ACCT350, Study Guide for Test 1, Mid-term
The mid-term exam will consist of two parts. The first part will be closed book and will cover the
material listed below. The second part will be open-book, open-note, & open-brain. Essentially
anything that we have covered, both in and out of the textbook, could possibly show up on the
second part. You can use any non-human resource for the second part, including laptops and the
computer-lab (if available). When you are done the first part, you will be given the second part.
Both parts should be completed in two hours.
Note: this study guide may be slightly tweaked in the weeks leading up the mid-term.
Study Topics for Closed-Book Part
Chapter 1
1. Be able to make a case for the importance of the G/NFP sector in America. For example,
what would happen in the Walla Walla Valley if every G/NFP organization ceased to exist?
2. Who owns a G/NFP organization? Why is the budget so critical to a G/NFP?
3. In a typical city, county and state government, what is the executive branch called? The
legislative branch? The head of the executive branch?
4. Which of the three branches of government makes laws? Executes laws? Interprets laws?
Which of the three branches of government prepares/proposes the budget? Approves or
adopts the budget, which enacts it into law? Must a state/local gov’t balance their budget
(either with current resources or excess past resources)? Does the federal gov’t have to
balance its budget in the same way? Can a state/local government legally spend a dime
until the expenditures have been appropriated? What can a state do to pay its starving
workers if the legislative branch has not approved a budget? Which western states are
notorious for passing late budgets? What is an example of state that had difficulty passing
its 2016 budget in time?
5. Review the concept of interperiod equity and how it relates to government debt. For
example, does the whopping national debt indicate an adherence to, or violation of,
interperiod equity? As a responsible citizen (particularly a younger citizen), why should
you be concerned about interperiod equity? What are Milton Freidman’s four categories of
spending money and how is this related to the difficulty of gov’t accountability?
Approximately what is the gross U.S. federal debt to the nearest trillion? [Answer: just over
$19T.] The gross federal debt is what percent of GDP? [Answer: 105%]. What amount is
the latest federal deficit [$438B]. Is it expected to increase or decrease in the future?
[Answer: Increase, due in part to expected increases in medical costs and interest rates.]
6. What are the main characteristics of G/NFPs that differentiate them from for-profit
businesses? Be able to illustrate these differences using an example, such as a taxicab vs. a
city bus system, a for-profit vs. NFP hospital, or a bank vs. a credit union.
7. What is a Benefit or Flexible Purpose Corporation?
8. How are governmental not-for-profits distinguished from non-governmental not-forprofits? If given a list of well known not-for-profit organizations, be prepared to determine
which are governmental and which are not. For example, which is governmental, WWVA
or WaHi? (i.e. Walla Walla Valley Academy or Walla Walla High School)
9. Distinguish between the FASB and GASB. If given a list of organizations, be prepared to
determine whether each organization would follow the standards of the FASB or GASB.
For example, which does WWU follow? What about WWCC?
10. Why do governmental funds use the modified accrual method and not the accrual method?
Review the differences between the modified accrual and the accrual method. Which
method focuses on current resources (working capital) and which method on economic
resources? Which method records only current assets/liabilities? Why does it record only
current assets/liabilities? Which method records all assets/liabilities, including those that
are long-term? Which method uses the term expenditures and which method uses the term
expenses? What is the difference between a capital expenditure and a revenue expenditure?
How does the purchase of a capital asset differ under modified accrual vs. accrual
accounting? How does the receipt of a long-term borrowing differ under modified accrual
vs. accrual accounting? Understand the journal entries that illustrate the difference
between the two methods. Know which fund groups use which of the two accounting
methods.
Chapter 2
11. Review the purpose and usage of the governmental funds, proprietary funds, and fiduciary
funds. Given a certain transaction, be able to match which fund it should be recorded in,
similar to what you had to do on assignments and quizzes. For example, in which fund
would a city water utility be recorded, assuming that the fees charged to city water users
entirely support the cost of providing the service?
12. Be able to determine how a transaction would affect the balance sheet of a fund, similar to
assignment 2d.
13. Review budgetary accounting. Understand the purpose and of budgetary accounts,
including estimated revenues, appropriations, encumbrances, estimated other financing
sources/uses, and budgetary fund balance. Understand why fund balance must be reserved
for outstanding encumbrances that are to be honored in a new period (non-lapsing).
Understand budgetary journal entries and preparation of basic financial statements for a
fiscal period, similar to assignment 2d. Also review Problems from the back of Ch. 2.
Problem 3-10 solutions are at the end of this document (below), which can serve as a
practice problem. You will not have to prepare closing entries but you will need to know
how the financial statements are affected by closing transactions.
Chapter 3
14. If given a certain transaction, be able to match whether it is an exchange transaction,
exchange-like transaction, or non-exchange transaction. For a non-exchange transaction,
be prepared to determine which of the four types it belongs to (derived, imposed,
mandated, or voluntary). For example, what type of transaction is this: a citizen buys $100
of goods at Walmart in College Place and pays $8.70 of sales tax on top of the purchase
price?
15. For each of the different types of revenues listed in the previous item, know how and when
the revenues and expenses/expenditures should be recorded. For example, in which month
should the State of Washington record the sales tax revenue for the purchase of goods at
Walmart on April 29?
16. Review how and when the various tax revenues are recorded (property tax, sales tax,
income tax, hotel tax, and licenses/permits). Review how and when the following non-tax
revenues are recorded: government-mandated revenues (food stamps, etc.);
grants/entitlements; shared revenues; special assessments (note the difference between
service-type and capital improvement assessments); charges of goods/services; and
fines/forfeitures.
17. Review how and when donation revenues are recorded. Note the definition and treatment
of an endowment gift. If a government receives a donation of works of art or historical
treasures, what options do gov’ts have to account for this?
18. Note how and when the following interfund transactions are recorded: due to/from other
funds, advances to/from other funds, operating transfers to/from other funds, residual
equity transfers to/from other funds, and reimbursements. Be able to determine if an
interfund transaction is reciprocal (exchange) or non-reciprocal. Review P3-9.
19. Be able to complete a set of journal entries for the revenue/expenditures of the general fund
of a typical city, along with basic end-of-year financial statements. You will not need to
prepare closing entries. (For examples, see Problem 3-10 at end of Ch. 3 notes, or Quiz 3b,
or P3-11-see solutions below).
20. What is Tax Freedom Day? Which type of taxes does the federal gov’t appear to rely more
on? Which type of taxes do state/local gov’ts appear to relay more on?
21. How does a progressive tax differ from a regressive tax and a flat tax? Which of these
three tax systems (progressive, regressive, flat) applies to income tax? Social Security tax?
Be able to intelligently argue whether you think the Federal income tax is too progressive,
not progressive enough, or just right (have facts, figures, and philosophical rationale to
support your argument).
22. Understand how the levy and collection of property taxes work. Know how to interpret the
mill levy rate. Review how the property taxes paid by a resident of College Place are used
by the state, county, and local governments.
Chapter 4
23. Why is an investment policy important?
24. Understand the causes and effect of Orange County’s bankruptcy.
25. As a general rules, at what value should government investments be recorded on the
balance sheet?
26. Understand the purpose/usage/journal entries of the following: repurchase agreements,
reverse repurchase agreements, and security lending arrangements.
27. Why are internal investment pool funds not recorded in the consolidated financial
statements but external investment pools are recorded?
28. Review the journal entries for the two methods used to record supplies. Which method
must be used by the proprietary funds? Do governmental funds have a choice of methods?
Why should fund balance be reserved for unused end-of-year supplies?
29. Should cash or liquid investments restricted for a long-term purpose be shown as current
assets (e.g. cash donated for endowment)? Why or why not?
30. Review how or when infrastructure assets are recorded by a state/local government.
Regarding the infrastructure of the nation, generally in what condition is it? Under what
conditions can gov’ts not record depreciation of infrastructure assets?
31. What is the purpose/usage of the each of the following: TAN, RAN, BAN?
32. Note how the costs of a landfill not only include operating costs but also postclosure and
environmental costs. This means that the cost of a landfill must factor in the cost to restore
the land to alternative uses when the landfill closes.
33. Review the meaning of the following categories of fund balance: reserved, unreserved,
nonspendable, committed, restricted, assigned, and unassigned. Note how the expression
“net assets” is used instead of “fund balance” for proprietary and fiduciary funds.
Chapter 5
34. In recent years, has the GASB been shifting toward accrual or modified accrual
accounting?
35. What is the difference between a primary gov’t and a component unit? How are blended
component units treated differently than discreet ones?
36. Do Gov’t-Wide Financial Statements follow accrual or modified accrual accounting? Do
Fund Financial Statements follow accrual or modified accrual -- or does it depend? Of the
three fund groups (governmental, proprietary and fiduciary), which follow(s) accrual
accounting?
37. How does one know whether a fund is big enough to have its own separate column (major
fund) in the financials?
38. What are the two biggest adjustments to convert financial statements from the modified to
full accrual method? (Answer: add long-term assets and liabilities)
If you believe there is insufficient material covered on this test, come talk to me and I can easily
arrange for more. Good luck.
Prob. 3-10. Putting it all together. Prepare journal entries for the following basic
transactions. Assume $1 million of cash and unreserved fund balance were carried
over from the previous year.
a.
The budget is adopted. Estimated revenues are $5,000,000 and
appropriations are $5,100,000.
b.
Property taxes in the amount of $5,000,000 are levied and 5% are
estimated to be uncollectible.
c.
Purchase orders in the amount of $2,300,000 are issued.
d.
$4,800,000 in property taxes are collected.
e.
The remaining property taxes are reclassified as delinquent.
f.
The goods ordered on the purchase orders above in (c) arrive with
invoices for $2,200,000.
g.
Employee salaries are paid in the amount of $2,700,000.
h.
Office supplies in the amount of $30,000 are ordered but do not arrive
before fiscal year-end.
i.
The vouchers for the invoices above in (f) are paid.
j.
The fiscal year ends, and the budgetary accounts are closed.
Answer.
a. Estimated Revenues
Budgetary Fund Balance
Appropriations
b.
Property Taxes Receivable - Current
Allowance for Uncollectible Property
Taxes - Current
Property Tax Revenue
c.
Encumbrances
Budgetary Fund Balance Reserved for
Encumbrances
d.
Cash
Property Taxes Receivable - Current
Allowance for Uncollectible Property Taxes
- Current
Property Tax Revenue
e.
Property Taxes Receivable - Delinquent
Property Taxes Receivable - Current
Allowance for Uncoll. Prop. Taxes - Current
Allowance for Uncoll. Prop. Tax Delinquent
f.
Budgetary Fund Balance Reserved for
Encumbrances
Encumbrances
Expenditures
Vouchers Payable
g.
Expenditures-Salaries
Cash
h.
Encumbrances
Budgetary Fund Balance Reserved for
Encumbrances
i.
Vouchers Payable
Cash
j.
CLOSING ENTRIES
Appropriations
Expenditures
Budgetary Fund Balance
Property Tax Revenues
Budgetary Fund Balance
Estimated Revenues
Unreserved Fund Balance
Budgetary Fund Balance
Budgetary Fund Balance Reserved for
Encumbrances
Encumbrances
5,100,000
4,900,000
200,000
4,800,000
200,000
5,000,000
100,000
100,000
30,000
30,000
Unreserved Fund Balance
Fund Balance Reserved for Encumbrances
30,000
STATEMENT OF ACTIVITIES
Budget
Actual
Revenues
5,000,000
?
Expenditures/Encumbrances
?
4,930,000
Net
?
-130,000
30,000
Variance
?
?
30,000U
BALANCE SHEET
Cash
Prop. Tax. Rec. – Del.
Allow. For Uncoll. PT – Del.
TOTAL ASSETS
Beg. Bal.
1,000,000
0
0
1,000,000
End. Bal.
900,000
?
?
900,000
Fund Balance
Reserved for Encumb.
Unreserved
TOTAL FUND BALANCE
0
1,000,000
1,000,000
?
?
?