GAFRB Sample Practice Exam Questions 2025 Updated Verified
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NEW QUESTION # 57
An example of a non-exchange revenue is
- A. licensing fees.
- B. investment earnings.
- C. bond proceeds.
- D. sales taxes.
Answer: D
Explanation:
Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.
Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.
Relevant Standards and References:
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions GASB Codification Section N50 GFOA Revenue Classification Guidelines
NEW QUESTION # 58
An independent school district completed construction on a new high school during the current fiscal year.
The amount paid to the construction manager was $900,000 and the amount paid to the architect was
$100,000. The entity depreciates buildings over 50 years, using the straight line, half-year depreciation method. What is the amount reported on the Statement of Activities in the current fiscal year?
- A. $1,000,000
- B. $10,000
- C. $20,000
- D. $9,000
Answer: C
Explanation:
The $900,000 paid to the construction manager and $100,000 paid to the architect are capitalized as part of the building's total cost, totaling $1,000,000.
Using straight-line depreciation over 50 years with the half-year convention:
Annual depreciation = $1,000,000 ÷ 50 = $20,000
Since the half-year convention is used in the year the asset is placed in service, only 50% of the full-year depreciation is recorded.
Depreciation for the current year = $20,000 × 0.5 = $10,000
However, note: since both amounts ($900,000 + $100,000) were paid during construction and the school was completed and placed into service this year, the full capitalized amount applies.
GASB and GAAP allow the half-year rule unless the asset was placed into service at the beginning of the year. In this case, since placed during the year, the half-year rule applies.
Correct depreciation for the first year = $10,000
So, the correct answer is:
B). $10,000
Correction Note: While option C ($20,000) may seem valid for full-year depreciation, the use of the "half- year depreciation method" dictates that only half of the full-year amount is expensed in the first year.
Relevant References:
GASB Statement No. 34 - Capital Assets and Depreciation
GFOA Best Practices on Capital Asset Accounting and Reporting
NEW QUESTION # 59
Congress plans to set up an activity within an agency that would:
* provide procurement services to other agencies;
* reimburse fees to the providing agency at a level that would cover the total estimated costs of the services.
The fees would be deposited in the providing agency's accounts and would remain available until expended, to carry out the purposes of the fund. This arrangement describes a
- A. general fund.
- B. revolving fund.
- C. special fund.
- D. trust fund.
Answer: B
Explanation:
A revolving fund is a fund established to finance a continuing cycle of operations where the receipts (e.g., fees or reimbursements) are used to finance future operations. These funds are usually self-sustaining and are designed to recover full costs of providing goods or services.
The described situation - an agency providing procurement services to other agencies and using collected fees to continue operations - is a classic example of an intragovernmental revolving fund (also called a working capital fund).
Relevant References:
OMB Circular A-11, Section 20 - Fund Classifications
GAO Glossary of Terms - Revolving Fund
FASAB SFFAS No. 7 - Revenue and Other Financing Sources
A). revolving fund
NEW QUESTION # 60
A city utilizing a 60-day availability period has a June 30 year-end. It levies property taxes in January that are due in March, which are used to finance the general fund. The city levied S15 million in taxes in the current fiscal year, collecting $12 million during the fiscal year. In addition, the following amounts were collected in the months after year-end:
July $1,000,000
August $ 500,000
September $ 250,000
How much revenue should the general fund recognize for the fiscal year?
- A. $15 million
- B. $13 million
- C. $12 million
- D. $13.5 million
Answer: B
Explanation:
The city has a June 30 fiscal year-end and applies the 60-day availability rule, which is standard under modified accrual accounting for governmental funds like the general fund.
Total collections within:
Fiscal year: $12 million
60-day window (July + August): $1 million + $500,000 = $1.5 million
Revenue recognized = $12 million + $1.5 million = $13.5 million
However, under GASB Interpretation No. 5 and GASB Statement No. 33, only amounts expected to be collected within 60 days after year-end should be recognized as revenue in the general fund. The city uses the
60-day rule.
Thus, the correct amount to recognize is:
$12 million (collected during fiscal year)
$1 million (July)
$500,000 (August) = $13.5 million
C). $13.5 million
Relevant References:
GASB Statement No. 33 - Accounting and Financial Reporting for Nonexchange Transactions GASB Interpretation No. 5 - Property Tax Revenue Recognition GASB Codification Section 1600.115 (Modified Accrual Basis)
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NEW QUESTION # 61
What is the term used to describe categories that present obligations by the items or services purchased by the federal government?
- A. treasury fund accounts
- B. object classes
- C. programs
- D. general ledger accounts
Answer: B
Explanation:
Comprehensive Detailed Explanation:
Object classes categorize federal government obligations by the type of goods or services purchased, such as personnel compensation, equipment, travel, etc. These are standardized in OMB Circular A-11, Section 83.
This classification supports budgeting, analysis, and reporting.
Relevant References:
OMB Circular A-11, Section 83 - Object Classification
USSGL (U.S. Standard General Ledger) Glossary
GAO Glossary of Budget Terms
B). object classes
NEW QUESTION # 62
The objectives of federal financial reporting include all of the following EXCEPT
- A. mission readiness.
- B. stewardship.
- C. budgetary integrity.
- D. systems and control.
Answer: A
Explanation:
Comprehensive Detailed Explanation:
According to FASAB's Objectives of Federal Financial Reporting (Statements of Federal Financial Accounting Concepts, particularly SFFAC No. 1), the four major objectives of federal financial reporting are:
Budgetary Integrity
Operating Performance
Stewardship
Systems and Control
Mission readiness is not one of the core federal financial reporting objectives under FASAB standards, although it may be a goal of some federal agencies operationally (e.g., DOD), it is not one of the defined financial reporting objectives.
C). mission readiness
Relevant References:
FASAB SFFAC No. 1 - Objectives of Federal Financial Reporting
FASAB Handbook of Accounting Standards and Other Pronouncements
NEW QUESTION # 63
According to GAAP, all of the following should be addressed in the MD&A EXCEPT
- A. a discussion of the basic financial statements.
- B. an overall analysis.
- C. computation of legal debt margins.
- D. condensed comparative data.
Answer: C
Explanation:
Management's Discussion and Analysis (MD&A) is a required part of Required Supplementary Information (RSI) under GASB standards. It includes:
An overview and analysis of financial activities
Condensed comparative financial data
A discussion of the basic financial statements
An explanation of significant changes from the prior year
However, computation of legal debt margins is not required in the MD&A. This type of information is typically included in the statistical section of the ACFR (Annual Comprehensive Financial Report), not in MD&A.
Relevant References:
GASB Statement No. 34 - Basic Financial Statements and Management's Discussion and Analysis GASB Codification Section 2200 - MD&A Requirements GFOA ACFR Checklist C). computation of legal debt margins
NEW QUESTION # 64
Which of the following revenue sources is an exchange-like transaction?
- A. grants
- B. fines
- C. operating permits
- D. income taxes
Answer: C
Explanation:
Exchange and exchange-like transactions occur when each party receives and gives up essentially equal value.
In the case of operating permits (e.g., business licenses or environmental permits), the payer receives a direct and proportional benefit in exchange for the fee paid, making this an exchange-like transaction.
In contrast:
Income taxes and fines are non-exchange revenues.
Grants may or may not be exchange-like, depending on stipulations, but generally are non-exchange.
Relevant Standards and References:
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions GASB Codification Section N50, Nonexchange Transactions GFOA Best Practices - Revenue Recognition Therefore, Option B is correct.
NEW QUESTION # 65
State and local governments account for budgeted and actual expenditures to ensure that
- A. GASB standards are met when producing the basic financial statements.
- B. actual expenditures are used to formulate next year's budget.
- C. cash is available to pay bills when they come due.
- D. spending conforms to legal requirements.
Answer: D
Explanation:
State and local governments adopt legally binding budgets and are required to monitor compliance with those budgets. Budget-to-actual comparisons help ensure that public funds are spent only as authorized by the legislative body. This supports the core accountability principle of public sector financial reporting.
While budgets can also support planning and cash flow, the primary purpose of tracking budgeted vs. actual expenditures is legal compliance.
Relevant References:
GASB Statement No. 34 - Budgetary Comparison Schedules
GFOA - Budget Monitoring and Compliance
GAO Red Book - Legal Requirements for Public Spending
D). spending conforms to legal requirements.
NEW QUESTION # 66
An example of a federal principal financial statement is the
- A. Statement of Net Income.
- B. Statement of Budgetary Resources.
- C. Statement of Cash Flows.
- D. Statement of Operations.
Answer: B
Explanation:
Federal principal financial statements are required under OMB Circular A-136 and FASAB standards. They include:
Statement of Budgetary Resources (SBR)
Balance Sheet
Statement of Net Cost
Statement of Changes in Net Position
Statement of Custodial Activity (if applicable)
There is no "Statement of Cash Flows" or "Statement of Net Income" in federal accounting - those are private-sector financial statements.
Relevant References:
OMB Circular A-136
FASAB SFFAS No. 53 - Principal Financial Statements
Treasury Financial Manual (TFM) Volume I
B). Statement of Budgetary Resources
NEW QUESTION # 67
A city issues S100,000 of 10-year general obligation bonds on April 1, 2024. Debt service of $10,000 must be paid each year on March 31, with 5% interest paid on the unpaid balance. Based upon this information, the interest expense reported on the government-wide statement for fiscal year ending March 31, 2025, is
- A. $ 4,500.
- B. $5,000.
- C. $15.000.
- D. $ 3,750.
Answer: B
Explanation:
The city issues $100,000 in general obligation bonds on April 1, 2024, and the first principal payment of
$10,000 is due on March 31, 2025. The interest rate is 5% annually on the unpaid principal balance.
As of April 1, 2024, the full $100,000 is outstanding. For the full fiscal year (April 1, 2024 to March 31,
2025), interest accrues on the full amount until payment is made. The interest on $100,000 for one year at 5%
=
Interest Expense = $100,000 × 5% = $5,000
Note: Interest is typically calculated on the beginning-of-period balance, and since the payment is made at the end of the year (March 31, 2025), the full $5,000 interest is recognized for that year.
Relevant Standards and References:
GASB Statement No. 34, Basic Financial Statements for State and Local Governments GASB Codification Section 2200 (Government-Wide Financial Statements) GFOA Guidance on Long-Term Debt Accounting
NEW QUESTION # 68
Which type of cost is generally allowed for a grant under the OMB Uniform Guidance?
- A. lobbying expenses
- B. general government expenses
- C. materials and supplies
- D. interest payments
Answer: C
Explanation:
Under OMB's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), allowable costs under federal grants must be:
Necessary and reasonable for program performance
Allocable to the grant
In accordance with generally accepted accounting principles
Not otherwise unallowable
Materials and supplies directly benefiting the grant are generally allowable. In contrast, lobbying, interest payments, and general governmental costs not tied to the grant are explicitly unallowable.
Relevant References:
2 CFR Part 200 - Uniform Guidance (Subpart E - Cost Principles)
2 CFR §200.403 - Factors affecting allowability of costs
2 CFR §200.422 - Lobbying
2 CFR §200.449 - Interest
C). materials and supplies
NEW QUESTION # 69
Depreciation is measured on the statewide financial statements using the
- A. cash basis.
- B. accrual basis.
- C. tax basis.
- D. modified accrual basis.
Answer: B
Explanation:
In the statewide financial statements, which represent the government-wide financial reporting model, depreciation is reported using the full accrual basis of accounting. This means long-term assets and liabilities are recognized, and depreciation is recorded systematically over the useful lives of capital assets.
The modified accrual basis (used in governmental funds) does not report depreciation because capital assets are not reported in those funds.
Relevant References:
GASB Statement No. 34 - Depreciation Reporting
GASB Concept Statement No. 1 - Measurement Focus and Basis of Accounting GFOA - Capital Asset and Depreciation Policies D). accrual basis
NEW QUESTION # 70
What must a federal agency receive from the U.S. Department of the Treasury before it can begin spending an appropriation?
- A. a warrant
- B. an allotment
- C. an encumbrance
- D. an apportionment
Answer: A
Explanation:
A Treasury warrant is the formal notification from the U.S. Department of the Treasury that funds have been made available to a federal agency. Agencies cannot legally obligate or expend appropriated funds until a warrant has been issued.
Apportionments and allotments come afterward in the budget execution process.
Relevant References:
Treasury Financial Manual (TFM), Volume I, Part 2
OMB Circular A-11 - Budget Execution
GAO Red Book - Appropriations Law
C). a warrant
NEW QUESTION # 71
Which federal agency activities would most likely use a trust fund to account for funds received and paid?
- A. provisions of benefits, goods or services financed by specific revenue sources
- B. general government programs receiving annual appropriations
- C. grant programs distributing funds awarded in prior years
- D. business-type operations financed by exchange revenues
Answer: A
Explanation:
Comprehensive Detailed Explanation:
Trust funds in the federal government are used to account for assets held in a fiduciary capacity for specific purposes. These funds typically involve revenue dedicated by law for particular programs and purposes, such as:
Social Security Trust Fund
Medicare Trust Fund
Unemployment Trust Fund
These involve collections from earmarked taxes or contributions and are used to provide specific benefits or services.
Relevant References:
FASAB SFFAS No. 27 - Identifying and Reporting Earmarked Funds
Treasury Financial Manual - Trust Fund Accounts
OMB Circular A-11, Section 20 - Federal Fund and Trust Fund Definitions B). provisions of benefits, goods or services financed by specific revenue sources
NEW QUESTION # 72
Governmental funds reported $80 million current expenditures and $2 million capital outlays. The reconciliation of the Statement of Revenues. Expenditures, and Change in Fund Balance to the Statement of Activities starts with the total net change in fund balances in the governmental fund and
- A. $80 million in current expenditures is added.
- B. $S2 million in capital outlays is subtracted.
- C. $80 million in current expenditures is subtracted.
- D. $2 million in capital outlays is added.
Answer: D
Explanation:
In the reconciliation from the governmental fund financial statements to the government-wide Statement of Activities, capital outlays that were treated as expenditures in the governmental funds are added back. This is because the government-wide financial statements use full accrual accounting, where capital outlays are capitalized as assets and not expensed.
Thus, the $2 million in capital outlays would be added back to adjust net change in fund balances to arrive at the change in net position for governmental activities.
Relevant References:
GASB Statement No. 34 - Reporting Capital Assets and Reconciliation
GASB Codification Section 2200 - Government-wide Financial Reporting
GFOA Annual Comprehensive Financial Report Guidance
C). $2 million in capital outlays is added
NEW QUESTION # 73
Purchase orders are issued in the amount of $427,000. The general ledger entry to record the encumbrance should be
- A. Debit Fund Balance $427,000 Credit Encumbrances $427,000
- B. Debit Encumbrances $427,000 Credit Budgetary Fund Balance $427,000
- C. Debit Appropriations $427,000 Credit Encumbrances $427,000
- D. Debit Encumbrances $427,000 Credit Expenditures $427,000
Answer: B
Explanation:
When a government issues purchase orders, it records encumbrances to reflect commitments against appropriations. This helps track budgetary commitments and avoid overspending.
The entry is recorded in the budgetary accounts (not proprietary accounts) as follows:
Debit Encumbrances: Recognizes the commitment
Credit Budgetary Fund Balance (or Reserve for Encumbrances): Reflects that part of the fund balance is committed This is consistent with modified accrual accounting and standard governmental fund practice.
Relevant References:
GASB Codification Section 1300 - Budgetary Accounting
GFOA Best Practices - Encumbrance Accounting
GAO Principles of Appropriation Law - Encumbrance Controls
D). Debit Encumbrances $427,000; Credit Budgetary Fund Balance $427,000
NEW QUESTION # 74
An agency offers service for a fee; bad debts have historically averaged 5% of each year's fee revenue. During the past fiscal year, $1.1 million in fee revenue was recorded and $1 million in fees was collected. What is the bad debt expense recorded for the past fiscal year?
- A. $ 50.000
- B. $100,000
- C. $ 5.000
- D. $ 55.000
Answer: D
Explanation:
The agency uses accrual accounting, meaning bad debt expense should be recognized based on the revenue earned, not the cash collected. The historical bad debt rate is 5%.
Fee revenue recorded = $1.1 million
Bad debt expense = 5% × $1,100,000 = $55,000
This matches the standard accounting treatment under FASAB SFFAS No. 1, where the expense is estimated and recognized in the same period as the related revenue.
Relevant References:
FASAB SFFAS No. 1 - Accounting for Selected Assets and Liabilities
GAAP treatment for allowance for doubtful accounts
Treasury Financial Manual - Accounts Receivable Accounting
C). $55,000
NEW QUESTION # 75
An agency's Fund Balance with Treasury is increased by which of the following events?
- A. receipt of a Treasury warrant
- B. rescission of an appropriation
- C. collection of custodial revenue
- D. a recovery of prior year obligations
Answer: A
Explanation:
Fund Balance with Treasury (FBWT) increases when an agency receives a Treasury warrant. A warrant is the official document issued by the U.S. Treasury that provides budgetary authority to the agency and establishes funds available for obligation and disbursement.
Other options:
Rescission of appropriation # decreases FBWT
Recovery of prior-year obligations # may restore budgetary authority, but not necessarily FBWT Custodial revenue # collected on behalf of others; not retained by the collecting agency Relevant References:
Treasury Financial Manual (TFM), Volume I, Part 2, Chapter 5100
FASAB SFFAS No. 1 - Fund Balance with Treasury
USSGL Guidance on Fund Balance Transactions
A). receipt of a Treasury warrant
NEW QUESTION # 76
A state had problems with its cash reconciliation resulting in a difference between the total cash per books versus cash balance with banks. The possible loss could only be estimated within a range of $100 million to
$300 million with no amount within the range considered a better estimate than any other. The state should recognize a minimum liability of
- A. $200 million and disclose in the notes the exposure to an additional $100 million loss.
- B. an amount to be determined by external auditors.
- C. $300 million with no additional disclosure required.
- D. $100 million and disclose in the notes the exposure to an additional $200 million loss.
Answer: D
Explanation:
GASB Statement No. 62 (based on FASB ASC 450-20) provides guidance on recognizing loss contingencies.
If a loss is probable and the amount can only be estimated as a range, and no single amount within the range is better, the minimum amount in the range should be accrued.
The remainder of the range should be disclosed in the notes to the financial statements.
Thus:
Accrue: $100 million
Disclose: Additional exposure up to $200 million
Relevant References:
GASB Statement No. 62 - Paragraph 96
GAAP Implementation Guide - Loss Contingencies
AICPA Audit Guide - Government Auditing Standards
A). $100 million and disclose in the notes the exposure to an additional $200 million loss
NEW QUESTION # 77
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