Accounting Online Program Governmental and Nonprofit Accounting 2 — Questions and Answers
Question 1: Which of the following is classified as a proprietary fund in government accounting?
- Capital Projects Fund
- General Fund
- Internal Service Fund (Correct answer)
- Special Revenue Fund
Correct answer: Internal Service Fund
Internal Service Funds are proprietary funds used to account for services provided by one government department to other departments on a cost-reimbursement basis.
Question 2: What is the primary purpose of a Debt Service Fund?
- To finance capital asset construction projects
- To account for principal and interest payments on long-term debt (Correct answer)
- To account for enterprise-type government activities
- To hold assets in trust for external parties
Correct answer: To account for principal and interest payments on long-term debt
Debt Service Funds account for the accumulation of resources and the payment of general long-term debt principal and interest.
Question 3: Enterprise Funds are a type of which government fund category?
- Fiduciary fund
- Governmental fund
- Proprietary fund (Correct answer)
- Special purpose fund
Correct answer: Proprietary fund
Enterprise Funds are proprietary funds used to account for activities financed primarily through user charges, operating similarly to private businesses.
Question 4: Under GASB Statement 34, government financial reporting requires statements at which level(s)?
- Fund level only
- Government-wide level only
- Both government-wide and fund levels (Correct answer)
- Neither; only budget-to-actual comparisons are required
Correct answer: Both government-wide and fund levels
GASB 34 established a dual reporting model requiring both government-wide financial statements (full accrual) and fund financial statements (modified accrual for governmental funds).
Question 5: Which nonprofit financial statement reports all revenues, expenses, gains, and losses, showing the change in net assets?
- Statement of Activities (Correct answer)
- Statement of Cash Flows
- Statement of Financial Position
- Statement of Functional Expenses
Correct answer: Statement of Activities
The Statement of Activities is the nonprofit equivalent of an income statement and reports all changes in net assets during the reporting period.
Question 6: A permanently restricted endowment contribution to a nonprofit must be:
- Expended within the current fiscal year
- Maintained in perpetuity per the donor's stipulation (Correct answer)
- Returned to the donor if not used within five years
- Transferred to government control upon dissolution
Correct answer: Maintained in perpetuity per the donor's stipulation
Net assets with permanent donor restrictions (endowments) must be maintained in perpetuity as the donor stipulated, with only investment income typically available for spending.
Question 7: What is an encumbrance in governmental fund accounting?
- A long-term debt obligation recorded on the balance sheet
- A commitment of appropriated funds for a future expenditure such as a purchase order (Correct answer)
- A restriction placed on capital assets by creditors
- A tax assessment levied against property owners
Correct answer: A commitment of appropriated funds for a future expenditure such as a purchase order
Encumbrances represent commitments, such as purchase orders, that reserve budget authority before an actual expenditure is incurred.
