AGA GAFRB Exam Practice Test Instant Access

Question 1

The process in the budget where OMB communicates to agencies what it will recommend to the president is called

Apass back.

Ballotment

Crescission.

Dapportionment.
The 'pass back' is a step in the federal budget process during which the Office of Management and Budget (OMB) communicates to federal agencies what parts of their budget requests it has approved or rejected. It precedes the preparation of the President's Budget and gives agencies a chance to appeal decisions before final submission.
Other options:
Allotment: An internal division of an appropriation.
Rescission: A cancellation of budget authority.
Apportionment: OMB's formal distribution of funds over time, typically quarterly.
Relevant Reference:
OMB Circular A-11 -- Preparation, Submission, and Execution of the Budget
GAO Glossary of Budgetary Terms
Congressional Budget Office (CBO) -- Federal Budget Process
Answer : A. pass back

Answer : A

Question 2

An agency is developing a lee for services to cover all direct operating expenditures. Which of the following should be included in the fee calculation?

Asupplies, equipment depreciation, staffing

Bstaffing, location rent, equipment depreciation

Csupplies, equipment depreciation, location rent

Dstaffing, location rent, supplies

Answer : B

When an agency is developing a fee to recover costs for providing a service, it must calculate the full cost of the service. According to cost accounting standards for federal government operations, ''full cost'' includes:

Direct costs: staffing, supplies, materials directly used in service provision

Indirect costs: facility costs (e.g., location rent), equipment depreciation, administrative support, etc.

OMB Circular A-25, ''User Charges,'' requires that user fees for government services be based on the full cost of providing that service unless otherwise mandated by law. Therefore, staffing (a direct cost), location rent (indirect cost), and equipment depreciation (a capital asset cost) are all appropriate to include.

Relevant Standards and Reference:

OMB Circular A-25, ''User Charges,'' Section 6(d): ''Full cost includes all direct and indirect costs to any part of the Federal Government of providing a good, resource, or service.''

FASAB SFFAS No. 4, Managerial Cost Accounting Concepts and Standards: Defines full cost components, including depreciation.

GAO ''Principles of Federal Appropriations Law,'' Red Book, Vol. I: Cost recovery practices in federal user fee settings.

Therefore, Option B is correct.

Question 3

If an internal service fund needs to develop an hourly billing rate, the calculation should include

Aall materials consumed during the year.

Bthe acquisition cost of equipment purchased during the year.

Cthe replacement cost of equipment purchased during the year.

Dall materials purchased during the year, even if the materials were not consumed.

Answer : A

An internal service fund is used to account for goods or services provided by one department or agency to other departments or agencies of the governmental unit, typically on a cost-reimbursement basis.

To establish accurate billing rates (e.g., hourly rates), the fund must use actual costs of providing services. This includes materials consumed, labor, depreciation, and overhead. Materials purchased but not used should not be included in the rate calculation for the current period.

Relevant Standards and Reference:

FASAB SFFAS No. 4, Managerial Cost Accounting

GASB Codification Section 1800, Internal Service Funds

GFOA Best Practices -- Internal Service Fund Rate Setting

Therefore, Option A is correct.

Question 4

An independent school district completed construction on a new high school during the current fiscal year. The amount paid to the construction manager was $900,000 and the amount paid to the architect was $100,000. The entity depreciates buildings over 50 years, using the straight line, half-year depreciation method. What is the amount reported on the Statement of Activities in the current fiscal year?

A$9,000

B$10,000

C$20,000

D$1,000,000

Answer : C

The $900,000 paid to the construction manager and $100,000 paid to the architect are capitalized as part of the building's total cost, totaling $1,000,000.

Using straight-line depreciation over 50 years with the half-year convention:

Annual depreciation = $1,000,000 50 = $20,000

Since the half-year convention is used in the year the asset is placed in service, only 50% of the full-year depreciation is recorded.

Depreciation for the current year = $20,000 0.5 = $10,000

However, note: since both amounts ($900,000 + $100,000) were paid during construction and the school was completed and placed into service this year, the full capitalized amount applies.

GASB and GAAP allow the half-year rule unless the asset was placed into service at the beginning of the year. In this case, since placed during the year, the half-year rule applies.

Correct depreciation for the first year = $10,000

So, the correct answer is:

Answer : B. $10,000

Correction Note: While option C ($20,000) may seem valid for full-year depreciation, the use of the 'half-year depreciation method' dictates that only half of the full-year amount is expensed in the first year.

Relevant Reference:

GASB Statement No. 34 -- Capital Assets and Depreciation

GFOA Best Practices on Capital Asset Accounting and Reporting

Question 5

The major difference in applying the accrual concept in governmental fund accounting, as opposed to private-sector accounting, is that revenues are

Arecognized in the accounting period in which they are received.

Brecorded when collectability occurs or can be reasonably estimated.

Crecognized when they become measurable and available.

Drecognized when an encumbrance order is prepared.
Governmental fund accounting uses the modified accrual basis of accounting. Under this basis, revenues are recognized when:
They are measurable (amount can be reasonably determined)
They are available (collectible within the current period or soon enough thereafter to pay current liabilities --- typically within 60 days)
This is the key difference from full accrual accounting, which recognizes revenue when it is earned, regardless of when received.
Relevant Reference:
GASB Statement No. 33 -- Accounting and Financial Reporting for Nonexchange Transactions
GASB Statement No. 34 -- Fund Accounting and Modified Accrual Basis
GASB Codification Section 1600 -- Fund Financial Reporting
Answer : C. recognized when they become measurable and available

Answer : C

Question 6

Using the cost recovery method of recognizing revenue, premiums are recognized as revenue

Aonce the ultimate premium can be reasonably estimated.

Bthroughout the duration of the policy when claim costs are incurred.

Cwhen received.

Dwhen the policy takes effect.
Under the cost recovery method, revenue is recognized only as costs are recovered. In the context of insurance or risk-financing activities (such as self-insurance), GASB and FASAB require that premium revenues be recognized over the term of the policy, in proportion to the recognition of related costs (e.g., claims incurred).
This aligns revenue with expenses and ensures no profit is recognized before related obligations are met.
Relevant Reference:
FASAB SFFAS No. 7 -- Revenue and Other Financing Sources
GASB Statement No. 10 -- Accounting for Risk Financing and Related Insurance Issues
GFOA Risk Management and Insurance Practices
Answer : B. throughout the duration of the policy when claim costs are incurred

Answer : B

Question 7

A federal entity would record a payment of a payable in which of the following journal entries?

ADebit Undelivered Order-Obligations, Unpaid
Credit Delivered Orders-Obligations, Paid Debit Accounts Payable
Credit Fund Balance with Treasury

BDebit Unapportioned Authorities
Credit Delivered Orders-Obligations, Paid Debit Accounts Payable
Credit Fund Balance with Treasury

CDebit Commitments
Credit Delivered Orders-Obligations, Unpaid Debit Accounts Payable
Credit Fund Balance with Treasury

DDebit Delivered Orders-Obligations. Unpaid
Credit Delivered Orders-Obligations, Paid Debit Accounts Payable
Credit Fund Balance with Treasury
When a federal entity pays off a payable:
Budgetary accounting moves the status of the obligation from unpaid to paid
Proprietary accounting reduces the payable and cash (Fund Balance with Treasury)
The correct journal entry is:
Budgetary:
Debit Delivered Orders -- Obligations, Unpaid
Credit Delivered Orders -- Obligations, Paid
Proprietary:
Debit Accounts Payable
Credit Fund Balance with Treasury
This reflects the transition from an unpaid liability to a disbursed payment, complying with federal financial reporting.
Relevant Reference:
Treasury Financial Manual (TFM) Vol. I, Part 2, Chapter 4700
FASAB SFFAS No. 1 and No. 7 -- Accounting for Liabilities and Budgetary Resources
USSGL (U.S. Standard General Ledger) -- Posting Logic for Obligation Transactions
Answer : D. Debit Delivered Orders -- Obligations, Unpaid; Credit Delivered Orders --
Obligations, Paid; Debit Accounts Payable; Credit Fund Balance with Treasury

Answer : D

AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting GAFRB Exam Practice Test