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Terminology
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Studytext
Terminology
I. Account Terminology and Classifications
A. Revenue Classifications -- Revenues of governmental funds are classified by source. The main revenue source classes are: 1. Taxes - property, sales, income, and other taxes; penalties and interest on delinquent taxes; 2. Licenses and permits - motor vehicle permits, fishing permits, building permits, alcoholic beverage licenses; 3. Intergovernmental - grants, shared revenues, and payments to other governments in lieu of taxes; 4. Charges for services - building inspection fees, copying fees, recording fees; 5. Fines and forfeits - parking fines, traffic fines; 6. Investment earnings - usually on short term investments; 7. Miscellaneous - rents and royalties, escheats. (The net assets of deceased persons who die without a will and with no known relatives revert back to the state.) B. Expenditure Classifications -- Most expenditures of governmental funds are authorized through appropriations. During the budgeting process, appropriations are identified not just by the type of expenditure (i.e., salaries, supplies, utilities) but also by the purpose(s) of the expenditure and its funding source. In order to show compliance with the appropriations, expenditures must also be coded to identify these characteristics. 1. Fund -- The fund supplying the financial resources; 2. Program or function -- The broad purpose of the expenditure (i.e., public safety, education, health, etc.); 3. Activity -- A specific goal or objective under a program (i.e., child vaccination, low-income health care, AIDS awareness, etc.); 4. Organizational unit -- The department or agency within the governmental entity that is responsible for managing the expenditure (i.e., Community Clinic, Emergency Services, Health Department, etc.); 5. Character -- Identifies the period of time benefited by the expenditure: a. Current expenditures - benefit the current period only; b. Capital outlay - benefits current and future periods; c. Debt service - benefits past periods (and, potentially, current and future periods); d. Intergovernmental transfers - non-exchange (and frequently mandatory) transfers of resources from one governmental entity to another. 6. Object -- The 'natural' expense category, the specific purpose of the expenditures (e.g. salaries, supplies, and rent).
Note:
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Of the six classifications listed, four are most frequently seen in CPA exam questions: Fund, Program/Function, Character, and Object.
Note: Expenditures in the Fund statements for the governmental funds are reported by character. Expenditures in the Government-wide statements for the governmental funds are reported by program/function.
C. Special Terminology -- Used in Modified Accrual Basis Accounting. 1. Modified Accrual Basis -- Uses alternate titles for some common accounting terms: a. Expenditures, not expenses -- Under modified accrual basis accounting, decreases in net assets are called expenditures, not expenses; b. Fund Balance, not Retained Earnings or Owner's Equity -- Under modified accrual basis accounting residual equity is called Fund Balance, not Retained Earnings or Owner's Equity;
Note: The examiners frequently use these two terms to indicate which type of fund is being discussed. If the question uses the terms Expenditures or Fund Balance, then the fund or report in question must be one of the Governmental Funds, as these are the only funds that use modified accrual basis accounting. If the question uses the terms Expenses or Retained Earnings, then the fund or report in question must be one of the Proprietary Funds or Fiduciary Funds, as these are the only funds that use full accrual basis accounting.
c. Vouchers Payable, not Accounts Payable -- The term Accounts Payable may be replaced by the term Vouchers Payable in any of a governmental entity's funds. No differences in treatment are signified by the alternate terminology; d. Warrants, not checks -- The term check may be replaced by the term warrant in any of a governmental entity's funds. No differences in treatment are signified by the alternate terminology.
D. Use of Control Accounts in Governmental Accounting -1. Accounts such as Revenues, Estimated Revenues, Expenditures, Appropriations, and Encumbrances frequently have the word "Control" appended to the account title. The account titles "Revenues" and "Revenues Control" refer to precisely the same account (as do
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"Expenditures" and "Expenditures Control", etc.). 2. The concept of a "control" account here is the same as in financial accounting when it is used with "Accounts Receivable Control." 3. The control account is a general ledger summary account that reflects the grand total balance of the subsidiary ledger accounts. 4. For example, A/R Control represents the total dollar amount of the individual customer accounts: Cust 1 500 Cust 2 100 Cust 3 300 A/R Control 900
5. In government accounting, this concept is applied to the budgetary and actual revenue and expenditure accounts: the account "Revenue Control" represents the total of the individual revenue accounts: Rev-Taxes __ Rev-Fines __ Rev-Licenses __ Revenue Control __ 600 200 300 1100
Note: The form of the account name does not influence the answer to the question. A question about a revenue transaction may refer to the revenue account as "Revenue Control," "Revenue" or "Zoning Fee Revenue:" in all instances, the answer to the question would be the same.
II. GASB #33 - Accounting and Financial Reporting For Nonexchange Transactions
A. GASB #33 -- provides a comprehensive basis for recognizing nonexchange revenues such as property taxes, sales taxes, shared revenues, entitlements, and grants. It divides the revenues into four classes of transactions and defines separate recognition criteria for each class. 1. Because GASB #33 is a full accrual basis standard and most nonexchange revenues are recorded in governmental funds, application of the revenue recognition rules when recording the transactions and when reporting them in the Fund statements is a two step process: a. Determine whether revenue can be recognized under GASB #33 recognition rules. If revenue cannot be recognized, there is no need to go on to the second step: the transaction is recognized as deferred revenue; b. If revenue can be recognized under GASB #33, then we must apply the modified accrual basis recognition standards to determine whether revenue can be recorded in the (governmental) funds. If revenue cannot be recognized under modified accrual basis as well as under GASB #33, then the transaction is recognized as deferred revenue.
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2. Again, this two step process is necessary because we use a full accrual basis standard to record and report transactions in funds that use the modified accrual basis of accounting. For reporting in the Government-wide statements, which are presented on the full accrual basis, this two-step process is not necessary: transactions are evaluated using only GASB #33 rules.
Note: These timing differences create an ongoing set of adjustments between revenue recognized in the funds and reported in the Fund statements and revenue reported in the Government-wide statements.
Note: The examiners sometimes ask questions about nonexchange revenue recognition in the Government-wide statements and sometimes ask questions about nonexchange revenue recognition in the Fund statements and about when the transactions are recorded. Timing differences from revenue recognized/not recognized in prior periods may complicate these questions. It is extremely important to read the question carefully to determine which basis of accounting is being used before attempting to answer the question.
B. Nonexchange Revenue Classifications -- The following four transaction classifications are used to define and apply revenue recognition rules: 1. Imposed nonexchange revenues -- Government assessed amounts, such as property taxes, fines and interest on delinquent property taxes, are billed and charged to individuals and businesses. a. Recognize revenue in the period for which the taxes are levied; b. Recognize an asset (property taxes receivable) when there is an enforceable claim or when payment is received (cash).
Example: Property Tax Example: The City of Wellston uses a calendar fiscal year. In November, Year X, the City levied property taxes totaling $25 M to be used to finance the next fiscal year, Year Y. The taxes were due by January 31, Year Y. The City posted collections as follows: Through December 31, Year X: Through December 31, Year Y: March 1, 2002-December 31,Year Z $1.5 M $20.0 M $1.0 M
January 1, 2002-February 28,Year Z $2.5 M
According to GASB #33, all revenue would be recognized in Year Y
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because the taxes were levied for use in Year Y. Note that when the taxes are levied in Year X, Deferred Revenue is credited because the revenue cannot be recognized until the following year. Therefore, the Government-wide statements would report: Year X Deferred Revenue Year Y Property Tax Revenue Year Z No revenue - all previously recognized $25 M $25 M $0 M
In order to record the taxes in the General Fund, the requirements of modified accrual basis accounting must be considered in addition to the GASB #33 rules (i.e., revenues must be received in cash within 60 days after the end of the fiscal year). This changes the timing of the revenue recognition. Revenue is recorded in the General Fund and reported in the Fund statements as follows: Year X Deferred Revenue Year Y Property Tax Revenue ($1.5M+$20.0M+$2.5M) Year Z Property Tax Revenue (amount rec'd after 60 days) $25 M $24 M $1 M
2. Derived tax revenues -- Taxes resulting from the taxable exchange transactions of individuals and businesses. Principal examples are sales taxes and income taxes. These revenues differ from imposed revenues as the government does not know what the amount will be until it receives the tax. a. Recognize both assets and revenue at the time the underlying exchange transaction takes place.
Example: Sales Tax Example: In December, Year X, merchants collected $58M in sales taxes. The merchants filed tax forms on January 31, Year Y and remitted $50M to the state. Because of a downturn in the economy, it was expected that only $5M of the remaining $8M would be collected and that $5M would not be collected until April, Year Y. The Government-wide statements report the net revenue in the period in which the underlying exchange transaction (e.g., the purchase of goods from the merchants) took place: Year X: Sales Tax Revenue ($58M-$3M estimated uncollectible) $55 M Year Y: nothing - all revenue recognized in the prior period $0 M
To record the taxes in the General Fund, we must consider the timing of the cash receipts in addition to the GASB #33 requirements. Thus, the sales taxes would be recorded in the General Fund and reported in the Fund statements as follows: Year X: Sales Tax Revenue ($50M rec'd within first 60 days of Year Y) Year Y: Sales Tax Revenue ($5 M rec'd after first 60 days of Year Y) $50 M $5 M
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Notice that the total amount of revenue recognized over the two-year period is the same in the Government-wide statements as in the Fund statements. Only the timing of the recognition differs.
C. Government-mandated nonexchange transactions -- These are intergovernmental transfers of resources including entitlements, shared revenues, and payments in lieu of taxes. Most of these resources: 1) have restrictions on how they may be used; and 2) are only available to the recipient entity if they meet specific conditions known as "eligibility requirements." 1. Recognize both assets and revenue when all eligibility requirements have been met; a. Eligibility requirements include achievement of specified objectives and time requirements; b. Generic eligibility requirements may be assumed to be met (i.e., in order to receive highway funds, a state must have interstate highways in need of repair; even though no specific repairs may be scheduled when the monies are received, eligibility is assumed to be met because it would be unusual not to have interstate highways in need of repair). 2. "On-behalf of" payments -- These are , by definition, recognized as revenue and as a corresponding expenditure. (For example, state governments may make the employer portion payments for elementary and secondary schools on behalf of the school districts in order to provide equal pension benefits to teachers across the state.)
Example: Shared revenue example: A state is entitled to 40% of the federal gasoline tax collected on gas sales within its borders. The state receives these monies directly from the retailers and periodically remits 60% of the tax to the federal government. In order to be eligible to receive these monies, the drinking age in the state must be no less than 21 and the state must maintain all interstate highways within its borders at or above a specified level of condition for the entire year. If the drinking age in this state is below 21, the state may not recognize revenue, even though it has the cash in its possession, because this specific eligibility requirement has not been met. This is the case both for reporting on the Government-wide statements and on the Fund statements and for recording in the General Fund. If the drinking age is 21, the state may recognize revenue immediately in the Government-wide statements even though it has not maintained all of the interstate highways at the specified condition level for the entire year because this is a generic eligibility requirement and the presumption is that it will be met. Revenue reporting in the Fund statements and recording in the General Fund is dependent upon the timing of the receipt of cash.
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D. Voluntary nonexchange transactions contracts -- Entered into voluntarily by the participants which may include individuals and/or other governmental entities; this classification includes competitively awarded grants, cash and/or property contributions or bequests, and endowments; frequently subject to use/purpose restrictions and/or eligibility requirements; 1. Recognize both assets and revenue when all eligibility requirements have been met: a. The existence of purpose restrictions does not affect revenue recognition; b. For reimbursement/expenditure-driven grants, reimbursement requirements are considered to be eligibility requirements, so revenue is not recognized until the expenditure is made; c. Endowments, which could be considered to have an indefinite time restriction, are explicitly required to be recognized as revenue upon receipt.
Example: Bexar City received a $100,000 grant from the Alliance for Education to be used to provide reading programs at neighborhood recreation centers. In order to receive these monies, the city must operate programs in at least three recreation centers, each with an enrollment of at least 30 children between the ages of 5 and 7. Bexar currently operates two centers with substantially more than 30 children within the required age range enrolled in programs. It plans to open a third center in two months and anticipates an enrollment of 5-7 year olds sufficient to meet the grant requirement. When the grant monies are received, they cannot be recognized as revenue in either the Government-wide or Fund statements because the specific eligibility requirements have not been met. As soon as the third center is completed and enrollments have reached the specified level (i.e., the eligibility requirements have been met), revenue can be recognized in both the Government-wide and the Fund statements.
E. Other considerations affecting revenue recognition -- Resources from nonexchange transactions often have timing restrictions (restrictions on when the resources are to be used) and purpose restrictions (restrictions on how the resources are to be used). 1. Time restrictions -- Resources may not be used until a specific date or event has taken place, and revenue must not be recognized until the time requirement has been met; 2. Purpose restrictions -- When resources must be used for specific purposes, revenue is recognized immediately; limitations to the availability of the resources are shown by reporting a reservation of fund balance (fund-based statements) or a restricted net asset (government-wide statements).
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Flashcards
Flashcard #1 (FC6388) True or False: A Federal grant for education is an example of a government mandated nonexchange transaction. Flashcard #2 (FC6387) True or False: Property taxes is an example of an imposed nonexchange transaction. Flashcard #3 (FC6386) True or False: Sales tax is an example of a derived tax revenue that is based on an underlying exchange. Flashcard #4 (FC6385) List the categories of nonexchange transactions. 1. Derived tax revenues; 2. Imposed exchange revenues; 3. Government-mandated nonexchange transactions; 4. Voluntary nonexchange transactions. This is a true statement. This is a true statement. This is a true statement.
Flashcard #5 (FC3685) What expenditure classification identifies the expenditure by the period of time benefited by the expenditure? Flashcard #6 (FC3686) What expenditure classification identifies the expenditure by the broad purpose of the expenditure? Flashcard #7 (FC3684) List the two items that cause deferral of recognition of non-exchange revenue under Governmental Accounting Standards Board Statement (GASBS) 33. Failure to meet: 1. Time restrictions; or 2. Eligibility requirements. Program or Function. Character (Debt Service, Current, Capital Outlay.)
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Proficiency Questions
Question #1
(PQ5873)
Activity is a characteristic that identifies the period of time benefited by the expenditure.
True False
Question #2
(PQ5872)
In order to show compliance with the appropriations, expenditures must also be coded to identify three specific characteristics.
True False
Question #3
(PQ5871)
A control account is a general ledger summary account which reflects the grand total balance of the subsidiary ledger accounts.
True False
Question #4
(PQ5870)
Under modified accrual basis accounting, decreases in net assets are called expenditures, not expenses.
True False
Question #5
(PQ5869)
During the budgeting process, appropriations are identified not just by the type of expenditure but also by the purpose(s) of the expenditure and its funding source.
True False
Question #6
(PQ5868)
Most expenditures of the governmental funds are authorized through appropriations.
True False
Question #7
(PQ5858)
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Resources from nonexchange transactions often have timing restrictions.
True False
Question #8
(PQ5859)
When resources must be used for specific purposes, revenue is recognized immediately.
True False
Question #9
(PQ5860)
All eligibility requirements must have been met before both assets and revenue can be recognized.
True False
Question #10
(PQ5861)
Government-mandated nonexchange transactions are intergovernmental transfers of resources including entitlements, shared revenues, and payments in lieu of taxes.
True False
Question #11
(PQ5862)
Derived tax revenues are taxes resulting from the taxable exchange transactions of individuals and businesses.
True False
Question #12
(PQ5863)
Imposed nonexchange revenues are government assessed amounts billed and charged to individuals and businesses, such as property taxes and delinquent property taxes.
True False
Question #13
(PQ5864)
GASB #33 provides a comprehensive basis for recognizing nonexchange revenues such as property taxes, sales taxes, and shared revenues. Entitlements and grants are not included in GASB #33.
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True False
Question #14
(PQ5865)
GASB #33 is a four step process.
True False
Question #15
(PQ5866)
If revenue cannot be recognized under modified accrual basis as well as under GASB #33, then the transaction is recognized as deferred revenue.
True False
Question #16
(PQ5867)
Derived tax revenues are recognized at the time the underlying exchange transaction takes place.
True False
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Past Exam Questions

Question #1
(AICPA.021105FAR-AR)
Chase City imposes a 2% tax on hotel charges. Revenues from this tax will be used to promote tourism in the city. Chase should record this tax as what type of NonExchange Transaction?
A. Derived Tax Revenue. B. Imposed Nonexchange Revenue. C. Government-Mandated Transaction. D. Voluntary NonExchange Transaction.
Question #2
During the current year, Knoxx County levied property taxes of $2,000,000, of which 1% is expected to be uncollectible. The following amounts were collected during the current year: Prior year taxes collected within 60 days of the current year $ 50,000 Prior year taxes collected between 60 and 90 days into the current year Current taxes collected in the current year Current taxes collected within the first 60 days of the subsequent year 120,000 1,800,000 80,000
What amount of property tax revenue should Knoxx County report in its entity-wide Statement of Activities?
A. $1,800,000 B. $1,970,000 C. $1,980,000 D. $2,000,000
Question #3
(AICPA.900559FAR-TH-AR)
Fixed assets donated to a governmental unit should be recorded:
A. As a memorandum entry only. B. At the donor's carrying amount. C. At estimated fair value when received. D. At the lower of donor's carrying amount or estimated fair value when received.
Question #4
(AICPA.083763FAR-SIM)
Which account should Excel City credit when it issues a purchase order for supplies?
A. Appropriations control. B. Encumbrance Control. C. Vouchers Payable. D. Reserve for Encumbrances.
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Question #5
Which of the following revenues can be recorded when bills are mailed rather than when they are actually received?
A. Property taxes. B. Licenses and Permits. C. Fines and Forfeits. D. Service Charges.
Question #6
In which fund would "Salaries Expense" appear?
A. Water Utility Fund. B. General Fund. C. Pension Trust Fund. D. Capital Projects Fund.
Question #7
In which fund would "Supplies Expenditure" appear?
A. Agency Fund. B. General Fund. C. Internal Service Fund. D. Enterprise Fund.
Question #8
"Supplies" is an expenditure classified at the _________ level.
A. Fund. B. Function. C. Character. D. Object.
Question #9
(AICPA.101164FAR)
What is the major difference between an Exchange Transaction and a non-Exchange Transaction for governmental units?
A. The relationship between the amount of value given and received. B. Time requirements and whether the transaction is required by law. C. Purpose restrictions placed upon fund balances.
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D. Whether resources acquired can be further exchanged.
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Proficiency Question Answers

Question #1 : False Question #2 : False Question #3 : True Question #4 : True Question #5 : True Question #6 : True Question #7 : True Question #8 : True Question #9 : True Question #10 : True Question #11 : True Question #12 : True Question #13 : False Question #14 : False Question #15 : True Question #16 : True
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Past Exam Question Answers

Question #1
A. (Correct!) GASB Stmt. #33 defines derived tax revenues as Nonexchange Revenues that are based on (or derived from) Exchange Transactions. Other examples of derived non-Exchange Transactions include sales taxes and income taxes. B. GASB Stmt. #33 defines Imposed Nonexchange Revenues as amounts that are assessed against and billed to taxpayers by the government entity. The most common example of an Imposed Nonexchange Revenue is Property Tax Revenue. C. GASB Stmt. #33 defines government mandated Nonexchange Transactions as legally mandated transfers of resources among governmental entities. Use of these resources is restricted to the purposes defined in the legislation. Revenue sharing monies and entitlements are examples of Government-Mandated Nonexchange Transactions. D. GASB Stmt. #33 defines voluntary NonExchange Transactions as transfers of resources resulting from a contractual agreement willingly entered into by two or more entities. These resources must be used for purposes specified in the contract. Grants are the primary examples of this type of transaction.
Question #2
A. This answer is not correct because it recognizes Revenue only for taxes collected in cash during the current year. The Entity-Wide Statements are presented on the full accrual basis and, hence, used GASB #33 revenue recognition rules. GASB #33 requires that property taxes net of the estimated uncollectible taxes be recognized as Revenue in the year for which they were levied, regardless of when cash is actually collected. B. This answer is not correct because it includes Revenue recognition for collection of prior year taxes. The entity-wide statements are presented on the full accrual basis and, hence, used GASB #33 revenue recognition rules. GASB #33 requires that property taxes net of the estimated uncollectible taxes be recognized as Revenue in the year for which they were levied, regardless of when cash is actually collected. C. (Correct!) The entity-wide statements are presented on the full accrual basis and hence used GASB #33 Revenue recognition rules. GASB #33 requires that property taxes net of the estimated uncollectible taxes be recognized as Revenue in the year for which they were levied, regardless of when cash is actually collected. D. This answer is not correct because the gross tax levy must be reduced for the estimated uncollectible taxes. The entity-wide statements are presented on the full accrual basis and, hence, used GASB #33 revenue recognition rules. GASB #33 requires that property taxes net of the estimated uncollectible taxes be recognized as Revenue in the year for which they were levied, regardless of when cash is actually collected.
Question #3
(AICPA.900559FAR-TH-AR)
A. Donated fixed assets should be recorded in the fund to which they relate or in the General Fixed Asset account group, as appropriate, at their estimated fair value when received. GASB 1400.113 B. Donated fixed assets should be recorded in the fund to which they relate or in the General Fixed Asset account group, as appropriate, at their estimated fair value when received. GASB 1400.113 C. (Correct!) Donated fixed assets should be recorded in the fund to which they relate or in the General Fixed Asset Account group, as appropriate, at their estimated fair value when received. GASB 1400.113 D. Donated fixed assets should be recorded in the fund to which they relate or in the General Fixed Asset account group, as appropriate, at their estimated fair value when received. GASB 1400.113
Question #4
A. The entry to record a purchase order is a debit to Encumbrances and a credit to Reserve for Encumbrances. Appropriation Control is used to record the original legally adopted budget, any subsequent revisions to the budget, and to close out the budget at year-end. B. The entry to record a purchase order is a debit Encumbrances and a credit to Reserve for Encumbrances. C. The entry to record a purchase order is a debit Encumbrances and a credit to Reserve for Encumbrances. Vouchers Payable is used to record invoices for goods and services received.
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D. (Correct!) The entry to record a purchase order is a debit Encumbrances and a credit to Reserve for Encumbrances.
Question #5
A. (Correct!) Property taxes are both objectively measurable and available to finance current period expenditures and, therefore, are "susceptible for accrual," and revenues are recorded prior to when cash is collected. B. Property taxes are both objectively measurable and available to finance current period expenditures and, therefore, are "susceptible for accrual," and revenues are recorded prior to when cash is collected. Licenses and permits are not objectively measurable. C. Property taxes are both objectively measurable and available to finance current period expenditures and, therefore, are "susceptible for accrual," and revenues are recorded prior to when cash is collected. Fines and forfeits are not objectively measurable. D. Property taxes are both objectively measurable and available to finance current period expenditures and, therefore, are "susceptible for accrual," and revenues are recorded prior to when cash is collected. Service charges are not objectively measurable.
Question #6
A. (Correct!) "Expense" is a term reserved for funds that use full accrual accounting. A Water Utility Fund is an Enterprise Fund type using full accrual accounting. B. "Expense" is a term reserved for funds that use full accrual accounting. A Water Utility Fund is an Enterprise Fund type using full accrual accounting. The General Fund is a Governmental Fund type that uses modified accrual and the term "expenditures." C. "Expense" is a term reserved for funds that use full accrual accounting. A Water Utility Fund is an Enterprise Fund type using full accrual accounting. Pension Trust Funds are Fiduciary Funds. Pension Trust Funds account for the assets of others (i.e., current and retired employees) and salaries expense should not appear in this fund type. D. "Expense" is a term reserved for funds that use full accrual accounting. A Water Utility Fund is an Enterprise Fund type using full accrual accounting. The Capital Projects Fund is a Governmental Fund type that uses modified accrual and the term "expenditures."
Question #7
A. "Expenditure" is a term reserved for funds using the modified accrual basis of accounting. Governmental Fund types, including the General Fund, use the modified accrual basis of accounting. Agency Funds are Fiduciary Fund types that use full accrual accounting. B. (Correct!) "Expenditure" is a term reserved for funds using the modified accrual basis of accounting. Governmental Fund types, including the General Fund, use the modified accrual basis of accounting. C. "Expenditure" is a term reserved for funds using the modified accrual basis of accounting. Governmental Fund types, including the General Fund, use the modified accrual basis of accounting. Internal Service Funds are Proprietary-type Funds and use full accrual accounting. D. "Expenditure" is a term reserved for funds using the modified accrual basis of accounting. Governmental Fund types, including the General Fund, use the modified accrual basis of accounting. Enterprise Funds are Proprietary-type Funds and use full accrual accounting.
Question #8
A. "Supplies" is one of the object class of expenditures, which describes the type of item purchased or service obtained. The fund class of Expenditure describes the fund that accounted for the expenditure (e.g., General Fund). B. "Supplies" is one of the object class of expenditures, which describes the type of item purchased or service obtained. Functional classes of Expenditure describe the department or organization unit associated with the expenditure (e.g., Public Safety). C. "Supplies" is one of the object class of expenditures, which describes the type of item purchased or service obtained. Character classes of Expenditures describe period or periods benefited (i.e., current operating, capital outlay, debt service) or as intergovernmental. D. (Correct!) "Supplies" is one of the object classes of expenditures, which describe the type of item purchased or
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service obtained.
Question #9
(AICPA.101164FAR)
A. (Correct!) Exchange Transactions involve a direct relationship between the charge and the service. Nonexchange Transactions, which are frequent in governments, do not have this relationship (e.g., taxes and fines). B. Exchange Transactions involve a direct relationship between the charge and the service. NonExchange Transactions, which are frequent in governments, do not have this relationship (e.g., taxes and fines). A time requirement is a feature of an Exchange Transaction. Rather, a time restriction will affect the Net Asset category classification of the transaction in the Government-Wide Financial Statements (temporarily restricted, permanently restricted, and unrestricted). A transaction that is required by law is an example of a Government-Mandated Nonexchange Transaction, which is one of four types of Nonexchange Transactions. C. Exchange Transactions involve a direct relationship between the charge and the service. Nonexchange Transactions, which are frequent in governments, do not have this relationship (e.g., taxes and fines). Under GASB Statement no. 54, purpose restrictions on fund balances would cause the amount to be classified as a Restricted Fund Balance but this is not a distinction between Exchange and Nonexchange Transactions. D. Exchange Transactions involve a direct relationship between the charge and the service. Nonexchange Transactions, which are frequent in governments, do not have this relationship (e.g., taxes and fines).
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Special Items - Recent Developments
Slides
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Studytext
Special Items - Recent Developments

I. Statements The following statements have been issued and/or implemented by GASB during the past years. Though some of these topics have been addressed in other parts of the study text, they are included in this section because, historically, the Board of Examiners tends to include questions on new statements more often than they might otherwise warrant. II. GASBS #49 - Accounting and Reporting for Pollution Remediation Obligations Many state and local governments are faced with high costs in their attempts to remediate existing pollution problems. Note, that the statement does not address costs associated with control or prevention of future pollution problems. This standard was issued November 2006 and is effective for financial statement periods beginning after December 15, 2007. A. Liability Recognition Triggers -- The government must recognize a liability for pollution remediation if the cost can be reasonably estimated and one of the following five events occurs: 1. Pollution poses an imminent danger to the public or environment and a government has little or no discretion to avoid fixing the problem. 2. The government has violated a pollution prevention-related permit or license. 3. The government has been identified by a regulator (i.e., the Environmental Protection Agency (EPA)) as being responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the clean up. 4. An outcome (or likely outcome) of a lawsuit will compel the governmental entity to address a pollution problem. 5. The government begins to clean up pollution or conducts related remediation activities (or the government legally obligates itself to do so). B. Expense or Expenditure Recognition -- Recognition of the expense varies with the fund responsible for the cleanup costs. 1. Government-wide Financial Statements and Proprietary Fund Statements -- Report expenses as the liability related to the pollution remediation is accrued. As the work is preformed and payments are made, the liability is reduced. 2. Governmental Fund Statements -- Report expenditures when the payment for the cleanup is made. C. Capitalization of Pollution Remediation Costs -- Not every pollution remediation is recognized as an expense. Pollution remediation costs can instead be capitalized when they are used for the following: 1. Prepare property for sale in anticipation of a sale; 2. Prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated; 3. Perform pollution remediation that restores a pollution-caused decline in service utility, which was previously recognized as an asset impairment; 4. Acquire property, plant, and equipment that has a future alternative use other than remediation efforts.
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III. Other Postemployment Benefits The GASB has recently issued several statements covering the reporting and disclosure of Other Postemployment Benefits - that is, retirement benefits such as health insurance, life insurance, long-term disability insurance, etc. - and the disclosure requirements for both pensions and other postemployment benefits. The measurement and disclosure requirements of the Statements are related, and disclosure requirements are coordinated to avoid duplication when an OPEB plan is included as a trust or agency fund in an employer's financial report. A. GASBS #43 - Financial Reporting for Postemployment Benefit Plans; B. GASBS #45 -Accounting and Financial Reporting for Employers for Postemployment Benefit; C. GASBS #50 - Pension Disclosures: An Amendment of GASB Statements No. 25 and No. 27 - Issued May 2007 and effective for periods beginning after June 15, 2007.
Note: Because all three of these related statements have recently been implemented it is highly likely that accounting for OPEB will be regularly tested on the exam for the next several years. Recognition and reporting requirements for OPEB are basically the same as requirements for pensions: these requirements are discussed in detail in the Study Text for Pension Trust Funds.
D. Financial Reporting for Postemployment Benefit Plans -- This Statement prescribes reporting requirements for postemployment benefits that mirrors the reporting requirements for pensions. 1. Two financial statements are required to report the current financial information about plan assets: a. Statement of Plan Net Assets; b. Statement of Changes in Plan Net Assets. 2. Two schedules are required to provide actuarially determined historical trend information about the status of the plan: a. Schedule of Funding Progress; b. Schedule of Employer Contributions.
E. Reporting Postemployment Benefit Costs for Employers -- This Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets) and note disclosures. Prior to the issue of this Statement, most organizations recognized OPEB on a pay-as-you-go basis. The Statement requires organizations to recognize the cost of these benefits during the period that they are earned. In general, reporting for OPEB follows reporting requirements for pension benefits. That is: 1. Annual OPEB cost is equal to the employer's annual required contribution to the plan (ARC) which is an actuarially computed value. a. The Government-wide Statements and the Proprietary Fund Statements both report
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the OPEB cost as an expense of the current period. b. The Governmental Fund Statements report only the amount actually contributed as a current period expenditure. 2. The Net OPEB obligation is equal to the cumulative difference between the annual OPEB cost and the employer's contributions to the plan. a. Retroactive application of these measurement requirements is not required; therefore, the OPEB liability at the beginning of implementation of the Statement will be zero.
F. Reporting Pension and OPEB Plan Status -- Note disclosures and RSI requirements for pensions and OPEB are very similar after the implementation of GASBS # 50. 1. Notes to the Financial Statements -- The actuarial methods and assumptions used in the most recent actuarial valuation should be disclosed in the notes, rather than in the RSI. The funded status of the plan should be disclosed in the notes but should reference the more complete information contained in the Schedule of Funding Progress in the RSI. 2. Required Supplementary Information -- When actuarial values are used to calculate the Annual Required Contribution (ARC) to the plan, as is the case for virtually all defined benefit pension plans and OPEB, a Schedule of Funding Progress should be presented in the RSI along with a Schedule of Employer Contributions. Both schedules use actuarial calculations to determine the value of the plan assets, as well as the plan liability. The actuarial valuation is required every two years for plans with a total membership of 200 or more and every three years for plans with less than 200 members. (See the Pension Trust study text for details relating to these schedules.)
IV. GASBS #51 - Accounting and Financial Reporting for Intangible Assets GASBS #51 was issued to resolve inconsistencies that had developed in accounting and financial reporting for intangible assets. The types of intangible assets held by governments include the following: water rights, timber rights, patents, trademarks, computer software, and easements. Easements are mentioned in GASBS #34 (paragraph 19) as a type of capital asset, and it is this reference that is considered the source of the inconsistencies in accounting for intangible assets observed in practice. Issued June 2007 and effective for financial statement periods beginning after June 15, 2009. A. Characteristics of intangible assets -- An intangible asset is an asset that possess all of the following characteristics: 1. Lack of physical substance -- The asset may be contained in, or on an item of, physical substance (e.g., software on a computer disc) or closely associated with another item that has physical substance (e.g., the underlying land in the case of a right-of-way). These modes of containment and associated items are not considered when determining whether an asset lacks physical substance. 2. Nonfinancial nature -- The asset is not in monetary form nor does it represent a claim or rights to assets in monetary form. 3. Initial useful life extending beyond a single reporting period.
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B. Exceptions -- The provisions of GASBS #51 do not apply to the following intangible assets: 1. Those acquired or created for the purpose of obtaining income or profit - which should follow guidance for investments; 2. Assets resulted from capital lease transactions reported by lessees; 3. Goodwill created through combination. C. Recognition -- An intangible asset should be recognized in the statement of net assets, if it is identifiable. One of the following two conditions must be met for intangible assets to be considered identifiable: 1. The asset is separable. It is capable of being separated or divided from the government and sold, transferred, licensed, rented, or exchanged; 2. The asset arises from contractual or other legal rights. D. Internally Generated Intangible Assets -- Internally generated intangible assets are capitalized only when all three of the following conditions are met. Outlays prior to meeting the three conditions should be expensed as incurred. 1. The project is expected to provide an intangible asset upon completion of the project. 2. Technical or technological feasibility for completion of the project is demonstrated so that the intangible asset will provide its expected service capability. 3. The intention, ability, and presence of effort to complete or continue development of the intangible asset is demonstrated. E. Internally Generated Computer Software -- Activities involved in developing and installing internally generated computer software can be grouped into three stages: 1. Preliminary project stage: Activities include the conceptual formulation and evaluation of alternatives, the determination of the needed technology, and the final selection of alternatives. Treatment: expense. 2. Application development stage: Activities include design, software configuration and interfaces, coding, hardware installation, and testing. Treatment: Capitalize. 3. Post-implementation/operation stage: Activities include application training and software maintenance. Treatment: expense. 4. Activities in the preliminary project stage and the post-implementation/operation stage should be expensed. Outlays in the application development stage should be capitalized; however, the following two criteria must be met in order to capitalize application development stage activities: a. The activities in the preliminary project stage are completed; b. There is an ongoing authorization and commitment to funding.
F. Modification of Computer Software -- Additional criteria must be met to capitalize outlays associated with an internally generated modification of computer software that is already in operation. One of the following criteria must be met: 1. An increase in the functionality of the computer software;
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2. An increase in the efficiency of the computer software; 3. An extension of the estimated useful life of the software. G. Amortization -- The amortization period should not exceed the period of service capacity provided in contractual or legal rights. Renewal periods related to such rights may be considered if there is evidence that the government will seek to achieve the renewal and that the outlays associated with the renewal are nominal in relation to the level of service capacity expected to be obtained by the renewal. An intangible with an indefinite useful life should not be amortized (e.g., a permanent right-of-way easement). H. Effective date -- Financial statements for periods beginning after June 15, 2009. Applied retroactively by restating financial statements for all prior periods presented. If the actual historical cost of an intangible asset is not known, the government should report the estimated historical cost for intangible assets acquired after June 30, 1980. V. GASBS #52 - Land and Other Real Estate Held as Investments by Endowments Prior to this standard, permanent and term endowments reported land and other real estate held as investments at their historical cost. This statement requires that endowments report their land and other real estate investments at fair value. Changes in fair value should be reported as investment income. Effective date is used for financial statement periods beginning after June 15, 2008. VI. GASBS #53 - Accounting and Financial Reporting for Derivative Instruments: The key provision of this statement is that derivative instruments, with the exception of synthetic guaranteed investment contracts, are reported at fair value. Issued June 2008 and effective for financial statement periods beginning after June 15, 2009. The table below describes how changes in the fair value of derivative instruments are reported:
Purpose of Derivative Instrument Investment Reporting of change in the fair value of the derivative instrument Reported in: Investment Revenue-Loss Statement of Activities Hedging Deferred Charge or Credit Statement of Net AssetsBalance Sheet
A. GASBS #53 limits the use of the deferred recognition approach to those it describes as effective hedges. In essence, a hedge is considered effective when a change in the fair value of the hedging derivative is offset by the change in the fair value of the underlying hedged item. The standard provides three methods to evaluate the effectiveness of a hedge: 1. Consistent Critical Terms Method -- If the critical terms of the hedgeable item and the derivative instrument are the same, or very similar, the changes in cash flows or fair values of the derivative instrument will substantially offset the changes in the cash flows or fair values of the hedgeable item. 2. Quantitative Methods -a. Dollar-offset method -- This method evaluates effectiveness by comparing the expected cash flows or fair values of the derivative instrument with the changes in the expected cash flows or fair values of the hedgeable item. If the changes of either the hedgeable item or the derivative instrument divided by the other falls in the range of 80 to 125 percent, these changes substantially offset and the derivative instrument is
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considered to be an effective hedge. For example, if the actual results are such that the change in fair value of the derivative instrument is a decrease of $100 and the fair value of the hedgeable item increased by 110, the dollar-offset percentage is 110/100, which is 110 percent, or 100/110, which is 91 percent. In either case, the hedging derivative instrument is determined to be effective. b. Regression analysis method -- This method evaluates effectiveness by considering the statistical relationship between the cash flows or fair values of the derivative instrument and the hedgeable item. The changes in cash flows or fair values of the derivative instrument substantially offset the changes in the cash flows or fair value of the hedgeable item, if all of the following criteria are met: i. The R-squared of the regression analysis is at least 0.80; ii. The F-statistic calculated for the regression model demonstrates that the model is significant using a 95 percent confidence level; iii. The regression coefficient for the slope is between -1.25 and - 0.80.
3. Synthetic Instrument Method -- Sometimes, a government will combine an interestbearing hedgeable item with a derivative instrument to create a third synthetic instrument. This method is limited to cash flow hedges in which the hedgeable items are interest bearing and carry a variable rate. Under this method, the derivative instrument is effective if the actual synthetic rate is substantially fixed. The hedge is considered substantially fixed if the actual synthetic rate is within 90 percent to 111 percent of the fixed rate. For example, if an interest-rate swap's fixed payment rate is 7.00 percent, an actual synthetic instrument rate that falls within a range between 6.30 percent (90 percent of 7.00 percent) and 7.77 percent (111 percent of 7.00 percent) is considered to be substantially fixed and, therefore, the derivative instrument is considered effective. B. Changes in the fair value of derivative instruments, that do not qualify as effective using one the methods described above, are reported in the Statement of Activities. VII. GASBS # 55 - The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments
A. The purpose of Statement No. 55 is to move the relevant parts of the AICPA Statement on Auditing Standards No. 69, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles," to the GASB codification. Issued and effective March 2009. The GAAP hierarchy for all state and local governmental entities is categorized in descending order of authority as follows: 1. Officially established accounting principles - Governmental Accounting Standards Board (GASB) Statements and Interpretations. 2. GASB Technical Bulletins and, if specifically made applicable to state and local entities by the AICPA and cleared by GASB, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position. 3. AICPA Practice Bulletins, if specifically made applicable to state and local entities and cleared by GASB, as well as consensus positions of a group of accountants organized by GASB that attempt to reach consensus positions on accounting issues applicable to state and local governmental entities.
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4. Implementation guides (Q&As) published by the GASB staff, as well as practices that are widely recognized in state and local government. If the accounting treatment for a transaction or other event is not specified by a pronouncement or established practice described in categories (a)-(d), a governmental entity may consider other accounting literature. Other accounting literature includes: GASB Concept Statements, pronouncements referred to in categories (a)-(d) not specifically made application by GASB, and other pronouncements issued by FASB, FASAB, AICPA, IPSAB, and accounting textbooks, handbooks, and articles.
VIII. GASBS # 56 - Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards Issued and effective March 2009. A. This Statement adds accounting guidance in the AICPA auditing literature to the GASB codification in three areas: 1. Related Party Transactions -- State and local governments are required to disclose related party transactions and should recognize the substance of the transaction rather than its legal form. 2. Subsequent Events -- Two types of subsequent events are described in the Statement. Recognized events consist of events that provide additional evidence with respect to conditions that existed at the date of the statement of net assets and require adjustments to the financial statements. Nonrecognized events consist of those events that provide evidence with respect to conditions that did not exist at the date of the statement of net assets. These events should not result in adjustment of the financial statements, but they may be disclosed in the notes of the financial statements. 3. Going Concern Considerations -- The Statement requires financial statement preparers to evaluate whether there is a substantial doubt about a government's ability to continue as a going concern for 12 months beyond the financial statement date (or shortly thereafter, which GASB describes as "an additional three months"). Indicators of substantial doubt include: a. Negative trends (e.g., recurring budget deficits); b. Other indicators of financial difficulties (e.g., loan default); c. Internal matters (e.g., work stoppages); d. External matters (e.g., legal proceedings). 4. If the evaluation determines that there is substantial doubt about a governmental entity's ability to continue as a going concern, then the notes to the financial statements should include the following disclosures: a. Pertinent conditions and events giving rise to the assessment that a substantial doubt exists about the ability of the entity to continue as a going concern; b. The possible effects of such conditions and events; c. Government officials' evaluation of the significance of those conditions and events; d. Possible discontinuance of operations; e. Government officials' plans;
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f. Information about the recoverability or classification of recorded assets amounts or the amounts or classification of liabilities.
IX. GASB Concept Statement No. 5 - Service Efforts and Accomplishments Reporting An Amendment of GASB Concepts Statement No. 2. A. Service Efforts and Accomplishments (SEA) -- Issued November 2008. 1. CS-5 amends CS-2 by stating that SEA reporting is voluntary and that it will provide guidelines (i.e., suggestions) only. Essentially CS-5 states that it is beyond the scope of the GASB to mandate SEA reporting practices. Instead, GASB provides conceptual guidance regarding the reporting of SEA performance information. CS-5 identifies the following three elements of SEA performance measures: a. Measures of service efforts - input measures (e.g., number of work hours devoted to road maintenance); b. Measures of service accomplishments - output and outcome measures (number of miles of road repaired); c. Measures that relate service efforts to service accomplishments - efficiency measures and cost-outcome measures (labor cost per mile of road resurfaced). 2. CS-5 also identifies related information that provides a context for understanding SEA performance measures. Related quantitative and narrative information that can help provide a context for users to understand reported SEA performance measures fall into the following five categories: a. Comparison information - to previous years, to established targets, progress toward goals, to generally accepted norms and standards, to comparable entities and jurisdictions; b. Unintended effects - significant indirect consequences (positive or negative); c. Demand for services - changes in the demand for services and effect of other programs competing for the same resources; d. Factors that influence results - external and internal factors that affect results; e. Narrative information - explanations for the level of SEA performance, unintended effects, actions taken.
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Flashcards
Flashcard #1 (FC6396) During what stage of the internally generated software development process are costs capitalized? Flashcard #2 (FC6395) List the three stages for internally generated software development. 1. Preliminary project stage; 2. Application development stage; 3. Post-implementation/operation stage. Application development stage.
Flashcard #3 (FC6394) Define "probability-weighted procedure". Flashcard #4 (FC6393) When are pollution remediation obligations recognized for government reporting? Flashcard #5 (FC6392) True or False: Pension plan benefits paid are called deductions in the pension plan financial statements. Flashcard #6 (FC6391) True or False: Contributions to pension plans are called revenues in the Pension Plan financial statements. Flashcard #7 (FC6390) List the two financial statements required for defined pension benefit plans in government reporting. 1. Statement of Plan Net Assets; 2. Statement of Changes in Plan Net Assets. False. They are called "Additions" in the Pension Plan financial statements (they are not called revenues). This is a true statement. When the government knows that a site is polluted and one of the five obligating events has occurred. The approach used to calculate the liability for clean costs associated with a pollution remediation effort.
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Proficiency Questions
Question #1
(PQ6154)
According to GASB #50, governmental entities that offer Other Postemployment Benefits to their retirees must disclose information about the funding status of these plans.
True False
Question #2
(PQ6155)
Macon City offers health insurance to its retirees as an Other Postemployment Benefit but funds the plan on a pay-as-you-go basis. The actuarial required contribution (ARC) for the plan for the current year is $800,000; however, Macon City plans to pay only the $300,000 required to cover the plan's cost in the current period. If all of Macon City's covered employees were paid out of Governmental Fund resources, Macon City should recognize $300,000 as an Expenditure in the current period.
True False
Question #3
(PQ6156)
Marble City's Utility Fund (an Enterprise Fund) recently acquired 10 acres of land which it plans to use to expand its sewage processing capacity. A portion of the land that was previously used as a dumping ground is polluted. The City estimates that it will cost approximately $400,000 to clean up the site. Upon purchase of the land and determination of the cleanup costs, Marble City should recognize pollution remediation expenses of $400,000 and record a corresponding liability.
True False
Question #4
(PQ6157)
Taylor County was recently named in a lawsuit that seeks to recover $500,000 in pollution remediation costs related to drainage problems on the County's right of ways. The County attorneys feel that it is likely that the County will lose the lawsuit and have to cover the full amount of these costs. The County must report a $500,000 expense related to these costs in its current period Government-wide Financial Statements.
True False
Question #5
(PQ6158)
Disclosures about the actuarial methods and significant assumptions used to determine both pension cost and other postemployment benefit costs are presented in the Required Supplementary Information section of the CAFR.
True False
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Question #6
(PQ6159)
In the Government-wide Statements, both Governmental-Activities and Business-type Activities report other postemployment benefits at their actuarially determined cost for the period.
True False
Question #7
(PQ6160)
The actuarially determined other postemployment benefit or obligation is disclosed in the Schedule of Funding Progress, which is included in the Notes to the Financial Statements.
True False
Question #8
(PQ6161)
A tornado recently destroyed the Wall City Civic Auditorium, resulting in a loss of $450,000, although the City was able to recover $300,000 of the loss through insurance proceeds. Wall City should report the $450,000 loss as an extraordinary item on its Statement of Activities.
True False
Question #9
(PQ6162)
The Garden City Foundation is a legally separate nonprofit organization established to provide resources to improve and maintain the landscaping around public buildings in Garden City. The Foundation's resources are used only for this purpose and provide for substantial improvement in the appearance of the buildings, although the actual dollar value of the assistance is insignificant to the City. The Garden City Foundation should be included in Garden City's financial statements as a component unit.
True False
Question #10
(PQ6163)
Which of the following is not one of the five information classification sections that must be included in the Statistical Section of the CAFR?
A. Operating Information B. Demographics Information C. Revenue Capacity Information D. Fund Balance Information
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Past Exam Questions

Question #1
(1. AICPA.083782FAR-SIM)
In January 2010, Red County acquired the right to draw water from a lake on the property of a privately owned ranch in exchange for a cash payment of $20 million. The annual volume of water that can be drawn is unlimited. The county's rights under the contract expire in 10 years (2020); however, the contact provides the opportunity to renew the water rights for an additional 10 years (to 2030) for no additional payment, subject to the mutual agreement of the two parties. The county believes that it will request the renewal. The county expects the other party to agree to the renewal since the ranch is a significant user of the county's water supply and is a major employer of Red County residents. The county operates on a calendar fiscal year. The county should recognize in its 2010 Government-Wide Financial Statements:
A. $20 million expense in its Statement of Activities. B. $10 million expense in its Statement of Activities. C. $2 million amortization expense in its Statement of Activities. D. $1 million amortization expense in its Statement of Activities.
Question #2
In January 2010, Blue County acquired the right to draw water from a lake on the property of a privately owned ranch in exchange for a cash payment of $20 million. The annual volume of water that can be drawn is unlimited. The county's rights under the contract expire in 10 years; however, the contact provides the opportunity to renew the water rights for an additional 10 years for an additional payment of $10 million, if the county chooses . The county believes that it will request the renewal. The county expects the other party to agree to the renewal since the ranch is a significant user of the county's water supply and is a major employer of Blue County residents. The county operates on a calendar fiscal year. The county should recognize in its 2010 Government-Wide Financial Statements:
A. $20 million in its Statement of Activities. B. $2 million in its Statement of Activities. C. $1.5 million in its Statement of Activities. D. $30 million in its Statement of Activities.
Question #3
Small County's tax assessment department identified the need for new property tax assessment and billing software. A project task force composed of county staff was assembled to address this need. The following outlays were incurred related to the project in 2015: Task force interviews with operators of the software and users of the information to determine the needs of the users, evaluation of system hardware requirements, assessment of current in-house information technology resources and evaluation of commercially available software packages, and issuing requests for proposals from vendors. Outlays: $1.5 million. The county awards a contract in the amount of $14.5 million to a vendor to acquire a perpetual license to use its property tax software as modified to meet the County's needs. The vendor is responsible for the installation and modification of the software, while four county employees are dedicated to the project full time until its completion at an additional cost of $0.5 million. Outlays for data entry and for training software users and operators is $0.6 million. How much should Small County capitalize related to the outlays associated to the project?
A. $15.6 million
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B. $14.5 million C. $15 million D. $16.5 million
Question #4
A government has an investment derivative instrument that is considered effective. The fair value of this derivative instrument has increased by $100,000 in the current period. The change in fair value should be reported as:
A. Investment Revenue in the Statement of Activities. B. Deferred Credit in the Statement of Net Assets. C. Holding Gain in Fund Balance. D. Should not be reported.
Question #5
Which of the following is not one of the five information classification sections that must be included in the Statistical Section of the CAFR?
A. Operating information. B. Demographics information. C. Revenue Capacity information. D. Fund Balance information.
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Proficiency Question Answers

Question #1 : True Question #2 : True Question #3 : False Question #4 : True Question #5 : False Question #6 : True Question #7 : False Question #8 : False Question #9 : False Question #10 : D
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Past Exam Question Answers

Question #1
A. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Since there is evidence that the county will seek and be able to acquire renewal of the water rights without incurring additional outlays, the useful life of the water rights is 20 years-the original 10 year term plus the 10 year renewal term. Using straight-line amortization, annual amortization expense of $1 million ($20 million over 20 years) would be recorded in the county's Government-Wide Statement of Activities, starting in 2010. B. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Since there is evidence that the county will seek and be able to acquire renewal of the water rights without incurring additional outlays, the useful life of the water rights is 20 years-the original 10 year term plus the 10 year renewal term. Using straight-line amortization, annual amortization expense of $1 million ($20 million over 20 years) would be recorded in the county's Government-Wide Statement of Activities, starting in 2010. C. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Since there is evidence that the county will seek and be able to acquire renewal of the water rights without incurring additional outlays, the useful life of the water rights is 20 years-the original 10 year term plus the 10 year renewal term. Using straight-line amortization, annual amortization expense of $1 million ($20 million over 20 years) would be recorded in the county's Government-Wide Statement of Activities, starting in 2010. D. (Correct!) The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Since there is evidence that the county will seek and be able to acquire renewal of the water rights without incurring additional outlays, the useful life of the water rights is 20 years-the original 10 year term plus the 10 year renewal term. Using straight-line amortization, annual amortization expense of $1 million ($20 million over 20 years) would be recorded in the county's Government-Wide Statement of Activities, starting in 2010.
Question #2
A. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Because the county would be required to make an additional payment to execute the 10-year renewal period, this period is not considered as part of the useful life acquired in exchange for the $20 million payment. The useful life of the water rights is 10 years. Using straight-line amortization, annual amortization expense of $2 million ($20 million over 10 years) would be recorded in the county's Government-Wide Statement of Activities starting in 2010. B. (Correct!) The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Because the county would be required to make an additional payment to execute the 10-year renewal period, this period is not considered as part of the useful life acquired in exchange for the $20 million payment. The useful life of the water rights is 10 years. Using straight-line amortization, annual amortization expense of $2 million ($20 million over 10 years) would be recorded in the county's Government-Wide Statement of Activities starting in 2010. C. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Because the county would be required to make an additional payment to execute the 10-year renewal period, this period is not considered as part of the useful life acquired in exchange for the $20 million payment. The useful life of the water rights is 10 years. Using straight-line amortization, annual amortization expense of $2 million ($20 million over 10 years) would be recorded in the county's Government-Wide Statement of Activities starting in 2010. D. The county would recognize in its Government-Wide Statement of Net Assets a capital asset of $20 million for the acquisition of the water rights in 2010. A capital outlay expenditure of $20 million would be recorded in the county's Capital Projects Fund Statement of Revenues, Expenditures, and Changes in Net Assets. Because the county would be required to make an additional payment to execute the 10-year renewal period, this period is not considered as part
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of the useful life acquired in exchange for the $20 million payment. The useful life of the water rights is 10 years. Using straight-line amortization, annual amortization expense of $2 million ($20 million over 10 years) would be recorded in the county's Government-Wide Statement of Activities starting in 2010.
Question #3
A. According to GASB Statement No. 51, the activities involved in developing and installing internally generated computer software can be grouped into the following three stages: (1) preliminary project stage, (2) application development stage, and (3) post-implementation/operation stage. Costs in the first and last stage are expensed as incurred. Costs related to the application development stage are capitalized in the Government-Wide Financial Statements. The $1.5 million spent to conduct interviews and evaluate various software programs is consider stage 1-preliminary project stage-and should be expensed as incurred. The $0.60 million in data entry and training is post-implementation/operation stage and should also be expensed as incurred. Both the $14.5 million outlay for commercial software and the $0.50 million for installation and testing of the software relate to the second stageapplication and development-and should be capitalized ($15.0 million). B. According to GASB Statement No. 51, the activities involved in developing and installing internally generated computer software can be grouped into the following three stages: (1) preliminary project stage, (2) application development stage, and (3) post-implementation/operation stage. Costs in the first and last stage are expensed as incurred. Costs related to the application development stage are capitalized in the Government-Wide Financial Statements. The $1.5 million spent to conduct interviews and evaluate various software programs is consider stage 1-preliminary project stage-and should be expensed as incurred. The $0.60 million in data entry and training is post-implementation/operation stage and should also be expensed as incurred. Both the $14.5 million outlay for commercial software and the $0.50 million for installation and testing of the software relate to the second stageapplication and development-and should be capitalized ($15.0 million). C. (Correct!) According to GASB Statement No. 51, the activities involved in developing and installing internally generated computer software can be grouped into the following three stages: (1) preliminary project stage, (2) application development stage, and (3) post-implementation/operation stage. Costs in the first and last stage are expensed as incurred. Costs related to the application development stage are capitalized in the Government-Wide Financial Statements. The $1.5 million spent to conduct interviews and evaluate various software programs is consider stage 1-preliminary project stage-and should be expensed as incurred. The $0.60 million in data entry and training is post-implementation/operation stage and should also be expensed as incurred. Both the $14.5 million outlay for commercial software and the $0.50 million for installation and testing of the software relate to the second stage-application and development-and should be capitalized ($15.0 million). D. According to GASB Statement No. 51, the activities involved in developing and installing internally generated computer software can be grouped into the following three stages: (1) preliminary project stage, (2) application development stage, and (3) post-implementation/operation stage. Costs in the first and last stage are expensed as incurred. Costs related to the application development stage are capitalized in the Government-Wide Financial Statements. The $1.5 million spent to conduct interviews and evaluate various software programs is consider stage 1-preliminary project stage-and should be expensed as incurred. The $0.60 million in data entry and training is post-implementation/operation stage and should also be expensed as incurred. Both the $14.5 million outlay for commercial software and the $0.50 million for installation and testing of the software relate to the second stageapplication and development-and should be capitalized ($15.0 million).
Question #4
A. (Correct!) GASB Statement No. 53 requires changes in the fair value of Derivative Instruments used for investment purposes to be reported within the Investment Income classification of the Statement of Activities. Changes in the fair value of Hedging Derivative Instruments are reported as Deferrals in the Statement of Net Assets. B. The purpose of the Derivative Instrument is for investment, rather than hedging of risk. GASB Statement No. 53 requires changes in the fair value of Derivative Instruments used for investment purposes to be reported within the Investment Income classification of the Statement of Activities. Changes in the fair value of Hedging Derivative Instruments are reported as Deferrals in the Statement of Net Assets. C. GASB Statement No. 53 requires changes in the fair value of Derivative Instruments used for investment purposes to be reported within the Investment Income classification of the Statement of Activities (answer A is correct). Changes in the fair value of Hedging Derivative Instruments are reported as Deferrals in the Statement of Net Assets (note: answer B would be correct if the question was about changes in the fair value of Hedging Derivative Instruments). D. GASB Statement No. 53 requires changes in the fair value of Derivative Instruments used for investment purposes to be reported within the Investment Income classification of the Statement of Activities (answer A is correct). Changes in the fair value of Hedging Derivative Instruments are reported as Deferrals in the Statement of Net Assets
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(note: answer B would be correct if the question was about changes in the fair value of Hedging Derivative Instruments).
Question #5
A. GASB Statement No. 44 requires that statistical information be presented in five categories - Financial Trends Information, Revenue Capacity Information, Debt Capacity Information, Demographic and Economic Information, and Operating Information. Fund balance information is not one of the five categories, but for Governmental Funds, Fund Balance Information is required as part of the financial trends information category. B. GASB Statement No. 44 requires that statistical information be presented in Financial Trends Information, Revenue Capacity Information, Debt Capacity Information, Demographic and Economic Information, and Operating Information. Fund balance information is not one of the five categories, but for Governmental Funds, Fund Balance Information is required as part of the financial trends information category. C. GASB Statement No. 44 requires that statistical information be presented in five categories - Financial Trends Information, Revenue Capacity Information, Debt Capacity Information, Demographic and Economic Information, and Operating Information. Fund balance information is not one of the five categories, but for Governmental Funds, Fund Balance Information is required as part of the financial trends information category. D. (Correct!) GASB Statement No. 44 requires that statistical information be presented in five categories - Financial Trends Information, Revenue Capacity Information, Debt Capacity Information, Demographic and Economic Information, and Operating Information. Fund balance information is not one of the five categories, but for Governmental Funds, Fund Balance Information is required as part of the financial trends information category.
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http://www.cpaexcel.com/pv4/cpaexcel/publish?format=assignment&aid...

January 1, 2002-February 28,Year Z $2.5 M

According to GASB #33, all revenue would be recognized in Year Y

Most expenditures of the governmental funds are authorized through appropriations.

Resources from nonexchange transactions often have timing restrictions.

GASB #33 is a four step process.

Past Exam Questions

A. $1,800,000 B. $1,970,000 C. $1,980,000 D. $2,000,000

Fixed assets donated to a governmental unit should be recorded:

A. Appropriations control. B. Encumbrance Control. C. Vouchers Payable. D. Reserve for Encumbrances.

In which fund would "Salaries Expense" appear?

In which fund would "Supplies Expenditure" appear?

A. Agency Fund. B. General Fund. C. Internal Service Fund. D. Enterprise Fund.

"Supplies" is an expenditure classified at the _________ level.

A. Fund. B. Function. C. Character. D. Object.

D. Whether resources acquired can be further exchanged.

Proficiency Question Answers

Past Exam Question Answers

Special Items - Recent Developments

Special Items - Recent Developments

Past Exam Questions

B. $14.5 million C. $15 million D. $16.5 million

Proficiency Question Answers

Past Exam Question Answers

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