In the Two-Worksheet Approach, What Type of Adjustment Will Be

question 37

Multiple Choice

In the two-worksheet approach, what type of adjustment will be necessary for interest payable on the balance sheet conversion worksheet?

• A) No adjustment is necessary for interest payable. This amount is the same in the fund statements and the government-wide statements.
• B) Interest on long-term debt that has been incurred but not paid will need to be added to the interest payable reported on the governmental funds balance sheet.
• C) Interest paid this year that is attributable to the previous year accrual for long-term debt will need to be deducted from interest payable reported on the governmental funds balance sheet.
• D) The net change in accrued interest payable on long-term debt from the beginning of the year to the end of the year will be added to the amount of interest payable reported on the governmental funds balance sheet.

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Definitions:

CAPM

The Capital Asset Pricing Model, a formula used to determine the expected return on an investment, factoring in risk and the time value of money.

Nonsystematic Variance

Nonsystematic variance, also known as unsystematic risk, is the portion of an investment's risk that is attributable to the specific risk of its issuer and can be mitigated through diversification.

Security Market Line

A graphical representation of the capital asset pricing model, showing the expected return of an investment as a function of its systemic risk.

Nonsystematic Risk

The risk associated with an individual asset or investment, resulting from factors specific to its issuer's performance and not the broader market.