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Chapter 14 - Financial Reporting by the Federal Government

Chapter 14 Financial Reporting by the Federal Government


True / False Questions 1. Accounting standards for the federal government and its agencies are established by the Federal Accounting Standards Advisory Board. Answer: True 2. Accounting standards for the federal government and its agencies are established by the Government Accountability Office. Answer: False 3. The Office of Management and Budget maintains a government-wide system of accounts and prepares the federal governments consolidated financial statements. Answer: False 4. The Federal Accounting Standards Advisory Board was formed by the Secretary of the Treasury, Director of OMB, and Comptroller General. Answer: True 5. Federal agencies must include a Managements Discussion and Analysis in their financial report. Answer: True 6. Federal agencies must include a Statement of Cash Flows in their annual report. Answer: False

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Chapter 14 - Financial Reporting by the Federal Government

7. The difference between assets and liabilities of a federal agency is comprised of Cumulative Results of Operations and Unexpended Appropriations. Answer: True 8. The difference between assets and liabilities of a federal agency is comprised of Fund Balance and may be classified as Nonspendable, Committed, Restricted, Assigned and Unassigned. Answer: False 9. The Statement of Net Cost of a federal agency is prepared on the modified accrual basis of accounting. Answer: False 10. The Statement of Changes in Net Position of a federal agency presents the same information as a Statement of Cash Flows for a state or local government. Answer: False 11. The Statement of Budgetary Resources for a federal agency presents a comparison of budgeted and actual revenues and expenditures. Answer: False 12. The Statement of Custodial Activity is not required of every federal agency but is prepared by the SEC, IRS and Customs. Answer: True 13. The Statement of Operations and Changes in Net Position for the consolidated report of the federal government is prepared on the accrual basis of accounting. Answer: True

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Chapter 14 - Financial Reporting by the Federal Government

14. The budgetary authority process for a federal agency begins with the Treasury Department issuing a warrant granting the agency the authority to withdraw funds. Answer: False 15. Allotments are issued by the OMB and establish the amount of an appropriation that will be available each quarter. Answer: False 16. Apportionments are made at the agency level and assign portions of the appropriation to subunits or programs. Answer: False 17. The budgetary accounts of a federal agency reflect the status of an appropriation. Answer: True 18. The proprietary accounts of a federal agency are used to prepare the accrual basis financial statements of the federal government and its agencies. Answer: True 19. The account Fund Balance with Treasury is classified as an asset on a federal agencys balance sheet. Answer: True 20. The account Obligations Undelivered Orders is debited when goods and services are received. Answer: True 21. Typically, budgetary authority that is not obligated by a federal agency before the end of the fiscal year rolls over and is available for the following fiscal year. Answer: False

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Chapter 14 - Financial Reporting by the Federal Government

Multiple Choice Questions

22. Which organization promulgates Statements of Federal Financial Accounting Standards? A) The American Institute of Certified Public Accountants B) The Federal Accounting Standards Advisory Board C) The U.S. Office of Management and Budget D) The U.S. Government Accountability Office Answer: B 23. Which of the following is one of the principal organizations that formed the Federal Accounting Standards Advisory Board? A) Department of Treasury B) Congressional Budget Office C) American Institute of CPAs D) All of the above Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

24. Which of the following is responsible for preparing the federal governments consolidated financial statements?

A) Department of Treasury B) Congressional Budget Office C) Office of Management and Budget D) Government Accountability Office Answer: A 25. Which of the following is responsible for auditing the federal government consolidated financial statements? A) Congressional Budget Office B) Department of Treasury C) Office of Management and Budget D) Government Accountability Office Answer: D

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Chapter 14 - Financial Reporting by the Federal Government

26. Which of the following organizations is (are) part of the executive branch of the federal government? A) Department of Treasury B) Office of Management and Budget C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: C 27. Which of the following is (are) true regarding the Government Accountability Office? A) The GAO is among the three principals which approve financial reporting recommendations of the Federal Accounting Standards Advisory Board B) The GAO establishes auditing standards applicable to the federal government and its agencies C) D) Both (a) and (b) above Neither (a) nor (b) above

Answer: C 28. Which of the following is (are) true regarding the Chief Financial Officers Act? A) The Act created the position of chief financial officer within federal agencies B) The Act called for audits of the financial statements of federal agencies C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

29. Which of the following is (are) true regarding Federal Accounting Standards Advisory Board? A) The Board is called Advisory because Statements issued by the board are recommended accounting standards but are not level A GAAP for federal agencies B) Statements issued by the board are recognized as the highest level of authoritative standard for federal government entities C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: B

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Chapter 14 - Financial Reporting by the Federal Government

30. Which of the following is required in a federal agencys financial report? A) B) C) D) Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Changes in Net Position Statement of Cash Flows Statement of Activity

Answer: B 31. Which of the following is not required in a federal agencys financial report? A) Managements Discussion and Analysis B) Notes to the Financial Statements C) Required Supplemental Information D) Budgetary Comparison Schedule Answer: D 32. Which of the following should not appear within the asset section of a federal agency balance sheet? A) Net Position Unexpended Appropriations B) Fund Balance with Treasury C) Property and Equipment D) All of the above Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

33. Which of the following is true regarding the Balance Sheet of a federal agency? A) The balance sheet is prepared using the economic resource measurement focus and accrual accounting. B) Assets are measured on the modified accrual basis. C) The difference between assets and liabilities is termed Net Assets. D) Assets are separated between current and noncurrent. Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

34. Which of the following accounts are used to display the difference between assets and liabilities in a federal agency Balance Sheet? A) Unrestricted Net Assets, Restricted Net Assets, and Invested in Capital Assets Net of Related Debt. B) Unassigned, Assigned, Committed, Restricted and Nonspendable fund balance. C) Unrestricted, Temporarily Restricted, and Permanently Restricted Net Assets D) Unexpended Appropriations and Cumulative Results of Operations Answer: D 35. Which of the following is accurate regarding a federal agencys Statement of Net Costs? A) It is similar in presentation to the GASB government-wide Statement of Activities in that earned revenues are subtracted from costs to determine the net cost of government services. B) Costs are measured using the accrual basis of accounting. C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: C 36. Which of the following is (are) accurate regarding a federal agencys Statement of Net Costs? A) The costs of government activities are presented by the reporting agencys strategic goals. B) Net costs reported on the Statement of Net Costs may differ from those appearing in the Statement of Changes in Net Position, since the latter are measured on the budgetary basis. C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

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Chapter 14 - Financial Reporting by the Federal Government

37. Which of the following is (are) accurate regarding a federal agencys Statement of Changes in Net Position? A) The statement starts with the beginning of year balances in the net position accounts and reconciles these to the ending balances appearing on the agencys Balance Sheet. B) Costs are measured using the accrual basis of accounting. C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: C 38. Which of the following is (are) accurate regarding a federal agencys Statement of Budgetary Resources? A) The statement reports the status of budgetary resources at year end. B) Outlays are measured using the accrual basis of accounting. C) Both (a) and (b) D) Neither (a) nor (b) Answer: A 39. Which of the following federal entities would not be required to prepare a Statement of Custodial Activity? A) B) C) D) Department of Defense Internal Revenue Service Securities and Exchange Commission U.S. Customs and Border Protection

Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

40. Federal agencies that are required to report a Statement of Custodial Activity have transactions that are similar to which fund type of a state or local government? A) Internal service funds B) Capital projects funds C) Permanent funds D) Agency funds Answer: D

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Chapter 14 - Financial Reporting by the Federal Government

41. Which of the following is not required in the federal governments consolidated financial report? A) B) C) D) Managements Discussion and Analysis Notes to the Financial Statements Statement of Social Insurance Statement of Cash Flows

Answer: D 42. Which of the following statements appearing in the federal governments consolidated financial report are prepared on the accrual basis of accounting? A) Balance Sheet B) Statement of Changes in Cash Balance from Unified Budget and Other Activities C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: A 43. Which of the following are included in the Financial Snapshot section of the federal governments Citizens Guide to the Financial Report of the US Government? A) The Net Operating Cost of the federal government B) The Net Position (assets minus liabilities) of the federal government C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

44. Which of the following are true of the budgetary accounts of the federal government? A) The accounts provide a record by which federal expenditures may be traced to the budgetary authority granted by Congress. B) The accounts are used to present the financial position and results of operations of the federal government and its agencies using the accrual basis of accounting. C) Both (a) and (b) above D) Neither (a) nor (b) above Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

45. Which of the following steps in the budgetary authority process occurs when the Office of Management and Budget establishes the quarterly amount available to a federal agency for spending? A) Apportionment B) Appropriation C) Allotment D) Obligation Answer: A 46. Which of the following steps in the budgetary authority process occurs when Congress passes a spending bill which is signed by the President? A) Apportionment B) Appropriation C) Allotment D) Obligation Answer: B 47. Which of the following steps in the budgetary authority process occurs when a federal agency issues a purchase order? A) Apportionment B) Appropriation C) Allotment D) Obligation Answer: D

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Chapter 14 - Financial Reporting by the Federal Government

48. At what point in the budgetary authority process may a federal agency or its subunits begin to place orders for goods and services? A) Apportionment B) Appropriation C) Allotment D) Obligation Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

49. Which of the following events will result in a journal entry being recorded in both the budgetary and proprietary accounts of a federal agency? A) Treasury notifies the agency that Congress passed legislation (signed by the President) granting budgetary authority to fund its activities. B) The agency places orders for goods or services. C) Both (a) and (b) D) Neither (a) nor (b) Answer: A 50. Which of the following events will result in a journal entry being recorded in both the budgetary and proprietary accounts of a federal agency? A) OMB establishes the amount of the total appropriation that the agency may expend in the first quarter. B) Goods or services are received and approved for payment. C) Both (a) and (b) D) Neither (a) nor (b) Answer: B 51. Which of the following steps in the federal governments budgetary authority process is most similar to the recording of encumbrances by state and local governments? A) Apportionment B) Appropriation C) Allotment D) Obligation Answer: D

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Chapter 14 - Financial Reporting by the Federal Government

52. Assume a spending bill has been passed by Congress and signed by the President. The journal entries at the agency level to record this event will include: A) a debit to the account Unexpended Appropriations B) a debit to the account Unapportioned Authority C) a debit to the account Fund Balance with Treasury D) None of the above Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

53. Assume the OMB apportions 1/4th of an appropriation to a federal agency for the first quarter of the fiscal year. The journal entries at the agency level to record this event will include: A) a debit to the account Unexpended Appropriations B) a debit to the account Unapportioned Authority C) a credit to the account Fund Balance with Treasury D) None of the above Answer: B 54. Assume the director of a federal agency allots a portion of the agencys apportionment to subunits within the agency. The journal entries at the agency level to record this event will include: A) a debit to the account Apportionments B) a debit to the account Allotments C) a credit to the account Obligations Undelivered Orders D) None of the above Answer: A 55. Assume a federal agency places orders for contracted services supporting a federal program. The journal entries at the agency level to record this event will include: A) a credit to the account Obligations Undelivered Orders B) a debit to the account Operating (program) Expense C) Both (a) and (b) D) Neither (a) nor (b) Answer: A

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Chapter 14 - Financial Reporting by the Federal Government

56. Assume a federal agency places orders for contracted services supporting a federal program. The journal entries at the agency level to record this event will include: A) a debit to the account Allotments B) a credit to the account Obligations Undelivered Orders C) Both (a) and (b) D) Neither (a) nor (b) Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

57. Assume a federal agency receives supplies that had been previously ordered that will be used to support a federal program. The journal entries at the agency level to record this event will include: A) a credit to a liability account such as Accounts Payable B) a debit to the account Expended Appropriations C) Both (a) and (b) D) Neither (a) nor (b) Answer: A 58. Assume an outstanding account payable of a federal agency is paid. The journal entries at the agency level to record this event will include: A) a debit to the account Fund Balance with Treasury B) a credit to the account Cash C) Both (a) and (b) D) Neither (a) nor (b) Answer: D 59. Assume a federal agency has $ 150,000 of unobligated budgetary authority at the end of the fiscal year that must be returned to Treasury. The journal entries at the agency level to record this event will include: A) a credit to the account Appropriations withdrawn B) a credit to the account Fund Balance with Treasury C) Both (a) and (b) D) Neither (a) nor (b) Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

60. Allotments is an example of which type of federal government account? Budgetary Account Yes No Yes No Proprietary Account Yes Yes No No

A) B) C) D) Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

61. Fund Balance with Treasury is an example of which type of federal government account? Budgetary Account Yes No Yes No Proprietary Account Yes Yes No No

A) B) C) D) Answer: B

62. Accounts Payable is an example of which type of federal government account? Budgetary Account Yes No Yes No Proprietary Account Yes Yes No No

A) B) C) D) Answer: B

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Chapter 14 - Financial Reporting by the Federal Government

63. A federal agency prepared the following schedule showing the status of federal appropriations at the end of the first quarter:
Amount $ 600,000 10,000 45,000 15,000 130,000 Status - Unapportioned authority - Apportionments. - Allotments. - Obligations for undelivered orders. - Expended appropriations Total appropriations

$ 800,000 What is the total amount of purchase orders placed in the first quarter of the year? A) 30,000 B) 145,000 C) 175,000 D) 180,000 Answer: B

64. A federal agency prepared the following schedule showing the status of federal appropriations at the end of the first quarter:
Amount $ 600,000 10,000 45,000 15,000 130,000 Status - Unapportioned authority - Apportionments. - Allotments. - Obligations for undelivered orders. - Expended appropriations Total appropriations

$ 800,000 What is the total amount allotted to subunits or programs within the agency during the first quarter of the year? A) B) C) D) 15,000 45,000 190,000 200,000

Answer: C

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Chapter 14 - Financial Reporting by the Federal Government

Short Answer 65. List the financial statements required of every federal government agency and indicate whether the statement is prepared using the accrual or budgetary basis of accounting. 1. Balance Sheet - accrual basis 2. Statement of Net Cost accrual basis 3. Statement of Changes in Net Position accrual basis 4. Statement of Budgetary Resources budgetary basis

66. Identify (in order of occurrence) the steps in the federal budgetary authority process. 1. Appropriations 2. Apportionments 3. Allotments 4. Obligations 5. Expended Appropriations

67. Describe the purpose of the following: a) Federal government budgetary accounts b) Federal government proprietary accounts

a) Budgetary accounts provide a record whereby federal expenditures may be traced back to the budgetary authority granted by Congress. Under federal budgetary accounting, budgetary resources (appropriations) are represented by debits. Credits reflect the status of the resources within the spending process. b) Proprietary accounts are those accounts which comprise the accrual basis financial statements prepared by the federal governments and its agencies. Proprietary accounts measure assets, liabilities, revenues and expenses (including depreciation) in much the same manner as accrual basis accounts of state and local governments.

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Chapter 14 - Financial Reporting by the Federal Government

68. Identify the primary functions of the following entities as they relate to financial reporting by the federal government: a) Office of Management and Budget b) Department of Treasury c) Government Accountability Office

a) Office of Management and Budget OMB is in the executive branch of the federal government and is charged with carrying out the financial management directives of the Chief Financial Officers Act. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Boards standards. b) Department of Treasury Treasury is in the executive branch of the federal government and maintains a government-wide system of accounts and prepares the federal governments consolidated financial statements. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Boards standards. c) Government Accountability Office GAO is in the legislative branch of the federal government and is responsible for promulgating governmental auditing standards (i.e. the Yellow Book) and for auditing the financial statements of some federal agencies and the consolidated statements of the federal government. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Boards standards.

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Chapter 14 - Financial Reporting by the Federal Government

Exercises

69. Assume a federal agency has the following events: 1. Receives a warrant from the Treasury notifying the agency of appropriations of $16,000,000. 2. OMB apportions 1/4th of the appropriation for the first quarter of the year. 3. The Director of the agency allots $ 3,960,000 to program units. 4. Program units place orders $ 3,712,000. 5. Supplies ($ 500,000) and services ($ 2,975,000) are received and paid during the first quarter. Supplies of $ 417,000 were used in the quarter. Required: Prepare any necessary journal entries to reflect the events described above. Identify whether the entry is budgetary or proprietary.

BUDGETARY ACCOUNTING
1.
APPROPRIATIONS REALIZED 16,000,000 UNAPPORTIONED AUTHORITY 16,000,000 UNAPPORTIONED AUTHORITY APPORTIONMENTS 4,000,000 APPORTIONMENTS ALLOTMENTS 3,960,000 ALLOTMENTS
3,712,000

PROPRIETARY ACCOUNTING
FUND BALANCE WITH TREASURY 16,000,000 UNEXPENDED APPROPRIATIONS 16,000,000

2.

4,000,000

NO JOURNAL ENTRY REQUIRED

3.

3,960,000

NO JOURNAL ENTRY REQUIRED

4.

3,712,000

NO JOURNAL ENTRY REQUIRED

OBLIGATIONS UNDELIVERED ORDERS

5.

OBLIGATIONS UNDELIVERED ORDERS 3,475,000 EXPENDED APPROPRIATIONS 3,475,000

SUPPLIES 500,000 OPERATING (PROGRAM) EXPENSE 2,975,000 ACCOUNTS PAYABLE 3,475,000 ACCOUNTS PAYABLE 3,475,000 FUND BALANCE WITH TREASURY 3,475,000

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OPERATING (PROGRAM) EXPENSE SUPPLIES 417,000

417,000

70. Assume a federal agency prepared the following journal entries during the first quarter of the year. Prepare a schedule showing the status of the appropriation at the end of the first quarter. Budgetary Accounts
1.
Appropriations realized Unapportioned authority 6,000,000 6,000,000

Unapportioned Authority Apportionments Apportionments Allotments

1,500,000 1,500,000 1,495,000 1,495,000

3.

4.

Allotments 1,250,000 Obligations undelivered orders Obligations undelivered orders Expended Appropriations 1,010,000

1,250,000

5.

1,010,000

AMOUNT $ 4,500,000 5,000 245,000 240,000 1,010,000 $ 6,000,000

STATUS - UNAPPORTIONED AUTHORITY - APPORTIONMENTS. - ALLOTMENTS. - OBLIGATIONS FOR UNDELIVERED ORDERS. - EXPENDED APPROPRIATIONS TOTAL APPROPRIATIONS

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