Test Bank for Government and Not-for-Profit Accounting: Concepts and
Practices, 9th Edition by Michael H. Granof
Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The objectives of a typical government or not-for-profit entity include abstract
goals that are more difficult to quantify than profit.
2. A government’s budget may be backed by the force of law.
3. Governments have no need for an accounting system.
4. A government’s constituents rely on general purpose financial statements for
a considerable amount of information about their government.
5. Governments and not-for-profit entities may never engage in business-type
activities.
6. Lenders use the financial statements of governments and not-for-profit
entities just as they would those of businesses, that is, to help assess the
borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly affect the
economic worth of an entity.
8. The Federal Accounting Standards Advisory Board’s standards do not apply
to the federal Department of the Treasury.
9. Sarbanes-Oxley was passed in 2002 with the sole purpose of enhancing the
independence of the GASB.
10. The Governmental Accounting Standards Board establishes generally
accepted accounting principles for all state and local governments and all
not-for-profit entities.
Granof_9E_TestBank_ch01 Page 1
,ANSWERS TO TRUE/FALSE QUESTIONS (CHAPTER 1)
1. True
2. True
3. False
4. True
5. False
6. True
7. True
8. False
9. False
10. False
Granof_9E_TestBank_ch01 Page 2
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses is
a. The need to generate revenues equal to or more than
expenditures/expenses.
b. The importance of the budget in the governing process.
c. The need to provide goods or services.
d. The correlation between revenues generated and demand for goods or
services.
2. A primary characteristic that distinguishes government from not-for-profits is
a. The need to generate revenues equal to or more than
expenditures/expenses.
b. The ability to levy taxes.
c. The need to provide goods or services.
d. The correlation between revenues generated and demand for goods or
services.
3. Which of the following characteristics distinguishes a government or not-for-
profit entity from a business?
a. There is always a direct link between revenues generated and
expenditures/expenses incurred.
b. Capital assets are used to produce revenues and save costs.
c. Revenues are always indicative of demand for goods and services.
d. The mission of the entity may include goals other than maximizing
profit.
4. The most significant financial document provided by a government is the
a. Balance sheet.
b. Operating statement.
c. Operating budget.
d. Cash flow statement.
5. Which of the following statements is true?
a. Governments may engage in activities like activities engaged in by for-
profit entities.
b. There are a small number of different types of governments.
c. All governments engage in the same activities.
d. Managers may have a long-term focus and thereby sacrifice the short-
term liquidity of the entity.
Granof_9E_TestBank_ch01 Page 3
, 6. Which of the following activities is not an activity in which a government might
engage?
a. Selling electric power.
b. Operating a golf course.
c. Operating a bookstore.
d. All of the above are activities that might be carried out by a
government.
7. In which of the following activities is a not-for-profit entity least likely to
engage?
a. Providing educational services.
b. Providing health-care services.
c. Providing for terrorism defense.
d. Retail sales of cookies
8. Which of the following can be affected by GAAP?
a. Legal ability to issue bonds.
b. Ability to balance the budget.
c. Amount reported as employee pension plan contributions.
d. Claims and judgments settled.
9. Which of the following characteristics is unique to governments?
a. The ability to have activities financed with tax-exempt debt.
b. The power to impose fees.
c. The ability to issue tax-exempt debt.
d. The ability to have activities financed by Federal grants.
10. To obtain a comprehensive understanding of a government’s fiscal health, a
financial analyst should obtain an understanding of which of the following?
a. All the resources owned by the government.
b. All the resources that may be summoned by the government.
c. Demographic data about the residents served by the government.
d. All of the above.
11. Which of the following is common to both governments and not-for-profit
entities but distinguishes these entities from for-profit entities?
a. The budget is a legal, financial document.
b. Revenues are usually indicative of demand for goods or services.
c. There is direct matching of revenues and expenses.
d. There are no defined ownership interests.
Granof_9E_TestBank_ch01 Page 4
Practices, 9th Edition by Michael H. Granof
Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The objectives of a typical government or not-for-profit entity include abstract
goals that are more difficult to quantify than profit.
2. A government’s budget may be backed by the force of law.
3. Governments have no need for an accounting system.
4. A government’s constituents rely on general purpose financial statements for
a considerable amount of information about their government.
5. Governments and not-for-profit entities may never engage in business-type
activities.
6. Lenders use the financial statements of governments and not-for-profit
entities just as they would those of businesses, that is, to help assess the
borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly affect the
economic worth of an entity.
8. The Federal Accounting Standards Advisory Board’s standards do not apply
to the federal Department of the Treasury.
9. Sarbanes-Oxley was passed in 2002 with the sole purpose of enhancing the
independence of the GASB.
10. The Governmental Accounting Standards Board establishes generally
accepted accounting principles for all state and local governments and all
not-for-profit entities.
Granof_9E_TestBank_ch01 Page 1
,ANSWERS TO TRUE/FALSE QUESTIONS (CHAPTER 1)
1. True
2. True
3. False
4. True
5. False
6. True
7. True
8. False
9. False
10. False
Granof_9E_TestBank_ch01 Page 2
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses is
a. The need to generate revenues equal to or more than
expenditures/expenses.
b. The importance of the budget in the governing process.
c. The need to provide goods or services.
d. The correlation between revenues generated and demand for goods or
services.
2. A primary characteristic that distinguishes government from not-for-profits is
a. The need to generate revenues equal to or more than
expenditures/expenses.
b. The ability to levy taxes.
c. The need to provide goods or services.
d. The correlation between revenues generated and demand for goods or
services.
3. Which of the following characteristics distinguishes a government or not-for-
profit entity from a business?
a. There is always a direct link between revenues generated and
expenditures/expenses incurred.
b. Capital assets are used to produce revenues and save costs.
c. Revenues are always indicative of demand for goods and services.
d. The mission of the entity may include goals other than maximizing
profit.
4. The most significant financial document provided by a government is the
a. Balance sheet.
b. Operating statement.
c. Operating budget.
d. Cash flow statement.
5. Which of the following statements is true?
a. Governments may engage in activities like activities engaged in by for-
profit entities.
b. There are a small number of different types of governments.
c. All governments engage in the same activities.
d. Managers may have a long-term focus and thereby sacrifice the short-
term liquidity of the entity.
Granof_9E_TestBank_ch01 Page 3
, 6. Which of the following activities is not an activity in which a government might
engage?
a. Selling electric power.
b. Operating a golf course.
c. Operating a bookstore.
d. All of the above are activities that might be carried out by a
government.
7. In which of the following activities is a not-for-profit entity least likely to
engage?
a. Providing educational services.
b. Providing health-care services.
c. Providing for terrorism defense.
d. Retail sales of cookies
8. Which of the following can be affected by GAAP?
a. Legal ability to issue bonds.
b. Ability to balance the budget.
c. Amount reported as employee pension plan contributions.
d. Claims and judgments settled.
9. Which of the following characteristics is unique to governments?
a. The ability to have activities financed with tax-exempt debt.
b. The power to impose fees.
c. The ability to issue tax-exempt debt.
d. The ability to have activities financed by Federal grants.
10. To obtain a comprehensive understanding of a government’s fiscal health, a
financial analyst should obtain an understanding of which of the following?
a. All the resources owned by the government.
b. All the resources that may be summoned by the government.
c. Demographic data about the residents served by the government.
d. All of the above.
11. Which of the following is common to both governments and not-for-profit
entities but distinguishes these entities from for-profit entities?
a. The budget is a legal, financial document.
b. Revenues are usually indicative of demand for goods or services.
c. There is direct matching of revenues and expenses.
d. There are no defined ownership interests.
Granof_9E_TestBank_ch01 Page 4
