1. ACC 460 Week 2 Individual Assignment Ch.
1, 2, & 3 Textbook Exercises
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E1-1
1. The traditional business model of accounting is inadequate for governments and not-for-profit
organizations primarily because businesses differ from governments and not-for-profit
organizations in that
a. They have different missions
b. They have fewer assets
c. Their assets are intangible
d. Taxes are a major expenditure of businesses
3. The primary objective of a not-for-profit organization or a government is to
a. Maximize revenues
b. Minimize expenditures
c. Provide services to constituents
d. All of the above
4. In governments, in contrast to businesses,
a. Expenditures are driven mainly by the ability of the entity to raise revenues
b. The amount of revenues collected is a signal of the demand for services
c. There may not be a direct relationship between revenues raised and the demand for the entity’s
services
d. The amount of expenditures is independent of the amount of revenues collected
5. The organization responsible for setting accounting standards for state and local governments
is the
a. FASB
b. GASB
c. FASAB
d. AICPA
7. Governments differ from businesses in that they
a. Do not raise capital in the financial markets
b. Do not engage in transactions in which they ‘‘sell’’ goods or services
c. Are not required to prepare annual financial reports

2. d. Do not issue common stock
8. Interperiod equity refers to a condition whereby
a. Total tax revenues are approximately the same from year to year
b. Taxes are distributed fairly among all taxpayers regardless of income level
c. Current-year revenues are sufficient to pay for current-year services
d. Current-year revenues cover both operating and capital expenditures
Question for Review and Discussion 12
Distinguish among the three categories of restrictiveness into which the net assets of not-for-
profit organizations must be separated for purposes of external reporting. By whom must
restrictions be imposed for resources to be considered restricted?
Ch. 3: Exercise 3-2, Questions 1, 2, 3, 6, 8, & 9
1. Upon ordering supplies a government should
a. Debit encumbrances and credit reserve for encumbrances
b. Debit reserve for encumbrances and credit encumbrances
c. Debit expenditures and credit encumbrances
d. Debit expenditures and credit vouchers payable
2. Upon receiving supplies that had previously been encumbered a government should
a. Debit reserve for encumbrances and credit encumbrances
b. Debit fund balance and credit reserve for encumbrances
c. Debit fund balance and credit expenditures
d. Debit reserve for encumbrances and credit expenditures
3. Upon closing the books at year-end a government should
a. Debit fund balance and credit reserve for encumbrances
b. Debit encumbrances and credit reserve for encumbrances
c. Debit fund balance and credit encumbrances
d. Debit reserve for encumbrances and credit encumbrances
6. A government places an order for a particular item of equipment and encumbers $5,500. The
item arrives that the government should make should include (but not necessarily be limited to):
a. A debit to expenditures for $5,200, a debit to fund balance for $300, and a credit to reserve for
encumbrances for $5,500
b. A debit to expenditures for $5,200, a credit to encumbrances for $5,200, and a credit to
accounts payable for $5,200
c. A debit to expenditures for $5,200, a credit to encumbrances for $5,500, and a credit to
accounts payable for $5,200

3. d. A debit to expenditures for $5,200, a credit to reserve for encumbrances for $5,200, and a
credit to accounts payable for $5,200
8. Per GASB Statement No. 34, governments must
a. Prepare a general fund budget on a cash basis
b. Prepare a general fund budget on amodified accrual basis
c. Prepare a schedule that reconciles any differences between amounts reported on a GAAP basis
and a budgetary basis
d. Prepare a schedule that reconciles any differences between the original budget and the
amended budget
9. The amount that a government has available to spend would be indicated by
a. Encumbrances minus the sum of appropriations, expenditures, and net adjustments
b. Reserve for encumbrances plus appropriations minus the sum of expenditures and net
adjustments
c. Appropriations plus encumbrances minus the sum of expenditures and net adjustments
d. Appropriations minus the sum of expenditures, encumbrances, and net adjustments