CPA Financial Accounting and Reporting (FAR) : State and Local Governments
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Government Wide Financial Statements
The library of the city of Howerton has ordered new shelving units at the cost of $40,000. How is this order recorded by the city in the government-wide financial statements?
Financial commitments are not formally reported on the government-wide financial statements
As temporarily restricted net assets in the governmental activities
As an encumbrance in the governmental activities
As an encumbrance in the business-type activities
Financial commitments are not formally reported on the government-wide financial statements
Financial commitments (such as ordering items before receiving them) are recorded in the fund financial statements as encumbrances but they are not recorded in the government-wide statements.
Example Question #2 : Government Wide Financial Statements
Hamilton County purchases a new police car at an estimated cost of $20,000 on August 5, Year 1. The vehicle arrives on September 9, Year 1, with an invoice of $21,250. Hamilton County pays the vendor in full on October 3, Year 1. The journal entry for this transaction would include which of the following on August 5, Year 1?
$21,250 debit to encumbrances
$20,000 debit to encumbrances
$21,250 debit to expenditures
$20,000 debit to expenditures
$20,000 debit to encumbrances
When the purchase is made, a debit will be made to encumbrances for the estimated price at the time of purchase.
Example Question #3 : Government Wide Financial Statements
The city of Abernathy's internal service fund estimates revenues and expenses at the beginning of each year. In Year 2, Abernathy estimates revenues for the year of $2 million and estimates expenses for the year of $1.7 million. What will be the balance in the budgetary control account at the beginning of the year?
$300,000 credit
$2 million credit
$0
$300,000 debit
$0
Internal service funds do not use budgetary accounting; budgetary accounting is used by governmental funds.
Example Question #4 : Government Wide Financial Statements
Which basis of accounting is required for a city's government wide financial statements?
Cash
Modified accrual
Accrual
Modified cash
Accrual
The government wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting.
Example Question #5 : Government Wide Financial Statements
What is the measurement focus and the basis of accounting for the government wide financial statements?
Both
Accrual basis of accounting
Neither
Economic resources measurement focus
Both
The government wide financial statements use both the economic resources focus and accrual accounting.
Example Question #1 : Government Wide Financial Statements
Taxes levied on citizens for infrastructure improvements should be reported in:
Program revenues
Functional revenues
None of the above
General revenues
General revenues
Program revenues would include charges for services and grants. Nonexchange revenues for governmental activities are general revenues.
Example Question #1 : Cafr (Fund) Accounting
The city of Hammond opened a landfill at the beginning of Year 1, which is expected to take 10 years to fill. At the end of Year 1, the land full is 8% full and the estimated current closures costs are $150,000. At the end of Year 2, the landfill is currently 20% full and the estimated closure costs are $200,000. The city does not charge a fee to use the landfill and thus reports it in the general fund. What amount of expenditures should be reported in Year 2 in the fund-based financial statements in connection with the closure of the landfill?
$0
$38,000
$40,000
$12,000
$0
Nothing is recorded for closure costs in the fund financial statements because no current economic resources were used for closing the landfill. A liability would be recorded in the government-wide statements because the focus in those statements is on both current and non-current resources.
Example Question #2 : Cafr (Fund) Accounting
The fire department of Forbes Township purchased a new fire truck on January 1, Year 1. Fund-based financial statements are being produced for Year 1 that include the fire department in the general fund. Which of the following statements is true?
Recognition of depreciation expense is optional
Depreciation expense should be calculated and reported for the fire truck only if the modified approach is used
Depreciation expense should be calculated and reported for the fire truck
Recognition of depreciation expense is not appropriate
Recognition of depreciation expense is not appropriate
The focus of the fund financial statements is current financial resources, and recording depreciation will not impact current financial resources. Thus, the purchase of the car will be reflected in the fund statements, but the depreciation will only be recorded in the government-wide statements, which includes non-current resources as well as current resources.
Example Question #3 : Cafr (Fund) Accounting
Golden City levies a real estate tax. In Year 1, the city expects to collect $400,000 between January 1, Year 2, and March 15, Year 2. It expects to collect $160,000 per month in January and February, and an additional $80,000 in March. The city's policy is that money collectible within 60 days is considered available. How much of the revenue should be recognized in Year 1 in the fund financial statements?
$160,000
$400,000
$0
$320,000
$320,000
At the end of Year 1, the city will only recognize the revenue it expects to collect within the next 60 days. This includes January and February, so Year 1 revenue will include $160K for January + $160K for February.
Example Question #4 : Cafr (Fund) Accounting
If a primary government's general fund has an equity interest in a joint venture, all or a portion of this equity interest should be reported in the:
Custodial fund
Internal service fund
Trust fund
Government wide statement of net position
Government wide statement of net position
The portion of the equity interest in the joint venture that represents the government's investment in the net position of the venture is recorded in the government wide statement of net position.
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