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Public ch1 Multiple Choice

Public accounting ch1 questions p1

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21 views

Public ch1 Multiple Choice

Public accounting ch1 questions p1

Uploaded by

gech95465195
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Here are 15 challenging multiple-choice questions based on the provided information about Not-for-

Profit (NFP) entities, along with detailed answers and explanations.

1. Which of the following is a primary characteristic of Not-for-Profit (NFP) entities?

A) Their main goal is to maximize shareholder wealth.

B) They can have clearly defined ownership interests.

C) They focus on meeting social or political needs.

D) They are primarily funded by equity investments.

Answer: C

Explanation: NFP entities exist to meet social or political needs, unlike for-profit entities that focus on
maximizing shareholder wealth. They do not have defined ownership interests, and they are funded
primarily by donations, grants, or taxes rather than equity investments.

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2. Which of the following is a common source of financial resources for Governmental Organizations
(GOs)?

A) Retained earnings

B) Voluntary contributions

C) Taxes

D) Dividends

Answer: C
Explanation: GOs are primarily supported by taxes, which are legally forceful contributions. In contrast,
NGOs rely on voluntary donations, and for-profit entities rely on retained earnings and dividends.

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3. In fund accounting, what replaces the traditional equity accounts used in for-profit accounting?

A) Retained earnings

B) Fund balance

C) Shareholders’ equity

D) Accumulated deficit

Answer: B

Explanation: In NFP accounting, the traditional equity accounts are replaced by the fund balance, which
reflects the net resources available for specific purposes.

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4. What is the main focus of financial reporting for NGOs according to the Financial Accounting
Standards Board (FASB)?

A) Inter-period equity

B) Providing information to resource providers for decision-making

C) Evaluating net income

D) Maximizing market share


Answer: B

Explanation: FASB sets the standards for NGOs with a focus on providing information that helps present
and potential resource providers (donors, grantors) make informed decisions about resource allocation.

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5. Which of the following statements is true about fund accounting for NFP entities?

A) It combines all resources into a single financial statement.

B) It ensures that resources are used according to the restrictions imposed.

C) It eliminates the need for budgetary compliance.

D) It measures only the financial performance of the entire organization.

Answer: B

Explanation: Fund accounting segregates resources into different funds based on their purpose, ensuring
compliance with any restrictions imposed by donors or other resource providers.

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6. Which of the following distinguishes Governmental Organizations (GOs) from Non-Governmental


Organizations (NGOs) in terms of their primary objective?

A) Meeting political and social needs for GOs, while NGOs focus solely on profit maximization.

B) GOs are typically funded by voluntary donations, whereas NGOs rely on taxes.
C) GOs aim to meet political or social needs, while NGOs focus on social needs.

D) NGOs are subject to involuntary contributions, while GOs rely only on grants.

Answer: C

Explanation: GOs primarily aim to meet political or social needs, while NGOs are focused on addressing
social needs without the involvement of government objectives.

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7. Which accounting basis is used by Governmental Organizations (GOs) in their fund accounting?

A) Full accrual basis

B) Cash basis

C) Modified accrual basis

D) Cost basis

Answer: C

Explanation: GOs use the modified accrual basis of accounting, which focuses on current financial
resources and excludes capital assets and long-term liabilities from their accounting records.

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8. What is a key feature of the Comprehensive Annual Financial Report (CAFR) prepared by
Governmental Organizations (GOs)?
A) It includes only general-purpose financial statements.

B) It is prepared solely for internal management use.

C) It includes an introductory, financial, and statistical section.

D) It omits the auditor’s report.

Answer: C

Explanation: The CAFR includes an introductory section, a financial section (including the auditor’s
report), and a statistical section to provide a comprehensive overview of the government’s financial
condition.

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9. In what scenario would a fund in an NFP organization be classified as unrestricted?

A) When it is intended to be used only for specific donor-imposed purposes.

B) When there are no restrictions imposed on its use.

C) When it is limited to capital asset purchases.

D) When it is designated for endowment purposes only.

Answer: B

Explanation: An unrestricted fund can be used for any general purposes of the organization, without
specific donor-imposed restrictions.

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10. Which financial statement is similar to the income statement of a for-profit entity in NFP
accounting?

A) Statement of Cash Flows

B) Statement of Net Assets

C) Statement of Activities

D) Statement of Changes in Equity

Answer: C

Explanation: The Statement of Activities is similar to an income statement, as it reports revenues,


expenses, and the net change in the fund balance.

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11. Which of the following is not included in the measurement focus of the modified accrual basis of
accounting?

A) Cash and cash equivalents

B) Long-term capital assets

C) Receivables

D) Short-term investments

Answer: B

Explanation: The modified accrual basis focuses on current financial resources, excluding long-term
capital assets and long-term liabilities from its measurement.
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12. What is the main objective of budgetary accounting in NFP entities?

A) To maximize profit

B) To measure market share

C) To ensure compliance with legal and financial restrictions

D) To increase fundraising efforts

Answer: C

Explanation: Budgetary accounting helps NFP entities ensure that they comply with legal and financial
restrictions, especially regarding the use of specific resources.

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13. Which of the following distinguishes the financial reporting objectives of Governmental
Organizations (GOs) from those of Non-Governmental Organizations (NGOs)?

A) GOs focus on inter-period equity, while NGOs focus on donor decision-making.

B) Both GOs and NGOs aim to report earnings per share.

C) NGOs are primarily interested in maximizing shareholder value.

D) GOs report only to internal stakeholders.

Answer: A
Explanation: GOs emphasize inter-period equity (ensuring that current-year revenues are sufficient for
current-year services), while NGOs focus on providing information for donor decision-making.

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14. Which section of the Comprehensive Annual Financial Report (CAFR) contains the letter of
transmittal?

A) Financial Section

B) Introductory Section

C) Statistical Section

D) Auditor’s Report

Answer: B

Explanation: The Introductory Section of the CAFR includes the letter of transmittal, organizational
structure, and a roster of elected officials.

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15. What is the main focus of the Financial Accounting Standards Board (FASB) for NGOs?

A) Evaluating net income and profitability

B) Assessing compliance with tax laws

C) Providing information for resource allocation decisions

D) Measuring market value of assets


Answer: C

Explanation: The FASB focuses on ensuring that the financial reports of NGOs provide useful information
for resource providers (donors, grantors) to make informed decisions about resource allocation.

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These questions cover a variety of key aspects about NFP entities, including their characteristics,
financial reporting requirements, accounting methods, and objectives. They are designed to test deep
understanding and application of the concepts presented.

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