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GOVERNMENTAL FINANCIAL REPORTING AND THE GASB STANDARDS
1. Question: If a government entity calculates its total pension liability to be 10,000,000anditsplanassetsarevaluedat6,000,000
for the same period, what is the net pension liability that should be reported on the government’s financial
statements?
Solution: The net pension liability is the difference between the total pension liability and the plan
assets.
Net Pension Liability = Total Pension Liability - Plan Assets Net Pension Liability = 10,000,000−6,000,000
Net Pension Liability = 4,000,000
Therefore, the net pension liability that should be reported on the government’s financial statements is
4,000,000.
2. Question:
As part of GASB Statement No. 87 on leases in Governmental Financial Reporting, what is the recom-
mended term that is used to classify leases that do not meet the criteria of a finance lease?
Solution:
In GASB Statement No. 87, leases that do not meet the criteria of a finance lease are categorized as
operating leases. Operating leases are recommended to be classified over a term referred to as the "mini-
mum lease term," which is used to determine the initial recognition of the lease asset and liability on the
government’s financial statements.
Therefore, the numerical answer to the question is: minimum lease term.
3. Question: A city government purchases a new fire truck for 250,000.T hefiretruckhasanexpectedusefullif eof10yearsandnosalvagevalue.AccordingtoGASBstandards, whatistheannualdepreciationexpenseforthisfiretruck?
Solution: To calculate the annual depreciation expense for the fire truck, we will use the straight-line
depreciation method.
Depreciation per year = (Cost of asset - Salvage value) / Useful life
Given: Cost of fire truck = 250,000Usef ullife = 10yearsSalvagevalue =0
Annual depreciation = (250,000−0) / 10 Annual depreciation = 250,000/10Annualdepreciation =25,000
Therefore, the annual depreciation expense for the fire truck under GASB standards is 25,000.
4. Question: A city government has infrastructure assets with a total historical cost of 50millionandaccumulateddepreciationof20
million. If the estimated remaining useful life of these assets is 10 years, what is the annual depreciation
expense the city government should recognize for these infrastructure assets under GASB standards?
Solution: 1. Calculate the depreciable amount of the infrastructure assets: Depreciable amount = His-
torical Cost - Accumulated Depreciation Depreciable amount = 50million−20 million Depreciable amount
=30million
2. Calculate the annual depreciation expense: Annual Depreciation Expense = Depreciable Amount / Es-
timated Remaining Useful Life Annual Depreciation Expense = 30million/10yearsAnnualDepreciationExpense =3
million
Therefore, the city government should recognize an annual depreciation expense of 3millionfortheseinfrastructureassetsunderGASBstandards.
5. Question: A city government has an Other Postemployment Benefits (OPEB) liability of 5million.T hediscountrateusedtocalculatetheOP EBliabilityis4
Solution:
Given: Initial OPEB liability = 5millionInitialdiscountrate = 4N ewdiscountrate = 5
To calculate the impact on the OPEB liability with the new discount rate, we can use the formula for
calculating the present value of OPEB liabilities:
PV=C/(1+r)n
Where: PV = Present Value C = Cash flow (OPEB liability) r = Discount rate n = Number of periods
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
1. Calculate the initial present value of the OPEB liability using the initial discount rate of 4PVinitial =5,000,000
/ (1 + 0.04)1P Vinitial =5,000,000 / 1.04 PVinitial =4,807,692.31
2. Calculate the new present value of the OPEB liability using the new discount rate of 5PVnew =5,000,000
/ (1 + 0.05)1P Vnew =5,000,000 / 1.05 PVnew =4,761,904.76
3. Calculate the impact on the OPEB liability: Impact = PVnew −P VinitialImpact =4,761,904.76 -
4,807,692.31Impact =−45,787.55
Therefore, if the discount rate increases from 4
6. Question: A local government entity had total fiduciary fund assets of 5,000,000, whichincluded1,000,000
of assets that meet the criteria to be reported as fiduciary activities under GASB Statement No. 84. What
percentage of the total fiduciary fund assets represents fiduciary activities under GASB 84?
Solution: To find the percentage of fiduciary activities under GASB 84, we need to divide the amount of
assets meeting the criteria for fiduciary activities by the total fiduciary fund assets and then multiply by 100.
Percentage of fiduciary activities under GASB 84 = (Assets meeting GASB 84 criteria / Total fiduciary
fund assets) * 100 Percentage = (1,000,000/5,000,000) * 100 Percentage = (0.20) * 100 Percentage = 20
Therefore, 20
7. Question: A city government has incurred 10millionincoststoconstructanewroadnetworktoimprovetransportationinfrastructure.AccordingtoGASBStandards, howshouldthesecostsbereportedinthefinancialstatements?
Solution: - Under GASB Standards, costs incurred to construct infrastructure assets such as roads should
be capitalized as assets in the financial statements. - Therefore, the 10millioncoststoconstructthenewroadnetworkshouldbecapitalizedasalong−
termassetonthecitygovernment′sbalancesheet.−T hismeansthatthe10 million should not be expensed
immediately on the income statement but rather spread out over the useful life of the road network through
depreciation expenses. - By capitalizing the costs, the city government reflects the long-term benefit that
the new road network will provide to its residents. - Hence, the numerical answer to the question is:
10,000,000.
8. Question:
A city government enters into a lease agreement for a public building with annual lease payments of
50,000foratermof 10years.T heimplicitinterestrateintheleaseis5
Solution:
To calculate the present value of the lease liability, we can use the formula for present value of an
annuity:
PV = PMT * [(1 - (1 + r)−n)/r]
Where: PV = Present Value of the lease liability PMT = Annual lease payment = 50,000r=Implicitinterestrate =
5n=Numberofperiods = 10years
Substitute these values into the formula:
PV = 50,000 ∗[(1 −(1 + 0.05)−10)/0.05]P V =50,000 * [(1 - (1.05)−10)/0.05]P V =50,000 * [(1 -
0.6139) / 0.05] PV = 50,000 ∗[0.3861/0.05]P V =50,000 * 7.722 PV = 386,100
Therefore, the present value of the lease liability that the city government should recognize on its finan-
cial statements under GASB 87 accounting standards is 386,100.
9. Question: According to GASB Statement No. 77, what percentage of governments are required to
disclose information regarding tax abatements in their financial statements?
Solution: GASB Statement No. 77 requires that governments disclose information about tax abatements
in their financial statements if they have the ability of granting these. Specifically, 20
10. Question: A city government entered into a lease agreement for a new fire truck. The lease term is
for 5 years, with annual lease payments of 20,000.T heimplicitinterestrateintheleaseis4
Solution: To calculate the initial liability under GASB Standard 87 for a lease, the city government
should first determine the present value of the lease payments.
Using the formula for present value of an ordinary annuity: PV = Pmt x [(1 - (1 + r)−n)/r]where :
P V =P resentvalueP mt =Annualleasepaymentr =Implicitinterestraten =Numberofperiods
PV = 20,000x[(1 −(1 + 0.04)−5)/0.04]P V =20,000 x [(1 - (1.04)−5)/0.04]P V =20,000 x [(1 -
0.8227) / 0.04] PV = 20,000x(0.1773/0.04)P V =20,000 x 4.4325 PV = 88,650
Therefore, the initial liability that the city government should recognize on its financial statements for
the lease of the fire truck is 88,650.
11. Question: The City of ABC provides post-employment benefits to its retirees. As per GASB stan-
dards, the actuarially determined OPEB liability for the city is 5,000,000.Duringthef iscalyear, thecitycontributed1,000,000
towards funding these benefits. What is the net OPEB liability reported in the city’s financial statements?
Solution: The net OPEB liability reported in the financial statements can be calculated using the formula:
Net OPEB Liability = Actuarially Determined OPEB Liability - Plan Fiduciary Net Position
Given: Actuarially Determined OPEB Liability = 5,000,000Contributionsmadebythecity =1,000,000
Plan Fiduciary Net Position can be calculated as: Plan Fiduciary Net Position = Actuarially Determined
OPEB Liability - Net OPEB Liability
Plugging in the values: Plan Fiduciary Net Position = 5,000,000−1,000,000 = 4,000,000
Now, calculating the net OPEB liability: Net OPEB Liability = Actuarially Determined OPEB Liability -
Plan Fiduciary Net Position Net OPEB Liability = 5,000,000−4,000,000 Net OPEB Liability = 1,000,000
Therefore, the net OPEB liability reported in the City of ABC’s financial statements is 1,000,000.
12. Question: According to GASB Statement No. 77, a government entity reported 500,000intotaltaxabatementsforthefiscalyear.Ifthegovernmententityalsoreportedthat300,000
of the tax abatements were related to economic development incentives, what percentage of the total tax
abatements does economic development incentives represent?
Solution:
To find the percentage of tax abatements related to economic development incentives, we divide the
economic development incentives by the total tax abatements and multiply by 100 to get the percentage:
Percentage of Economic Development Incentives = (Economic Development Incentives / Total Tax
Abatements) * 100Percentage of Economic Development Incentives = (300,000/500,000) * 100Percent-
age of Economic Development Incentives = 0.6 * 100Percentage of Economic Development Incentives =
60
Therefore, economic development incentives represent 60
13. Question: A government entity has reported total unrestricted fund balance of 500,000.W ithintheunrestrictedfundbalance,100,000
is classified as committed, 150,000asassigned, andtherestasunassigned.Calculatetheamountclassifiedasunassignedfundbalance.
Solution: Total unrestricted fund balance = 500,000Amountclassifiedascommitted =100,000 Amount
classified as assigned = 150,000
To find the amount classified as unassigned fund balance, we add up the amounts classified as committed
and assigned, then subtract that total from the total unrestricted fund balance:
100,000(committed)+150,000 (assigned) = 250,000500,000 (total unrestricted) - 250,000(committed+
assigned) =250,000
Therefore, the amount classified as unassigned fund balance is 250,000.
14. Question: A city government’s pension plan has reported a beginning total pension liability of
10millionandanendingtotalpensionliabilityof13 million during the fiscal year. If the city government
made contributions of 2milliontothepensionplanandrecordedanetpensionexpenseof1.5 million, what
is the amount of pension benefits paid during the fiscal year?
Solution:
To calculate the pension benefits paid during the fiscal year, we will use the formula:
Pension Benefits Paid = Changes in Total Pension Liability + Net Pension Expense - Contributions
Given: Beginning Total Pension Liability = 10millionEndingT otalP ensionLiability =13 million
Contributions = 2millionN etP ensionExpense =1.5 million
Changes in Total Pension Liability = Ending Total Pension Liability - Beginning Total Pension Liability
Changes in Total Pension Liability = 13million−10 million Changes in Total Pension Liability = 3million
Now, substitute the given values into the formula:
Pension Benefits Paid = 3million+1.5 million - 2millionP ensionBenefitsP aid =4.5 million -
2millionP ensionBenef itsP aid =2.5 million
Therefore, the amount of pension benefits paid during the fiscal year is 2.5million.
15. Question: A municipality reported 500,000inagencyfunds,1,000,000 in pension trust funds, and
2,500,000ininvestmenttrustfundsinitsfinancialstatements.AccordingtoGASB84standards, howmuchoftheseamountsshouldbereportedasfiduciaryfunds?
Solution: - Agency funds are fiduciary funds, so the full amount of 500,000shouldbereportedasfiduciaryf unds.−
P ensiontrustfundsarealsofiduciaryfunds, sothefullamountof1,000,000 should be reported as fidu-
ciary funds. - Investment trust funds are fiduciary funds unless the government is the primary beneficiary
(control how assets are used), in which case they are reported in the government-wide financial statements
instead. In this case, let’s assume the municipality is not the primary beneficiary; therefore, the full amount
of 2,500,000shouldbereportedasfiduciaryfunds.
Therefore, the total amount to be reported as fiduciary funds according to GASB 84 standards is 500,000+1,000,000
+2,500,000 =4,000,000.
16. Question: How many fiduciary fund types are recognized under GASB Statement No. 84 on fidu-
ciary activities in governmental financial reporting?
Solution: GASB Statement No. 84 identifies four fiduciary fund types under governmental financial
reporting. These are Pension (and other employee benefit) trust funds, Investment trust funds, Private-
purpose trust funds, and Custodial funds. Therefore, the numerical answer to the question is 4 fiduciary
fund types.
17. Question: A local government has outstanding long-term bonds with a face value of 5,000,000andapremiumof200,000.
How should the government report the bonds on its financial statements, considering GASB standards?
Solution: 1. Bonds with a Premium: - Face Value of Bonds = 5,000,000−P remiumonBonds =200,000
- Total Cash Received = Face Value + Premium = 5,000,000+200,000 = 5,200,000
2. According to GASB standards for governmental financial reporting, the premium on bonds should be
amortized over the life of the bonds. This results in a reduced cost of borrowing being reported each year to
accurately represent the cost incurred by the government.
3. To account for the premium on bonds, the government should do the following: - Record the Bonds
Payable at Face Value: 5,000,000 −RecordtheP remiumonBondsasaLiability :200,000 - Total Long-
Term Liabilities Reported on the Financial Statements = Bonds Payable + Premium = 5,000,000+200,000
=5,200,000
4. Therefore, the local government should report the bonds on its financial statements as: - Bonds
Payable: 5,000,000 −P remiumonBonds :200,000 - Total Long-Term Liabilities: 5,200,000
Final Answer: 5,200,000
18. Question: A government entity has total pension liabilities of 10,000,000andtotalplanf iduciarynetpositionof 8,000,000.
Calculate the net pension liability for the government entity.
Solution: The Net Pension Liability (NPL) is calculated as the total pension liabilities minus the total
plan fiduciary net position.
NPL = Total Pension Liabilities - Total Plan Fiduciary Net Position NPL = 10,000,000−8,000,000 NPL
=2,000,000
Therefore, the Net Pension Liability for the government entity is 2,000,000.
19. Question: According to GASB Statement No. 87, what is the minimum lease term for a lease to be
classified as a finance lease for governmental entities?
Solution: According to GASB Statement No. 87, a lease must meet one of the following criteria to be
classified as a finance lease:
1. The lease term is for the major part of the asset’s economic life. 2. The present value of the lease
payments is equal to or greater than substantially all of the fair value of the asset.
Therefore, the minimum lease term for a lease to be classified as a finance lease for governmental entities
is for the major part of the asset’s economic life. The "major part" is generally defined as 75
So, the numerical answer would be: 75
20. Question: According to GASB standards, what is the fair value of a city’s newly constructed bridge if
the estimated construction cost was 10million, andthecurrentfairvalueofsimilarbridgesinthemarketis11.5
million?
Solution: The fair value of the newly constructed bridge can be determined by referencing the fair value
of similar assets in the market. In this case, the fair value of similar bridges is 11.5million.
Therefore, the fair value of the city’s newly constructed bridge is 11.5million.
21. Question: According to GASB Statement No. 84, how many criteria must be met for an activity to
be deemed a fiduciary activity in governmental financial reporting?
Solution: GASB Statement No. 84 outlines five criteria that must be met for an activity to be considered
a fiduciary activity in governmental financial reporting. These criteria are as follows:
1. The activity must control assets of the fiduciary activity. 2. The activity must receive resources from
third parties. 3. The activity must have a fiduciary responsibility to the parties served. 4. The activity
must not retain the benefits of the assets for its own organization’s purposes. 5. The activity must have a
significant portion or all of the assets returned to the resource providers or their beneficiaries.
Therefore, the numerical answer is 5 criteria that must be met for an activity to be classified as a fiduciary
activity under GASB Statement No. 84.
22. Question:
A city government leased a building for 5 years under a lease term of 10,000permonth, withpaymentsmadeatthebeginningofeachmonth.T heimplicitrateintheleaseis4
Solution:
To calculate the lease liability at the commencement of the lease, we first need to determine the present
value of the lease payments.
Given: - Monthly lease payments: 10,000 −Leaseterm : 5years −Implicitrate : 4
Step 1: Calculate the present value factor using the formula for present value of an annuity:
Present Value Factor = (1 −(1 + r)−n)
r
where r = interest rate per period, and n = number of periods
In this case, r = 4n = 5 years * 12 months = 60 months
Present Value Factor = (1 −(1 + 0.00333)−60)
0.00333)
(1 −0.5981)
0.00333)
160.24
Step 2: Calculate the present value of the lease payments:
Present Value = Monthly lease payments * Present Value Factor Present Value = 10,000∗160.241,602,400
Therefore, the city government should recognize a lease liability of approximately 1,602,400atthecommencementoftheleaseunderGASB87standards.
23. Question: A city government has three separate funds: General Fund, Special Revenue Fund, and
Pension Trust Fund. The city receives 1,000,000ingrantrevenuedesignatedf oraspecif icprogramintheSpecialRevenueF und.Howshouldthisgrantrevenuebereportedinthegovernment′sfinancialstatementsaccordingtoGASBStatementNo.84?
Solution: According to GASB Statement No. 84 on Fiduciary Activities, grant revenue designated for
a specific program in a Special Revenue Fund should be reported in the financial statements as a liability
of the fund, rather than revenue. This is because the funds are restricted for a specific purpose and do not
belong to the government entity itself.
Therefore, the correct way to report this grant revenue in the financial statements is as follows:
General Fund: 0(N oimpactontheGeneralF und)SpecialRevenueF und :−GrantRevenue :0 -
Grant Liability: 1,000,000P ensionT rustF und :0
The grant revenue of 1,000,000receivedf oraspecificprogramintheSpecialRevenueF undshouldbereportedasaliabilityof thefunduntilitisexpendedonthedesignatedprogram.
24. Question: According to GASB Statement No. 84, what is the threshold for reporting fiduciary
activities as component units in the financial statements of a governmental entity? Provide your answer in
dollars.
Solution: GASB Statement No. 84 states that fiduciary activities should be reported as component units
if their total assets, at the organization’s highest level, are greater than 5
For example, if a governmental entity has total assets of 10,000,000, thenanyfiduciaryactivitieswithtotalassetsgreaterthan500,000
(5
25. Question: A government entity has a total pension liability of 10,000,000andthenetpensionassetrecognizedis2,000,000.
Calculate the net pension liability (NPL) for the government entity.
Solution: Net Pension Liability (NPL) = Total Pension Liability - Net Pension Asset
Substitute the given values: NPL = 10,000,000−2,000,000 NPL = 8,000,000
Therefore, the net pension liability for the government entity is 8,000,000.
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