Governmental Accounting Test Bank - Chapter 1

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Chapter 1
The Government and Not-For-Profit Environment

TRUE/FALSE (CHAPTER 1)

1. The main objective of a typical governmental or not-for-profit entity is to earn a profit.

2. A government’s budget may be backed by the force of law.

3. Governmental entities have no need for an accounting system.

4. A government’s internal managers rely on general purpose financial statements for a considerable amount of information about their government.

5. Governments and not-for-profits may never engage in business-type activities.

6. Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower’s credit-worthiness.

7. Financial statements, no matter how prepared, do not directly affect the economic worth of an entity.

8. The Financial Accounting Standards Advisory Board’s standards do not apply to the federal Department of Treasury.

9. Governments may be subject to the same pressures that led to accounting scandals like Enron.

10. The Governmental Accounting Standards Board establishes generally accepted accounting principles for all state and local government entities, as well as all not-for-profit entities.

MULTIPLE CHOICE (CHAPTER 1)

1. A primary characteristic that distinguishes governmental entities from business entities is a) The need to generate revenues equal to or in excess of expenditures/expenses. b) The importance of the budget in the governing process.

c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.

2. A primary characteristic that distinguishes not-for-profit entities from business entities is a) The need to generate revenues equal to or in excess of expenditures/expenses. b) The importance of the budget in the governing process. c) The need to provide goods or services.

d) The correlation between revenues generated and demand for goods or services.

3. Which of the following characteristics distinguishes a governmental or not-for-profit entity from a business entity? a) There is always a direct link between revenues generated and expenditures/expenses incurred. b) Capital assets are used to produce revenues and save costs. c) Revenues are always indicative of demand for goods and services. d) The mission of the entity will determine the goods or services provided.

4. The most significant financial document provided by a governmental entity is the a) The balance sheet.
b) The operating statement.
c) The operating budget.
d) The cash flow statement.

5. Which of the following statements is true?
a) Governments may engage in activities similar to activities engaged in by for-profit entities. b) There are a limited number of different types of governments. c) All governmental entities engage in the same activities.

d) Managers may have a long-term focus and thereby sacrifice the short-term liquidity of the entity.

6. Which of the following activities is NOT an activity in which a governmental entity might engage? a) Selling electric power.
b) Operating a golf course.
c) Operating a bookstore.
d) All of the above are activities that might be carried out by a government.

7. In which of the following activities is a not-for-profit entity least likely to engage? a) Providing educational services.
b) Providing health-care services.
c) Providing for terrorism defense.
d) Retail sales of cookies.

8. Which of the following can be affected by GAAP?
a) Legal ability to issue bonds.
b) Ability to balance the budget.
c) Amount reported as employee pension plan contributions. d) Claims and judgments settled.

9. Which of the following characteristics is unique to a governmental entity? a) The ability to have activities financed with tax-exempt debt. b) The power to impose fees.
c) The ability to issue tax-exempt...
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