Test bank accounting for governmental and nonprofit entities, 14e

Ch1-3 Student: _ General purpose governments provide a wide range of services to their residents, such as public safety, road maintenance, and health and welfare True Examples of special purpose governments include public schools, libraries, and water supply plants that receive tax revenue to finance the services they provide True False The two government-wide financial statements required by GASBS 34 are the statement of net assets and the statement of activities True False The FASB, GASB, and FASAB all base their standards on both internal and external financial reporting True False Interperiod equity refers to the concept that current-year revenues are sufficient to pay for services provided that year, so that future taxpayers will not be required to assume the burden for services previously provided True False The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles and standards for the federal government and its agencies and state governments True False A characteristic common to governmental and not-for-profit organizations is the absence of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization True False The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all governmental and not-for-profit organizations True False False The government-wide financial statements are intended to report on fiscal accountability True False 10 The minimum requirements for general purpose external financial reporting are (1) management's discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the financial statements, and (3) required supplementary information (RSI, other than the MD&A) True False 11 The Governmental Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A State and local government entities and governmentally-related units and agencies, such as utilities, authorities, hospitals, and colleges and universities B Governments; such as federal agencies, states, cities, counties, villages, and townships C Not-for-profit organizations D All of the above 12 The Financial Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A All federal and state organizations B All not-for-profit organizations that are nongovernmental and business entities C All not-for-profit organizations D Both B) and C) are correct 13 The body that has been established to recommend accounting and financial reporting standards for the federal government is the A Financial Accounting Standards Board (FASB) B Governmental Accounting Standards Board (GASB) C Cost Accounting Standards Board (CASB) D Federal Accounting Standards Advisory Board (FASAB) 14 The GASB has identified which of the following as the "cornerstone" of all financial reporting in government? A Understandability B Representational faithfulness C Accountability D Interperiod equity 15 Which of the following distinguishes governments from nongovernmental not-for-profit organizations? A Absence of profit motive B The power to enact and enforce a tax levy C Resource providers not expect benefits proportional to the resources provided D Absence of a defined ownership interest that can be sold, transferred, or redeemed 16 Which of the following is not an objective of financial reporting by state and local governments? A To assist financial report users in comparing actual financial results with the legally adopted budget B To assist users in assessing financial condition and results of operations C To assist users in assessing the adequacy of systems and controls D None of the above; that is, all of the above are objectives of state and local government financial reporting 17 The minimum requirements for general purpose external financial reporting include: A Management's discussion and analysis (MD&A) B Government-wide and fund basic financial statements, including the notes thereto C Required supplementary information (other than the MD&A) D All of the above 18 The three sections recommended by GASB for inclusion in the Comprehensive Annual Financial Report (CAFR) are: A Introductory, financial, and statistical B Letter of transmittal, MD&A, and financial C Introductory, MD&A, and financial D Letter of transmittal, financial, and supplementary 19 Which of the following would be included in a properly prepared comprehensive annual financial report (CAFR) but not in the minimum requirements for general purpose financial reporting specified by GASBS 34? A Management Discussion and Analysis (MD&A) B Statistical information C Notes to the financial statements D Fund financial statements 20 Combining financial statements of a governmental entity should be included in A A comprehensive annual financial report (CAFR) B The basic financial statements C The notes to the financial statements D Any of the above is acceptable under GAAP 21 Which of the following would not be included in the introductory section of a comprehensive annual financial report? A Title and contents page B Letter of transmittal C Management discussion and analysis D Reference to other sections of the CAFR so readers desiring detailed information can find it conveniently 22 Which of the following is information that should be included in the financial section of a comprehensive annual financial report? A The auditor's report B The basic financial statements C Notes to the financial statements D All of these should be included 23 The section of the comprehensive annual financial report that presents tables and charts showing social and economic data in addition to financial trends and the fiscal capacity of the government is the: A Introductory section B Statistical section C Management discussion and analysis section D Financial section 24 On what should the government-wide financial statements report? A Net assets and results of financial operations of the government as a whole B Operational accountability C The cost of government services D All of the above 25 The fund financial statements for governmental funds should include a A Balance sheet for governmental funds B Statement of revenues, expenses, and changes in fund net assets C Statement of cash flows D All of the above 26 On what should the fund financial statements report? A Net assets and results of financial operations of the government as a whole B Fiscal accountability C Cost of government services D All of the above 27 Which of the following groups normally would not be considered a primary user of a state or local government's general-purpose external financial statements? A Citizens B Managers C Investors and creditors D None of the above; that is, all these groups are considered primary users 28 Which of the following reconciliations is required in the basic financial statements of a state or local government? A Total fund balances on the balance sheet governmental funds to total governmental activities net assets on the government-wide statement of net assets B Total net assets on the statement of net assets proprietary funds to total business-type activities net assets on the government-wide statement of net assets C Total net assets on the statement of fiduciary net assets to total fiduciary activities net assets on the government-wide statement of net assets D All of the above 29 Members of the Governmental Accounting Standards Board are appointed by the: A Financial Accounting Standards Board B Governmental Accounting Standards Board C American Institute of Certified Public Accountants D Financial Accounting Foundation 30 Which of the following organizations designated the FASAB as the authoritative standard setting body for the federal government and its agencies? A Financial Accounting Foundation B American Institute of Certified Public Accountants C Government Finance Officers Association D Securities and Exchange Commission 31 Which of the following is always subject to GASB jurisdiction? A A hospital B A college or university C A public school district D All of the above 32 Recognizing revenues when measurable and available for paying current obligations and expenditures when incurred describes which basis of accounting? A Accrual B Modified accrual C Modified cash D Budgetary 33 Enterprise funds are primarily distinguished from internal service funds by the: A Type of customers they serve B Different basis of accounting they use C Different kinds of financial statements used to present their financial information D All of the above 34 Governmental funds are identical to governmental activities, proprietary funds are identical to business-type activities, and fiduciary funds are identical to fiduciary activities of a government True False 35 Major funds are those that are relatively large or significant with respect to other funds True False 36 Economic resources are cash or items expected to be converted into cash during the current period, or soon enough thereafter to pay current period liabilities True False 37 A fund is an accounting and a fiscal entity True False 38 The types of funds that may be used in governmental accounting are classified into three categories of activities performed by governments: governmental, business-type, and fiduciary True False 39 All short-term liabilities of the government should be accounted for in the General Fund True False 40 Governments can demonstrate fiscal accountability by adopting an annual budget, using the accounting system to provide for budgetary control, and presenting budgetary comparisons to actual results in the appropriate financial statements True False 41 The primary purpose of an accounting system for a state or a local governmental unit is to make it possible for financial statements to demonstrate compliance with finance-related legal and contractual provisions True False 42 Because budgetary accounts are used by governments, their financial statements can never be said to be in accord with generally accepted accounting principles True False 43 Capital assets of a government should always be reported on the same basis as a business depreciated historical cost True False 44 The accounting system used by a state or local government must make it possible A To prepare consolidated accrual basis statements for the government as a whole B To prepare financial statements as required by the Financial Accounting Standards Board C To present fairly the financial position and results of financial operations of the government as a whole, as well as fund financial activity in conformity with GAAP, and to demonstrate compliance with finance-related legal and contractual provisions D All of the above 45 Which of the following is not a characteristic of a fund as defined by GASB standards? A An accounting entity B A segregated quantity of cash and other financial resources on deposit with a designated trustee C A fiscal entity D A self-balancing set of accounts 46 The accrual basis of accounting applicable to proprietary fund types requires that revenues be recognized when A Earned B Authorized by the budget ordinance C Collected in cash D Measurable and available 47 The modified accrual basis of accounting applicable to governmental fund types requires that revenues be recognized when A Earned B Authorized by the budget ordinance C Measurable and available D Collected in cash 48 According to the "Measurement Focus and Basis of Accounting in the Basic Financial Statements" principle, transfers should be recognized A When earned B In the period the interfund receivable and payable arise C When authorized by the budget ordinance D When collected in cash 49 Comparisons of budgeted versus actual revenues and expenditures are A Optional under GASB standards for all funds B Required by GAAP for internal management reports only; not permitted for external financial reporting C Required by GAAP for all governmental fund types D Required by GAAP for the General Fund and major special revenue funds for which an annual budget has been legally adopted 50 In accounting for state and local governments the modified accrual basis is recommended for A Proprietary and fiduciary funds B Proprietary funds only C Governmental funds only D All funds 51 An example of a proprietary fund is a (an) A Special revenue fund B Investment trust fund C Internal service fund D Debt service fund 52 An example of a "fiduciary" fund is a (an) A Special revenue fund B Investment trust fund C Debt service fund D Enterprise fund 53 In order for the accounting system of a local government to be in conformity with generally accepted accounting principles A Only governmental funds, and proprietary funds should be provided B Only those funds required by law, GASB standards, and sound financial administration should be provided C Only those funds required by law should be provided D All categories of funds must be provided 54 Which of the following funds is a governmental fund-type? A Private-purpose trust fund B Internal service fund C Permanent fund D Enterprise fund 55 Which of the following funds is a proprietary fund-type? A Private-purpose trust fund B Enterprise C Permanent fund D Capital projects fund 56 In which of the following funds would it not be appropriate to record depreciation of capital assets? A Special revenue fund B Enterprise C Internal service D Pension trust 57 Capital assets used by departments accounted for by the General Fund of a governmental unit should be accounted for in A The General Fund B The governmental activities journal C The business-type activities journal D The general capital assets fund 58 Financial reporting by fund type A Means that all assets and all liabilities of each government must be accounted for by one of the fund types set forth in the GASB Codification B Is optional under GAAP, but is generally required by state laws for governments C Is the same kind of accounting used by business organizations D Is required by generally accepted accounting principles for state and local governments 59 A fund that is used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governments, on a cost-reimbursement basis is properly classified as a (an) A Enterprise fund B Proprietary fund C Internal service fund D Both B and C are correct 60 Capital assets of an enterprise fund should be accounted for in the A Enterprise fund and depreciation on the capital assets should be recorded B Business-type activities journal but no depreciation on the capital assets should be recorded C Governmental activities journal and depreciation on the capital assets should be recorded D Enterprise fund but no depreciation on the capital assets should be recorded 61 Which of the following funds are proprietary funds? A Enterprise funds, investment trust funds, pension trust funds, and the General Fund B Enterprise funds and internal service funds C Internal service funds, special revenue funds, and enterprise funds D None of the above funds; proprietary funds are not used in governmental accounting 62 Which of the following funds are governmental funds? A General Fund, special revenue funds, capital projects funds, debt service funds, and private-purpose trust funds B General Fund, special revenue funds, capital projects funds, debt service funds, and permanent funds C General Fund and special revenue funds, private-purpose trust funds D General Fund, special revenue funds, capital projects funds, debt service funds, and internal service funds 63 The activities of a water utility department, which offers its services to the general public on a user charge basis, should be accounted for in A An enterprise fund B A special revenue fund C The General Fund D An internal service fund 64 The measurement focus and basis of accounting for fiduciary funds are most similar to A Governmental funds B Permanent funds C Proprietary funds D None of the above 65 Which of the following organizations should be included as part of the governmental reporting entity? A A primary government B Other legally separate organizations for which the primary government is financially accountable C Other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete D All of the above 66 Under GASB reporting entity standards, a component unit is A Organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete B A legally separate organization that is financially independent of a primary government and on which the primary government cannot impose its will C A large department of a primary government D Both A and B are component units 67 The measurement focus that should be used in preparing fund financial statements is: A Item A B Item B C Item C D Item D 68 The basis of accounting that should be used in preparing fund financial statements is: A Item A B Item B C Item C D Item D 69 Program revenues and general revenues are distinguished on the government-wide statement of activities under GASBS 34 True False 70 Fund equity of the General Fund is reported as net assets in the balance sheets for governmental funds True False 71 Interfund transfers and debt issue proceeds received by the General Fund would be recorded as other financing sources True False 72 All purchases of goods and services by a General Fund and all interfund transfers are recorded as Expenditures True False 73 GASBS 34 requires that a combined statement of revenues, expenditures, and changes in fund balances budget and actual be presented and that the statement include the General Fund, and major special revenue funds for which annual budgets have been legally adopted True False 74 All decreases in fund financial resources, other than for repayment of fund liabilities, are termed "expenditures." True False 75 Budgetary accounts used in the General Fund include Estimated Revenues, Revenues, Appropriations, Encumbrances, and Expenditures True False 76 An encumbrance represents a liability incurred pursuant to authority given in an appropriation True False 77 Government-wide financial statements include funds True False 78 Revenues and expenditures reported in the budgetary comparison schedule must be reported on the budget basis in the "budget" column and on the GAAP basis in the "actual" column True False 79 The amounts reported for revenues and expenditures in the "Actual" column of the budgetary comparison schedule or statement must not differ from those reported in the statement of revenues, expenditures, and changes in fund balance prepared on a GAAP basis True False 80 Governmental funds have always been reported on the economic resources measurement focus True False 81 Which of the following is a budgetary account? A Encumbrances B Reserve for Encumbrances C Expenditures D Revenues 10 48 The cost of professors' salaries would normally be recorded in which functional area? A B C D Research Instruction Service Institutional support Content: Concept Level: Medium Wilson - Chapter 16 #19 49 Cactus College, a small private college, received a research grant from NACUBO to study whether service efforts and accomplishments measures improve institutional performance Under the provisions of SFAS No 116 the grant would be reported as an increase in: A B C D Unrestricted net assets The fund balance of restricted current funds Permanently restricted net assets Temporarily restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #20 50 Which of the following receipts may properly be accounted for as an increase in unrestricted net assets? A B C D Student tuition and fees Gift from an alumnus for a new college of business building Federal grant for genetic research Acceptance of assets the income from which will be paid to the donor Content: Concept Level: Medium Wilson - Chapter 16 #21 51 Economic rationality would argue against a university accepting a split interest agreement in which a fixed annuity is payable to the donor if: A The donor has attached conditions to the gift B The university has no immediate need for the assets C The sum of future annuity payments plus interest thereon exceeds the fair market value of the assets D The present value of the future annuity payments and other liabilities exceed the fair market value of the assets Content: Concept Level: Medium Wilson - Chapter 16 #22 52 FASB standards applicable to private colleges and universities require that their financial statements A B C D Provide separate columns for each fund group Provide aggregated financial information on an entity-wide basis Include a statement of changes in fund balances Include a statement of cash flows prepared using the direct method Content: Concept Level: Medium Wilson - Chapter 16 #23 12 53 Which of the following items would not be reported in the section on revenues and gains in the statement of activities of a private college or university? A B C D Student tuition and fees Gifts and donations Net assets released from restriction None of the above; that is, all are reported as a revenue, support, or gain Content: Concept Level: Medium Wilson - Chapter 16 #24 54 Which of the following is not a condition that would permit a public college or private college or university to avoid accounting recognition of the value of its collections of art, historical treasures, and similar assets? A The assets are held for public exhibition, education, or research in furtherance of public service rather than financial gain B The assets are protected, kept unencumbered, cared for, and preserved C The assets are subject to an organizational policy that ensures the proceeds of sales of collectible assets are used for operations of the organization D None of above; all three items are conditions that will avoid accounting recognition Content: Concept Level: Medium Wilson - Chapter 16 #25 55 Which of the following is required as part of a complete set of financial statements for a private college or university? A B C D Statement of changes in financial position Statement of revenues, expenses, and changes in net assets Statement of activities All of these statements are required Content: Concept Level: Medium Wilson - Chapter 16 #26 56 Assets that the governing board of a public university, rather than a donor or other outside agency, has determined are to be retained and invested for future scholarships would be reported as A B C D An endowment Unrestricted net assets Deposits held in custody for others Restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #27 57 Which of the following statements usually will not be included in the annual financial report of a governmentally owned public university engaged only in business-type activities? A B C D Statement of cash flows Statement of net assets Statement of activities Statement of revenues, expenses, and changes in net assets Content: Concept Level: Medium Wilson - Chapter 16 #28 13 58 Pinewood College, a public college, has a 10-week summer session that starts on June 25, 2008, so that one week is held during FY 2008 and the other nine weeks meet during FY 2009 Tuition and fees in the amount of $900,000 were collected from students for classes to be conducted in this session What amount should Pinewood College recognize as unrestricted revenue in each of the years ended June 30, 2008 and June 30, 2009 A B C D Item A Item B Item C Item D Wilson - Chapter 16 #29 59 Tuition scholarships for which there is no intention of collection from the student should be classified by a private university as A B C D Revenues and expenditures A reduction of gross revenue to arrive at net revenue Revenues and expenses Any of the above Content: Concept Level: Medium Wilson - Chapter 16 #30 60 An alumnus donates securities to St Aloysius College, a private college, and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel Dividends received from the securities should be recognized as increases in: A B C D Endowments Unrestricted net assets Permanently restricted net assets Temporarily restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #31 14 61 During the years ended June 30, 2008 and 2009, Jasper University, a public university, conducted a cancer research project financed by a $1,000,000 gift from an alumnus The entire amount was pledged by the donor on July 10, 2007, although she paid only $200,000 at that date The gift was restricted to the financing of this particular research project During the two-year research period, Jasper's related gift receipts and research expenditures were as follows: How much gift revenue should Jasper University report for the year ended June 30, 2009? A B C D $1,000,000 $900,000 $800,000 $0 Content: Concept Level: Medium Wilson - Chapter 16 #32 62 Are public and private colleges and universities required to report depreciation expense in their financial statements? A B C D Public: No; Private: No Public: Yes; Private: No Public: Yes; Private: Yes Public: No; Private: Yes Content: Concept Level: Medium Wilson - Chapter 16 #33 63 During the year ended June 30, 2009, Hopkins College, a private college, received a federal government grant of $800,000 for research on the role of music in improving math skills for students Expenses for this research amounted to $100,000 during the same year Under applicable FASB standards, assuming this is a nonexchange transaction, Hopkins College would report what amount(s) as revenues or support for the year ended June 30, 2009? A B C D Item A Item B Item C Item D Content: Concept Level: Medium Wilson - Chapter 16 #34 15 64 Which of the following is not a classification of revenues for a college or university as provided by the National Association of College and University Business Officers (NACUBO)? A B C D Private gifts Federal appropriations Sales and services of educational activities All of the above are included in NACUBO's suggested chart of accounts Content: Concept Level: Easy Wilson - Chapter 16 #35 65 State appropriations received by a public university are classified as which of the following on the statement of revenues, expenses, and changes in net assets? A B C D Nonoperating revenue Operating revenue Other financing source Increase in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #36 66 Which of the following is a typical classification of a functional expense in a college or university? A B C D Recreation and culture Public safety Academic support Depreciation Content: Concept Level: Medium Wilson - Chapter 16 #37 67 Which of the following measures may be useful to decision makers evaluating the financial condition of a college or university? A B C D Number of graduates Faculty productivity Current ratio All of the above Content: Concept Level: Medium Wilson - Chapter 16 #38 68 Financial reporting standards for all government owned and operated hospitals would be found in GASB pronouncements TRUE Public hospitals owned and operated by governments would follow GASB standards as well as the AICPA Audit and Accounting Guide Health Care Organizations Public hospitals would most likely be considered special purpose governments engaged in business-type activities, and consequently follow GASBS 34 Content: Concept Level: Easy Wilson - Chapter 17 #1 16 69 Patient service revenues and related receivables include charges for charity care services FALSE The AICPA Audit and Accounting Guide Health Care Organizations specifically requires that charity care services not be included in patient service revenues and related receivables because there is no intention to collect Content: Concept Level: Medium Wilson - Chapter 17 #2 70 In accounting for health care entities, the bad debt estimate should always be recorded as a revenue deduction, rather than as an expense FALSE The AICPA Audit and Accounting Guide Health Care Organizations makes clear that the provision for bad debts or bad debt expense be reported as an expense and not as a deduction from gross revenue in arriving at net patient revenue; however, public health care entities that follow business-type accounting practices follow GASB standards applicable to proprietary funds Content: Concept Level: Medium Wilson - Chapter 17 #3 71 Investor-owned health care entities recognize all revenues and expenses on the accrual basis of accounting, whereas all governmentally owned health care entities recognize revenues and expenditures on the modified accrual basis FALSE Some governmental health care entities that are either captive parts of general purpose governments or that are directly supported by taxes follow either governmental fund/activities accounting or both government/business-type accounting The Audit Guide is only applicable to public health care entities that follow business-type accounting Content: Concept Level: Easy Wilson - Chapter 17 #4 72 An expense for diabetes research that was in accordance with the stipulation of the donor would be recorded as a decrease of unrestricted net assets of a not-for-profit health care organization TRUE All expenses in a nongovernmental, not-for-profit organizations, including health care organizations, are reported, as decreases in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 17 #5 17 73 Long-term debt related to a construction project in a public hospital that follows business-type accounting should be recorded in the capital projects fund FALSE Public health care organizations would report long-term debt as a liability of the entity as a whole in the statement of net assets Content: Concept Level: Easy Wilson - Chapter 17 #6 74 Health care is provided by organizations that may be for-profit, not-for-profit, or governmental; although roughly half of all health care provided by not-for-profit entities TRUE Illustration 17-1 in the text outlines the sponsorship or legal structure of health care organizations as well as the types of services provided Content: Concept Level: Medium Wilson - Chapter 17 #7 75 In a public hospital, when resources restricted by donors for the purchase of capital assets are expended for that purpose in a public hospital, then the equity account called "net assets invested in capital assets" is increased TRUE Public hospitals follow GASBS 34 requires capital assets to be capitalized and reported in the statement of net assets Content: Concept Level: Medium Wilson - Chapter 17 #8 76 Endowment income expended during the current period for purposes specified by the donor would be recorded as a decrease in temporarily restricted net assets using the account "net assets released from restrictions." TRUE A private hospital would show a decrease in temporarily restricted net assets (net assets released from restrictions) and an increase in unrestricted net assets for the amount of the expense with the related expense as a decrease in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 17 #9 18 77 Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use" TRUE This is one example of assets limited as to use Another is when assets must be set aside by the terms of an external party, such as a fiscal agent for bond repayment, other than a donor or grantor Content: Concept Level: Medium Wilson - Chapter 17 #10 78 Equipment purchased from the restricted resources of a private hospital should not be depreciated FALSE Capital assets in any health care organization (public, private, or for-profit) must be depreciated, strictly following the full accrual basis of accounting Content: Concept Level: Medium Wilson - Chapter 17 #11 79 Continuing care retirement communities (CCRC) provide residential care in a facility, along with some level of long-term medical care that is less intensive that hospital care TRUE This is the definition of CCRCs provided in Chapter 17 Content: Concept Level: Easy Wilson - Chapter 17 #12 80 A health care organization reports its investments at fair value and records any unrealized gains or losses on the statement of operations FALSE The first part of this statement is generally true; however, which securities are marked to fair value and where the unrealized gains and losses are reported depends on whether the organization is a for-profit (see SFAS No 115), a governmental (see GASBS 31), or not-for-profit health care entity (see SFAS No 124) Content: Concept Level: Medium Wilson - Chapter 17 #13 19 81 Contingencies that are unique to health care providers arise from malpractice claims, risk contracting, and third-party payor payment programs, obligations to provide uncompensated care, and contractual agreements with physicians TRUE These are some commitments and contingencies likely to be found in health care organizations Content: Concept Level: Medium Wilson - Chapter 17 #14 82 The asset section of the balance sheet will indicate whether the health care organization is for-profit, not-for-profit, or governmental FALSE The equity, not asset, section, of a balance sheet ill provide information to determine the legal structure of a health care organization A for-profit organization will have capital stock and retained earnings in its equity section of the balance sheet; a not-for-profit organization will report net assets classified as to unrestricted, temporarily restricted or permanently restricted; and a governmental health care organization (according to GASBS 34) will display net assets invested in capital assets, net of related debt; restricted, or unrestricted Content: Concept Level: Medium Wilson - Chapter 17 #15 83 A gift to a hospital given with the stipulation that the principal be maintained intact for ten years and then it may be expended would be an example of a permanent endowment FALSE This is an example of a term endowment not a permanent or pure endowment in which the principal is to be maintained intact in perpetuity Content: Concept Level: Easy Wilson - Chapter 17 #16 84 Health care organizations often collaborate and combine with related entities in providing health care services TRUE For a variety of reasons, health care organizations will form partnerships and working relationships with other entities Examples include, separate fund-raising and medical research foundations, and obligated groups (e.g., to obtain financing) Content: Concept Level: Medium Wilson - Chapter 17 #17 20 85 The goal of financial and operational analysis of a health care organization is to determine if the entity is profitable FALSE The goal of financial and operational analysis depends on the decision maker doing the analysis For example, a bond holder will assess the organization's liquidity or ability to repay debt, the third party payor may be interested in pricing strategies, management may evaluate productivity and efficiency, and patients are interested in the quality of care Content: Concept Level: Easy Wilson - Chapter 17 #18 86 The required financial statements for a not-for-profit hospital are a balance sheet, statement of revenues and expenses of the General Fund, a statement of changes in fund balances, and a statement of cash flows of the General Fund FALSE Not-for-profit health care organizations are required to present a balance sheet, statement of operations, statement of changes in equity, and a statement of cash flows, as well as notes to the financial statements for the entity as a whole Content: Concept Level: Easy Wilson - Chapter 17 #19 87 An appropriate performance indicator for a not-for-profit hospital is the excess of revenues over expenses TRUE Other performance indicators described in the AICPA Audit and Accounting Guide Health Care Organizations are revenues and gains over expenses and losses, earned income, and performance earnings Content: Concept Level: Easy Wilson - Chapter 17 #20 88 Which statement is false regarding generally accepted accounting principles (GAAP) applicable to health care organizations? A Private hospitals follow guidance from the GASB B Public health care organizations follow guidance from the GASB C The AICPA Audit and Accounting Guide Health Care Organizations provides guidance for public, private, and for-profit health care entities D All of these statements are true Content: Concept Level: Medium Wilson - Chapter 17 #21 21 89 The AICPA Audit and Accounting Guide Health Care Organizations requires that the following statements be prepared for health care organizations: A Balance sheet, statement of activities, statement of changes in equity, statement of cash flows B Balance sheet, statement of revenues and expenses, statement of changes in equity, statement of cash flows C Balance sheet, statement of operations, statement of changes in equity, statement of cash flows D Balance sheet, statement of operations, statement of changes in equity, statement of cash flows, statement of functional expenses Content: Concept Level: Easy Wilson - Chapter 17 #22 90 If the equity section of the balance sheet is comprised of unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, then the health care organization is A B C D Public, governmental Private, nongovernmental Commercial or proprietary Cannot be determined Content: Concept Level: Medium Wilson - Chapter 17 #23 91 Contractual adjustments that arise from differences between the gross charge for patient services and the amount paid by a third party payor are reported as A B C D Bad debt expense Disclosures in the notes to the financial statements It depends on how material the differences are Deductions from gross patient revenue in arriving at net patient revenue Content: Concept Level: Medium Wilson - Chapter 17 #24 92 Which of the following statements is true about diagnosis-related groups (DRGs)? A DRGs are the basis for a cost accounting method that groups costs together by departments performing the services B The federal Medicare system of retroactive payment for services depends on DRGs C A DRG is a case-mix classification scheme that is used to determine the payment provided to the hospital for inpatient services, regardless of how much the hospital spends to treat a patient D None of the above is a true statement Content: Concept Level: Medium Wilson - Chapter 17 #25 93 Assets whose use is limited by contracts or agreements with outside parties other than donors or grantors are labeled A B C D Assets limited as to use Designated assets Temporarily restricted net assets Restricted assets Content: Concept Level: Medium Wilson - Chapter 17 #26 22 94 The primary source of revenue for hospitals is A B C D Nonexchange transactions, such as contributions Exchange transactions, such as fees for services Investment income Capitation fees from health maintenance organizations Content: Concept Level: Easy Wilson - Chapter 17 #27 95 A contribution that is restricted by the donor to be held in perpetuity and for which the investment income can be spent at the discretion of a nongovernmental, not-for-profit hospital's governing board, will be reported as an increase to A B C D Endowments Current restricted funds Permanently restricted net assets Specific purpose assets Content: Concept Level: Medium Wilson - Chapter 17 #28 96 Charity service and bad debts in a public hospital that follows business-type accounting are reported A The same, both as deductions from gross patient revenue in arriving at net patient revenue B The same, both are reported as expenses C Differently, charity service is reported as a deduction from gross patient revenue and bad debts are reported as an expense D Differently, charity service is merely disclosed in the notes to the financial statements, and bad debts are reported as a deduction from revenue Content: Concept Wilson - Chapter 17 #29 97 For which of the following volunteers in a hospital is there most likely going to be reported contribution income and salary expense? A B C D Community members who plant flowers on the grounds once a year in the spring Volunteers in the gift shop who work a few hours a day serving customers Nurses who are affiliated with a religious organization and not receive a salary An accountant who is a member of the board of directors Content: Concept Level: Medium Wilson - Chapter 17 #30 98 Which of the following would not be considered a health care organization required to follow guidance in the AICPA Audit and Accounting Guide Health Care Organizations? A B C D A heart research and education foundation A home health agency A hospice A health maintenance organization Content: Concept Level: Easy Wilson - Chapter 17 #31 23 99 Which of the following would usually be considered as temporarily restricted funds in a nongovernmental not-for-profit hospital? A B C D Investment income Donated services by senior citizens A permanent endowment received from the city's leading citizen A research grant from the federal government to study high blood pressure Content: Concept Level: Medium Wilson - Chapter 17 #32 100 Independent health care organizations that associate for the specific purpose of obtaining financing are called a (an) A B C D Consolidation Obligated group Affiliation Joint venture Content: Concept Level: Medium Wilson - Chapter 17 #33 101 Which of the following statements is true? A Hospital accounting and financial reporting is identical to that used by for-profit businesses B Hospitals use modified accrual accounting C Hospitals record revenues based upon full charges and report contractual adjustments as a deduction from revenues D None of the above is true Content: Concept Level: Medium Wilson - Chapter 17 #34 102 Contractual adjustments is properly characterized as A B C D An expense An other financing use A liability A deduction from revenues Content: Concept Level: Medium Wilson - Chapter 17 #35 103 An unrestricted pledge from an annual contributor to a not-for-profit hospital with a December 31 year end that was made in October 2007 to be paid in cash March 2008 would generally be credited to: A B C D Contributions Temporarily Restricted in 2007 Contributions Unrestricted in 2007 Contributions Temporarily Restricted in 2008 Contributions Unrestricted in equal amounts in 2007 and 2008 Content: Concept Level: Medium Wilson - Chapter 17 #36 24 104 Donated medicines that normally would be purchased by a hospital should be recorded at fair market value and should be credited to A B C D Net patient Service Revenue Nonoperating Gains Other Revenue Deferred Revenues Content: Concept Level: Medium Wilson - Chapter 17 #37 105 Under SFAS No 116, pledges received by a nongovernmentally owned not-for-profit hospital during its building construction fund drive, and restricted for that purpose, would be recognized as an increase in temporarily restricted net assets (support) A B C D When the building is constructed When the pledge is made When the pledge is collected During each period of construction using the percentage-of-completion method Content: Concept Level: Medium Wilson - Chapter 17 #38 106 SFAS No 117 requires that interest received on endowment funds be reported in the statement of cash flows as a(n) A B C D Reconciliation of change in net assets to cash Operating activity Investing activity Financing activity Content: Concept Level: Medium Wilson - Chapter 17 #39 107 The statement of activities required by SFAS No 117 for health care entities subject to its jurisdiction must display changes for the period in which of the following categories of net assets? A B C D Unrestricted Temporarily restricted Permanently restricted All of the above Content: Concept Level: Medium Wilson - Chapter 17 #40 108 Which of the following would be an appropriate performance indicator for a not-for-profit health care organization? A B C D Revenues Excess of revenues and gains over expenses and losses Expenses and losses Contributions to long-lived assets Content: Concept Level: Medium Wilson - Chapter 17 #41 25 Ch15-17 Summary Category # of Questions Content: Concept 107 Level: Easy 16 Level: Medium 90 Wilson - Chapter 15 29 Wilson - Chapter 16 38 Wilson - Chapter 17 41 ...11 The Governmental Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A State and local government entities and governmentally-related... 01 #10 11 The Governmental Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for A State and local government entities and governmentally-related... recommend accounting and financial reporting standards for the federal government is the A B C D Financial Accounting Standards Board (FASB) Governmental Accounting Standards Board (GASB) Cost Accounting