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Free CPA Business Analysis and Reporting Practice Questions & Answers
500 exam-style Business Analysis and Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 391
A government's General Fund transfers $200,000 to a Debt Service Fund. In the government-wide statements this transfer:
Select an option first.
Correct answer: C — ELIMINATES entirely — transfers within the primary government have no net effect
Explanation: Transfers WITHIN the primary government ELIMINATE in the government-wide statements — money simply moved from one pocket to another. At the FUND level, they appear as OTHER FINANCING USES and SOURCES.
Question 392
A government levies $1,000,000 of property taxes, expects $30,000 uncollectible, and expects $60,000 to be collected more than 60 days after year-end. Fund revenue is:
Select an option first.
Correct answer: C — $910,000 — the levy less the uncollectible allowance less the deferred inflow
Explanation: Fund revenue = Levy $1,000,000 − Uncollectible allowance $30,000 − Deferred inflow (not AVAILABLE) $60,000 = $910,000. The $60,000 becomes a DEFERRED INFLOW OF RESOURCES — neither revenue nor a liability — and is recognised as revenue when it becomes available.
Question 393
In the GOVERNMENT-WIDE statements, the same property tax levy would produce revenue of:
Select an option first.
Correct answer: D — $970,000 — full accrual recognises the levy less only the uncollectible allowance; the 60-day AVAILABILITY criterion does NOT apply
Explanation: FULL ACCRUAL (government-wide) recognises revenue when EARNED — the AVAILABILITY criterion is a MODIFIED ACCRUAL concept and does NOT apply. So revenue = $1,000,000 − $30,000 uncollectible = $970,000. The $60,000 deferred inflow at the fund level is a RECONCILING item.
Question 394
Open encumbrances at year-end in a governmental fund:
Select an option first.
Correct answer: B — Do NOT constitute expenditures or liabilities — but they REDUCE the fund balance available for new commitments (reported as restricted, committed or assigned)
Explanation: An ENCUMBRANCE is a BUDGETARY reservation, not an expenditure or a liability. At year-end, open encumbrances are reported within the RESTRICTED, COMMITTED or ASSIGNED fund balance classification — signalling that those resources are already spoken for.
Question 395
A government reports a $500,000 capital outlay expenditure and $80,000 of depreciation. The government-wide reconciliation adjusts the change in fund balance by:
Select an option first.
Correct answer: B — +$420,000 — ADD BACK the $500,000 capital outlay, SUBTRACT the $80,000 depreciation
Explanation: Governmental funds EXPENSE the $500,000 capital outlay and record NO depreciation. Government-wide (full accrual) CAPITALISES the asset and records $80,000 of depreciation. The reconciliation ADDS BACK $500,000 and SUBTRACTS $80,000 = a NET +$420,000 to the change in net position.
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Question 396
Bond proceeds of $2,000,000 received in a Capital Projects Fund are reported in the government-wide statements as:
Select an option first.
Correct answer: A — An increase in LONG-TERM DEBT — the other financing source is ELIMINATED and the liability is recorded
Explanation: At the FUND level, bond proceeds are an OTHER FINANCING SOURCE (increasing fund balance). In the GOVERNMENT-WIDE statements, they create a LONG-TERM LIABILITY, with NO effect on net position. The reconciliation SUBTRACTS the proceeds from the change in fund balance.
Question 397
GASB requires the government-wide Statement of Activities to present:
Select an option first.
Correct answer: D — Expenses by FUNCTION, less programme revenues, giving the NET (EXPENSE) REVENUE of each function
Explanation: The NET PROGRAMME COST format shows, for each FUNCTION, its expenses less its directly-related PROGRAMME REVENUES — revealing the net cost borne by general taxpayers. GENERAL revenues (taxes) are then presented in a separate section below.
Question 398
A government's INFRASTRUCTURE under the modified approach requires which disclosure?
Select an option first.
Correct answer: C — The ASSESSED CONDITION for the three most recent assessments, and the estimated versus actual amount spent to maintain the assets for the past five years
Explanation: The MODIFIED APPROACH requires RSI disclosures: the ASSESSED CONDITION for at least the THREE most recent condition assessments, and the estimated versus ACTUAL amount spent to preserve the assets over the past FIVE years. Failing to maintain the condition level forces a return to depreciation.
Question 399
A government's NET PENSION LIABILITY changes are reported:
Select an option first.
Correct answer: B — Partly in PENSION EXPENSE and partly as DEFERRED OUTFLOWS/INFLOWS, amortised over specified periods
Explanation: Changes in the NET PENSION LIABILITY are split. Some components (service cost, interest) hit PENSION EXPENSE immediately. Others (differences between expected and actual experience, changes in assumptions, investment gains/losses) are recorded as DEFERRED OUTFLOWS or INFLOWS and amortised over specified periods — investment differences over 5 years.
Question 400
An Enterprise Fund's OPERATING revenues would include:
Select an option first.
Correct answer: C — CHARGES FOR SERVICES — the fund's principal ongoing activity
Explanation: OPERATING revenues in an Enterprise Fund are those from the fund's PRINCIPAL ONGOING operations — charges for services. Investment income, capital grants and interest expense are NON-OPERATING. The distinction affects the operating income subtotal and the cash flow statement categories.
Question 401
A government's Special Revenue Fund is used when:
Select an option first.
Correct answer: D — A SUBSTANTIAL PORTION of the fund's inflows come from RESTRICTED or COMMITTED revenue sources for a SPECIFIED PURPOSE (other than capital projects or debt service)
Explanation: A SPECIAL REVENUE FUND requires one or more RESTRICTED or COMMITTED revenue sources that form a SUBSTANTIAL PORTION of the fund's inflows, dedicated to a specified purpose. GASB 54 tightened this — a fund financed mainly by transfers from the General Fund does NOT qualify.
Question 402
The 'available' criterion under modified accrual does NOT apply to:
Select an option first.
Correct answer: B — The GOVERNMENT-WIDE statements, which use FULL accrual
Explanation: AVAILABILITY is a MODIFIED ACCRUAL concept and applies only in GOVERNMENTAL FUNDS. The GOVERNMENT-WIDE statements (and proprietary and fiduciary funds) use FULL ACCRUAL, where revenue is recognised when EARNED regardless of when it will be collected.
Question 403
A government reports an INTERNAL SERVICE fund with a large surplus from overcharging other departments. In the government-wide statements this surplus should be:
Select an option first.
Correct answer: C — ELIMINATED (or 'looked back') against the governmental activities that were overcharged — otherwise the government would report a profit on itself
Explanation: An INTERNAL SERVICE FUND'S profit arises from charging OTHER GOVERNMENT DEPARTMENTS — the government cannot profit from itself. The surplus is eliminated (look-back adjustment) against the functions that were overcharged, so the government-wide statements do not report internal profit.
Question 404
GASB 84 defines a FIDUCIARY activity by reference to:
Select an option first.
Correct answer: C — Whether the government CONTROLS the assets AND they are NOT derived from the government's own-source revenues, being held for the benefit of specified beneficiaries
Explanation: GASB 84 provides a control-based framework: an activity is FIDUCIARY if the government CONTROLS the assets, the assets are NOT derived from the government's own-source revenues (or from government-mandated/voluntary non-exchange transactions), and they are for the benefit of SPECIFIED beneficiaries to whom the government has no administrative involvement.
Question 405
A government's budgetary entry at the start of the year debits:
Select an option first.
Correct answer: C — ESTIMATED REVENUES (with a credit to Appropriations and the balance to Budgetary Fund Balance)
Explanation: The BUDGETARY entry: DR Estimated Revenues, CR Appropriations, with the difference to Budgetary Fund Balance. It is REVERSED at year-end. Note these are BUDGETARY accounts — they never appear in the financial statements themselves.
Question 406
When a purchase order is issued, a governmental fund records:
Select an option first.
Correct answer: C — DR Encumbrances / CR Reserve (Budgetary Fund Balance — Reserved for Encumbrances)
Explanation: On issuing a PO: DR Encumbrances / CR Reserve for Encumbrances. When the goods ARRIVE: (1) REVERSE the encumbrance entry, and (2) record DR Expenditures / CR Vouchers Payable at the ACTUAL amount — which may differ from the estimate.
Question 407
A purchase order for $10,000 is encumbered; the actual invoice is $10,300. The expenditure recorded is:
Select an option first.
Correct answer: C — $10,300 — the ACTUAL amount; the $10,000 encumbrance is simply reversed
Explanation: The ENCUMBRANCE ($10,000) is REVERSED in full, and the EXPENDITURE is recorded at the ACTUAL invoice amount ($10,300). The encumbrance was only an estimate reserving budgetary authority — it never determines the expenditure amount.
Question 408
A government-wide statement reports an INTERNAL SERVICE FUND's assets within:
Select an option first.
Correct answer: A — GOVERNMENTAL activities, because its customers are predominantly governmental departments
Explanation: Although an Internal Service Fund is PROPRIETARY at the fund level, its activity is folded into GOVERNMENTAL ACTIVITIES in the government-wide statements — because it predominantly serves governmental departments. Substance over legal form.
Question 409
A government sells a capital asset with a book value of $200,000 for $250,000. In the GOVERNMENTAL FUND, it reports:
Select an option first.
Correct answer: D — $250,000 as an OTHER FINANCING SOURCE (proceeds from sale of capital assets)
Explanation: Governmental funds report NO capital assets, so there is no BOOK VALUE to compare against and NO GAIN. The full $250,000 of PROCEEDS is an OTHER FINANCING SOURCE. The GOVERNMENT-WIDE statements report the $50,000 GAIN — which is a reconciling item.
Question 410
The government-wide statements for the same sale report:
Select an option first.
Correct answer: A — A $50,000 GAIN — proceeds less the carrying value of the asset
Explanation: FULL ACCRUAL (government-wide) recognises the $50,000 GAIN (proceeds $250,000 − book value $200,000) and REMOVES the asset. The RECONCILIATION must convert the fund's $250,000 other financing source into the government-wide $50,000 gain.
Question 411
Long-term debt PRINCIPAL payments in a governmental fund are reported as:
Select an option first.
Correct answer: A — An EXPENDITURE (Debt Service — Principal)
Explanation: Governmental funds report NO long-term liability, so a principal payment cannot reduce one. It is an EXPENDITURE. In the GOVERNMENT-WIDE statements, the same payment REDUCES the liability with NO expense — a reconciling item.
Question 412
Accrued interest on long-term debt at year-end in a governmental fund is:
Select an option first.
Correct answer: B — NOT accrued — debt service expenditures are recognised WHEN DUE, an exception to modified accrual
Explanation: Debt service is an EXCEPTION to the general modified-accrual expenditure rule: it is recognised WHEN DUE (matured), not as it accrues. So no interest accrual is made at year-end in the fund. The GOVERNMENT-WIDE statements DO accrue it — another reconciling item.
Question 413
A DEFERRED INFLOW OF RESOURCES arises in a governmental fund when:
Select an option first.
Correct answer: B — Revenue is MEASURABLE but NOT AVAILABLE (e.g. property taxes collectible beyond 60 days)
Explanation: A DEFERRED INFLOW arises where revenue is EARNED and MEASURABLE but NOT AVAILABLE under modified accrual. It is a distinct GASB element — NEITHER a liability NOR revenue — reported in a separate section after liabilities. In the government-wide statements (full accrual) it would be REVENUE.
Question 414
A government receives a grant requiring it to spend the money on a specific programme. This restriction is a:
Select an option first.
Correct answer: A — PURPOSE RESTRICTION — it does NOT delay revenue recognition
Explanation: A PURPOSE RESTRICTION limits HOW resources may be spent but does NOT delay REVENUE recognition. An ELIGIBILITY requirement (a matching requirement, a time requirement, an expenditure-driven basis) DOES delay recognition. Confusing the two is the classic GASB 33 error.
Question 415
A government receives a $500,000 reimbursement grant and has incurred $180,000 of qualifying expenditures. Revenue recognised is:
Select an option first.
Correct answer: C — $180,000 — incurring the qualifying expenditure IS the eligibility requirement
Explanation: For a REIMBURSEMENT (expenditure-driven) grant, incurring the QUALIFYING EXPENDITURE is the ELIGIBILITY requirement. Revenue is recognised as those expenditures are incurred: $180,000. Any cash received in advance beyond that is a LIABILITY (unearned revenue).
Question 416
A government's OPEB (other post-employment benefit) liability is reported:
Select an option first.
Correct answer: B — As a NET OPEB LIABILITY in the government-wide statements, measured like the net pension liability
Explanation: GASB 75 requires the NET OPEB LIABILITY (total OPEB liability less plan assets) to be reported on the face of the government-wide statements — mirroring the pension treatment under GASB 68. This put large previously-unreported retiree healthcare obligations onto government balance sheets.
Question 417
A government's capital assets acquired through a lease are reported in the government-wide statements at:
Select an option first.
Correct answer: B — The PRESENT VALUE of the lease payments (the lease liability), with a corresponding right-of-use asset
Explanation: GASB 87 requires a SINGLE lease model for lessees: recognise a LEASE LIABILITY at the PRESENT VALUE of payments, and a corresponding RIGHT-OF-USE ASSET. Like IFRS 16, GASB 87 has no operating/finance distinction for lessees.
Question 418
GASB 87 (leases) uses:
Select an option first.
Correct answer: C — A SINGLE model — all leases (other than short-term) produce a liability and a right-of-use asset
Explanation: GASB 87 uses a SINGLE lease model, like IFRS 16 — there is NO operating/finance distinction for lessees. All leases other than SHORT-TERM (12 months or less) produce a lease liability and an ROU asset. This diverges from ASC 842's dual model.
Question 419
A government's fund balance is NONSPENDABLE when the resources are:
Select an option first.
Correct answer: C — Not in SPENDABLE FORM (inventory, prepaids) or LEGALLY REQUIRED to remain intact (permanent fund principal)
Explanation: NONSPENDABLE covers resources that CANNOT be spent — either because they are not in spendable FORM (inventory, prepaid items, long-term receivables) or because they are LEGALLY REQUIRED TO BE MAINTAINED INTACT (the principal of a permanent fund). It is about SPENDABILITY, not about who imposed the constraint.
Question 420
RESTRICTED fund balance arises from:
Select an option first.
Correct answer: A — EXTERNAL parties (creditors, grantors, contributors) or by law/constitutional provision
Explanation: RESTRICTED = constraints imposed EXTERNALLY (creditors, grantors, contributors, other governments) or by LAW/enabling legislation. COMMITTED = imposed INTERNALLY by the government's HIGHEST authority. ASSIGNED = internal INTENT at a lower level. The SOURCE of the constraint determines the classification.
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