accounting to the accrual basis of accounting.
C. Aggregation.
D. All of the above.

Content: Concept
Level: Medium
Wilson - Chapter 09 #27

28. What constitutes the basic financial statements of a government?

A. Financial section of the comprehensive annual financial report (CAFR).
B. Government-wide financial statements plus notes.
C. Government-wide financial statements plus fund financial statements plus notes.
D. Government-wide financial statements plus fund financial statements plus notes plus required supplementary
information (RSI).

Content: Concept
Level: Medium
Wilson - Chapter 09 #28
29. What is the minimum level of detail required for expenditures presented in the governmental fund statement
of revenues, expenditures, and changes in fund balance?
A. Program and object.
B. Function and character.
C. Program and department.
D. Character and object.

Content: Concept
Level: Medium
Wilson - Chapter 09 #29

30. Which of the following is one of the basic sections of a comprehensive annual financial report?
A. Financial section.
B. Single audit section.
C. Supplementary section.
D. Investment section.

Content: Concept
Level: Easy
Wilson - Chapter 09 #30

31. Government-wide financial statements present the government's financial position using
A. Total financial resources measurement focus/accrual basis of accounting.
B. Economic resources measurement focus/accrual basis of accounting.
C. Current financial resources measurement focus/modified accrual basis of accounting.
D. Current financial resources measurement focus/cash basis of accounting.

Content: Concept
Level: Medium
Wilson - Chapter 09 #31

32. Required government-wide statements are a

A. Statement of net assets and statement of cash flows.
B. Statement of net assets, statement of activities, and statement of cash flows.
C. Statement of net assets and statement of activities.
D. Statement of activities and statement of cash flows.

Content: Concept
Level: Easy
Wilson - Chapter 09 #32
33. Infrastructure assets and long-term liabilities will be reported in the
A. Letter of transmittal.
B. Fund financial statements.
C. Management's discussion and analysis.
D. Government-wide financial statements.

Content: Concept
Level: Medium
Wilson - Chapter 09 #33

34. Nonmajor funds are reported

A. In the management's discussion and analysis preceding the financial statements.
B. In a single column in the fund financial statements.
C. In a note disclosure following the financial statements.
D. In the government-wide financial statements.

Content: Concept
Level: Medium
Wilson - Chapter 09 #34

35. The comprehensive annual financial report (CAFR) of a government should contain a statement of
revenues, expenses, and changes in net assets for
A. Both proprietary and governmental funds.
B. Governmental but not proprietary funds.
C. Proprietary but not governmental funds.
D. Neither governmental nor proprietary funds.

Content: Concept
Level: Medium
Wilson - Chapter 09 #35

36. Culver City's school district is a legally separate entity, but two of its seven board members are also city
council members and the district is financially dependent upon the city. The school district should be reported
as a
A. Blended unit.
B. Note disclosure.
C. Discrete presentation.
D. Primary government.

Content: Concept
Level: Medium
Wilson - Chapter 09 #36
37. Balsam City's library board is appointed by the city council which has agreed to subsidize the operating
costs of the library at a material amount to be determined each year. In addition, the city is paying debt service
on general obligation bonds issued to construct the library. Based on generally accepted accounting principles
(GAAP) criteria for defining the reporting entity:
A. The library is a component unit.
B. The city is the primary government.
C. Financial data for the library's General Fund should be blended with the financial data for the city's special
revenue funds.
D. Both A and B are correct.

Content: Concept
Level: Medium
Wilson - Chapter 09 #37

38. Which of the following items typically differ between governmental fund statements and governmental
activities at the government-wide level?
A. Cash collected on property taxes receivable.
B. Capital outlays.
C. Accounts payable and other accrued expenses.
D. Inventories.

Content: Concept
Level: Medium
Wilson - Chapter 09 #38

39. Which of the following is not one of the typical placement methods for communicating information to
external users of government financial reports?
A. Recognition in the financial statements.
B. Disclosure in the notes to the financial statements.
C. Presentation as required supplementary information
D. All of the above are used by governments.

Content: Concept
Level: Medium
Wilson - Chapter 09 #39

40. A report to citizens prepared by some governments to provide highly condensed financial information,
budget summaries, and narrative descriptions is called a (an)
A. Comprehensive annual financial report.
B. Basic financial statement.
C. Popular report.
D. Supplementary report.

Content: Concept
Level: Medium
Wilson - Chapter 09 #40
41. The following are key terms in Chapter 9 that relate to the reporting entity:
A. Blended presentation
B. Component units
C. Discrete presentation
D. Financial reporting entity
E. Jointly governed organizations
F. Joint venture
G. Other stand-alone governments
H. Primary governments
For each of the following definitions, indicate the key term from the list above that best matches by placing the
appropriate letter in the blank space next to the definition.
_____ 1. A separate government or agency that is combined for purposes of reporting on the whole entity
_____ 2. Reporting financial data of a component unit in a manner similar to that in which the financial data of
the primary government are presented
_____ 3. A state government, general purpose local government, or special purpose government that is
independent of other state or local governments
_____ 4. A legally separate governmental organization that does not have a separately elected government body
_____ 5. Primary government and all related units

1. B, 2. A, 3. H, 4. G, 5. D

Content: Concept
Level: Medium
Wilson - Chapter 09 #41

42. For the following items that require reconciliation between governmental funds financial statements and
governmental activities financial statements at the government-wide level according to GASBS 34, indicate
whether the reconciliation will A) always be subtracted from fund balances--governmental funds, B) always be
added to fund balances--governmental funds, or C) may be added to or subtracted from fund
balances--governmental funds in arriving at net assets of governmental activities.
_____ 1. Capital assets used in governmental activities
_____ 2. Long-term liabilities that are not payable in the current period
_____ 3. Net assets of internal service funds that are primarily governmental in nature
_____ 4. Accrued interest payable not due in the current period

1. B, 2. A, 3. C, 4. A

Content: Concept
Level: Difficult
Wilson - Chapter 09 #42
43. What is meant by the term "reporting entity" in accounting for state and local governments?

A reporting entity is defined as a primary government, organizations for which the primary government is
financially accountable, and other organizations for which the nature and significance of their relationship with
the primary government are such that exclusion would cause the reporting entity's financial statements to be
misleading or incomplete.

Content: Concept
Level: Medium
Wilson - Chapter 09 #43

44. "Interim financial reports are needed for state and local governments even though external users of financial
reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or
why not?

Agree. It is true that interim financial reports for governments are not widely provided to external users.
However, GASB standards indicate the provision of interim financial reports, mainly for use of administrators
of the government, as well as to assist members of the legislative branch in monitoring current financial status
and progress toward achieving the annual budget. Other users having a particular interest in the financial
management of the government (e.g., news media and citizens) may find interim reports of use.

Content: Concept
Level: Medium
Wilson - Chapter 09 #44

45. Describe the objective of financial reporting by state and local governments.

The objective of government financial reporting at the state and local level is to assist governments to discharge
their duty to be publicly accountable in a democratic society for the resources with which they are entrusted.
Government managers should demonstrate fiscal accountability, whether the government has raised and spent
financial resources in accordance with budget plans and in compliance with pertinent laws and regulations, as
well as operational accountability, whether the government has used its resources efficiently and effectively in
meeting operating objectives.

Content: Concept
Level: Medium
Wilson - Chapter 09 #45
46. In your own words, describe the nature of a component unit as it is related to a primary government. Provide
some examples and describe the financial reporting for a component unit.

A component unit is an organization for which the nature and significance of its relationship with another
government is such that excluding it from that government's financial statements would be misleading to the
public. Component units can be museums, libraries, economic development corporations, housing commissions,
transit authorities that are dependent upon the primary government for funding, authorization to issue debt, and
other financial decisions. If a reporting entity is entitled to the resources of a related government, then the term
"component unit" is applied to the government that must give up it's assets if asked and the assets, liabilities, net
assets, and results of operations are discretely presented as a column in the reporting entity's financial
statements if the amounts are significant. Blending those elements into the reporting unit's financial statements
may also be appropriate if certain conditions are met.

Content: Concept
Level: Medium
Wilson - Chapter 09 #46

47. Describe what government-wide statements are intended to convey to readers and contrast that with fund
financial statements.

Government-wide statements are designed to demonstrate operational accountability; that is, information useful
in assessing operating results and short- and long-term financial position and the cost of providing government
services from an economic perspective reported in entity-wide financial statements. Governmental fund
financial statements are designed to demonstrate fiscal accountability; that is, current-period financial position
and budgetary compliance. Proprietary fund financial statements focus on total economic resources and, like
government-wide financial statements, are designed to convey operational accountability.

Content: Concept
Level: Medium
Wilson - Chapter 09 #47

48. Describe the process for capturing the fund accounting information required for government-wide financial
statements.

There are two basic approaches to obtaining the information necessary to prepare the government-wide
statements: (1) the dual-track approach which requires the accounting information system to be capable of
capturing two bases of accounting (i.e., modified accrual and accrual) for each transaction as it is recorded in
the underlying journals and ledgers, and (2) conversion of fund accounting information at the end of a period
(e.g., month or year) to accrual accounting, when appropriate.

Content: Concept
Level: Medium
Wilson - Chapter 09 #48
49. Describe some items requiring adjustments when modified accrual basis accounting information must be
converted to accrual basis accounting in preparation of government-wide statements.

Items requiring adjustment when going from modified accrual basis of accounting to accrual basis of
accounting include: (1) capital expenditures are reported as capital assets, (2) annual depreciation on capital
assets is recognized, (3) other financing sources from bonds are reported as long-term liabilities, (4) interest on
long-term debt is recorded, (5) internal service activity is moved from proprietary funds to be reported with
governmental activities, (6) transfers between funds are netted and reported as internal balances, and (7)
interfund transfers between governmental funds and internal service funds are eliminated.

Content: Concept
Level: Medium
Wilson - Chapter 09 #49

50. Explain why other comprehensive bases of accounting (OCBOA) may be used by a state or local
government instead of GASBS 34 standards which are generally accepted accounting principles (GAAP).

Some small state and local governments may conclude that the costs of complying with GAAP outweigh the
benefits. Those governments may not be participants in the bond market, and therefore would not have the same
set of users for their external financial statements as would governments with tax-exempt debt. OCBOA
accounting records may be easier to prepare and easier to understand for users.

Content: Concept
Level: Medium
Wilson - Chapter 09 #50
Accounting for Governmental and Nonprofit Entities Reck 16th Edition Test Bank

ch9 Summary

Category # of Questions
Content: Concept 50
Level: Difficult 1
Level: Easy 5
Level: Hard 1
Level: Medium 43
Wilson - Chapter 09 50

Visit TestBankBell.com to get complete for all chapters