ACC 410 Week 2 Quiz – Strayer
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The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical governmental entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governmental entities have no need for an accounting system.
4. Governments and not-for-profits employ a system of accounting known as fund accounting.
5. Governments and not-for-profits may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly impact the economic worth of an entity.
8. Cash flow statements are governments’ paramount financial documents.
9. Most governments budget on an accrual basis.
10. The Governmental Accounting Standards Board established generally accepted accounting principles for all state and local government entities, as well as all nongovernment entities.
MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governmental entities from business entities is
a) the need to generate revenues equal to or in excess of expenditures/expenses.
b) the importance of the budget in the governing process.
c) the need to provide goods or services.
d) the correlation between revenues generated and demand for goods or services.
2. Which of the following characteristics is NOT a characteristic that may distinguish a governmental or not-for-profit entity from a business entity?
a) There is often no direct link between revenues generated and expenditures/expenses incurred.
b) Capital assets may neither produce revenues nor save costs.
c) Revenues may not be indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.
3. The most significant financial document provided by a governmental entity may be
a) the balance sheet.
b) the operating statement.
c) the operating budget.
d) the cash flow statement.
4. Which of the following statements is NOT true?
a) All governmental entities engage in similar activities.
b) There are many different types of governments.
c) Governments may engage in activities similar to activities engaged in by for-profit entities.
d) Managers may have a short-term focus and thereby sacrifice the long-term viability of the entity.
5. Which of the following activities is NOT an activity in which a governmental entity might engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a book store.
d) All of the above are activities that might be carried out by a government.
6. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for the national defense.
d) Retail sales of cookies.
7. To obtain a comprehensive understanding of a government’s fiscal health, a financial analyst should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.
8. Which of the following is common to both governments and not-for-profit entities but distinguishes these entities from for-profit entities?
a) The budget is generally the most significant financial document.
b) Revenues are not necessarily indicative of demand for goods or services.
c) There is frequently no direct link between revenues and expenses.
d) All of the above are common to both governments and not-for-profit entities but distinguish them from for-profit entities.
9. Which of the following is NOT a purpose of external financial reporting by governments? External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.
10. Which of the following is NOT a reason that users of government and not-for-profit external financial statements need to have information to enable them to assess the financial condition of a government?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal developments.
d) To evaluate the overall profitability of the entity.
11. Users of financial statements should be interested in information about compliance with laws and regulations for which of the following reasons?
a) To determine if the entity has complied with bond covenants.
b) To determine if the entity has complied with taxing limitations.
c) To determine if the entity has complied with donor restrictions on the use of funds.
d) To determine all of the above.
12. Which of the following is NOT generally considered a main user of government and not-for-profit entity external financial statements?
a) Investors and creditors.
13. Which of the following is NOT a probable use a donor would make of the external financial statements of a not-for-profit entity?
a) To determine the creditworthiness of the entity for investment purposes.
b) To determine the proportion of entity resources directed to programs as opposed to fund-raising.
c) To determine the salaries paid to the top officials of the entity.
d) To determine the allocation of resources within the entity.
14. A regulatory agency would use the external financial statements of a local government for which of the following purposes?
a) To assure that the entity is spending and receiving resources in accordance with laws, regulations or policies.
b) To help assess management’s performance.
c) To exercise general oversight responsibility.
d) To do all of the above.
15. Which of the following objectives is considered to be the cornerstone of financial reporting by a governmental entity?
b) Budgetary compliance.
c) Interperiod equity.
d) Service efforts and accomplishments.
16. Which of the following is NOT an objective of financial reporting by governmental entities as established by GASB?
a) Financial reporting should assist users in determining if current period revenues were sufficient to pay for current-period services.
b) Financial reporting should assist users in assessing the management skills of top management.
c) Financial reporting should assist users in evaluating the operating results of the governmental entity for the year.
d) Financial reporting should assist users in assessing the level of services that can be provided by the governmental entity and its ability to meet its obligations as they come due.
17. Which of the following is NOT an objective of financial reporting for not-for-profit entities as established by FASB? Financial reporting should provide information that is useful to present and potential resource providers and other users in:
a) Making rational decisions about the allocation of resources to those organizations.
b) Assessing the services provided and the entity’s ability to continue to provide those services.
c) Assessing the types of services provided and the need for those services.
d) Assessing how managers have discharged their stewardship responsibilities.
18. As used by GASB, interperiod equity refers to which of the following? Financial reporting should:
a) Demonstrate compliance with finance-related contractual requirements.
b) Provide information to determine whether current-year revenues were sufficient to pay for current-year services.
c) Demonstrate whether resources were obtained and used in accordance with the entity’s legally adopted budget.
d) Provide information to assist users in assessing the government’s economy, efficiency, and effectiveness.
19. Given a specific set of data, the basis of accounting selected by or imposed on a governmental entity will least affect which of the following?
a) Determining whether or not the governmental entity has a balanced budget.
b) Determining whether or not the governmental entity has the ability to issue debt.
c) Determining whether or not certain events occurred.
d) Determining the annual payments to a government-sponsored pension plan.
20. The Governmental Accounting Standards Board is the primary standard-setting body for:
a) All governments.
b) All state and local governmental entities.
c) All governments and all not-for-profit entities.
d) All state and local governments and all not-for-profit entities.
21. Under certain circumstances a governmental entity might use standards established by which of the following standard-setting bodies?
d) All of the above.
22. The primary standard-setting body for accounting and financial reporting by a state-supported college or university is:
d) All of the above.
23. In descending order, the hierarchy of GAAP applicable to a church-owned college may be:
a) FASB Statements, AICPA Industry Audit Guides, FASB Implementation Guides, GASB Standards.
b) FASB Statements, FASB Technical Bulletins, FASB Implementation Guides, AICPA Practice Bulletins (if cleared by FASB).
c) GASB Statements, AICPA Industry Audit Guides, GASB Implementation Guides, FASB Standards.
d) GASB Statements, GASB Technical Bulletins, GASB Implementation Guides, AICPA Practice Bulletins (if cleared by GASB).
24. Governments and not-for-profits employ a system of accounting known as
a) budget accounting.
b) financial accounting.
c) fund accounting
d) tax accounting.
25. Which of the following rule-making authorities would establish accounting standards for all nongovernment not-for-profits?
PROBLEMS (CHAPTER 1)
1. Thorn County adopted a cash budget for FY2000 as follows. The City budget laws prohibit budgeting or operating at a deficit. During the year the County collected or spent the following amounts. Was the County in compliance with the budget? Did the County accomplish the goal of interperiod equity? Explain your answers in detail.
Receipts from Property tax collections
From the 1999 levy $ 100,000 $ -0-
From the 2000 levy $1,000,000 $ 900,000
In advance for 2001 $ 50,000 $ -0-
Receipts from Bonds Issued $ 500,000 $ 500,000
Borrowed from Bank (due in 5 years) $ -0- $ 75,000
Salaries and Wages $ 500,000 $ 500,000
Operating Expenses $ 200,000 $ 275,000
City Hall Annex purchased $ 500,000 $ 500,000
Payments on Debt-Principal $ 150,000 $ 150,000
Payments on Interest $ 50,000 $ 50,000
Pension Contribution $ 80,000 $ -0-
Explanations provided by the City for the differences between budget and actual are as follows. Property tax collections are down because the major industry in the community closed and many citizens are currently unemployed. Operating expenses are up because the only bridge over a river bisecting the City sustained damages by an uninsured motorist and had to be repaired immediately. The repair was not budgeted.
2. Save-the-Birds (STB), a not-for-profit entity dedicated to acquiring and preserving habitat for upland birds, prepares financial statements in accordance with generally accepted accounting principles. Currently, standards require that a not-for-profit entity report as revenue in the year received virtually all contributions. During the current year STB received a donation of several hundred acres of prime habitat for upland birds. STB will require several hundred thousand dollars in additional donations in order to make the land completely suitable for the birds. Before embarking on its fund-raising campaign STB prepares financial statements which are summarized as follows.
Statement of Financial Position (Balance Sheet)
Cash $ 8,000
Supplies $ 2,000
Equipment (net of depreciation) $ 5,000
Total Assets $1,015,000
Liabilities $ 1,000
Net Assets—Unrestricted $ 14,000
Net Assets—Restricted $1,000,000
Total Liabilities and Net Assets $1,015,000
Statement of Activities (Income Statement)
Salaries $ 30,000
Change in Net Assets $1,000,000
What difficulties, if any, will Save-the-Birds encounter in their new fund-raising drive? Knowing that the donation of the land accounted for $1,000,000 of the revenue reported by Save-the-Birds, do you think the financial statements present fairly the financial position and results of operations of this not-for-profit entity?
3. Johnson City prepares its budget on the cash basis and prepares its external financial statements on the accrual basis. From the following data prepare statements of activity (income statements) on both the cash basis and the accrual basis. Which statement best represents the results of operation of the City? Which statement best demonstrates compliance with laws and regulations? Which statement would you rather see? Which conveys the best information to the citizens of Johnson City?
The City levies taxes in the current year of $1 million. Of this amount $.9 million is collected during the current year, $.05 will be collected next year, and $.04 will be collected in the future. $.01 will never be collected. During the current year the City pays bills from prior periods $.06 million, bills of the current period $.8 million, and defers payment until future periods bills that were received for services consumed during the current period $.1 million.
ESSAY (CHAPTER 1)
1. In the United States, educational services can be provided by federal governmental entities, by non-federal governmental entities, by not-for-profit entities, and by for-profit entities. Are the accounting and financial reporting standards the same for each of these entities? Should they be the same?
2. The Governmental Accounting Standards Board (GASB) stated that an objective of financial reporting should be to measure interperiod equity. “Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.” What is your understanding of ‘interperiod equity.’? What costs incurred in the current year should be paid for by the taxpayers of the current period? What costs incurred in the current year should be paid for by future taxpayers?
3. A not-for-profit entity raises funds to support specific programs, services, and activities. The recipients of the programs, services, and activities are frequently not the providers of the resources to deliver the programs, services, and activities. What information would donors to these not-for-profit entities be interested in seeing? What information would program beneficiaries be interested in seeing? Identify other users of the financial statements of a not-for-profit and the types of information in which they would be interested.