Chapter One Test Bank Multiple Choice Questions

1.

Which of the following would not be considered a government or nonprofit organization?

a. A software company that sells software exclusively to state and local
governments
b. A public elementary school
c. A church
d. A private trust organized for charitable purposes

2.

Each of the following would be defined as a governmental entity based on the definition
of a government that was jointly developed by the GASB and FASB except
a. A Historic Preservation District created by the governing board of the municipal
government.
b. A Charter School incorporated in accordance with state law and accountable to
the state oversight agency.
c. A hospital formerly owned by a local government entity that was sold to and
is now owned by a private, for-profit health care management corporation.
d. A financing authority that is legally separate from the municipal government, but
provides financing for the governments major capital projects. The governing
board of the financing authority is appointed by the municipal governments
board.
e. All of the above would be defined as governmental entities.

3.

The Financial Accounting Foundation has oversight responsibilities over

a. The Financial Accounting Standards Board (FASB)
b. The Governmental Accounting Standards Board (GASB)
c. The Government Accountability Office (GAO)
d. All of the above
e. Items a and b only
f. Items b and c only

4.

The governmental GAAP hierarchy was established by

a. The Governmental Accounting Standards Board (GASB)
b. The Financial Accounting Standards Board (FASB)
c. The American Institute of Certified Public Accountants (AICPA)
d. The Financial Accounting Foundation (FAF)
e. The Government Accountability Office (GAO)

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5.

Which of the following is not specifically identified in the GAAP hierarchy for state and
local governments?
a. AICPA Industry Audit and Accounting Guides
b. GASB Technical Bulletins
c. GASB Implementation Guides
d. GAOs Yellow Book
e. AICPA Practice Bulletins
f. All of the above are specifically identified in the state and local government
hierarchy.

6.

Which of the following statements is false?

a. The power to tax is unique to governments.
b. Taxation is a nonexchange transaction.
c. Governmental entities may not finance a function or service with both a user
fee and tax revenues.
d. All of the above statements are true statements.
e. Both items b and c are false statements.

7.

The primary users of external financial reports, as identified by the GASB, include all of
the following except
a. Investors and creditors
b. Citizens
c. Governing boards
d. All of the above are considered to be primary users of external financial
reports.
e. Both items a and b.

8.

Business-type activities differ from governmental-type activities in that

a. Most capital assets of business-type activities are considered to be revenue
producing capital assets, while those in governmental-type activities
generally are not.
b. Business-type activities never have the power to levy a tax.
c. Business-type activities do not adopt a budget.
d. All of the above statements accurately reflect actual differences between businesstype and governmental-type activities.
e. Items b and c only accurately reflect primary differences between business-type
and governmental-type activities.

9.

Which of the following activities would most likely be accounted for in a nonexpendable
(proprietary) fund?
a. Fire protection.
b. Recreation.
c. Water operations.
d. Street maintenance.
e. General government administration.

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10.

Expenditures in a governmental (expendable) fund would potentially include

a. salaries and wages.
b. capital outlay.
c. long-term debt principal retirement.
d. long-term debt interest.
e. All of the above.
f. Items a, b, and d only.

11.

Expenses in a proprietary (nonexpendable) fund would potentially include

a. salaries and wages.
b. capital outlay.
c. long-term debt principal retirement.
d. long-term debt interest.
e. Items a and d only.
f. Items b and c only.

12.

Which of the following is a characteristic that distinguishes government and not-forprofit (G&NP) organizations from business enterprises?
a.
Borrowing is not a significant source of financing.
b.
The resource providers of G&NP organizations often do not receive services
commensurate with the amount of resources they provide.
c.
Net income is an appropriate performance evaluation measurement for most of
these organizations.
d.
Accumulating wealth on behalf of its constituents is a key goal of G&NP
organizations and business enterprises.

13.

Which source of financial resources is unique to governments?

a.
Borrowings
b.
Gifts and grants
c.
Charges for services provided
d.
Taxation

14.

What best describes the relationship of the FASB and the GASB?
a.
They are co-equal bodies with different areas of responsibility for standards
setting.
b.
The FASB standards are authoritative for governments. However, the FASB asks
the GASB to establish guidelines for many unique transactions of government
that the FASB does not have time to consider.
c.
GASB standards are authoritative for governments unless they have been
overruled by the FASB.
d.
Governments are not permitted to apply any FASB standard under any
circumstances for any government operations.

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15.

Which of the following is a government?

a.
A school district
b.
Library commission if governments appointed a voting majority of its governing
board.
c.
Neither would ever be a government.
d.
Both items a and b

16.

Which of the following has the highest level of authority for a government under GAAP?
a.
A FASB standard.
b.
A GASB Implementation Guide.
c.
AICPA Industry Audit and Accounting Guide for local governments cleared
by the GASB.
d.
An article in the Journal of Accountancy

17.

Which of the following has the highest level of authority for a government under GAAP?
a.
A FASB standard on pension accounting.
b.
A GASB standard on pension accounting.
c.
AICPA state and local government audit guide coverage of pensions.
d.
The coverage of pensions in a Journal of Accountancy article

18.

Which organization has the highest level of authority for a setting GAAP for a state or
local government?
a.
FASB.
b.
GASB.
c.
AICPA.
d.
NCGA.

19.

Which organization has the highest level of authority for a setting GAAP for
nongovernment, not-for-profit organizations?
a.
FASB.
b.
GASB.
c.
AICPA.
d.
NCGA.

20.

Which of the following is a government?

a.
An entity that has 4 of its 7 governing board members appointed by government
entities.
b.
An entity that has the power to enact and enforce a property tax levy.
c.
An entity that can be dissolved at the pleasure of a government and the assets of
which revert to a government upon dissolution.
d.
All of the above would be considered government entities for the purpose of
determining whether government GAAP must be followed for financial
reporting purposes.

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21.

Expenses and expenditures are least likely to differ in amount for which type of
transactions?
a.
Salaries.
b.
Capital asset purchases.
c.
Debt principal retirements and interest.
d.
Depreciation on capital assets.

22.

For which entities does the GASB establish GAAP?

a.
Cities
b.
School districts
c.
Government airport authorities
d.
All of the above

23.

Which of the following is not a characteristic of a fund?

a.
Fiscal entity.
b.
Separate legal entity.
c.
Accounting entity.
d.
Contains self-balancing set of accounts.

24.

The primary purpose of a fund is

a.
To provide expenditure authority for a government or not-for-profit organization.
b.
To segregate an organization's resources according to the purpose(s) for
which they are to be used.
c.
To keep an organization's constituency from trying to insist that the organization
utilize resources that it wants to save for a specific future objective.
d.
All of the above are major purposes of using funds.

25.

All not-for-profit organizations that do not meet the definition of governments must apply
a.
FASB standards
b.
GASB standards
c.
The same standards as a similar business
d.
None of the above are true

26.

Fixed-dollar budgets and appropriations are most often found in

a.
All funds of a government.
b.
Expendable funds.
c.
Nonexpendable funds
d.
In not-for-profit organizations, but not governments.

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27.

Which of the following is not a characteristic used to determine if an organization is a

government?
a.
The majority of governing board members are appointed by government entities.
b.
An entity that has the power to enact and enforce a property tax levy.
c.
An entity receives over half it resources from other governmental entities
d.
The potential for unilateral dissolution with the net assets reverting to a
government upon dissolution.

28.

If a government is obligated legally to report information in a manner that differs from

GAAP:
a.
GAAP take precedence over the legal requirements.
b.
Legal requirements take precedence over GAAP.
c.
Both GAAP requirements and legal requirements must be met.
d.
Information should be presented that meets as many legal requirements as
possible without violating GAAP in a material manner.

29.

The primary users of government financial reports do not include

a.
The citizenry
b.
Legislative and oversight bodies
c.
Investors and creditors
d.
Government administrators
e.
All of the above have been identified as primary users

30.

A government accounting system must make it possible to

a.
Present financial information in conformity with GAAP
b.
Demonstrate compliance with finance related legal and contractual provisions
c.
Meets as many legal requirements as possible without violating GAAP
d.
Both a and b

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