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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 421
When multiple fund balance classifications are available for an expenditure, the government's spending policy generally assumes:
Select an option first.
Correct answer: B — RESTRICTED resources are used FIRST, then committed, assigned, and unassigned
Explanation: The default flow-of-resources assumption: RESTRICTED first, then COMMITTED, ASSIGNED and UNASSIGNED. The government must DISCLOSE its policy. Spending restricted resources first is prudent — it relieves the constraint while the flexible resources are preserved.
Question 422
A government reports a Special Revenue Fund financed ENTIRELY by transfers from the General Fund. Under GASB 54 this is:
Select an option first.
Correct answer: B — NOT a valid Special Revenue Fund — it requires a SUBSTANTIAL PORTION of inflows from a RESTRICTED or COMMITTED revenue SOURCE
Explanation: GASB 54 TIGHTENED the Special Revenue Fund definition: one or more RESTRICTED or COMMITTED REVENUE SOURCES must form a SUBSTANTIAL PORTION of the fund's inflows. A fund financed entirely by TRANSFERS does not qualify and should be folded into the General Fund.
Question 423
The Statement of Revenues, Expenditures and Changes in Fund Balances reports which subtotal BEFORE other financing sources/uses?
Select an option first.
Correct answer: B — EXCESS (DEFICIENCY) of revenues over expenditures
Explanation: The governmental fund operating statement reports: Revenues − Expenditures = EXCESS (DEFICIENCY); then OTHER FINANCING SOURCES AND USES (transfers, bond proceeds); then SPECIAL and EXTRAORDINARY items; giving the NET CHANGE IN FUND BALANCE.
Question 424
A government's Enterprise Fund reports a capital grant. It is presented:
Select an option first.
Correct answer: C — BELOW non-operating revenues and expenses, as a CAPITAL CONTRIBUTION
Explanation: In an Enterprise Fund's operating statement, the order is: Operating revenues − Operating expenses = OPERATING INCOME; then NON-OPERATING revenues/expenses (investment income, interest expense); then CAPITAL CONTRIBUTIONS, special items and transfers — giving the CHANGE IN NET POSITION.
Question 425
An Enterprise Fund's interest expense is classified as:
Select an option first.
Correct answer: D — NON-OPERATING
Explanation: INTEREST EXPENSE is NON-OPERATING in a proprietary fund. Only revenues and expenses from the fund's PRINCIPAL ONGOING operations are OPERATING. Investment income is likewise non-operating. The distinction determines the operating income subtotal — and the four cash flow categories.
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Question 426
In a proprietary fund cash flow statement, interest PAID is classified as:
Select an option first.
Correct answer: B — CAPITAL AND RELATED FINANCING (if the debt was for capital purposes) or NON-CAPITAL FINANCING
Explanation: GASB uses FOUR categories, and interest PAID goes to a FINANCING category (capital and related, or non-capital, depending on the debt's purpose) — NOT to operating. This DIVERGES sharply from FASB, where interest paid is always OPERATING.
Question 427
In a proprietary fund cash flow statement, interest RECEIVED is classified as:
Select an option first.
Correct answer: B — INVESTING
Explanation: Under GASB, interest and dividends RECEIVED are INVESTING activities. Under FASB, they are OPERATING. Both directions of interest are classified differently between the two frameworks — a reliable exam contrast.
Question 428
A government's CAFR (now ACFR) contains three sections:
Select an option first.
Correct answer: B — Introductory, Financial, Statistical
Explanation: The ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR, formerly CAFR) has THREE sections: INTRODUCTORY (letter of transmittal, organisation chart — unaudited); FINANCIAL (MD&A, basic statements, RSI, combining statements); and STATISTICAL (10-year trend data — unaudited).
Question 429
The statistical section of the ACFR is:
Select an option first.
Correct answer: B — UNAUDITED — it presents 10-year trend data on financial trends, revenue capacity, debt capacity, demographics and operating information
Explanation: The STATISTICAL section is UNAUDITED and presents multi-year (generally 10-year) trend information across five categories: financial trends, revenue capacity, debt capacity, demographic and economic information, and operating information. It is not part of the basic statements.
Question 430
A government's tax abatement disclosure (GASB 77) requires:
Select an option first.
Correct answer: A — The GROSS DOLLAR AMOUNT of taxes abated during the period, and the purpose of the abatement programme
Explanation: GASB 77 requires disclosure of tax ABATEMENT agreements: the purpose of the programme, the tax being abated, the GROSS DOLLAR AMOUNT of taxes abated during the period, and any commitments made by the government. Individual recipients need NOT be named. It reveals revenue the government chose to forgo.
Question 431
A government's fund financial statements present GOVERNMENTAL funds using:
Select an option first.
Correct answer: D — SEPARATE COLUMNS for each MAJOR fund, plus a single aggregated column for all NON-MAJOR funds
Explanation: Governmental fund statements present each MAJOR fund in its own COLUMN, with all NON-MAJOR funds aggregated into a SINGLE column, plus a TOTAL column. The GENERAL FUND is always major. Combining statements for non-major funds appear in the supplementary section.
Question 432
A government reports its investments generally at:
Select an option first.
Correct answer: A — FAIR VALUE, with changes in INVESTMENT INCOME
Explanation: GASB 72 requires most investments to be reported at FAIR VALUE, with changes recognised in INVESTMENT INCOME (in the operating statement). Certain investments — money market instruments with remaining maturities of one year or less at purchase — may be carried at amortised cost.
Question 433
A government's Custodial Fund reports:
Select an option first.
Correct answer: A — Assets held in a purely CUSTODIAL capacity for others (e.g. taxes collected for other governments)
Explanation: A CUSTODIAL FUND (formerly the Agency Fund) reports assets held in a purely custodial capacity — typically a pass-through, such as taxes a county collects on behalf of cities. GASB 84 now requires custodial funds to present a STATEMENT OF CHANGES in fiduciary net position, which the old agency funds did not.
Question 434
A government's Pension Trust Fund reports:
Select an option first.
Correct answer: D — ADDITIONS (contributions, investment income) and DEDUCTIONS (benefits paid, administrative expenses), with the net position held in trust
Explanation: A PENSION TRUST FUND presents a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position — reporting ADDITIONS (contributions and investment income) and DEDUCTIONS (benefits and administrative expenses). Note the NET PENSION LIABILITY is reported by the EMPLOYER, not the plan.
Question 435
The government-wide Statement of Net Position may be presented in:
Select an option first.
Correct answer: C — EITHER the net position format (Assets + Deferred Outflows − Liabilities − Deferred Inflows = Net Position) OR the balance sheet format
Explanation: GASB permits EITHER presentation: the NET POSITION format (Assets + Deferred Outflows − Liabilities − Deferred Inflows = Net Position) or the traditional BALANCE SHEET format (Assets + Deferred Outflows = Liabilities + Deferred Inflows + Net Position). The net position format is preferred and more common.
Question 436
'Net investment in capital assets' equals:
Select an option first.
Correct answer: A — Capital assets NET of accumulated depreciation, LESS the OUTSTANDING DEBT attributable to their acquisition/construction
Explanation: NET INVESTMENT IN CAPITAL ASSETS = Capital assets (net of accumulated depreciation) − Outstanding debt attributable to their acquisition, construction or improvement, plus related deferred outflows/inflows. Unspent bond proceeds are EXCLUDED from the debt in this calculation — a subtle point.
Question 437
RESTRICTED net position in the government-wide statements arises from:
Select an option first.
Correct answer: D — EXTERNAL restrictions or enabling legislation — the same source concept as restricted fund balance
Explanation: RESTRICTED net position arises from constraints imposed EXTERNALLY (creditors, grantors, contributors, laws of other governments) or through CONSTITUTIONAL provisions or ENABLING LEGISLATION. Internal management designations do NOT create restricted net position — they are simply part of UNRESTRICTED.
Question 438
A government's interfund SERVICES PROVIDED AND USED (e.g. a utility billing a department) are reported as:
Select an option first.
Correct answer: A — REVENUE in the seller fund and EXPENDITURE/EXPENSE in the buyer fund — an EXCHANGE transaction
Explanation: INTERFUND SERVICES PROVIDED AND USED are EXCHANGE transactions: they produce REVENUE in the providing fund and an EXPENDITURE/EXPENSE in the receiving fund. Contrast INTERFUND TRANSFERS (non-exchange), which are OTHER FINANCING SOURCES/USES. The distinction determines the presentation.
Question 439
An interfund LOAN is reported as:
Select an option first.
Correct answer: B — A RECEIVABLE in the lending fund and a PAYABLE in the borrowing fund (due to/due from)
Explanation: INTERFUND LOANS create DUE TO / DUE FROM balances (or ADVANCES if long-term). They are NOT transfers or revenue — repayment is expected. If repayment is NOT expected, the balance should be reclassified as a TRANSFER.
Question 440
A government reports a landfill closure and postclosure care liability:
Select an option first.
Correct answer: A — As the landfill is USED — accruing a portion of the estimated total cost based on capacity consumed to date
Explanation: MUNICIPAL SOLID WASTE LANDFILL closure and postclosure care costs are accrued as the landfill is USED — recognising a portion of the estimated TOTAL cost based on the percentage of capacity consumed to date. The liability builds throughout the landfill's operating life, not at closure.
Question 441
GASB requires a government's pollution remediation obligation to be recognised when:
Select an option first.
Correct answer: A — Any of five OBLIGATING EVENTS occurs (e.g. compelled by regulator, named as responsible party, voluntarily commencing cleanup)
Explanation: GASB 49 requires recognition when ANY of five OBLIGATING EVENTS occurs: an imminent endangerment to public health; violation of a permit; being named (or evidence of being named) as a responsible party; being compelled to take remediation action; or VOLUNTARILY COMMENCING remediation. The liability is measured using the expected cash flow technique.
Question 442
A government's General Fund would report the receipt of grant money with unmet ELIGIBILITY requirements as:
Select an option first.
Correct answer: D — UNEARNED REVENUE (a LIABILITY) — the eligibility requirement has not been met
Explanation: Cash received BEFORE an ELIGIBILITY requirement is met creates a LIABILITY (unearned revenue). This differs from a DEFERRED INFLOW, which arises when revenue is EARNED but NOT AVAILABLE. Two different concepts, easily confused: eligibility not met = liability; earned but not available = deferred inflow.
Question 443
A government's supplies purchased under the PURCHASE method are recorded as:
Select an option first.
Correct answer: A — An EXPENDITURE when ACQUIRED — with significant year-end inventory reported as an asset offset by NONSPENDABLE fund balance
Explanation: Under the PURCHASE method, the EXPENDITURE is recorded when the supplies are ACQUIRED. Any significant inventory remaining at year-end is reported as an ASSET with an offsetting NONSPENDABLE fund balance — signalling that the resources are not available for spending.
Question 444
A government's Capital Projects Fund is closed when:
Select an option first.
Correct answer: D — The PROJECT IS COMPLETE — with any residual balance transferred (typically to the Debt Service Fund or the General Fund)
Explanation: A CAPITAL PROJECTS FUND exists for the DURATION OF THE PROJECT. On completion, any RESIDUAL balance is transferred out — commonly to the DEBT SERVICE FUND (if bond proceeds financed it, the residual often must service that debt) or to the General Fund.
Question 445
A government issues bonds at a PREMIUM. In the Capital Projects Fund, the premium is:
Select an option first.
Correct answer: A — An OTHER FINANCING SOURCE — and it is commonly TRANSFERRED to the Debt Service Fund
Explanation: BOND PREMIUM in a governmental fund is an OTHER FINANCING SOURCE (not revenue). It is frequently TRANSFERRED to the Debt Service Fund to help service the debt. In the GOVERNMENT-WIDE statements, the premium is AMORTISED over the bond's life as an adjustment to interest expense.
Question 446
A government's DEMAND BONDS (with a take-out agreement) may be classified as:
Select an option first.
Correct answer: A — LONG-TERM, if a valid TAKE-OUT AGREEMENT exists before the statements are issued and other conditions are met
Explanation: DEMAND BONDS (which the holder may put back to the issuer) are generally CURRENT — unless the issuer has entered a valid TAKE-OUT AGREEMENT (a financing arrangement to convert them to long-term) BEFORE the financial statements are issued, and other specified conditions are met. Substance over the legal put feature.
Question 447
A government's ARBITRAGE rebate liability arises when:
Select an option first.
Correct answer: C — The government EARNS MORE on invested tax-exempt bond proceeds than it PAYS on the bonds — the excess must be REBATED to the federal government
Explanation: ARBITRAGE occurs when a government invests TAX-EXEMPT bond proceeds at a HIGHER yield than the bonds' own (low, tax-advantaged) rate. Federal tax law requires that excess earnings be REBATED to the US Treasury — otherwise governments could issue cheap tax-exempt debt purely to invest at a profit.
Question 448
A government's conduit debt (issued for a private party's benefit) is:
Select an option first.
Correct answer: B — GENERALLY NOT reported as a liability of the government — the government is merely a conduit; disclosure is required
Explanation: CONDUIT DEBT is issued by a government on behalf of a THIRD PARTY (a hospital, a university), which is solely responsible for repayment. The government is a mere CONDUIT and generally does NOT report the liability — but DISCLOSURE is required. GASB 91 refined when the government DOES have an obligation.
Question 449
A government's Statement of Activities presents INDIRECT expenses that have been allocated:
Select an option first.
Correct answer: D — May allocate — but if it does, it must present a SEPARATE COLUMN showing the allocated indirect expenses
Explanation: Allocating INDIRECT expenses to functions is OPTIONAL. If a government DOES allocate, it must present a SEPARATE COLUMN in the Statement of Activities showing the indirect expenses allocated — so users can see both the direct cost and the allocation.
Question 450
A government's depreciation expense on an asset serving MULTIPLE functions is:
Select an option first.
Correct answer: D — Allocated among the functions, OR reported as a SEPARATE LINE if the asset serves essentially all functions (e.g. a city hall)
Explanation: Depreciation is charged to the FUNCTION using the asset. Where an asset serves ESSENTIALLY ALL functions (a city hall), the depreciation may be reported as a SEPARATE LINE ITEM rather than arbitrarily allocated. Depreciation on general infrastructure may likewise be reported as a separate line or charged to the relevant function.
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