What Is the Underlying Reason a Governmental Unit Uses Separate

question 14

Multiple Choice

What is the underlying reason a governmental unit uses separate funds to account for its transactions?

• A) Governmental units are so large that it would be unduly cumbersome to account for all transactions as a single unit.
• B) Because of the diverse nature of the services offered and legal provisions regarding activities of a governmental unit, it is necessary to segregate activities by functional nature.
• C) Generally accepted accounting principles require that nonbusiness entities report on a funds basis.
• D) Many activities carried on by governmental units are short-lived and their inclusion in a general set of accounts could cause undue probability of error and omission.

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Definitions:

Monopoly

A market structure characterized by a single seller, selling a unique product in the market. This seller faces no competition, as he is the sole seller of goods with no close substitute.

Output

refers to the total amount of goods or services produced by a firm, industry, or economy within a certain period.

Profit-Maximizing Rule

A principle stating that profit maximization occurs when a firm expands output until marginal cost is equal to marginal revenue.

MR = MC

The condition for profit maximization in economic theory, where marginal revenue (MR) equals marginal cost (MC).