Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 4
Answers to Reinforcement Quiz ñ Section III, Chapter 4
1. The federal financial statements are best described as:
an accrual-based set of financial statements, much like the private
sector's statements.
b. a set of financial statements that includes articulated statements on
the accrual basis, as well as statements that report on the budget,
and those that provide prospective information about the fiscal
sustainability of public goods and services under current policies.
Answer: (b). An assessment of operating performanceówhat goods and
services were provided at what costóis an essential objective of financial
reports. Accrual basis financial statements provide information to assist
readers in assessing operating performance. However, federal
accounting also acknowledges that the budget is used to allocate
resources among federal programs and that budgetary information is of
great importance. The federal financial reporting model is also intended to
satisfy users' needs regarding budgetary integrity. That is, federal financial
reports should assist users in knowing whether resources were obtained
and used in accordance with the laws governing use of budgetary
resources. Therefore, a statement of budgetary resources is included in
component entity reports, and the consolidated financial report of the U.S.
government includes statements about the deficit and how it relates to net
operating cost, as well as cash. Finally, a critical question for users is
whether current policies are fiscally sustainable in the future. Prospective
statements, such as the statement of social insurance, assist readers in
making decisions regarding sustainability.
2. The Statement of Net Cost includes both revenue earned through
exchanges and revenue demanded through taxes (nonexchange
revenue). True or false?
Answer: False. The Statement of Net Cost reports the amount that must
be financed through taxes or other financing sources. Therefore, only
exchange revenue, resulting from the programs, is deducted from the
gross cost of programs.
3. The Statement of Net Cost includes all the following EXCEPT:
gross costs of goods and services.
b. exchange revenue.
net costs by program.
d. gross financing sources.
Answer: (d). Financing sources are not included on the Statement of Net
Cost. All financing sources are shown on the Statement of Changes in Net
Online version, for personal use only
AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 4
4. Where can readers find an explanation of the differences between net
obligations and net costs?
a. Statement of Custodial Activities
b. a note disclosure presenting the statement of financing
c. Balance Sheet
d. Statement of Budgetary Resources
Answer: (b). A note disclosure presenting the statement of financing is
used to explain timing, measurement and permanent differences between
the budgetary accounting for net obligations, and the proprietary
accounting for net costs.
5. Collections reported on the Statement of Custodial Activities are
recognized as revenue by the collecting entity. True or false?
Answer: False. Collections of nonexchange revenue are not recognized
as revenue by the collecting entity unless the entity retains the revenues
for use in financing its own operations. The Statement of Custodial
Activities is designed to report on the amounts collected and transferred
during the period, as well as amounts remaining to be transferred at the
end of the period.
6. The Statement of Social Insurance and related supplemental information
focuses on:
a. sustainability of programs over time.
b. a snapshot of the commitments at the end of the period.
c. a statement of benefits formulas for individuals.
d. only year-end balances of trust funds to support future
Answer: (a). The information provided for social insurance programs
includes long-term cash in-flows and out-flows so that users are able to
assess the sustainability of programs. In addition, information, such as the
ratios of beneficiaries to workers and the percent of taxable payroll
needed to finance benefits, is provided.
7. Stewardship investments do not result in federal assets, but are intended
to provide long-term benefits to the nation. True or false?
Answer: True. Stewardship investments include human capital, research
and development, and nonfederal physical assets. These are not
investments owned by the federal government. Rather, they improve the
nationís productive capacity.
Online version, for personal use only AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 4
8. MD&A should present all of the following EXCEPT:
the entityís goals and objectives.
b. a summary of the entityís performance in the reporting period.
complete listings of performance indicators for every program.
d. highlights of the entityís financial ...

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