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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 481
Continuing: the CHANGE IN NET POSITION for that Enterprise Fund is:
Select an option first.
Correct answer: D — $700,000 — $800,000 operating income + $150,000 investment income − $250,000 interest expense
Explanation: Change in net position = Operating income $800,000 + Non-operating investment income $150,000 − Non-operating interest expense $250,000 = $700,000.
Question 482
A landfill's total estimated closure cost is $20,000,000; capacity used to date is 45%; $8,000,000 was previously accrued. The current-year expense is:
Select an option first.
Correct answer: D — $1,000,000 — the $9,000,000 total liability less the $8,000,000 already accrued
Explanation: Total liability = 45% × $20,000,000 = $9,000,000. Previously accrued = $8,000,000. Current-year expense = $9,000,000 − $8,000,000 = $1,000,000.
Question 483
A government's General Fund revenue is $8,000,000; expenditures $7,400,000; transfers OUT $300,000; bond proceeds $0. The NET CHANGE IN FUND BALANCE is:
Select an option first.
Correct answer: B — $300,000 — $600,000 excess less the $300,000 transfer out
Explanation: Excess of revenues over expenditures = $8,000,000 − $7,400,000 = $600,000. Then OTHER FINANCING USES: transfer out $(300,000). Net change in fund balance = $600,000 − $300,000 = $300,000.
Question 484
A government reports $1,500,000 of property tax revenue in its fund and $1,650,000 government-wide. The $150,000 difference is:
Select an option first.
Correct answer: D — The DEFERRED INFLOW (taxes not AVAILABLE within 60 days) — recognised as revenue under full accrual
Explanation: The government-wide statements (FULL ACCRUAL) recognise revenue when EARNED, ignoring the 60-day AVAILABILITY criterion. The $150,000 that was a DEFERRED INFLOW in the fund becomes REVENUE government-wide — a standard reconciling item.
Question 485
A government issues $5,000,000 of bonds at 102. The Capital Projects Fund reports OTHER FINANCING SOURCES of:
Select an option first.
Correct answer: B — $5,100,000 — the full proceeds including the $100,000 premium
Explanation: Proceeds = $5,000,000 × 1.02 = $5,100,000, ALL reported as OTHER FINANCING SOURCES (the face amount plus the premium). The premium is commonly TRANSFERRED to the Debt Service Fund. Government-wide, the premium is AMORTISED over the bond's life.
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Question 486
A government's total pension liability is $80m; plan assets are $62m; deferred outflows related to pensions are $5m. The NET PENSION LIABILITY reported is:
Select an option first.
Correct answer: B — $18m — total liability less plan assets (deferred outflows are reported SEPARATELY)
Explanation: Net pension liability = Total pension liability $80m − Plan fiduciary net position $62m = $18m. DEFERRED OUTFLOWS are a SEPARATE element on the Statement of Net Position — they are NOT netted against the liability.
Question 487
A government collects $900,000 of taxes on behalf of other governments and remits them. This is reported in a:
Select an option first.
Correct answer: D — CUSTODIAL FUND — the government is a pure pass-through agent
Explanation: Collecting taxes purely on behalf of OTHER governments is a CUSTODIAL (fiduciary) activity — the government controls the assets but they are not its own and are for the benefit of specified beneficiaries. Under GASB 84, a custodial fund now presents a Statement of CHANGES as well.
Question 488
A government's capital assets cost $40m with accumulated depreciation of $15m; related debt is $18m; unspent bond proceeds are $2m. NET INVESTMENT IN CAPITAL ASSETS is:
Select an option first.
Correct answer: A — $9m — $25m net assets less $18m debt plus $2m unspent proceeds
Explanation: Capital assets (net) = $40m − $15m = $25m. Net investment = $25m − Related debt $18m + Unspent proceeds $2m = $9m. UNSPENT proceeds are ADDED BACK, because that borrowing has not yet been invested in capital assets.
Question 489
A government's fund balance is $3m. Capital assets net are $40m; long-term debt $22m; accrued interest $400,000; and an Internal Service Fund has net position of $1.5m. Net position of governmental activities is approximately:
Select an option first.
Correct answer: C — $22.1m — $3m + $40m − $22m − $0.4m + $1.5m
Explanation: Reconciliation: Fund balance $3.0m + Capital assets $40.0m − Long-term debt $22.0m − Accrued interest $0.4m + Internal Service Fund net position $1.5m = $22.1m. The ISF is folded into GOVERNMENTAL activities because it primarily serves government departments — a reconciling item candidates routinely forget.
Question 490
A government receives a $1m grant with a matching requirement ($1m of its own funds) and has matched $300,000. Revenue recognised is:
Select an option first.
Correct answer: B — $300,000 — the MATCHING requirement is an ELIGIBILITY requirement, met only to the extent matched
Explanation: A MATCHING requirement is an ELIGIBILITY requirement under GASB 33 — revenue is recognised only as the match is achieved: $300,000. Cash received beyond that is a LIABILITY (unearned revenue). Contrast a PURPOSE RESTRICTION, which would NOT delay recognition at all.
Question 491
A government's Special Revenue Fund receives 80% of its inflows from a dedicated sales tax and 20% from General Fund transfers. Under GASB 54, this fund is:
Select an option first.
Correct answer: A — VALID — a SUBSTANTIAL PORTION (80%) of inflows comes from a RESTRICTED/COMMITTED revenue SOURCE
Explanation: GASB 54 requires that one or more RESTRICTED or COMMITTED REVENUE SOURCES form a SUBSTANTIAL PORTION of the fund's inflows. At 80%, that test is comfortably met. A fund financed ENTIRELY by transfers would NOT qualify and would have to be folded into the General Fund.
Question 492
A government's proprietary fund purchases a capital asset for $2m using bond proceeds. In the cash flow statement, these appear in:
Select an option first.
Correct answer: C — CAPITAL AND RELATED FINANCING for BOTH — the asset purchase AND the related bond proceeds
Explanation: Under GASB's FOUR categories, CAPITAL AND RELATED FINANCING captures BOTH the acquisition of capital assets AND the debt (and interest) related to them. FASB would split these: the asset purchase into INVESTING and the bond proceeds into FINANCING. A genuine structural divergence.
Question 493
A government's Enterprise Fund earns $200,000 of investment income and pays $150,000 of interest on revenue bonds used to build a plant. In the cash flow statement:
Select an option first.
Correct answer: D — The $200,000 is INVESTING; the $150,000 is CAPITAL AND RELATED FINANCING
Explanation: GASB: interest and dividends RECEIVED are INVESTING. Interest PAID on debt used for CAPITAL purposes is CAPITAL AND RELATED FINANCING. Neither is OPERATING. Under FASB, BOTH would be OPERATING — the two frameworks split them in opposite directions.
Question 494
A government's tax revenue is recognised in the fund at $900,000 and government-wide at $980,000, and it also reports $60,000 of accrued interest not recorded in the fund. The net reconciling adjustment to the change in fund balance is:
Select an option first.
Correct answer: C — +$20,000 — ADD the $80,000 additional revenue, SUBTRACT the $60,000 accrued interest expense
Explanation: Revenue reconciliation: government-wide recognises $80,000 MORE (no availability criterion) → ADD $80,000. Interest: the fund records debt service WHEN DUE, so $60,000 of accrued interest expense was never recorded → SUBTRACT $60,000. Net = +$20,000.
Question 495
A government reports a $700,000 expenditure for a capital lease at inception in a governmental fund. In the government-wide statements this becomes:
Select an option first.
Correct answer: C — A $700,000 capital ASSET and a $700,000 LEASE LIABILITY — with NO expense
Explanation: At the FUND level, the lease is grossed up as an EXPENDITURE and an OTHER FINANCING SOURCE. GOVERNMENT-WIDE (full accrual, GASB 87), it produces a right-of-use ASSET and a LEASE LIABILITY, with NO immediate expense — only depreciation and interest going forward. Both the expenditure AND the other financing source are reconciling items.
Question 496
A government's Internal Service Fund reports net income of $400,000, entirely from charges to governmental departments. In the government-wide statements this is:
Select an option first.
Correct answer: B — ELIMINATED — the government cannot profit from itself; the surplus is 'looked back' against the functions that were overcharged
Explanation: An Internal Service Fund's profit arises from OVERCHARGING other government departments. Reporting it as income would mean the government profited from itself. The surplus is ELIMINATED via a LOOK-BACK adjustment against the functions that paid the charges. Only the portion attributable to EXTERNAL customers survives.
Question 497
A government's pension plan investment return was 3% versus an assumed 7%. The $2m shortfall is:
Select an option first.
Correct answer: D — Recorded as a DEFERRED OUTFLOW and amortised into pension expense over 5 YEARS
Explanation: DIFFERENCES between EXPECTED and ACTUAL investment returns are recorded as DEFERRED OUTFLOWS (or inflows) and amortised into pension expense over a CLOSED 5-YEAR period. Other components (experience differences, assumption changes) are amortised over the average remaining service life. Recognising it all immediately would create enormous volatility.
Question 498
A government's ACFR statistical section shows 10 years of data. Its purpose is to:
Select an option first.
Correct answer: C — Provide CONTEXT and TRENDS — financial trends, revenue capacity, DEBT CAPACITY, demographics and operating information — that the basic statements alone cannot convey
Explanation: The STATISTICAL section (UNAUDITED) presents multi-year TRENDS across five categories: financial trends; revenue capacity; DEBT CAPACITY (including legal debt margin); demographic and economic information; and operating information. It gives users the context a single-year statement cannot — particularly for assessing whether a government's debt burden is sustainable.
Question 499
A government's General Fund reports a large POSITIVE unassigned fund balance while a Special Revenue Fund reports a NEGATIVE unassigned balance. This is:
Select an option first.
Correct answer: D — PERMISSIBLE — only the GENERAL FUND may report a POSITIVE unassigned balance, but ANY governmental fund may report a NEGATIVE one
Explanation: Only the GENERAL FUND may report a POSITIVE Unassigned fund balance. But ANY governmental fund may report a NEGATIVE unassigned balance — arising when expenditures exceed the resources available in the more constrained classifications. The asymmetry is deliberate and frequently tested.
Question 500
A government's property tax levy is $10m; $200,000 is uncollectible; $500,000 will be collected 90 days after year-end; and $300,000 relates to the NEXT fiscal year's levy, collected in advance. Fund revenue is:
Select an option first.
Correct answer: C — $9,000,000 — levy less uncollectible ($200k), less not-available ($500k), less the advance collection ($300k)
Explanation: THREE reductions. (1) Uncollectible allowance: -$200,000. (2) Not AVAILABLE (collectible beyond 60 days): -$500,000, becoming a DEFERRED INFLOW. (3) Taxes collected in ADVANCE for a FUTURE period: -$300,000, also a DEFERRED INFLOW, because imposed non-exchange revenue is recognised in the period for which it was LEVIED. Revenue = $10,000,000 - $200,000 - $500,000 - $300,000 = $9,000,000. Three distinct reductions, two of which create deferred inflows for different reasons.
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