CPA FAR Practice Test

CPA FAR Not-for-Profit & Government Reporting Practice Questions

Not-for-Profit & Government Reporting makes up 4 of every 50 questions on a Tigertest CPA FAR practice test. Here are 10 of the 16 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the AICPA's 2026 FAR blueprint. Original multiple-choice questions; simulations not included. Not affiliated with the AICPA or NASBA.

1. 1. A nongovernmental not-for-profit entity reports its net assets in:

   • A.Classes the board chooses
   • B.Two classes, by donor restriction
   • C.Three classes, by restriction term
   • D.One class, total net assets

   Answer: B. Since ASU 2016-14, net assets are reported as with donor restrictions or without donor restrictions. The old three classes (unrestricted, temporarily and permanently restricted) were replaced.

2. 2. A not-for-profit's board sets aside unrestricted gifts as a quasi-endowment. These net assets are reported as:

   • A.Temporarily restricted
   • B.A liability to the board
   • C.With donor restrictions
   • D.Without donor restrictions

   Answer: D. Only a donor can impose a restriction. Board designations are internal decisions, so the funds remain net assets without donor restrictions, though the designation may be disclosed.

3. 3. A not-for-profit spends a donor-restricted gift on the purpose the donor named. In the statement of activities this appears as:

   • A.Net assets released from restriction
   • B.An increase in restricted assets
   • C.Revenue without donor restrictions
   • D.A direct charge to expenses only

   Answer: A. Meeting the restriction moves the amount from net assets with donor restrictions to those without, shown as a release (reclassification). The related expense is reported without donor restrictions.

4. 4. An analysis of expenses by both nature and function is required:

   • A.Only for very large entities
   • B.Never; it is optional
   • C.For every not-for-profit
   • D.For voluntary health groups only

   Answer: C. ASU 2016-14 requires all nongovernmental not-for-profits to present expenses by nature and function, in the statement of activities, a separate statement or the notes.

5. 5. In a not-for-profit's statement of activities, expenses are reported as decreases in:

   • A.Whichever class funded them
   • B.Both classes in proportion
   • C.Net assets without donor restrictions
   • D.Net assets with donor restrictions

   Answer: C. Expenses are always reported in net assets without donor restrictions. When restricted resources pay for them, a release from restriction moves the funds first.

6. 6. A not-for-profit receives a cash gift that the donor restricts to building a new clinic. In the statement of cash flows the receipt is:

   • A.A financing activity
   • B.An investing activity
   • C.A noncash activity
   • D.An operating activity

   Answer: A. Contributions restricted for long-term purposes, such as acquiring buildings or permanent endowments, are financing inflows. Unrestricted gifts are operating inflows.

7. 7. A not-for-profit must give quantitative information about financial assets available to meet general expenditures:

   • A.Only when debt is outstanding
   • B.Over the next five years
   • C.At fair value only, with no time limit
   • D.Within one year of the balance sheet

   Answer: D. ASU 2016-14 requires qualitative information on how liquidity is managed and quantitative information on the availability of financial assets for general expenditures within one year.

8. 8. A city's governmental funds use which measurement focus and basis of accounting?

   • A.Economic resources, modified accrual
   • B.Current resources, modified accrual
   • C.Economic resources, full accrual
   • D.Current resources, cash basis

   Answer: B. GASB requires governmental funds to use the current financial resources measurement focus and the modified accrual basis. Government-wide statements use economic resources and full accrual.

9. 9. A state's government-wide financial statements are prepared using:

   • A.Current resources, full accrual
   • B.Economic resources, full accrual
   • C.Current resources, modified accrual
   • D.Economic resources, cash basis

   Answer: B. Government-wide statements report all capital assets and long-term debt, so they use the economic resources measurement focus and accrual basis, like a business.

10. 10. A city operates a water utility that charges households for the water they use. The activity is recorded in:

    • A.Special revenue fund
    • B.General fund
    • C.Internal service fund
    • D.Enterprise fund

    Answer: D. Enterprise funds account for activities that charge fees to external users for goods or services. An internal service fund charges other departments of the same government.