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Free Questions › CPA › Business Analysis and Reporting
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 451
A government's General Fund would report an ADVANCE TO another fund as:
Select an option first.
Correct answer: A — An ASSET (Advance to Other Fund), with an offsetting NONSPENDABLE fund balance — it is not available for spending
Explanation: A long-term INTERFUND ADVANCE creates an ASSET in the lending fund — but because those resources are NOT AVAILABLE for spending, an offsetting NONSPENDABLE fund balance is reported. Short-term interfund loans create Due To/Due From balances without that reclassification.
Question 452
A government must report its BUDGETARY comparison using:
Select an option first.
Correct answer: D — The ORIGINAL budget, the FINAL amended budget, and ACTUAL amounts (on the budgetary basis)
Explanation: The budgetary comparison must present the ORIGINAL budget, the FINAL (amended) budget, and ACTUAL amounts on the BUDGETARY basis of accounting. If the budgetary basis differs from GAAP, a RECONCILIATION to GAAP is required. Showing the original alongside the final reveals how much the budget was amended during the year.
Question 453
The budgetary basis of accounting may differ from GAAP because it:
Select an option first.
Correct answer: D — May use the CASH basis, may treat ENCUMBRANCES as expenditures, or may use a different fund structure
Explanation: Many governments budget on a basis that DIFFERS from GAAP — using the cash basis, treating ENCUMBRANCES as expenditures, or employing a different fund structure or reporting entity. The budgetary comparison is presented on the BUDGETARY basis (to show legal compliance), with a RECONCILIATION to GAAP.
Question 454
GASB requires a government to report its INFRASTRUCTURE assets:
Select an option first.
Correct answer: A — YES — retroactively for major general infrastructure, and prospectively thereafter (with the modified approach as an alternative to depreciation)
Explanation: GASB 34 required governments to CAPITALISE infrastructure (roads, bridges, water systems) — a landmark change, since many had never recorded it. Major general infrastructure had to be reported RETROACTIVELY (phased in). Depreciation is the default, with the MODIFIED APPROACH as an alternative for eligible assets.
Question 455
A government's Statement of Cash Flows for a proprietary fund reports acquisition of capital assets in:
Select an option first.
Correct answer: C — CAPITAL AND RELATED FINANCING activities
Explanation: Under GASB's FOUR categories, the ACQUISITION of capital assets (and the related debt and interest) falls in CAPITAL AND RELATED FINANCING — NOT investing. FASB would classify a capital asset purchase as INVESTING. This is a significant divergence.
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Question 456
Under GASB, purchases and sales of INVESTMENTS in a proprietary fund cash flow statement are:
Select an option first.
Correct answer: A — INVESTING activities
Explanation: INVESTING activities under GASB comprise purchases and sales of INVESTMENTS, and interest/dividends RECEIVED. Note the contrast with FASB, where interest received is OPERATING — and where the purchase of a CAPITAL ASSET is investing, whereas GASB puts it in capital and related financing.
Question 457
A government reports 'Total Fund Balances — Governmental Funds' of $5m and capital assets net of $30m, with $12m of long-term debt. Net position of governmental activities is approximately:
Select an option first.
Correct answer: D — $23m — fund balance plus capital assets less long-term debt
Explanation: Reconciliation: Fund balance $5m + Capital assets (net) $30m − Long-term debt $12m = $23m. (Other reconciling items — deferred inflows, accrued interest, internal service fund net position — would also be added or subtracted in practice.)
Question 458
A government's PERMANENT fund principal is reported as:
Select an option first.
Correct answer: C — NONSPENDABLE fund balance — it is legally required to remain intact
Explanation: The PRINCIPAL (corpus) of a Permanent Fund is legally required to be MAINTAINED INTACT and can never be spent — making it NONSPENDABLE. The spendable EARNINGS are typically RESTRICTED (constrained externally to the specified purpose).
Question 459
A government's fiduciary fund financial statements comprise:
Select an option first.
Correct answer: D — A Statement of FIDUCIARY NET POSITION and a Statement of CHANGES IN FIDUCIARY NET POSITION
Explanation: Fiduciary funds present TWO statements: the Statement of FIDUCIARY NET POSITION and the Statement of CHANGES IN FIDUCIARY NET POSITION. Under GASB 84, CUSTODIAL funds must now present the changes statement too — the old Agency Funds did not.
Question 460
GASB 84 requires a CUSTODIAL fund to present:
Select an option first.
Correct answer: C — BOTH a Statement of Fiduciary Net Position AND a Statement of Changes in Fiduciary Net Position
Explanation: GASB 84 requires CUSTODIAL funds (formerly Agency Funds) to present BOTH fiduciary statements — including a Statement of CHANGES. Previously, Agency Funds reported only assets and liabilities with no operating statement, so their activity was invisible.
Question 461
A government's investment in an EXTERNAL investment pool it sponsors is reported in:
Select an option first.
Correct answer: A — An INVESTMENT TRUST FUND for the EXTERNAL portion; the government's OWN share is reported in its own funds
Explanation: An INVESTMENT TRUST FUND (fiduciary) reports the EXTERNAL portion of a sponsored investment pool — the amounts belonging to OTHER governments. The sponsoring government's OWN participation is reported in ITS own funds, not in the trust fund.
Question 462
A government that is NOT obligated in any manner for special assessment debt reports the collections in:
Select an option first.
Correct answer: D — A CUSTODIAL (fiduciary) fund — the government is merely an agent collecting for the bondholders
Explanation: If the government has NO OBLIGATION for the special assessment debt, it is merely acting as an AGENT — collecting assessments and remitting them to bondholders. That is a CUSTODIAL (fiduciary) activity. If the government IS obligated in some manner, the debt and construction are reported in its own funds.
Question 463
GASB's definition of a MAJOR fund requires BOTH:
Select an option first.
Correct answer: B — 10% of the fund CATEGORY total AND 5% of the COMBINED governmental and enterprise total
Explanation: BOTH thresholds must be met: at least 10% of the corresponding element for its own fund CATEGORY (governmental or enterprise), AND at least 5% of the corresponding element for ALL governmental and enterprise funds COMBINED. A government may voluntarily designate any fund as major.
Question 464
A government's OPERATING GRANT restricted to a specific function is reported in the Statement of Activities as:
Select an option first.
Correct answer: C — A PROGRAMME revenue, deducted against that function's expenses
Explanation: OPERATING GRANTS restricted to a specific FUNCTION are PROGRAMME revenues — deducted against that function's expenses in the net-cost format. UNRESTRICTED grants are GENERAL revenues, presented below with taxes.
Question 465
A government levies $2,000,000 in property taxes; $50,000 is estimated uncollectible; $80,000 will be collected more than 60 days after year-end. FUND revenue is:
Select an option first.
Correct answer: B — $1,870,000
Explanation: Fund revenue = Levy $2,000,000 − Uncollectible $50,000 − Deferred inflow (not available) $80,000 = $1,870,000.
Question 466
Using the same facts, GOVERNMENT-WIDE revenue is:
Select an option first.
Correct answer: A — $1,950,000 — full accrual ignores the 60-day AVAILABILITY criterion
Explanation: FULL ACCRUAL recognises revenue when EARNED — availability is a MODIFIED ACCRUAL concept only. Revenue = $2,000,000 − $50,000 uncollectible = $1,950,000. The $80,000 deferred inflow at the fund level is a RECONCILING item.
Question 467
A governmental fund reports capital outlay expenditures of $800,000 and the government-wide statements record $120,000 of depreciation. The reconciling adjustment to the change in fund balance is:
Select an option first.
Correct answer: D — +$680,000
Explanation: ADD BACK the $800,000 capital outlay (it is an ASSET, not an expense, under full accrual) and SUBTRACT the $120,000 of depreciation. Net = +$680,000 to the change in net position.
Question 468
A governmental fund reports $2,000,000 of bond proceeds and $300,000 of principal repayment. The reconciling adjustment is:
Select an option first.
Correct answer: C — −$1,700,000 — SUBTRACT the $2,000,000 proceeds (a liability, not revenue) and ADD BACK the $300,000 repayment (a liability reduction, not an expense)
Explanation: Bond PROCEEDS increase fund balance but create a LIABILITY government-wide → SUBTRACT $2,000,000. Principal REPAYMENT is a fund EXPENDITURE but merely reduces a liability government-wide → ADD BACK $300,000. Net = −$1,700,000.
Question 469
A government's General Fund: assets $900,000; deferred outflows $40,000; liabilities $350,000; deferred inflows $90,000. Fund balance is:
Select an option first.
Correct answer: C — $500,000
Explanation: Fund balance = Assets $900,000 + Deferred outflows $40,000 − Liabilities $350,000 − Deferred inflows $90,000 = $500,000. Both DEFERRED elements must be included.
Question 470
A government's capital assets are $8,000,000 (net), related outstanding debt is $3,000,000, and unspent bond proceeds are $500,000. NET INVESTMENT IN CAPITAL ASSETS is:
Select an option first.
Correct answer: B — $5,500,000 — capital assets less the debt attributable to them, EXCLUDING the unspent proceeds
Explanation: Net investment in capital assets = Capital assets (net) $8,000,000 − Related debt $3,000,000 + Unspent proceeds $500,000 = $5,500,000. UNSPENT bond proceeds are EXCLUDED from the debt in this calculation, because they have not yet been invested in capital assets.
Question 471
An Enterprise Fund: operating revenues $3,000,000; operating expenses $2,500,000; interest expense $100,000; capital grant $400,000. The CHANGE IN NET POSITION is:
Select an option first.
Correct answer: A — $800,000
Explanation: Operating income = $3,000,000 − $2,500,000 = $500,000. Less NON-OPERATING interest expense $100,000 = $400,000. Plus the CAPITAL GRANT of $400,000 (a capital contribution, presented below non-operating) = $800,000.
Question 472
A reimbursement grant of $600,000 is awarded; $250,000 of qualifying expenditures have been incurred; $600,000 cash was received. Revenue recognised is:
Select an option first.
Correct answer: A — $250,000 — with the remaining $350,000 a LIABILITY (unearned revenue)
Explanation: For a REIMBURSEMENT grant, incurring the QUALIFYING EXPENDITURE is the ELIGIBILITY requirement. Revenue = $250,000. The $350,000 of cash received in excess of qualifying expenditures is a LIABILITY (unearned revenue), not revenue.
Question 473
A purchase order for $50,000 is encumbered. The invoice arrives at $48,500. The EXPENDITURE recorded is:
Select an option first.
Correct answer: B — $48,500 — the ACTUAL amount; the $50,000 encumbrance is simply reversed
Explanation: The ENCUMBRANCE of $50,000 is REVERSED IN FULL, and the EXPENDITURE is recorded at the ACTUAL invoice amount of $48,500. The encumbrance was an ESTIMATE reserving budgetary authority — it never determines the expenditure.
Question 474
A government sells a capital asset (cost $500,000; accumulated depreciation $350,000) for $200,000. The GOVERNMENT-WIDE gain is:
Select an option first.
Correct answer: B — $50,000 — proceeds $200,000 less the carrying value of $150,000
Explanation: Carrying value = $500,000 − $350,000 = $150,000. Gain = $200,000 − $150,000 = $50,000 (government-wide, full accrual). In the GOVERNMENTAL FUND, the entire $200,000 would be an OTHER FINANCING SOURCE with NO gain.
Question 475
A landfill has a total estimated closure cost of $10,000,000 and is 30% full at year-end (it was 20% full at the start of the year). The current-year expense is:
Select an option first.
Correct answer: A — $1,000,000 — the incremental 10% of capacity consumed this year
Explanation: The liability is accrued based on CAPACITY CONSUMED TO DATE: 30% × $10,000,000 = $3,000,000 total liability. Since $2,000,000 (20%) was already accrued, the CURRENT-YEAR expense is the INCREMENT: $3,000,000 − $2,000,000 = $1,000,000.
Question 476
A government's total pension liability is $50,000,000 and plan fiduciary net position (assets) is $38,000,000. The NET PENSION LIABILITY is:
Select an option first.
Correct answer: A — $12,000,000
Explanation: Net pension liability = Total pension liability $50,000,000 − Plan fiduciary net position $38,000,000 = $12,000,000. GASB 68 requires this NET figure on the face of the government-wide statements.
Question 477
A fund has revenues of $5,000,000 and expenditures of $4,600,000, plus a $300,000 transfer IN and $500,000 of bond proceeds. The NET CHANGE IN FUND BALANCE is:
Select an option first.
Correct answer: D — $1,200,000 — $400,000 excess plus $300,000 transfer in plus $500,000 bond proceeds
Explanation: Excess of revenues over expenditures = $5,000,000 − $4,600,000 = $400,000. Then OTHER FINANCING SOURCES: transfer in $300,000 + bond proceeds $500,000 = $800,000. Net change in fund balance = $400,000 + $800,000 = $1,200,000.
Question 478
A government's total fund balance is $4,000,000. Capital assets (net) are $25,000,000; long-term debt is $10,000,000; accrued interest payable is $200,000. Net position of governmental activities is:
Select an option first.
Correct answer: D — $18,800,000
Explanation: Reconciliation: Fund balance $4,000,000 + Capital assets $25,000,000 − Long-term debt $10,000,000 − Accrued interest $200,000 = $18,800,000. Accrued interest is NOT reported in governmental funds (debt service is recognised when DUE), so it must be SUBTRACTED in the reconciliation.
Question 479
A government has $600,000 of encumbrances outstanding at year-end. These are reported as:
Select an option first.
Correct answer: B — A COMMITTED or ASSIGNED fund balance of $600,000 — resources already spoken for
Explanation: Open ENCUMBRANCES are NOT expenditures or liabilities. At year-end, they are reported within the RESTRICTED, COMMITTED or ASSIGNED fund balance classification — signalling that $600,000 of resources is already committed to outstanding purchase orders.
Question 480
An Enterprise Fund's operating revenues are $5,000,000; operating expenses $4,200,000; investment income $150,000; interest expense $250,000. OPERATING INCOME is:
Select an option first.
Correct answer: B — $800,000 — operating revenues less operating expenses only
Explanation: OPERATING INCOME = Operating revenues $5,000,000 − Operating expenses $4,200,000 = $800,000. Investment income and interest expense are NON-OPERATING and appear BELOW the operating income subtotal.
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