Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 5
Answers to Reinforcement Quiz ñ Section II, Chapter 5
1.
Revenues are recognized the same by governmental funds and
governmental activities at the government-wide level. True or false?
Answer: False. In governmental funds, revenues are recognized on the
modified accrual basis. At the government-wide level, they are recognized
on the accrual basis.
2.
Describe how revenues are recognized for income taxes.
Answer: Income taxes are derived nonexchange revenues based on the
exchange of an individualís labor for pay from an employer, and other
factors. Revenue should be recognized in the period in which the
exchange, upon which the tax is imposed, occurs or when the resources
become available, whichever occurs first. Revenues should be net of
refunds.
3.
A government has a Jan. 1-Dec. 31 fiscal year. A lien is placed on the
property on July 1, prior to the start of the fiscal year. The property tax is
intended to finance the operations of the fiscal year. Property taxes are
accounted for in the general fund.
The property tax levy is $10 million. The government receives $100,000 in
property tax payments, prior to the start of the fiscal year. How should the
$100,000 be reported?
a.
as revenue for both governmental funds and governmental
activities
b.
as revenue for governmental funds and deferred revenue for
governmental activities
c.
as deferred revenue for governmental funds and revenue for
governmental activities
d.
as deferred revenue for both governmental funds and
governmental activities
Answer: Revenue from property taxes is recognized in the period it is
intended to finance. Since the government received the taxes in advance
of the start of the year, the taxes should be deferred until the beginning of
the period in governmental funds and at the government-wide level. Thus,
the correct answer is (d).
4.
A federal agency provides law enforcement grants to state or local
governmental entities that have law enforcement activities. There are no
other eligibility requirements. A government receives $5 million for a law
enforcement block grant for its police department on July 1, 20X2. The
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AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 5
period of the grant is July 1, 20X2 to June 30, 20X4. The government
should recognize $5 million in revenue on July 1, 20X2. True or false?
Answer: True. Revenue from grants is recognized when all eligibility
requirements have been met. For this grant, the recipient has to meet one
requirementóto have law enforcement activities. Since the grantee is a
police department, it meets the requirement. Thus, it recognizes the
revenue when it is received on July 1.
5.
Describe at least two eligibility requirements for grants and shared
revenues.
Answer: Eligibility requirements comprise one or more of the following:
.
The recipient and secondary recipients meet characteristics specified
by the provider. For example, to receive a law enforcement grant, the
recipient has to be a law enforcement agency.
.
The time requirements specified by the provider have been met.
.
The provider specifies that resources will be provided on a
reimbursement basis. This is called an ìexpenditure-drivenî grant.
.
The provider may specify contingencies, such as providing matching
funds.
6.
A local government receives a $5 million grant from the state for a capital
project. The full amount of the grant is received on Feb. 1. The grant
period has begun and there are no other eligibility requirements. The local
governmentís fiscal year is Jan. 1-Dec. 31. By the end of the year, the
local government has paid $3 million to contractors and has another $1
million in encumbrances. How much should the local government report
as revenue from the grant for the fiscal year that ends Dec. 31?
a. $0
b. $3 million
c. $4 million
d. $5 million
Answer: Since all eligibility requirements have been met, the revenue is
recognized in full when it is received. The answer is (d).
7.
A developer donates land valued at $5 million to a local government. The
local government does not have to recognize revenue for the donation
either at the fund level or the government-wide level. True or false?
Answer: False. The government does not recognize revenue at the fund
level for government funds. However, revenue is recognized for
proprietary funds, fiduciary funds and at the government-wide level.
Online version, for personal use only
AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 5
8.
Describe the options for reporting inventories in governmental funds.
Answer: The government has the option to use either the purchases
method or consumption method for inventories in government funds. This
is one of the exceptions to the current financial resources measurement
focus.
9.
A government purchases a capital asset for $3 million. How should the
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AGA CGFM Study Guide 2: Governmental Accounting, Financial Reporting and Budgeting