CPA quiz Gov Acctg

Topics: Revenue, Income statement, Financial statements Pages: 32 (10235 words) Published: April 3, 2014
Governmental and Nonprofit Accounting
March 2014 - CPA EXAM Quiz – Answers and Explanations

[1] Net assets is an element of the financial statements of not-for-profit entities (NFPs). It A. Net assets equal the residual interest in the assets of an entity that remains after subtracting its liabilities. For a business enterprise, equity (the ownership interest) is the analogue of net assets. In an NFP, which has no ownership interest in the same sense as a business enterprise, the net assets element is divided into three classes based on the presence or absence of donor-imposed restrictions. B. Equity and net assets are residuals. C. Assets, not net assets, are probable future economic benefits obtained or controlled by aparticular entity as a result of past transactions or events. D. Comprehensive income is the change in equity of a business enterprise during a periodfrom transactions and other events and circumstances from nonowner sources. [2] Typical users of financial reports of nonbusiness entities include which of the following? A. Constituents are typical users.

B. Governing and oversight bodies are typical users.
C. In addition to resource providers, constituents, and governing and oversight bodies, otherspotentially interested in the financial information provided by nonbusiness entities include managers, entity members, taxpayers, contributors, grantors, lenders, suppliers, creditors, employees, directors and trustees, service beneficiaries, financial analysts and advisers, brokers, underwriters, lawyers, economists, taxing authorities, regulatory authorities, legislators, the financial press, labor unions, trade associations, researchers, teachers, and students. D. Resource providers are typical users.

[3] Evaluation of financial reporting by a not-for-profit entity should include which of the following considerations? A. Not-for-profit entities often have no single indicator of performance comparable to abusiness entity’s net income. B. Financial information is one of many sources for obtaining information about an entity. C. Financial information reflects past transactions and events. D. Not-for-profit entities often have no single indicator of performance comparable to abusiness entity’s net income. Thus, other performance indicators are needed. Performance information is not subject to the test of market competition. Other controls are therefore necessary, such as formal budgets and donor restrictions. Information about departures from such mandates is important to assess management’s stewardship. [4] Financial reporting by nonbusiness entities should provide information useful in A. Making resource allocation decisions, assessing services and the ability to continue toprovide services, and assessing management stewardship and performance are included among the basic objectives of financial reporting for nonbusiness entities stated in SFAC 4. Additional objectives are to provide information about the liquidity of the entity, economic resources, obligations, net resources, and changes in them, including managers’ explanations and interpretations. B. Financial reporting by nonbusiness entities also should provide information useful inmaking resource allocation decisions and assessing management stewardship. C. Financial reporting by nonbusiness entities should provide information useful in makingresource allocation decisions and assessing services. D. Financial reporting by nonbusiness entities also should provide information useful inassessing services and management stewardship. [5] A not-for-profit entity combines with another NFP without a transfer of consideration for the acquiree’s net assets. The acquiree’s operations are expected to be predominantly supported by contributions and returns on investment. Moreover, no previously held equity interest existed, and no noncontrolling interest resulted. At the acquisition date, the acquirer recognizes A. An inherent contribution received is a...
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