Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 2
Answers to Reinforcement Quiz ñ Section II, Chapter 2
1.
Funds are fiscal and accounting entities that are segregated for carrying
out specific activities. True or false?
Answer: True.
2.
Which of the following is not a fund classification?
a. governmental
b.
trust and agency
c. fiduciary
d. proprietary
Answer: Trust and agency is not a fund classification (b).
3.
Describe the circumstances when a government would use a fiduciary
fund.
Answer: A fiduciary fund is used to account for assets that the
government holds as an agent or trustee for other individuals,
organizations or governments.
4. A government can have more than one general fund. True or false?
Answer: False. A government can have only one general fund. The
government can have multiple accounts within the general fund.
5.
Which of the following is not a governmental fund type?
a. internal service
b. special revenue
c. permanent
d. debt service
Answer: An internal service fund (a) is a proprietary fund type.
6.
Describe the circumstances when a government is required to use a debt
service fund.
Answer: A debt service fund is required to be used when legal
requirements mandate the use, or when financial resources are being
accumulated to make principal and interest payments, such as through
earmarking tax revenues.
Online version, for personal use only
AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 2
7.
A permanent fund is only allowed to use the earnings from investments to
carry out activities that benefit the government. True or false?
Answer: True. A permanent fund is established when someone
bequeaths money to the government and requires that only interest
earnings can be spent.
8.
Which one of the following activities most likely would be accounted for in
an enterprise fund?
a. grant activities
b.
construction of general capital facilities
c. repayment of general long-term debt
d. recreational activities
Answer: Since a fee or user charge could be established for recreational
activities (d), an enterprise fund could be used. An enterprise fund cannot
be used for grant activities (although a grant given to a business activity,
accounted for in an enterprise fund, would be accounted for in that fund),
general capital facility construction, or repayment of general long-term
debt.
9.
Describe the difference between an enterprise fund and an internal
service fund.
Answer: The difference is predicated on the primary customer. If the
primary customer is external to the government, an enterprise fund is
established. If the primary customer is the government itself, an internal
service fund is established.
10. An agency fund reports assets, liabilities and net position. True or false?
Answer: False. An agency fund only reports assets and liabilities. The
assets belong to individuals or organizations. As a result, the difference
between assets and liabilities should always be zero.
11. Which of the following is not a fiduciary fund type?
a. pension
b. permanent
c. private-purpose
d. employee benefit
Answer: A permanent fund (b) is a governmental fund type.
Online version, for personal use only
AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 2
12. Describe the criteria for a major fund.
Answer: The general fund and any fund that meets the following two
criteria:
a.
Total assets, liabilities, revenues or expenditures/expenses of the
fund are at least 10 percent of the corresponding total for all funds
of the governmental or enterprise fund type; and
b.
Total assets, liabilities, revenues or expenditures/expenses of the
fund are at least 5 percent of the corresponding total for all
governmental funds and enterprise funds combined.
13. A pension trust fund can be a major fund because of the large assets that
are held. True or false?
Answer: False. A fiduciary fund, which includes pension trust funds, can
never be major. Also, an internal service fund can never be major. This is
in accordance with the GASB standard.
14. Which of the following is not a character classification?
a. capital outlay
b. general administration
c. debt service
d. current expenditures
Answer: General administration (b). The character classification shows
the period that presumably benefits from the expenditure.
15. A government issues general obligation bonds. In addition to the face
value of the bonds, the government has premium and issue costs.
Describe how the issue would be reported on the governmental fund
statement of revenues, expenditures, and changes in fund balances.
Answer: The government would report an amount equal to the face value
of the issue as ìother financing sources.î The bond premium would be
reported separately as ìother financing sources.î The issue costs would
be reported as a component of debt service.
16. Proprietary funds can use either the direct method or the indirect method
for preparing...

















































































































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AGA CGFM Study Guide 2: Governmental Accounting, Financial Reporting and Budgeting