Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 5
Answers to Reinforcement Quiz ñ Section III, Chapter 5
1. The accounting standards require liabilities to be recognized for only loss
contingencies for which the amount of the loss is known, and the likelihood
of the loss being confirmed is greater than 75 percent. True or false?
Answer: False. Loss contingencies are recognized if the amount of the
loss is estimable and the loss is more likely than not to occur. Note that
an exception exists for loss contingencies being litigatedóin that case, the
loss must be probable in order to be recognized.
2. Nonexchange revenue is always recognized by the collecting entity. True
or false?
Answer: False. Nonexchange revenue is often collected by one entityó
the collecting entityóand transferred to the Treasury or other agency
entitled to the revenue. In these cases, the collecting entity reports on the
activity through a Statement of Custodial Activities. The Treasury, or other
agency, recognizes the nonexchange revenue.
3. Appropriations used are classified as __________ and are presented on
the Statement of ___________.
a. earned revenue, Net Costs
b. financing sources, Financing
c. financing sources, Changes in Net Position
d. assets, Balance Sheet
Answer: (c). Appropriations used are financing sources because they are
not ìearnedî revenue. The federal government finances agency operations
through appropriations. All financing sources are presented on the
Statement of Changes in Net Position.
4. Nonexchange revenues are recognized if (select the three factors that are
required for recognition):
a. a legally enforceable claim is established.
b. collection is probable.
c. the amount is estimable.
d. the tax has been earned.
Answer: (a, b and c). Generally, taxes can be ìdueî but they are not
considered ìearnedî because there is no direct exchange of goods or
services with the taxpayer. In theory, recognition could be made as tax
ìdebtî is incurred based on the tax code. A practical alternative is to
recognize tax or nonexchange revenue when a legally enforceable claim
is established, collection is probable and the amount is estimable.
Online version, for personal use only AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 5
5. Which of the following is an exchange revenue?
a.
U.S. Customsí service fees
b. cash received for a service provided
c.
donation of $50,000
d. donation of land for use as a park
Answer: The answer is (b). Exchange revenue (earned revenue) arises
when a government entity provides goods or services to the public or
another government entity for a price.
6. An allowance for estimated uncollectible amounts should be measured on
the basis of individual accounts if the individual accounts are significant.
True or false?
Answer: True. Analysis of a group of accounts is permissible if individual
account analysis is impracticable, and if the analysis of a group of
accounts would produce a result that is not materially different than one
could expect from individual account analysis.
7. Which of the following is not an acceptable flow assumption for valuing
inventory?
a. first-in, first-out (FIFO)
b. last-in, first-out (LIFO)
c. weighted average
d. moving average
Answer: (b). Last-in, first-out (LIFO) is not acceptable in federal
accounting.
8. General property, plant and equipment is:
a.
expensed when purchased because there is no need to match
costs with revenue.
b. capitalized but not depreciated so that the government maintains
accountability for the asset.
c.
capitalized and, except for land, depreciated over its estimated
useful life so that the government is accountable, and is able to
match costs with outputs.
Answer: (c). To facilitate assessment of the costs of outputs, federal
accounting assigns the costs of long-lived assets to the periods during
which the assets contribute to the production of outputs. This ìmatchesî
the cost with the outputs.
9. Accounts payable are recognized when (select the two correct answers):
a.
goods and services have been received in exchange for a promise
to provide cash or other resources.
Online version, for personal use only
AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section III, Chapter 5
b. the federal government is likely to respond to a natural disaster.
c.
benefits for social programs are due and payable at the end of the
reporting period.
d. payroll taxes are collected in exchange for future Social Security
benefits.
Answer: (a) and (c). Federal liabilities arise from either exchange
transactions or nonexchange transactions. In the event of exchange
transactions, liabilities are recognized when a claim results from the
exchange. For nonexchange transactions, such as social programs,
liabilities are recognized when a benefit is due and payable. For example,
benefits to eligible recipients during the month of September are generally
paid in October. Thus, on ...



































































































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