1.Rule 203 of the AICPA’s Code of Professional Conduct pertains to a. CPAs’ independence b. authorities designated to establish accounting standards c. standards of competency d. solicitation of new clients by a CPA
2. Which of the following rule-making authorities would establish accounting standards for Stanford University (a private university)? a. the AICPA b. the FASB c. the FASAB d. the GASB
3. Which of the following rule-making authorities would establish accounting standards for the University of Texas (a public university)? a. the AICPA b. the FASB c. the FASAB d. the GASB
4. If the GASB has not issued a pronouncement on a specific issue, which of the following is true with respect to FASB pronouncements? a. they would automatically govern b. they could be taken into account but would have no higher standing than other accounting literature c. they are irrelevant d. they could be taken into account by the reporting entity, but only if disclosure is made in notes to the financial statements
5. The FASB is to the GASB as a. a brother is to a sister b. a father is to a son c. a son is to a father d. a daughter is to a friend
6. Standards promulgated by the FASB are most likely to be adhered to by which of the following governmental units? a. a police department b. a public school c. an electric utility d. a department of highways
7. Which of the following practices is most likely to undermine interperiod equity? a. paying for a new school building out of current operating funds b. paying the administrative staff of a school out of current operating funds c. issuing 20-year bonds to finance construction of a new highway d. recognizing gains and losses on marketable securities as prices increase and decrease
8. The term ‘‘independent sector’’ refers to a. states that have opted not to receive federal funds b. not-for-profit organizations c. churches that are unaffiliated with a particular denomination d. universities that are not affiliated with a particular athletic conference
9. Which of the following is not an objective of external financial reporting by either the GASB or the FASB? a. to enable the statement user to detect fraud b. to disclose legal or contractual restrictions on the use of resources c. to provide information about how the organizations meet their cash requirements d. to provide information that would enable a user to assess the service potential of longlived assets
10. Which of the following is the least appropriate use of the external financial statements of a government? a. to assess the entity’s financial position b. to assess whether the compensation of management is reasonable in relation to that in comparable entities c. to compare actual results with the budget d. to evaluate the efficiency and effectiveness of the entity in achieving its objectives..

Problem 1-3
Budgeting practices that satisfy cash requirements may not promote interperiod equity. The Burnet County Road Authority was established as a separate government to maintain county highways. The road authority was granted statutory power to impose property taxes on county residents to cover its costs, but it is required to balance its budget, which must be prepared on a cash basis. In its first year of operations it engaged in the following transactions, all of which were consistent with its legally adopted, cash-based budget: _
Purchased $10 million of equipment, all of which had an anticipated useful life of 10 years. To finance the acquisition, the authority issued $10 million in 10-year term bonds (i.e., bonds that mature in 10 years)
_ Incurred wages, salaries, and other operating costs, all paid in cash, of $6 million _ Paid interest of $0.5 million on the bonds
_ Purchased $0.9 million of additional equipment, paying for it in cash. This equipment had a useful life of only three years
1. The authority’s governing board levies property taxes at rates that are just sufficient to balance the authority’s budget. What is the amount of tax revenue that it is required to collect?
2. Assume that in the authority’s second year of operations, it incurs the same costs, except that it purchases no new equipment. What amount of tax revenue is it required to collect?
3. Make the same assumption as to the tenth year, when it has to repay the bonds. What amount of tax revenue is it required to collect?
4. Comment on the extent to which the authority’s budgeting and taxing policies promote interperiod equity. What changes would you recommend?