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CPA Exam - FAR (Financial Accounting and Reporting) practice questions

200 free questions with answers and explanations.

Practice test
  1. 51.A city's General Fund purchased a new police vehicle for $70,000. Under modified accrual accounting, how should this transaction be recorded in the General Fund?State and Local Governments
  2. 52.A county government issued $20,000,000 in general obligation bonds at a premium of $500,000 to finance the construction of a new courthouse. The bonds have a maturity of 20 years. Under modified accrual accounting, how should the bond premium be recorded by the governmental funds?State and Local Governments
  3. 53.A not-for-profit museum received a contribution of artwork valued at $500,000. The donor stipulated that the artwork must be displayed for public viewing for at least 10 years. The museum's policy is to capitalize all donated artwork. How should this contribution be recognized in the Statement of Activities?Not-for-Profit Entities
  4. 54.A not-for-profit organization received a restricted contribution of $50,000 to be used for the purchase of new medical equipment. The equipment was purchased for $50,000 in the same fiscal year. How should this transaction be reported on the Statement of Activities?Not-for-Profit Entities
  5. 55.A not-for-profit organization received a $500,000 cash contribution. The donor specified that the funds must be used for a specific research project, but only if the organization first secures matching funds from other donors within the next six months. If the matching funds are not secured, the $500,000 must be returned. How should the $500,000 be recognized by the organization upon receipt?State and Local Governments
  6. 56.A city government uses modified accrual accounting for its governmental funds. During the current fiscal year, the General Fund recorded a $100,000 purchase of office supplies. At year-end, $30,000 of these supplies remained unused. The city uses the purchases method for supplies. What effect will this have on the General Fund's fund balance at year-end, assuming no other adjustments related to supplies?State and Local Governments
  7. 57.A state government operates a lottery system, with a portion of the proceeds legally mandated to support public education. The lottery is managed and accounted for as an Enterprise Fund, but the funds for education are transferred to a Special Revenue Fund. How should the transfer of these funds from the Enterprise Fund to the Special Revenue Fund be reported on the government-wide financial statements?State and Local Governments
  8. 58.A county government maintains an investment pool for its various departments and component units, where the participating entities can invest their idle cash. The county acts as a trustee for these investments, managing the pool and distributing earnings based on participants' shares. Which type of fund would be most appropriate for accounting for this investment pool?State and Local Governments
  9. 59.A county government maintains a pension trust fund for its employees. The fund holds investments, receives employer and employee contributions, and pays out benefits to retirees. What measurement focus and basis of accounting should be used for this pension trust fund?State and Local Governments
  10. 60.A not-for-profit hospital received a cash donation of $1,000,000 with a donor-imposed restriction that the funds be used to establish an endowment, the income from which is expendable for general operating purposes. How should this contribution be classified in the hospital's net assets?Not-for-Profit Entities
  11. 61.A not-for-profit educational institution received a donation of land with an appraised fair value of $300,000. The donor stipulated that the land must be used to construct a new dormitory, and it cannot be sold. The institution immediately began planning the construction. How should the NFP record the initial receipt of this land?Not-for-Profit Entities
  12. 62.A county government received a state grant of $1,000,000 to be used for road maintenance. The grant stipulated that the funds must be spent within the next fiscal year. The county uses modified accrual accounting. At the end of the current fiscal year, $300,000 of the grant funds had been expended. How should the remaining $700,000 be reported in the governmental funds' financial statements at year-end?State and Local Governments
  13. 63.A state government received a federal grant of $5,000,000 to be used for a specific highway improvement project. The grant agreement states that the funds are contingent upon the state incurring eligible expenditures. As of year-end, the state had incurred $2,000,000 in eligible expenditures for the project, and the federal government had reimbursed the state for $1,500,000. Under modified accrual accounting, what amount should the state government recognize as revenue from this grant for the current fiscal year?State and Local Governments
  14. 64.A city government received $500,000 from a federal grant to fund a specific program. The grant requires the city to incur eligible expenditures before it can request reimbursement. As of year-end, the city had incurred $200,000 in eligible program expenditures but had not yet requested reimbursement. How should the city record the unspent portion of this grant in its General Fund at year-end, assuming modified accrual accounting?State and Local Governments
  15. 65.A not-for-profit entity received a gift of marketable securities with a fair value of $250,000. The donor stipulated that the principal amount must be maintained in perpetuity, but the income generated from these securities could be used for general operating expenses. How should this contribution be classified on the Statement of Financial Position?Not-for-Profit Entities
  16. 66.A state government operates a lottery system, with a portion of the proceeds legally mandated to be transferred to the General Fund to support general government operations. This transfer is non-reciprocal and does not involve repayment. In the government-wide financial statements, how should this transfer be reported?State and Local Governments
  17. 67.A county government issued $10,000,000 in general obligation bonds at par to finance the construction of a new administrative building. The bonds have a 20-year maturity. During the construction phase, the county incurred $2,000,000 in architect fees and $5,000,000 in contractor payments. Which of the following statements accurately describes the accounting treatment for the bond proceeds within the governmental funds?State and Local Governments
  18. 68.A local historical society, a not-for-profit organization, receives a $50,000 grant from a private foundation to fund a specific educational program for the next two years. The grant agreement states that the funds must be spent on program expenses and any unspent funds must be returned. How should this grant be recognized and presented in the society's financial statements for the year received?State and Local Governments
  19. 69.A state government implemented a new pension plan for its employees during the current fiscal year. The actuarially determined contribution for the year was $10,000,000. However, due to budget constraints, the state only contributed $8,000,000 to the pension plan. On the government-wide financial statements, what amount should the state report as pension expense for the year, assuming no other changes in net pension liability?State and Local Governments
  20. 70.A not-for-profit entity (NFP) is preparing its Statement of Cash Flows using the direct method. The NFP received $200,000 in unrestricted cash contributions, $50,000 in cash for a temporarily restricted program, and spent $10,000 on investment expenses related to its endowment. How should these items be presented in the operating activities section?Not-for-Profit Entities
  21. 71.A municipal government maintains an investment pool for its various departments and component units, where each participant has an undivided interest in the pool. The government acts as a fiduciary for these investments and is responsible for managing them. Which type of fund would most appropriately account for this investment pool?State and Local Governments
  22. 72.A county government received a $3,000,000 federal grant to fund a specific environmental protection program. The grant stipulates that the funds can only be used for eligible program expenditures, and any unspent funds must be returned to the federal government. The county uses modified accrual accounting for its governmental funds. During the current fiscal year, the county incurred and paid $1,200,000 in eligible program expenditures. How should the county recognize revenue from this grant in its governmental funds for the current fiscal year?State and Local Governments
  23. 73.A not-for-profit (NFP) organization received a pledge of $100,000 from a donor. The pledge is unconditional, but the donor specified that the funds are to be used to renovate the NFP's administrative building, which is expected to occur in the next fiscal year. How should this unconditional pledge be initially recognized by the NFP organization?State and Local Governments
  24. 74.A county government maintains a Pension Trust Fund for its employees. During the year, the fund received $10,000,000 in employee and employer contributions, earned $2,000,000 in investment income, and paid $1,500,000 in pension benefits to retirees. What is the net increase in plan net position for the Pension Trust Fund for the year?State and Local Governments
  25. 75.A municipal government operates a central print shop that provides printing services exclusively to its various departments (e.g., General Fund, Public Works). The print shop charges these departments fees that cover its operating costs, including depreciation of its printing equipment. Which type of fund would most appropriately account for the financial activities of this central print shop?State and Local Governments
  26. 76.A public university, which is considered a component unit of the state government, received a $2,000,000 endowment from an alumnus. The donor stipulated that the principal must be invested in perpetuity, and the income generated from the investment should be used to fund scholarships for students. How should the university classify this endowment in its Statement of Net Position?State and Local Governments
  27. 77.A local government issues its Comprehensive Annual Financial Report (CAFR). Which of the following statements about the Net Position classification on the government-wide Statement of Net Position is correct?State and Local Governments
  28. 78.A not-for-profit (NFP) organization received a $100,000 cash contribution. The donor specified that the funds must be used to purchase a new accessible van for transporting beneficiaries. The NFP purchased the van for $100,000 in the same fiscal year. How should this contribution affect the NFP's net assets classification in the Statement of Financial Position at year-end?State and Local Governments
  29. 79.A not-for-profit social service agency received a contribution of an office building valued at $2,000,000. The donor stipulated that the building must be used as the agency's headquarters for at least 20 years. After 20 years, the agency can sell the building and use the proceeds for any purpose. How should the initial receipt of this building be recorded?Not-for-Profit Entities
  30. 80.A city government has legally mandated restrictions on using certain property tax revenues specifically for public safety expenditures. These revenues are collected and disbursed through a separate fund. Which type of governmental fund would be most appropriate to account for these transactions?State and Local Governments
  31. 81.A local government's General Fund incurred an expenditure of $500,000 for a new fire truck. The fire truck has an estimated useful life of 10 years. In the government-wide financial statements, how will this transaction primarily be reported in the year of acquisition?State and Local Governments
  32. 82.A community art center, a not-for-profit organization, received a donation of historical artifacts valued at $75,000. These artifacts are to be preserved and displayed for public exhibition, and the NFP has a policy to preserve such items. The NFP does not capitalize collections if they are held for public exhibition, protected, cared for, and subject to a policy that requires proceeds from their sale to be reinvested in other collection items. How should this donation be recognized?Not-for-Profit Entities
  33. 83.A performing arts NFP received a contribution of tickets valued at $500 to a show it produced. The tickets were given to a major donor as an acknowledgment of their annual support, which is common practice for the NFP. How should the NFP record these tickets?Not-for-Profit Entities
  34. 84.A city government is preparing its government-wide financial statements. It owns a municipal golf course that is accounted for as an Enterprise Fund. The golf course has capital assets with a book value of $5,000,000, financed by $3,000,000 in general obligation bonds and $2,000,000 from golf course operating revenues. How would the 'Net Investment in Capital Assets' component of Net Position be reported for the golf course in the government-wide Statement of Net Position, assuming no other relevant transactions?State and Local Governments
  35. 85.A not-for-profit university incurred the following expenses during the year: program services $800,000, management and general $150,000, and fundraising $50,000. What is the total amount of functional expenses that must be reported on the Statement of Activities or in the notes to the financial statements?Not-for-Profit Entities
  36. 86.A not-for-profit (NFP) organization received a cash contribution of $150,000 to be used specifically for the construction of a new community center. The NFP also received an unrestricted cash donation of $50,000. How should these contributions be reported in the Statement of Activities?Not-for-Profit Entities
  37. 87.A private not-for-profit college receives a substantial contribution from an alumna, specifying that the funds must be used to establish a scholarship fund for students pursuing degrees in STEM fields. The alumna further stipulates that the principal of the fund must remain intact in perpetuity, and only the investment income can be used for scholarships. How should this contribution be classified on the Statement of Financial Position?Not-for-Profit Entities
  38. 88.A not-for-profit organization received a $100,000 contribution from a donor with the stipulation that the funds must be used to purchase a specific piece of medical equipment. The organization purchased the equipment for $100,000 during the same fiscal year. How should this contribution be reported in the Statement of Activities?State and Local Governments
  39. 89.A county government received a state grant of $2,000,000 to be used for a specific program. The grant requires the county to use the funds within the next fiscal year. The county uses modified accrual accounting for its governmental funds. As of the end of the current fiscal year, the county had not yet incurred any expenditures related to this grant. How should this grant be reported in the General Fund's financial statements at year-end?State and Local Governments
  40. 90.A municipal utility provides electricity to its residents. For the year, the utility reported operating revenues of $20,000,000, operating expenses (including depreciation) of $15,000,000, and non-operating revenues (e.g., interest income) of $500,000. It also made a transfer of $1,000,000 to the General Fund. What is the change in net position for this enterprise fund for the year?State and Local Governments
  41. 91.A local historical society, a not-for-profit organization, received a $75,000 grant from a private foundation. The grant agreement states that the funds must be used to restore the society's historic building within the next two years. What is the appropriate classification for this grant upon receipt by the historical society?State and Local Governments
  42. 92.A not-for-profit health clinic received a donation of medical supplies with a fair value of $15,000. These supplies are intended for immediate use in patient care programs. The clinic's policy is to expense supplies when consumed. How should the clinic recognize this contribution?Not-for-Profit Entities
  43. 93.A municipality's General Fund transferred $500,000 to its Debt Service Fund to cover the principal and interest payment due on general obligation bonds. How should this transaction be reported in the governmental funds' Statement of Revenues, Expenditures, and Changes in Fund Balances?State and Local Governments
  44. 94.A not-for-profit entity relies heavily on volunteers for its administrative and program services. Which of the following volunteer services would most likely be recognized as a contribution and recorded at fair value?Not-for-Profit Entities
  45. 95.A city government received $1,000,000 in property tax revenues during its fiscal year. Of this amount, $900,000 was collected within 60 days after year-end, and the remaining $100,000 was collected 90 days after year-end. For its General Fund, which uses modified accrual accounting, how much property tax revenue should the city recognize for the fiscal year?State and Local Governments
  46. 96.A public university, a component unit of the state government, received a $2,000,000 endowment from a donor. The donor stipulated that the principal must be invested in perpetuity, and the income generated from the investment must be used to fund student scholarships. How should this endowment be classified in the university's Statement of Net Position (assuming it follows GASB standards)?State and Local Governments
  47. 97.A public university, a component unit of the state government, received a $5,000,000 endowment. The donor stipulated that the principal must be held in perpetuity, but the earnings from the investment of the principal can be used for any purpose determined by the university's board of trustees. How should this endowment be classified in the university's Statement of Net Position?State and Local Governments
  48. 98.A city government received $2,000,000 from the sale of general obligation bonds for capital improvements. The bonds carry a 5% interest rate, payable semi-annually. The bond proceeds were immediately transferred to a Capital Projects Fund. How should this interfund transfer be reported in the governmental funds' financial statements?State and Local Governments
  49. 99.A county government received a federal grant of $1,000,000 to be used exclusively for the construction of a new public library. The grant funds were received on October 1, 2024. Construction is expected to begin in January 2025. Which fund will account for the receipt of these grant funds, and how will it be classified in that fund's financial statements for the fiscal year ending December 31, 2024?State and Local Governments
  50. 100.A city's General Fund purchased a new police vehicle for $70,000. Under modified accrual accounting, how should this transaction be recorded in the General Fund's accounting records?State and Local Governments