CPA Financial Accounting and Reporting (FAR) : CPA Financial Accounting and Reporting (FAR)
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #4 : Modified Accrual Basis Of Accounting
A government wide statement of net position must include which of the following?
Primary government fiduciary fund data
A consolidation of all government wide activities
A distinction between governmental and business type activities
Prior year comparative financial data
A distinction between governmental and business type activities
The government statement of net position must include a distinction between governmental and business type activities.
Example Question #6 : Modified Accrual Basis Of Accounting
In a governmental entity's government wide statement of net position, which of the following would not be included as a liability?
Compensated absences
Salary payable
General obligation bonds
Prepaid expenses
Prepaid expenses
All of the following except for prepaid expenses would be a liability. Prepaid expenses are assets.
Example Question #1 : Encumbrance Accounting
During the current year, a city spends $5 million to construct a new highway. The highway will be a toll road that can only be used by paying a fee. What is the difference between the fund-based financial statements and the government-wide financial statements in regards to the reporting of this $5 million outflow?
There is no difference
It is recorded as an asset in the government-wide statements and as an expenditure in the fund statements
It is reported as an asset in the government-wide statements and not reported at all in the fund statements
It is reported as an expenditure in the government-wide statements and as an asset in the fund statements
There is no difference
Because users of the road must pay a fee, the road is accounted for as an enterprise fund. Enterprise funds are accounted for the same way (that is, using standard accrual accounting) in both the fund statements and the government-wide statements.
Example Question #2 : Encumbrance Accounting
Harrison County is currently preparing its government-wide financial statements. The Harrison Public Airport is legally separate from the county but is viewed as a component unit because the county appoints a majority of the commission and has guaranteed certain debts held by the airport. In Harrison County's government-wide financial statements, how is the information for the airport reported?
The airport's financial information should be included as a business-type activity because it charges users a fee
The airport's financial information should not be included as part of the county's financial statements because it is a legally separate entity
The airport's financial information must be included as a separate schedule in the notes to the government-wide financial statements of the county
The airport's financial information may be discreetly presented on the financial statements or blended as if it were part of the county
The airport's financial information may be discreetly presented on the financial statements or blended as if it were part of the county
Component units must be included in the government-wide statements, but if that component is very intertwined with the government as a whole, the government can choose to present that unit separately or blended with the rest of the government.
Example Question #21 : State And Local Governments
The town of Harmony has a large public hospital. On its government-wide financial statements, within the statement of activities, the town has reported a net financial burden of $2 million in the past year. How is this amount determined?
It is the hospital's expenses for the year netted with the program revenues generated by that function
It is the amount of cash expenditures for the year
It is the total of expenses for the year
It is an allocation of the town's financial deficit for the year
It is the hospital's expenses for the year netted with the program revenues generated by that function
The net financial burden represents the portion of the hospital's expenses that are not covered by program revenues, directly generated by the hospital. These expenses would need to be covered by some type of general revenue and thus represent a burden to the government.
Example Question #22 : State And Local Governments
Fixed assets donated to a governmental unit should be recorded:
At the lower of donor's carrying amount or estimated fair value when received
As a memorandum entry only
At estimated fair value when received
At the donor's carrying amount
At estimated fair value when received
Donated capital assets to a governmental unit are recorded as if they had been purchased that is at estimated fair value when received.
Example Question #23 : State And Local Governments
ABC City uses an internal service fund for its central motor pool. The assets and liabilities account balances for this fund that are not eliminated normally should be reported in the government wide statement of net position as:
Business type activities
Governmental activities
Note disclosures only
Fiduciary activities
Governmental activities
For the purposes of government wide financial statements, internal service funds are normally reported in the governmental activities column of the government wide statement of net position and statement of activities since they are generally established to service the governmental funds.
Example Question #6 : Encumbrance Accounting
The word most closely associate with "encumbrance" would be:
Assigned
Committed
Dedicated
Stated
Committed
The concept of encumbering is essentially committing funds for use. Committed and encumbered may be used interchangeably.
Example Question #1 : Not For Profit Accounting
The Professional Accountants Group is a private, not-for-profit organization that has 1,000 members. Each member pays $400 per year for their membership and receives benefits with a fair value of $120 as benefits of membership. How should the Professional Accountants Group report the revenue received from its members?
$400,00 is reported as membership dues revenue
$400,00 is reported as contribution revenue
$120,000 is reported as membership dues revenue and $280,000 is reported as contribution revenue
$120,000 should be reported as a reduction in expenses and $280,000 is reported as revenue
$120,000 is reported as membership dues revenue and $280,000 is reported as contribution revenue
Only the portion of members fees that cover the fair value of benefits received are recorded as dues revenue (1K members x $120 per member). The remainder is recorded as contribution revenue (1K members x the difference of $280 per member).
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