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Governmental Accounting Test Bank - Chapter 1

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Chapter 1
The Government and Not-For-Profit Environment

TRUE/FALSE (CHAPTER 1)

1. The main objective of a typical governmental or not-for-profit entity is to earn a profit.

2. A government’s budget may be backed by the force of law.

3. Governmental entities 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-profits may never engage in business-type activities.

6. Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower’s credit-worthiness.

7. Financial …show more content…

a) To determine if the entity has complied with bond covenants.
b) To determine if the entity has complied with taxing limitations.
c) To determine if the entity has complied with donor restrictions on the use of funds.
d) To determine all of the above.

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 assure 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

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