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 : Cafr (Fund) Accounting
Which of the following would be reported as program revenues on a local government's government wide statement of activities?
Taxes levied for a specific function
Interest revenues
Charges for services
Proceeds from the sale of a capital asset used for a specific function
Charges for services
For a local government's government wide statement of activities, charges for services are reported as program revenue.
Example Question #6 : Cafr (Fund) Accounting
Internal service funds, while being proprietary funds, are reported under which at the government wide level?
Proprietary
Fiduciary
Governmental activities
Disclosure
Governmental activities
When the consolidation of governmental financial statements are complete, the internal service funds are displayed under governmental activities rather than proprietary.
Example Question #1 : Modified Accrual Basis Of Accounting
The city of Frankford assesses a sales tax on all purchases over $40,000. On December 28, Year 1, a sale of $65,000 occurs that will result in a payment of a tax to the city of $2,400. The payment is expected to be received during March of Year 2. Assets such as investments and receivables are viewed as current if they are collectible within 60 days. How should this tax revenue be reported in the Year 1 fund financial statements?
As a revenue
As an encumbrance
It should be divided proportionately between Year 1 and Year 2
It should not be recorded until Year 2
It should not be recorded until Year 2
This sales tax assessment will not be recorded in Year 1 because it is not expected to be collected within 60 days of year-end.
Example Question #2 : Modified Accrual Basis Of Accounting
Pattinson County is currently preparing general purpose financial statements for Year 1. Currently, they are working on fund-based financial statements for the general fund and special revenue fund. Which of the following will not be reported as assets on the balance sheet for these funds at December 31, Year 1?
An outstanding receivable for property taxes with collection expected to happen in early Year 2
Supplies that were received on December 24 and reported using the purchases method
An investment made in a publicly-held company that will be liquidated in the future as needed
A piece of machinery that was purchased on December 28 and will not be paid for until January of Year 2
A piece of machinery that was purchased on December 28 and will not be paid for until January of Year 2
An encumbrance will be recorded for the machine at the time of purchase but an asset will not be recorded until the machine is received.
Example Question #3 : Modified Accrual Basis Of Accounting
The city of Carlton produces a comprehensive annual financial report which includes general purpose financial statements. Which of the following statements is true?
Fund-based financial statements must be included but government-wide financial statements are optional
Both fund-based financial statements or government-wide financial statements must be included
Government-wide financial statements must be included but fund-based financial statements are optional
Either fund-based financial statements or government-wide financial statements must be included
Both fund-based financial statements or government-wide financial statements must be included
The CAFR includes fund-base statements and government-wide statements.
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.
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