1.
Which principle is primarily aimed at meeting the legal budgetary and financial compliance needs of
the government?
A) Operational Accountability
B) Fiscal Accountability
C) Accrual Accounting
D) Economic Resource Focus
Answer: B) Fiscal Accountability
Explanation: Fiscal accountability focuses on ensuring compliance with legal budgetary requirements
and financial regulations, whereas operational accountability is concerned with the efficiency and
effectiveness of operations.
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2. Which type of fund is used to account for operations where the intent is that the cost of providing
goods/services is primarily recovered through user charges?
A) General Fund
B) Internal Service Fund
C) Enterprise Fund
D) Special Revenue Fund
Answer: C) Enterprise Fund
Explanation: Enterprise funds are used for business-type activities where services are provided to the
public, and the costs are recovered through user fees, similar to private businesses.
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3. The basis of accounting used by government-wide financial statements is:
A) Modified Accrual Basis
B) Cash Basis
C) Accrual Basis
D) Budgetary Basis
Answer: C) Accrual Basis
Explanation: Government-wide financial statements use the accrual basis of accounting to measure the
economic resources and provide a complete picture of financial activities.
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4. Which of the following funds is used to account for the accumulation of resources for the payment of
general long-term debt principal and interest?
A) Capital Projects Fund
B) Debt Service Fund
C) Special Revenue Fund
D) Permanent Fund
Answer: B) Debt Service Fund
Explanation: Debt Service Funds are specifically used to manage the accumulation and disbursement of
funds for paying long-term debt obligations.
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5. The flow of economic resources measurement focus is primarily used in which type of fund?
A) Governmental Funds
B) Fiduciary Funds
C) Proprietary Funds
D) General Fund
Answer: C) Proprietary Funds
Explanation: Proprietary funds (including enterprise and internal service funds) use the flow of economic
resources focus, which measures all assets and liabilities, similar to private business accounting.
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6. In which scenario would a government entity need to use the modified accrual basis of accounting?
A) When preparing government-wide financial statements
B) When accounting for proprietary funds
C) When recording general fund activities
D) When preparing fiduciary fund statements
Answer: C) When recording general fund activities
Explanation: The modified accrual basis is used for governmental funds like the general fund, focusing
on current financial resources rather than long-term assets and liabilities.
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7. Capital assets donated to a government should be reported at:
A) Historical Cost
B) Fair Value at Time of Donation
C) Zero Cost
D) Replacement Cost
Answer: B) Fair Value at Time of Donation
Explanation: Donated capital assets are reported at their fair value at the time of acquisition, as per the
relevant GASB standards.
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8. What is the primary purpose of adopting an annual budget by every governmental unit?
A) To comply with GAAP requirements
B) To provide a basis for internal control
C) To ensure fiscal accountability
D) To measure net assets
Answer: C) To ensure fiscal accountability
Explanation: Annual budgets help in demonstrating fiscal accountability by allowing governmental units
to plan and control financial resources in compliance with legal requirements.
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9. Internal service funds are used to account for:
A) Services provided to the general public
B) Capital projects financing
C) Activities between government departments on a cost-reimbursement basis
D) Accumulation of funds for long-term liabilities
Answer: C) Activities between government departments on a cost-reimbursement basis
Explanation: Internal service funds are designed to provide services to other government departments
and agencies, charging them based on actual costs.
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10. Permanent funds are unique because:
A) They are used for fiduciary activities
B) Only earnings, not the principal, can be used
C) They account for business-type activities
D) They follow the cash basis of accounting
Answer: B) Only earnings, not the principal, can be used
Explanation: Permanent funds are legally restricted so that only the earnings from the trust can be used,
while the principal must remain intact.
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11. The government-wide statement of activities reports expenses using which method?
A) Cash Basis
B) Modified Accrual Basis
C) Depreciation Method
D) Full Accrual Basis
Answer: D) Full Accrual Basis
Explanation: The government-wide statement of activities uses the full accrual basis, recognizing
expenses when incurred, regardless of when payment is made.
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12. Which fund type would be used by a state to manage pension resources?
A) General Fund
B) Enterprise Fund
C) Pension Trust Fund
D) Agency Fund
Answer: C) Pension Trust Fund
Explanation: Pension trust funds are fiduciary funds used to manage resources held in trust for the
beneficiaries of pension plans.
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13. The economic resources measurement focus is not used by which of the following?
A) Enterprise Funds
B) Internal Service Funds
C) Fiduciary Funds
D) Governmental Funds
Answer: D) Governmental Funds
Explanation: Governmental funds use the current financial resources measurement focus, not the
economic resources measurement focus.
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14. Which type of liability is not reported in the governmental funds?
A) Current Liabilities
B) Capital Lease Obligations
C) Long-term Liabilities
D) Accounts Payable
Answer: C) Long-term Liabilities
Explanation: Long-term liabilities are not reported in governmental funds because these funds use the
modified accrual basis, focusing only on current financial resources.
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15. Depreciation expense is reported in all of the following except:
A) Government-wide statement of activities
B) Proprietary fund statements
C) Fiduciary fund statements
D) Governmental fund financial statements
Answer: D) Governmental fund financial statements
Explanation: Depreciation is not recorded in governmental funds, as these funds do not account for
capital assets under the modified accrual basis.
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16. Investment trust funds are used to account for:
A) Government-owned enterprises
B) Internal department transactions
C) External investment pools
D) Capital projects
Answer: C) External investment pools
Explanation: Investment trust funds are used to report the portion of investment pools managed by a
government on behalf of external entities.
