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Chapter 14
Financial Reporting by the Federal Government
True / False Questions
1.The Department of Treasury maintains a government-wide system of accounts and prepares the federal government’s consolidated financial statements.
Answer: True
2.Accounting standards for the federal government and its agencies are established by the Federal Accounting Standards Advisory Board.
Answer: True
3.Accounting standards for the federal government and its agencies are established by the Government Accountability Office.
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.The Statement of Net Cost of a federal agency is prepared on theaccrual basis of accounting.
Answer: True
7.Federal agencies must include a Statement of Cash Flows in their annual report.
Answer: False
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 net position of a federal agency is comprised of Cumulative Results of Operations and Unexpended Appropriations.
Answer: True
10.The Statement of Changes in Net Position of a federal agency should articulate with net position on the agency’s Balance Sheet.
Answer: True
11.The Statement of Budgetary Resources for a federal agency is prepared on the accrual basis.
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 modified accrual basis of accounting.
Answer: False
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.Apportionmentsare issued by the OMB and establish the amount of an appropriation that will be available each quarter.
Answer: True
16.Allotmentsare made at the agency level and assign portions of the appropriation to subunits or programs.
Answer: True
17.The proprietary accounts of a federal agency reflect the status of an appropriation.
Answer: False
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 agency’s balance sheet.
Answer: True
20.The account Obligations – Undelivered Orders is credited when goods and services are received.
Answer: False
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
Multiple Choice Questions
22.Which of the following is responsible for preparing the federal government’s consolidated financial statements?
A)Government Accountability Office
B)Congressional Budget Office
C)Office of Management and Budget
D) Department of Treasury
Answer: D
23.Which organization promulgates Statements of Federal Financial AccountingStandards?
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
24.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
25.Which of the following is (are) true regarding the Government Accountability Office?
A)The GAO establishes accounting standards applicable to the federal government and its agencies
B)The GAO establishes auditing standards applicable to the federal government and its agencies
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: B
26.Which of the following is responsible for auditing the federal government’ consolidated financial statements?
A)Congressional Budget Office
B)US Department of Internal Audit
C)Office of Management and Budget
D)Government Accountability Office
Answer: D
27.Which of the following organizations is (are) part of the executive branch of the federal government?
A)Government Accountability Office
B)Office of Management and Budget
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: B
28.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
29.Which of the following is not required in a federal agency’s financial report?
A)Statement of Budgetary Resources
B)Statement of Changes in Net Position
C)Statement of Cash Flows
D)Balance Sheet
Answer:C
30.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
31.Which of the following is not required in a federal agency’s financial report?
A)Management’s 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 appear within the equity (net position) section of a federal agency balance sheet?
A)Net Position – Unexpended Appropriations
B)Fund Balance with Treasury
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: A
33.Which of the following accounts are used to display the difference between assets and liabilities in a federal agency Balance Sheet?
A)Unrestricted Net Position, Restricted Net Position, and Net Investment in Capital Assets.
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
34.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)Assetsare 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
35.Which of the following is accurate regarding a federal agency’s 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 reported within the broad categories of current, capital, and debt service.
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: A
36.Which of the following is (are) accurate regarding a federal agency’s Statement of Net Costs?
A)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.
B)The Statement of Net Costs provides greater detail about the cost of the Agency’s programs, but agrees in total net cost reported on the Statement of Changes in Net Position
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: B
37.Which of the following is(are) accurate regarding a federal agency’s 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 agency’s Balance Sheet.
B)The statement does not report Appropriations Received since this is a budgetary account and does not affect net position.
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: A
38.Which of the following is(are) accurate regarding a federal agency’s Statement of Budgetary Resources?
A)The statement reports the status of budgetary resources at year end.
B)Outlays are measured using the budgetary basis of accounting.
C)Both (a) and (b)
D)Neither (a) nor (b)
Answer: C
39.Which of the following federal entities wouldbe required to prepare a Statement of Custodial Activity?
A)Department of Defense
B)Internal Revenue Service
C)Department of Homeland Security
D)Department of Health and Human Services
Answer: B
40.Federal agencies that are required to report a Statement of Custodial Activity have transactionsthat are similar to which fund type of a state or local government?
A)Agency funds
B)Internal service funds
C)Capital projects funds
D)Permanent funds
Answer: A
41. Which of the following does not appear in the federal government’s consolidated financial report?
A)Management’s Discussion and Analysis
B)Statement of Social Insurance
C)Statement of Cash Flows
D)Auditors Report
Answer: C
42.Which of the following statements appearing in the federal government’s consolidated financial report are prepared on the accrual basis of accounting?
A)Balance Sheet
B)Statement of Operations and Changes in Net Position
C)Both (a) and (b) above
D)Neither (a) nor (b) above
Answer: C
43.Which of the following are included in the Financial Snapshot section of the federal government’s Citizen’s 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
44.Which of the following aretrue of the proprietary 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: B
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
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
49.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
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)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
51.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
52.Which of the following steps in the federal government’s 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
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 agency’s apportionment to subunits within the agency. The journal entries at the agency level to record this event will include:
A)a debit to the accountApportionments
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 Expended Appropriations
B)a debit to the account Allotments
C)Both (a) and (b)
D)Neither (a) nor (b)
Answer: B
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
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 asAccounts Payable
B)a debit to the account Unexpended 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 Accounts Payable
B)a credit to the account Cash
C)Both (a) and (b)
D)Neither (a) nor (b)
Answer: A
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 entry at the agency level to record this event in the proprietary accounts will include:
A)a debit to the account Unexpended Appropriations
B)a credit to the account Fund Balance with Treasury
C)Both (a) and (b)
D)Neither (a) nor (b)
Answer: C
60.Allotments is an example of which type of federal government account?
Budgetary Proprietary
Account Account
A) Yes Yes
B) No Yes
C) Yes No
D) No No
Answer: C
61.Fund Balance with Treasury is an example of which type of federal government account?
Budgetary Proprietary
Account Account
A) Yes Yes
B) No Yes
C) Yes No
D) No No
Answer: B
62.Operating Expense: Contracted Services is an example of which type of federal government account?
Budgetary Proprietary
Account Account
A) Yes Yes
B) No Yes
C) Yes No
D) No No
Answer: B
63. A federal agency prepared the following schedule showing the status of federal appropriations at the end of the first quarter:
Amount / Status$ 600,000 / - Unapportioned authority
10,000 / - Apportionments.
45,000 / - Allotments.
15,000 / - Obligations for undelivered orders.
130,000 / - Expended appropriations
$ 800,000 / Total appropriations
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 / Status$ 600,000 / - Unapportioned authority
10,000 / - Apportionments.
45,000 / - Allotments.
15,000 / - Obligations for undelivered orders.
130,000 / - Expended appropriations
$ 800,000 / Total appropriations
What is the total amount allotted to subunits or programs within the agency during the first quarter of the year?
A) 15,000
B) 45,000
C)190,000
D)200,000
Answer: C
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.
- Balance Sheet - accrual basis
- Statement of Net Cost – accrual basis
- Statement of Changes in Net Position – accrual basis
- Statement of Budgetary Resources – budgetary basis
66. Identify (in order of occurrence) the steps in the federal budgetary authority process.
- Appropriations
- Apportionments
- Allotments
- Obligations
- 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.
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 Board’s 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 government’s consolidated financial statements. It is one of the founding organizations of the Federal Accounting Standards Advisory Board and must approve the Board’s 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 Board’s standards.