Test Bank for Government And Not For Profit Accounting Concepts
And Practices 9th Edition Michael H. Granof
Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical government or not-for-profit entity is to earn a 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 internal managers 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. Governments may be subject to the same pressures that led to accounting scandals like
Enron.
10. The Governmental Accounting Standards Board establishes generally accepted accounting
principles for all state and local governments and all not-for-profit entities.
Granof Test Bank Chapter 1 Page 1
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses is
a) The need to generate revenues equal to or in excess of 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 not-for-profit entities from businesses is
a) The need to generate revenues equal to or in excess of 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.
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 will determine the goods or services provided.
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 similar to activities engaged in by for-profit
entities.
b) There are a limited 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.
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.
Granof Test Bank Chapter 1 Page 2
,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.
12. Which of the following is NOT a purpose of external financial reporting by governments?
External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.
13. Which of the following is NOT a reason why users need government and not-for-profit
external financial statements?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal solvency.
d) To evaluate the overall profitability of the entity.
14. Users of government financial statements should be interested in information about
compliance with laws and regulations for which of the following reasons?
a) To determine if the government has complied with bond covenants.
b) To determine if the government has complied with taxing limitations.
c) To determine if the government has complied with donor restrictions on the use of funds.
d) To determine all of the above.
Granof Test Bank Chapter 1 Page 3
, 15. Which of the following is NOT generally considered a main user of government and not-for-
profit entity external financial statements?
a) Investors and creditors.
b) Taxpayers.
c) Donors.
d) Internal managers.
16. Which of the following is a probable use a donor would make of the external financial
statements of a not-for-profit entity?
a) To determine the proportion of entity resources directed to programs as opposed to fund-
raising.
b) To determine the creditworthiness of the entity for investment purposes.
c) To determine the salaries paid to all employees of the entity.
d) To determine the budget of the entity.
17. A regulatory agency would use the external financial statements of a local government for
which of the following purposes?
a) To ensure that the entity is spending and receiving resources in accordance with laws,
regulations or policies.
b) To determine how resources should be allocated.
c) To exercise general oversight responsibility.
d) To do all of the above.
18. Which of the following constituency groups would be most likely to evaluate government
financial statements to determine likely areas in which to achieve cost-savings?
a) Creditors.
b) Union officials representing the government‘s employees.
c) Federal agencies that provide purpose-restricted grants.
d) Students of government accounting.
19. Which of the following objectives is considered the cornerstone of financial reporting by a
state or local government?
a) Accountability.
b) Budgetary compliance.
c) Interperiod equity.
d) Service efforts and accomplishments.
20. Which of the following is an objective of financial reporting by state and local governments
as established by the GASB? Financial reporting should assist users in
a) Assessing the management skills of top management.
b) Determining if current-period revenues were sufficient to pay for current-period services.
c) Evaluating the cash management operations of the government for the year.
d) Assessing whether the government provided appropriate services to its constituents in the
current year.
Granof Test Bank Chapter 1 Page 4
And Practices 9th Edition Michael H. Granof
Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical government or not-for-profit entity is to earn a 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 internal managers 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. Governments may be subject to the same pressures that led to accounting scandals like
Enron.
10. The Governmental Accounting Standards Board establishes generally accepted accounting
principles for all state and local governments and all not-for-profit entities.
Granof Test Bank Chapter 1 Page 1
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses is
a) The need to generate revenues equal to or in excess of 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 not-for-profit entities from businesses is
a) The need to generate revenues equal to or in excess of 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.
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 will determine the goods or services provided.
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 similar to activities engaged in by for-profit
entities.
b) There are a limited 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.
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.
Granof Test Bank Chapter 1 Page 2
,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.
12. Which of the following is NOT a purpose of external financial reporting by governments?
External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.
13. Which of the following is NOT a reason why users need government and not-for-profit
external financial statements?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal solvency.
d) To evaluate the overall profitability of the entity.
14. Users of government financial statements should be interested in information about
compliance with laws and regulations for which of the following reasons?
a) To determine if the government has complied with bond covenants.
b) To determine if the government has complied with taxing limitations.
c) To determine if the government has complied with donor restrictions on the use of funds.
d) To determine all of the above.
Granof Test Bank Chapter 1 Page 3
, 15. Which of the following is NOT generally considered a main user of government and not-for-
profit entity external financial statements?
a) Investors and creditors.
b) Taxpayers.
c) Donors.
d) Internal managers.
16. Which of the following is a probable use a donor would make of the external financial
statements of a not-for-profit entity?
a) To determine the proportion of entity resources directed to programs as opposed to fund-
raising.
b) To determine the creditworthiness of the entity for investment purposes.
c) To determine the salaries paid to all employees of the entity.
d) To determine the budget of the entity.
17. A regulatory agency would use the external financial statements of a local government for
which of the following purposes?
a) To ensure that the entity is spending and receiving resources in accordance with laws,
regulations or policies.
b) To determine how resources should be allocated.
c) To exercise general oversight responsibility.
d) To do all of the above.
18. Which of the following constituency groups would be most likely to evaluate government
financial statements to determine likely areas in which to achieve cost-savings?
a) Creditors.
b) Union officials representing the government‘s employees.
c) Federal agencies that provide purpose-restricted grants.
d) Students of government accounting.
19. Which of the following objectives is considered the cornerstone of financial reporting by a
state or local government?
a) Accountability.
b) Budgetary compliance.
c) Interperiod equity.
d) Service efforts and accomplishments.
20. Which of the following is an objective of financial reporting by state and local governments
as established by the GASB? Financial reporting should assist users in
a) Assessing the management skills of top management.
b) Determining if current-period revenues were sufficient to pay for current-period services.
c) Evaluating the cash management operations of the government for the year.
d) Assessing whether the government provided appropriate services to its constituents in the
current year.
Granof Test Bank Chapter 1 Page 4
