Pass the AGA Government Financial Manager GAFRB Questions and answers with CertsForce

The Prompt Payment Act (31 U.S.C. Chapter 39) mandates that federal agencies pay vendors on time. Specifically, if a contract specifies a due date for payment, agencies are required to pay by that date. If no specific due date is mentioned, payment must be made within 30 days after the later of either:

Receipt of a proper invoice, or

Acceptance of goods/services.

If agencies fail to pay by the due date, they must automatically calculate and pay interest penalties to the vendor.

Relevant Standards and References:

31 U.S.C. § 3903 (Prompt Payment Act): “A payment is timely if it is made by the due date prescribed by the contract or within 30 days after receipt of a proper invoice or acceptance of goods or services.”

OMB Circular A-125, “Prompt Payment,” Section 7(a)

Treasury Financial Manual (TFM), Volume I, Part 6, Chapter 8040

Therefore, Option D is correct.

The Statement of Net Cost is the principal financial statement used by federal agencies to report the total cost of their programs and activities. It aligns the agency's programs, outputs, and strategic objectives with the cost incurred to produce those outputs.

The Department of Health and Human Services, like all federal agencies, uses this statement to display costs by major program or responsibility segment.

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Standards

FASAB SFFAS No. 55 – Amending the Statement of Net Cost

OMB Circular A-136 – Section on Federal Financial Statements

Answer: A. Statement of Net Cost

Enterprise funds are a type of proprietary fund used by governments to account for operations that are financed and operated in a manner similar to private business enterprises. These include activities like water, sewer, and electricity utilities, where user fees or charges for services are the primary revenue source.

In this case, a water utility charging users is best accounted for using an enterprise fund.

Relevant References:

GASB Codification Section 1300 – Fund Types

GASB Statement No. 34 – Fund Classification

GFOA Best Practices – Utility and Enterprise Fund Accounting

Answer: D. enterprise fund

When a government issues general obligation bonds at a premium, the premium is amortized over the life of the bond. Under the full accrual basis used in the government-wide financial statements (e.g., Statement of Activities), this amortization reduces the reported interest expense over time.

The fund financial statements (e.g., Statement of Revenues, Expenditures, and Changes in Fund Balance) follow the modified accrual basis and generally do not account for amortization of bond premiums.

Relevant References:

GASB Statement No. 34 – Government-Wide Financial Reporting

GASB Statement No. 65 – Items Previously Reported as Assets and Liabilities

GFOA – Debt Reporting Best Practices

Answer: B. Statement of Activities as a component of interest expense

Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.

Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.

Relevant Standards and References:

GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions

GASB Codification Section N50

GFOA Revenue Classification Guidelines

Temporary accounts (revenues, expenditures, and transfers) are closed at the end of the fiscal year to prepare the books for the next fiscal period. Tax revenues are a temporary account and are closed at year-end by transferring balances to fund balance accounts.

In contrast:

Taxes receivable (A) is a balance sheet (permanent) account.

Supplies inventory (C) is an asset.

Unassigned fund balance (D) is an equity account.

Relevant References:

GASB Codification Section 2200 – Fund Accounting and Closing Procedures

GFOA Accounting and Financial Reporting Manual

GAAP Fundamentals

Answer: B. tax revenues

A governmental financial reporting entity includes:

The primary government

Legally separate organizations for which the primary government is financially accountable

Other organizations whose exclusion would render the financial statements misleading or incomplete (per GASB Statement No. 14 and No. 61)

Merely keeping records for an organization does not make it part of the financial reporting entity unless there is financial accountability or a significant relationship.

Relevant References:

GASB Statement No. 14 – The Financial Reporting Entity

GASB Statement No. 61 – Omnibus Amendments to GASB No. 14

GASB Codification Section 2100 – Reporting Entity

Answer: B. any organization for which records are kept by the primary government

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Serial bonds mature in installments over the life of the bond (e.g., every year or every few years). This structure allows the cost of repaying the debt to align more closely with the periods in which the capital asset is used — achieving intergenerational equity by spreading the cost over the same span as the asset’s useful life.

Term bonds, zero-coupon bonds, and pay-as-you-go do not align costs with benefits across multiple years in the same way.

Relevant References:

GFOA Best Practices – Debt Management and Capital Planning

GASB Concepts Statement No. 1 – Interperiod Equity

MSRB Educational Materials on Bond Types

Answer: A. 30-year serial bonds

Comprehensive Detailed Explanation:

Capitalization of interest begins when three conditions are met:

Expenditures for the asset have been made (i.e., costs are being incurred)

Activities necessary to prepare the asset for use are in progress

Interest cost is being incurred

Signing a contract does not trigger capitalization — the actual incurrence of costs and activities must begin.

This rule is based on GAAP and FASB/GASB guidance for capital asset construction.

Relevant References:

GASB Statement No. 62 – Capitalization of Interest

FASB ASC 835-20 – Interest Capitalization

GFOA – Capital Asset Accounting Guidelines

Answer: A. the contract is signed for purchasing the asset

The Federal Accounting Standards Advisory Board (FASAB) establishes Generally Accepted Accounting Principles (GAAP) for federal government entities. FASAB is recognized by the American Institute of Certified Public Accountants (AICPA) as the authoritative source of GAAP for federal agencies.

Other agencies:

OMB: Issues financial reporting guidance and formats (e.g., A-136), but does not set GAAP.

GAO: Audits financial statements and issues internal control guidance.

FASB: Sets GAAP for private sector and some not-for-profit organizations—not federal.

Relevant References:

FASAB Memorandum of Understanding (GAO, Treasury, OMB)

AICPA Rule 203 Designation of FASAB as the GAAP Authority

SFFAS No. 34 – The Hierarchy of GAAP

Answer: A. FASAB