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AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) Sample Questions (Q85-Q90):

NEW QUESTION # 85
Which of the following events is an example of an expenditure but not an expense?

A. At the end of the fiscal year, the government signs a contract to buy office furniture.
B. At the end of the fiscal year, the government pays its employees for work performed.
C. At the end of the fiscal year, the government receives and pays its electric bill for the previous month.
D. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

Answer: D

Explanation:
Comprehensive Detailed Explanation:
In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used - typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset's cost consumed in the period is recorded as an expense (i.e., depreciation).
Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time.
Relevant References:
GASB Statement No. 34 - Government-wide vs. Fund Financial Reporting
GASB Codification Section 1300 - Modified Accrual Accounting
GFOA Best Practices - Capital Asset Reporting
C). At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

NEW QUESTION # 86
The Government Management Reform Act of 1994 amended the CFO Act of 1990 to require

A. quarterly financial statements of executive departments.
B. OMB approval of executive department financial statements.
C. unmodified audit opinions of the executive department financial statements.
D. audited financial statements of the executive departments.

Answer: D

Explanation:
The Government Management Reform Act (GMRA) of 1994 amended the Chief Financial Officers (CFO) Act of 1990 to require each executive agency to prepare and submit audited financial statements covering all accounts and associated activities.
This extended the audit requirement beyond the pilot CFO agencies and laid the groundwork for the Financial Report of the U.S. Government.
Relevant References:
Government Management Reform Act of 1994 (Public Law 103-356)
CFO Act of 1990
OMB Circular A-136 - Financial Reporting Requirements
B). audited financial statements of the executive departments
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NEW QUESTION # 87
What organization establishes GAAP for federal agencies?

A. GAO
B. FASAB
C. OMB
D. FASB

Answer: B

Explanation:
The Federal Accounting Standards Advisory Board (FASAB) establishes Generally Accepted Accounting Principles (GAAP) for federal government entities. FASAB is recognized by the American Institute of Certified Public Accountants (AICPA) as the authoritative source of GAAP for federal agencies.
Other agencies:
OMB: Issues financial reporting guidance and formats (e.g., A-136), but does not set GAAP.
GAO: Audits financial statements and issues internal control guidance.
FASB: Sets GAAP for private sector and some not-for-profit organizations-not federal.
Relevant References:
FASAB Memorandum of Understanding (GAO, Treasury, OMB)
AICPA Rule 203 Designation of FASAB as the GAAP Authority
SFFAS No. 34 - The Hierarchy of GAAP
A). FASAB

NEW QUESTION # 88
For state and local governments, a fund that is legally restricted to the use of earnings with the principal protected is

A. an internal service fund.
B. a general fund.
C. an enterprise fund.
D. a permanent fund.

Answer: D

Explanation:
A permanent fund is a governmental fund used to report resources that are legally restricted so that only earnings (not principal) may be used to support government programs. These are typically endowments where the corpus is preserved in perpetuity.
According to GASB Statement No. 34, permanent funds are classified under governmental funds and must be used to benefit the government or its citizenry.
Relevant Standards and References:
GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments GASB Codification Section 1300, Fund Types GFOA Budgeting & Fund Balance Guidance Therefore, Option B is correct.

NEW QUESTION # 89
A state department has been developing a new computer system for managing federal grants. The project has the following costs:

What amount should be recorded as the value of the intangible asset?

A. $575.000
B. $755,000
C. $915.000
D. $705.000

Answer: B

Explanation:
According to GASB Statement No. 51 (Accounting and Financial Reporting for Intangible Assets), only costs incurred during the "application development stage" are capitalized for internally generated software. These include:
#Development of the system - $500,000
#Development of interfaces - $75,000
#Data conversion necessary to make software operational - $50,000
#Testing the software - $130,000
Excluded (should be expensed):
#Evaluation of needs (preliminary) - $100,000
#Selection of developer - $25,000
#Staff training - $15,000
#Ongoing maintenance - $20,000
Total Capitalizable Costs:
$500,000 + $75,000 + $50,000 + $130,000 = $755,000
Relevant References:
GASB Statement No. 51 - Paragraphs 6-12
GFOA Guidelines - Capitalization of Intangible Assets
C). $755,000

NEW QUESTION # 90
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