AGA GAFRB Certification Exam Dumps with 117 Practice Test Questions
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NEW QUESTION # 55
State Medicaid caseloads have been exceeding projections for the past two months. Review of the data indicates the increase is likely to continue, leading to the need for significant supplemental appropriations before the end of the fiscal year. Based upon this information, what is the first action the state director of Medicaid should take?
- A. Impose a hiring freeze and hold all spending approvals for contracts and purchases on the affected departments.
- B. Inform the governor of the situation and options for addressing the shortfall.
- C. Inform the legislative counsel bureau about the potential over-expenditure.
- D. Confer with the chairmen or staff directors of the House and Senate appropriations committees concerning the need to call a legislative special session.
Answer: B
Explanation:
The first and most appropriate action for the state Medicaid director is to inform the governor. This ensures that executive leadership is aware of the fiscal shortfall early and can weigh in on how to proceed. The governor plays a central role in budget planning and proposing supplemental appropriations.
While informing legislators or freezing spending may be necessary later, those steps should occur after executive leadership has been notified and involved in decision-making.
Relevant References:
GFOA Best Practices - Budget Monitoring and Adjustment
State Budget Procedures Manuals (varies by state, but consistent in escalation path) National Association of State Budget Officers (NASBO) Guidance A). Inform the governor of the situation and options for addressing the shortfall
NEW QUESTION # 56
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. $100,000
- B. $ 50.000
- C. $ 55.000
- D. $ 5.000
Answer: C
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 # 57
A local government is evaluating different financing options for an upcoming capital project. Which of the following debt instruments will typically offer the lowest interest rate?
- A. certificate of deposit
- B. revenue bonds
- C. general obligation bonds
- D. commercial paper
Answer: C
Explanation:
General obligation (GO) bonds are backed by the full faith and credit of the issuing government, meaning they are secured by the government's taxing power. Because of this strong security, GO bonds typically carry lower interest rates compared to other financing options like revenue bonds or commercial paper.
Revenue bonds, by contrast, are supported only by the revenues from a specific project or source (e.g., tolls or utility fees), which generally results in higher perceived risk and thus higher interest rates. Certificates of deposit are not debt instruments used for financing projects but rather for investment.
Relevant Standards and References:
GFOA Best Practices - Debt Management
Government Finance Officers Association (GFOA) Debt 101
MSRB (Municipal Securities Rulemaking Board): GO vs. Revenue Bonds
GASB Concepts Statement No. 1, Objective of Financial Reporting
Therefore, Option B is correct.
NEW QUESTION # 58
The Department of the Interior has the following costs associated with the development of a new visitor tracking system.
Research cost determining if system should be internally or externally developed $100,000 Software configuration and system development $750,000 Cost of testing the new system for fiscal usage $225,000 Converting data from old tracking system to new tracking system $500,000 How much should be capitalized as the cost of the asset?
- A. $975,000
- B. $1,575,000
- C. $1,475,000
- D. $750,000
Answer: A
Explanation:
FASAB SFFAS No. 10 (Accounting for Internal Use Software) provides guidance for capitalizing software development costs. The following costs are capitalized:
Software configuration and development: $750,000
Testing for functionality (ready for use): $225,000
These fall within the "software development stage."
The following are not capitalized:
Research costs (e.g., feasibility studies): $100,000 # Expense
Data conversion costs: $500,000 # Expense (unless part of application development, which it's not here) Capitalized total = $750,000 + $225,000 = $975,000 Relevant References:
FASAB SFFAS No. 10 - Accounting for Internal Use Software
OMB Circular A-136 - Capitalization Guidance
Treasury Financial Manual (TFM) - Capital Assets
B). $975,000
NEW QUESTION # 59
A county is projecting a $7 million budget deficit in the upcoming fiscal year, so the county board, who acts as the highest level of authority for the county, sets aside $7 million in fund balance to close this gap. How should the $7 million be classified on the financial statement?
- A. Committed Fund Balance
- B. Nonspendable Fund Balance
- C. Restricted Fund Balance
- D. Assigned Fund Balance
Answer: A
Explanation:
A committed fund balance is established when the highest level of decision-making authority (e.g., county board or city council) formally sets aside resources for a specific purpose through resolution or ordinance before the end of the fiscal year.
Since the county board - the highest authority - has set aside $7 million specifically to address a projected budget deficit, the classification should be committed fund balance.
Assigned fund balance (Option B) is typically used when intent is expressed by a lower level of authority (e.
g., finance director).
Relevant References:
GASB Statement No. 54 - Fund Balance Reporting
GASB Codification Section 1800.176 - Fund Balance Classifications
GFOA Guidance on Fund Balance Policies
D). Committed Fund Balance
NEW QUESTION # 60
The Prompt Payment Act requires federal agencies to
- A. pay invoices by the invoice due date.
- B. pay invoices when received.
- C. take discounts when economically justified.
- D. pay invoices no later than sixty days from receiving the invoice.
Answer: A
Explanation:
The Prompt Payment Act (31 U.S.C. Chapter 39) mandates that federal agencies pay vendors on time.
Specifically, if a contract specifies a due date for payment, agencies are required to pay by that date. If no specific due date is mentioned, payment must be made within 30 days after the later of either:
Receipt of a proper invoice, or
Acceptance of goods/services.
If agencies fail to pay by the due date, they must automatically calculate and pay interest penalties to the vendor.
Relevant Standards and References:
31 U.S.C. § 3903 (Prompt Payment Act): "A payment is timely if it is made by the due date prescribed by the contract or within 30 days after receipt of a proper invoice or acceptance of goods or services." OMB Circular A-125, "Prompt Payment," Section 7(a) Treasury Financial Manual (TFM), Volume I, Part 6, Chapter 8040 Therefore, Option D is correct.
NEW QUESTION # 61
Which of the following events is an example of an expenditure but not an expense?
- A. At the end of the fiscal year, the government pays its employees for work performed.
- B. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.
- C. At the end of the fiscal year, the government receives and pays its electric bill for the previous month.
- D. At the end of the fiscal year, the government signs a contract to buy office furniture.
Answer: B
Explanation:
Comprehensive Detailed Explanation:
In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used - typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset's cost consumed in the period is recorded as an expense (i.e., depreciation).
Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time.
Relevant References:
GASB Statement No. 34 - Government-wide vs. Fund Financial Reporting
GASB Codification Section 1300 - Modified Accrual Accounting
GFOA Best Practices - Capital Asset Reporting
C). At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.
NEW QUESTION # 62
A basic financial statement that includes a budgetary comparison serves to
- A. demonstrate compliance with the legally adopted budget.
- B. measure the service potential of physical and other resources.
- C. demonstrate the ability of the entity to meet its commitments.
- D. disclose and document the restrictions on resources.
Answer: A
Explanation:
A basic financial statement that includes a budgetary comparison (typically the Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual) is used to demonstrate whether the government complied with its legally adopted budget.
This is a core element of accountability in governmental financial reporting and is required under GASB Statement No. 34.
Relevant References:
GASB Statement No. 34 - Budgetary Comparison Statements
GASB Codification Section 2400 - Budgetary Accounting and Reporting
GFOA Best Practices - Budget Monitoring and Reporting
B). demonstrate compliance with the legally adopted budget
NEW QUESTION # 63
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. $13 million
- B. $12 million
- C. $13.5 million
- D. $15 million
Answer: A
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 # 64
In exchange and exchange-like transactions the government
- A. provides service at no cost to the user.
- B. receives value without directly giving up value in return.
- C. receives value and gives up essentially the same value.
- D. neither gives up nor receives assets.
Answer: C
Explanation:
Comprehensive Detailed Explanation:
In governmental accounting, an exchange transaction occurs when each party receives and gives up essentially equal value. Exchange-like transactions are similar but may lack one or more of the characteristics of a pure exchange (e.g., pricing may not be market-based).
Examples:
A city charges fees for utilities: the user pays for services and the city provides equivalent value.
Grants and taxes are nonexchange transactions because the payer does not receive a direct, equivalent benefit in return.
Relevant References:
GASB Statement No. 33 - Accounting and Financial Reporting for Nonexchange Transactions GASB Concepts Statement No. 4 - Elements of Financial Statements B). receives value and gives up essentially the same value.
NEW QUESTION # 65
An agency operates out of a building that is on the Register of Historic Places; the building is classified as a multi-use federal asset. If the agency recently paid to renovate the office space in the building, the cost for the renovation should be treated as a
- A. stewardship investment.
- B. mission property.
- C. general property, plant and equipment expense.
- D. heritage asset.
Answer: C
Explanation:
Although the building is listed on the National Register of Historic Places (a heritage asset), renovations that support current operations and serve general purposes (e.g., office upgrades) are considered capitalizable or expensed under general property, plant, and equipment (G-PP&E), not stewardship or heritage classifications.
Stewardship or heritage classifications apply to assets whose primary purpose is historical preservation, not ongoing operations.
Relevant References:
FASAB SFFAS No. 29 - Heritage Assets and Stewardship Land
FASAB SFFAS No. 6 - General PP&E Accounting
OMB Circular A-136 - Capital Asset Guidance
D). general property, plant and equipment expense
NEW QUESTION # 66
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. revolving fund.
- B. trust fund.
- C. general fund.
- D. special fund.
Answer: A
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 # 67
Accounts that are closed at year-end include
- A. supplies inventory.
- B. unassigned fund balance.
- C. taxes receivable.
- D. tax revenues.
Answer: D
Explanation:
Temporary accounts (revenues, expenditures, and transfers) are closed at the end of the fiscal year to prepare the books for the next fiscal period. Tax revenues are a temporary account and are closed at year-end by transferring balances to fund balance accounts.
In contrast:
Taxes receivable (A) is a balance sheet (permanent) account.
Supplies inventory (C) is an asset.
Unassigned fund balance (D) is an equity account.
Relevant References:
GASB Codification Section 2200 - Fund Accounting and Closing Procedures GFOA Accounting and Financial Reporting Manual GAAP Fundamentals B). tax revenues
NEW QUESTION # 68
The summary of significant accounting policies in the notes to the financial statements includes all of the following information EXCEPT
- A. disclosure of receipt of budget authority from the entity.
- B. summary of accounting principles followed by the entity, and methods followed applying those principles.
- C. summary of changes to the GAAP impacting the financial statements.
- D. a description of the reporting entity and major components.
Answer: A
Explanation:
The Summary of Significant Accounting Policies (SSAP), included in the notes to the financial statements, typically includes:
Description of the reporting entity
Basis of presentation and accounting principles
Methods used to apply those principles
Policy changes from prior years
However, disclosures regarding receipt or use of budget authority are not included in the SSAP. Budget authority and execution are typically addressed in the Required Supplementary Information (RSI) or other budgetary sections of federal financial reports.
Relevant References:
FASAB SFFAS No. 34 - Notes to the Financial Statements
OMB Circular A-136 - Section II.4.4: Summary of Significant Accounting Policies GAO Federal Accounting Handbook C). disclosure of receipt of budget authority from the entity
NEW QUESTION # 69
According to GASB, when should landfill closure and post-closure costs be recognized?
- A. every five years until the landfill is closed
- B. when payments for costs are made
- C. when the landfill is closed
- D. each year the landfill is operating
Answer: D
Explanation:
Comprehensive Detailed Explanation:
According to GASB Statement No. 18 (Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs), governments must recognize a portion of closure and post-closure costs each year as the landfill's capacity is used.
This is done using the "units-of-consumption" method, meaning costs are accrued in proportion to how much of the landfill's total capacity has been filled. The total estimated cost is spread over the useful life of the landfill.
Relevant References:
GASB Statement No. 18 - Landfill Closure and Postclosure Costs
GASB Codification Section L10.103
GFOA Environmental Liabilities Guidance
D). each year the landfill is operating
NEW QUESTION # 70
State and local budgets serve all of the following purposes EXCEPT to
- A. determine debt policy.
- B. set public policy.
- C. act as legislative control on taxing and spending.
- D. serve as a financial planning tool.
Answer: A
Explanation:
State and local government budgets primarily serve to:
Set public policy priorities
Provide legislative control over taxing and spending
Serve as a financial planning tool
Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals.
Relevant References:
GFOA Best Practices - Role of the Budget
NASBO Budgeting Handbook
GASB Concept Statements - Financial Reporting Objectives
C). determine debt policy
NEW QUESTION # 71
The primary purpose of accumulating and reporting cost information is to O
- A. include specific details in external financial statements.
- B. meet a SEC reporting requirement.
- C. inform stockholders of detailed operational data.
- D. provide a means for management to assess decision performance.
Answer: D
Explanation:
The primary purpose of accumulating and reporting cost information-especially in government and nonprofit environments-is to support internal decision-making. Cost data help managers assess program efficiency, evaluate resource use, and make policy or operational decisions.
While external financial statements may incorporate summarized cost information, and stockholders and regulatory agencies may have interests in private-sector settings, the most direct and core purpose is to support management.
Relevant References:
FASAB SFFAS No. 4 - Managerial Cost Accounting Concepts and Standards
GFOA - Cost Accounting for Decision-Making
OMB Circular A-136 and A-11 (federal reporting objectives)
B). provide a means for management to assess decision performance
NEW QUESTION # 72
A federal agency received utility bills before the end of the fiscal year. It is the agency's policy to obligate funds upon receipt of the utility bills and to pay the bills immediately upon receipt. Which set of entries would be made to the budgetary accounts?
- A. Debit Unobligated Funds Credit Expended Appropriation
- B. Debit Allotment Available for Commitment/Obligation
Credit Undelivered Orders Unpaid - C. Debit Expended Appropriation
Credit Allotment Available for Commitment/Obligation - D. Debit Allotment Available for Commitment/Obligation
Credit Fund Balance with Treasury
Answer: B
Explanation:
In federal accounting, upon receipt of utility bills (and before payment), a government agency records an obligation. Since the service has already been received and payment is imminent, the budgetary accounting entry reduces available allotments and records the obligation.
The entry would look like:
Debit: Allotment Available for Commitment/Obligation
Credit: Undelivered Orders - Unpaid (or potentially Delivered Orders - Unpaid, depending on agency policy) In the case of immediate payment, the next step would move from obligation to expenditure, but the initial obligation entry affects the budgetary accounts as described above.
Relevant References:
FASAB SFFAS No. 7 - Budgetary Accounting
Treasury Financial Manual (TFM) - Budgetary Transactions
OMB Circular A-11
A). Debit Allotment Available for Commitment/Obligation / Credit Undelivered Orders Unpaid
NEW QUESTION # 73
According to GAAP, all of the following should be addressed in the MD&A EXCEPT
- A. condensed comparative data.
- B. computation of legal debt margins.
- C. an overall analysis.
- D. a discussion of the basic financial statements.
Answer: B
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 # 74
For state and local governments, a fund that is legally restricted to the use of earnings with the principal protected is
- A. an enterprise fund.
- B. a general fund.
- C. an internal service fund.
- D. a permanent fund.
Answer: D
Explanation:
A permanent fund is a governmental fund used to report resources that are legally restricted so that only earnings (not principal) may be used to support government programs. These are typically endowments where the corpus is preserved in perpetuity.
According to GASB Statement No. 34, permanent funds are classified under governmental funds and must be used to benefit the government or its citizenry.
Relevant Standards and References:
GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments GASB Codification Section 1300, Fund Types GFOA Budgeting & Fund Balance Guidance Therefore, Option B is correct.
NEW QUESTION # 75
Depreciation is measured on the statewide financial statements using the
- A. cash basis.
- B. accrual basis.
- C. modified accrual basis.
- D. tax 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 # 76
A budget document that lists the budget by social services, affordable housing and supplies includes which of the following significant elements?
- A. organizational unit, program, category
- B. program, function, category
- C. function, category, object class
- D. function, program, object class
Answer: D
Explanation:
A well-structured budget document typically categorizes spending in three key ways:
Function: Broad purpose or mission, such as public safety, social services, or housing.
Program: Specific activities or initiatives under a function (e.g., housing vouchers under affordable housing).
Object Class: The type of goods or services purchased, such as personnel, supplies, or equipment.
When a budget is organized by items like social services (function), affordable housing (program), and supplies (object class), it indicates the budget is categorized by those three significant elements.
Relevant Standards and References:
OMB Circular A-11, Preparation, Submission, and Execution of the Budget GAO Budget Glossary
NEW QUESTION # 77
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