Free CPA BAR (Business Analysis & Reporting) State and Local Governments Practice Questions

A is correct. Fiduciary funds are used to report resources held by a government in a trustee or custodial capacity for external parties. These resources cannot be used for the government's own programs or operations. Examples include pension trust funds, investment trust funds, private-purpose trust funds, and custodial funds. Choice B describes an internal service fund, which is a proprietary fund type used for interdepartmental services. Choice C describes the general fund, which handles unrestricted operating activities. Choice D describes a special revenue fund, which is a governmental fund used for legally restricted revenue sources.

C is correct. Government-wide statements use full accrual with an economic resources measurement focus: capital assets are capitalized and depreciated over their useful lives. Governmental fund statements use modified accrual with a current financial resources focus: capital outlays are expenditures in the period of acquisition and are not carried as long-term assets. The difference is reconciled in the reconciliation schedule between fund statements and government-wide statements. Choice B incorrectly applies capitalization to governmental funds. Choice D claims government-wide statements use fair value for capital assets, which is not GASB practice. Choice A incorrectly excludes capital assets from government-wide statements.

C is correct. In governmental fund statements: the 20,000,000 par is an other financing source, and the 400,000 premium is a separate other financing source (total proceeds = 20,400,000). The fund does not report long-term debt. In government-wide statements: the bonds are reported at 20,400,000 (par + unamortized premium) as a long-term liability, and the premium is amortized over the bond term as a reduction of interest expense. Choice B treats proceeds as revenue rather than other financing sources. Choice D applies the same deferred treatment to both presentations, but governmental funds do not defer premiums. Choice C reduces the liability by the premium, which is backwards — the premium increases the liability above par.