Appendix 10: Answers to Reinforcement Quiz ñ Section I, Chapter 4
Answers to Reinforcement Quiz ñ Section I, Chapter 4
1. What information is provided to users of financial statements by general
purpose financial reports?
Answer: General purpose financial reports provide information on a
governmentís financial position and results of operation for the reporting
period. The statement of financial position provides users information
about the governmentís assets, liabilities and the residual balance. The
statements showing results of operation provides information about
revenues received during the period, expenses or expenditures incurred
during the period, and other financing sources and uses. The difference
between inflows and outflows tells users if the financial position improved
or deteriorated as a result of operations.
2. Measurement focus refers to when a transaction is recognized. True or
false?
Answer: False. Measurement focus refers to what is being measured in
the accounting process. The two measurement focuses used in
government accounting are economic resources and current financial
resources.
3. A government purchases a building during the fiscal period for $1 million.
Under current financial resources, what is the appropriate journal entry?
a.
Accounts Debit Credit
Capital assets $1,000,000
Cash $1,000,000
b.
Accounts Debit Credit
Capital assets $1,000,000
Appropriations $1,000,000
c.
Accounts Debit Credit
Capital outlay $1,000,000
Cash $1,000,000
d.
Accounts Debit Credit
Capital outlay $1,000,000
Fund balance $1,000,000
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Appendix 10: Answers to Reinforcement Quiz ñ Section I, Chapter 4
Answer: (c). Under current financial resources, this transaction affects the
operating statement. If the economic resources measurement focus had
been used, the correct response would have been (a). Neither (b) nor (d)
are proper entries.
4. Contrast the economic resources measurement focus with current
financial resources measurement focus for capital transactions.
Answer: Under the economic resources measurement focus, capital
asset transactions affect only the statement of financial position. One
asset, cash, was exchanged for capital assets. There is no impact on the
operating statement. The operating statement records only depreciation,
which is an allocation that represents the ìusing upî of a capital asset.
Under the current financial resources measurement focus, financial
resources were required to purchase the asset. As a result, the
transaction is reflected on the operating statement. The transaction is
recorded as a capital outlay expenditure.
5. Basis of accounting refers to how much should be recorded. True or
false?
Answer: False. Basis of accounting refers to the period in which a
transaction should be reported. Thus, it refers to ìwhen.î In government
accounting, the three bases of accounting that may be used are cash,
modified accrual and accrual.
The following information applies to questions 6, 7 and 8.
During the year, the property tax levy was $5 million. By the end of the year,
the government had received $4.5 million. The first month after the end of the
year, the government received $200,000. The second month after the end of
the year, the government received $150,000. The third month after the end of
the year, the government received $75,000. The fourth month after the end of
the year, the government received $75,000.
6. A government uses the modified accrual basis of accounting for a
particular report. How much revenue should be recognized during the
year?
a. $4,500,000
b. $4,700,000
c. $4,850,000
d. $4,925,000
e. $5,000,000
Answer: (c). Under the modified accrual basis of accounting, property tax
revenue recognized during the year is the amount received during the
Online version, for personal use only AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section I, Chapter 4
year, plus the amounts received during the first 60 days after the end of
the year. Amounts received in the third and fourth month would be
deferred until the next period.
7. A government uses the accrual basis of accounting for a particular report.
How much revenue should be recognized during the year?
a. $4,500,000
b. $4,700,000
c. $4,850,000
d. $4,925,000
e. $5,000,000
Answer: (e). Under the accrual basis of accounting, revenue is
recognized when the underlying event takes place, regardless of when
cash is received. The levy was for the entire fiscal year. Thus, the total
amount of the levy was recognized as revenue.
8. A government uses the cash basis of accounting for budgeting purposes.
How much revenue should be recognized during the year?
a. $4,500,000
b. $4,700,000
c. $4,850,000
d. $4,925,000
e. $5,000,000
Answer: (a). Under the cash basis of accounting, only the revenue
actually received in the accounting period would be recognized as
revenue. The payments in subsequent months would be recognized in the
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AGA CGFM Study Guide 2: Governmental Accounting, Financial Reporting and Budgeting