AGA GAFRB Practice Test Questions Answers

The city issues $100,000 in general obligation bonds on April 1, 2024, and the first principal payment of $10,000 is due on March 31, 2025. The interest rate is 5% annually on the unpaid principal balance.

As of April 1, 2024, the full $100,000 is outstanding. For the full fiscal year (April 1, 2024 to March 31, 2025), interest accrues on the full amount until payment is made. The interest on $100,000 for one year at 5% =

Interest Expense = $100,000 × 5% = $5,000

Note: Interest is typically calculated on the beginning-of-period balance, and since the payment is made at the end of the year (March 31, 2025), the full $5,000 interest is recognized for that year.

Relevant Standards and References:

GASB Statement No. 34, Basic Financial Statements for State and Local Governments

GASB Codification Section 2200 (Government-Wide Financial Statements)

GFOA Guidance on Long-Term Debt Accounting

When a federal agency participates in a pension plan administered by another government entity (such as the Office of Personnel Management, OPM), and OPM bills the agency for a portion of the cost while covering the remainder itself, the portion not billed is considered an "imputed cost" to the agency. This imputed cost represents the agency's share of employee pension benefits that are financed on its behalf by another entity.

Accounting guidance requires that the employing agency recognize both the amount billed and the amount covered by OPM as a pension expense, recordingthe imputed cost as an expense and as an imputed financing source in its own financial statements.This treatment ensures full recognition of the economic cost of employing personnel, even if part of that cost is not directly paid by the agency.

Key references and standards:

Federal Accounting Standards Advisory Board (FASAB) SFFAS No. 5, “Accounting for Liabilities of the Federal Government”:

“Employing entities should recognize the cost of pensions and other postemployment benefits during their employees' active years of service. The cost recognized includes the amount contributed by the employing entity and the portion contributed by other entities on the entity’s behalf, which is called an imputed cost.”

FASAB SFFAS No. 4, “Managerial Cost Accounting Standards and Concepts”:

“Costs that are incurred by one entity but paid by another entity, and that benefit the reporting entity, should be recognized by the reporting entity as imputed costs and imputed financing.”

OMB Circular A-136, Section II.2.7.3:

“Imputed costs are to be recognized for the costs of goods and services received from other federal entities at no or reduced cost, such as pension and postretirement health benefits...”

Therefore, answer choice C is correct: the agency recognizes the imputed cost.

Disclaimer: This custom GPT is continuously improving, but it may not always provide accurate information and can make mistakes. Validate important information for relevancy, completeness and accuracy with your subject matter experts (SMEs).

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 References:

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.

Interest accrued on the public debt (e.g., Treasury securities) is considered a government expenditure. In federal financial reporting and budgeting, this is classified as an outlay, representing a payment made to meet an obligation.

It is not a receipt (revenues collected), a cost of goods sold (used in commercial accounting), or a tax expenditure (which refers to revenue foregone due to deductions, credits, etc.).

Relevant References:

OMB Circular A-11 – Budgetary Definitions

Treasury Financial Manual (TFM) – Federal Outlay Reporting

GAO Glossary – Public Debt Interest Treatment

Answer: B. an outlay

The government-wide financial statements required by GASB Statement No. 34 include:

Statement of Net Position (similar to a balance sheet)

Statement of Activities (similar to an income statement)

These financial statements provide a consolidated view of the government's financial position and activities using the economic resources measurement focus and accrual basis of accounting.

There is no requirement under GASB for a government-wide statement of cash flows.

Relevant Standards and References:

GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments

GASB Codification Section 2200: Financial Reporting

GFOA Budgeting Best Practices

Therefore, Option C is correct.