Governmental and Nonprofit Accounting: Theory and Practice, 9e Update (Freeman)

Chapter 1 Governmental and Nonprofit AccountingEnvironment and Characteristics

1) Which of the following would not be considered a government or nonprofit organization?
A) A software company that sells software exclusively to state and local governments
B) A public elementary school
C) A church
D) A private trust organized for charitable purposes
Answer: A
2) Each of the following would be defined as a governmental entity based on the definition of a
government that was jointly developed by the GASB and FASB except
A) A Historic Preservation District created by the governing board of the municipal government.
B) A Charter School incorporated in accordance with state law and accountable to the state
oversight agency.
C) A hospital formerly owned by a local government entity that was sold to and is now owned by
a private, for-profit health care management corporation.
D) A financing authority that is legally separate from the municipal government, but provides
financing for the government's major capital projects. The governing board of the financing
authority is appointed by the municipal government's board.
E) All of the above would be defined as governmental entities.
Answer: C
3) The Financial Accounting Foundation has oversight responsibilities over
A) The Financial Accounting Standards Board (FASB).
B) The Governmental Accounting Standards Board (GASB).
C) The Government Accountability Office (GAO).
D) All of the above
E) Items A and B only
F) Items B and C only
Answer: E
4) The governmental GAAP hierarchy was established by
A) The Governmental Accounting Standards Board (GASB).
B) The Financial Accounting Standards Board (FASB).
C) The American Institute of Certified Public Accountants (AICPA).
D) The Financial Accounting Foundation (FAF).
E) The Government Accountability Office (GAO).
Answer: A

5) Which of the following is not specifically identified in the GAAP hierarchy for state and local
governments?
A) AICPA Industry Audit and Accounting Guides
B) GASB Technical Bulletins
C) GASB Implementation Guides
D) GAO's Yellow Book
E) AICPA Practice Bulletins
F) All of the above are specifically identified in the state and local government hierarchy.
Answer: D
6) Which of the following statements is false?
A) The power to tax is unique to governments.
B) Taxation is a nonexchange transaction.
C) Governmental entities may not finance a function or service with both a user fee and tax
revenues.
D) All of the above statements are true statements.
E) Both items B and C are false statements.
Answer: C
7) The primary users of external financial reports, as identified by the GASB, include all of the
following except
A) Investors and creditors.
B) Citizens.
C) Governing boards.
D) All of the above are considered to be primary users of external financial reports.
E) Both items A and B.
Answer: D
8) Business-type activities differ from governmental-type activities in that
A) Most capital assets of business-type activities are considered to be revenue producing capital
assets, while those in governmental-type activities generally are not.
B) Business-type activities never have the power to levy a tax.
C) Business-type activities do not adopt a budget.
D) All of the above statements accurately reflect actual differences between business-type and
governmental-type activities.
E) Items B and C only accurately reflect primary differences between business-type and
governmental-type activities.
Answer: A

9) Which of the following activities would most likely be accounted for in a nonexpendable
(proprietary) fund?
A) Fire protection
B) Recreation
C) Water operations
D) Street maintenance
E) General government administration
Answer: C
10) Expenditures in a governmental (expendable) fund would potentially include
A) Salaries and wages.
B) Capital outlay.
C) Long-term debt principal retirement.
D) Long-term debt interest.
E) All of the above.
F) Items A, B, and D only.
Answer: E
11) Expenses in a proprietary (nonexpendable) fund would potentially include
A) Salaries and wages.
B) Capital outlay.
C) Long-term debt principal retirement.
D) Long-term debt interest.
E) Items A and D only.
F) Items B and C only.
Answer: E
12) Which of the following is a characteristic that distinguishes government and not-for-profit
(G&NP) organizations from business enterprises?
A) Borrowing is not a significant source of financing.
B) The resource providers of G&NP organizations often do not receive services commensurate
with the amount of resources they provide.
C) Net income is an appropriate performance evaluation measurement for most of these
organizations.
D) Accumulating wealth on behalf of its constituents is a key goal of G&NP organizations and
business enterprises.
Answer: B
13) Which source of financial resources is unique to governments?
A) Borrowings
B) Gifts and grants
C) Charges for services provided
D) Taxation
Answer: D
14) What best describes the relationship of the FASB and the GASB?
A) They are co-equal bodies with different areas of responsibility for standards setting.
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B) The FASB standards are authoritative for governments. However, the FASB asks the GASB
to establish guidelines for many unique transactions of government that the FASB does not have
time to consider.
C) GASB standards are authoritative for governments unless they have been overruled by the
FASB.
D) Governments are not permitted to apply any FASB standard under any circumstances for any
government operations.
Answer: A
15) Which of the following is a government?
A) A school district
B) Library commission if governments appointed a voting majority of its governing board.
C) Neither would ever be a government.
D) Both items A and B.
Answer: D