CPA FAR F4.M5 — Practice Questions
State & Local Government Accounting. Below are 8 real practice questions with worked explanations — a free sample of the F4.M5 set. The full adaptive version (spaced repetition, mastery checks, and the wider FAR bank) lives in the app.
Q1 · medium
A city's General Fund levies $1,000,000 in property taxes. It collects $850,000 during the year, $50,000 within 60 days after year-end, and expects the final $100,000 about nine months after year-end. What is property tax revenue under modified accrual?
- $850,000
- ✓ $900,000
- $1,000,000
- $950,000
Why: Under modified accrual, revenue is recognized when measurable and available - for property taxes, collected within the year or within 60 days after year-end. That is $850,000 + $50,000 = $900,000; the remaining $100,000 is a deferred inflow of resources.
Q2 · medium
Which measurement focus and basis of accounting do governmental funds, such as the General Fund, use in the fund financial statements?
- Economic resources measurement focus and full accrual basis
- Cash basis of accounting only
- ✓ Current financial resources measurement focus and modified accrual basis
- Economic resources measurement focus and modified accrual basis
Why: Governmental funds use the current financial resources measurement focus with the modified accrual basis: revenues are recognized when measurable and available, and expenditures when the related fund liability is incurred.
Q3 · medium
The government-wide financial statements report governmental activities using which measurement focus and basis of accounting?
- Current financial resources measurement focus and modified accrual basis
- Cash basis of accounting
- Budgetary basis of accounting
- ✓ Economic resources measurement focus and accrual basis
Why: The government-wide statements take an entity-wide, long-term view using the economic resources measurement focus and full accrual basis, the same model a business uses, in contrast to the fund-level modified accrual presentation.
Q4 · medium
Which of the following is classified as a governmental fund type?
- ✓ Special Revenue Fund
- Enterprise Fund
- Internal Service Fund
- Pension Trust Fund
Why: Governmental fund types are the General, Special Revenue, Capital Projects, Debt Service, and Permanent funds. Enterprise and Internal Service funds are proprietary; a Pension Trust fund is fiduciary.
Q5 · medium
When a government issues a purchase order for $5,000 of supplies, what does the General Fund record at that time?
- Supplies expenditure of $5,000
- ✓ An encumbrance and a corresponding reserve of fund balance for $5,000
- An account payable of $5,000
- Nothing is recorded in the accounts until the supplies are actually received and inspected by the department
Why: Encumbrance accounting reserves budgetary resources when a commitment is made: the entry debits Encumbrances and credits Budgetary Fund Balance Reserved for Encumbrances for $5,000. The actual expenditure is recorded later when the supplies arrive.
Q6 · medium
Why are fiduciary funds excluded from the government-wide financial statements?
- They are always too immaterial to report
- They use only the cash basis of accounting
- ✓ Their resources are held for others and cannot support the government's own programs
- They are reported solely within the government's annual operating and capital budget documents
Why: Fiduciary funds account for resources a government holds as an agent or trustee for parties outside the government. Because those resources cannot be used to support the government's own programs, they are excluded from the government-wide statements.
Q7 · hard
For a governmental accounting issue not addressed in GASB Statements, which source carries the next-highest authority?
- FASB Statements
- AICPA industry guidance not cleared by the GASB
- Accounting textbooks and journal articles
- ✓ GASB Technical Bulletins and Implementation Guides
Why: In the GASB authority hierarchy, GASB Statements rank first, followed by GASB Technical Bulletins and Implementation Guides, then AICPA literature cleared by the GASB, and finally other accounting literature.
Q8 · medium
A government levies $1,000,000 of property taxes but expects $80,000 to be collected more than 60 days after year-end. In the fund financial statements, how is that $80,000 reported?
- ✓ As a deferred inflow of resources
- As revenue of the current period
- As a liability owed to taxpayers
- As a reduction of the total tax levy
Why: Amounts that are measurable but not available - here, not collectible within 60 days of year-end - fail the modified accrual availability test. They are reported as a deferred inflow of resources, not as current revenue.