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1. A governmental agency has received a grant of $500,000 that is
restricted for research and development. How should this be reported in
the fund financial statements?
 A) As deferred inflow of resources
 B) As revenue in the governmental funds
 C) As revenue in the proprietary funds
 D) As an inflow of resources in the agency fund
 Answer: B) As revenue in the governmental funds. Rationale: Since the
grant is specifically restricted for research and development, it should be
recognized as revenue in the fund financial statements when all applicable
eligibility requirements are met.
2. During the fiscal year, a city government has incurred $1 million in
capital expenditures for constructing a new public library. Which of the
following statements is true regarding budgetary control?
 A) The expenditures should be recorded as an expense in the general
fund.
 B) The expenditures should be capitalized and depreciated over its
useful life.
 C) The expenditures should be recorded as an expenditure in the capital
projects fund.
 D) The expenditures should be financed through long-term debt and
recorded in the debt service fund.
 Answer: C) The expenditures should be recorded as an expenditure in
the capital projects fund. Rationale: Capital outlays are typically financed
from capital projects funds, and such expenditures are recorded as
expenditures rather than expenses.
3. A state government has collected property taxes amounting to $10
million, but 5% is expected to be uncollectible. How should this
transaction be recorded?
 A) Recognize $9.5 million as revenue and $0.5 million as allowance for
uncollectibles.
 B) Defer recognition of revenue until cash is collected.
 C) Recognize $10 million as revenue and increase expenses by $0.5
million for estimated uncollectibles.
 D) Recognize $10 million as revenue and disclose the information about
uncollectibles in the notes to financial statements.
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