Community Association Management M100 Courses Exam With Answers (363 Solved Questions)

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M100 Community AssociationManagementExam Questions withcorrect AnswersEach of the following are key characteristics of community associations EXCEPT:a. Mandatory lien-based economic charges or assessments are levied on each owner inorder tooperate and maintain the community association.b. Membership in the community association is mandatory and automatic for all owners.c. A requirement of community association ownership is serving on the board ofdirectors.d. Certain documents bind all owners to be governed by the community association.-Answer-c. A requirement of community association ownership is serving on the boardof directors.This is one of the three key characteristics common to all community associations.Members of an association are not legally required to serve on the board of directors;however, the overall success on the community is dependent upon the members'involvement its affairs.True or False. The primary purpose of a community association is to provide for thegovernance, business, and communal aspects of the association.-Answer-TrueProviding for the governance, business, and communal aspects of the association isachieved by administering, maintaining, and enhancing a residential real estatedevelopment, and through the establishment of a system of property rights, bindingcovenants and restrictions, and rules and regulations.Each of the following are basic types of residential community associations EXCEPT:a. Planned communityb. Townhousec. Cooperatived. Condominium-Answer-b. TownhouseWhile many community associations are indeed townhouse communities, not all suchdevelopments are necessarily associations. A community association is defined interms of ownership rights—not architectural style.Adoption of the annual budget is an example of which of the following type ofresolution?a. policy resolutionb. administrative resolutionc. special resolutiond. general resolution-Answer-d. general resolution

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General resolutions involve routineevents such as adoption of the annual budget.True or false. The purpose of a community association's governing documents is toprovide for the legal structure and operation of the community.-Answer-TrueThe governing documents define the rights and obligations of both the communityassociation and its owners, create a binding relationship between each owner and thecommunity association, and establish the mechanisms for governing and funding thecommunity association's operations.True or false. According to the general hierarchy of authority for governing documents,the bylaws would control in a conflict with the recorded map, plat, or plan.-Answer-FalseAs a general rule, documents lower in the hierarchy of authority cannot conflict with orchange the terms of those above them. The recorded map, plat, or plan is above thebylaws in the hierarchy, and therefore would prevail in such a conflict.Complete the following sentence: A __________ state statute is one that applies only toone or more types of community associations.a. generalb. complexc. specificd. uniform-Answer-c. specificA specific state statute is one that applies only to one or more types of communityassociations. For example, most states have a condominium act which provides for theestablishment and operation of condominiums as legal entities. These acts vary interms of their complexity—the simplest ones just allow for the creation ofcondominiums.True or false. A proprietary lease or occupancy agreement in a cooperative defines themember or stockholder's rights and obligations in relation to the living unit.-Answer-TrueIn a cooperative, the proprietary lease or occupancy agreement serves generally thesame purpose as the declaration, CC&R, or master deed in othercommunityassociations. Among other things, the proprietary lease or occupancy agreementidentifies the premises that the stockholder is permitted to occupy exclusively, definesthe term of the lease and the rent that is payable by the stockholder, and establishesthe powers and obligations of the cooperative's board of directors, including assessmentrights.

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Complete the following sentence: The __________ bring the community associationinto existence, define its basic purposes and powers, and indicate whether stock will beissued.a. recorded map, plat, or planb. declaration, CC&Rs, or master deedc. proprietary lease or occupancy agreementd. articles of incorporation-Answer-d. articles of incorporationA community association's corporate structureis established when a developer sets upthe association. The developer files articles of incorporation—sometimes called acorporate charter—with the appropriate state corporation agency.True or False. The public offering statement is a governing document, as it oftendistributed along with the governing documents.-Answer-FalseThe public offering statement is not a governing document; instead, it is simply adisclosure statement that provides information on the community association toprospective buyers.Each of the following legal sources specify management authority and responsibilitiesfor community associations EXCEPT:a. survey datab. state statutesc. community association governing documentsd. court decisions-Answer-a. survey dataAll three types of legal sources—state statutes, governing documents, and courtdecisions—specify the authority or power of different parties in a community associationand the responsibilities or duties of the different parties.True or false. The basic authority in a community association lies with the developer.-Answer-FalseThe basic authority in a community association lies with the owners. In order for theassociation to govern effectively the owners elect a board of directors to act on theirbehalf.The governing documents delegate most of the association's decision-makingpowers to a board.Complete the following sentence: The board of directors in a community association hasa _____________ to act in the best interests and for the benefit of the community as awhole.a. bondb. fiduciary dutyc. ballotd. quorum-Answer-b. fiduciary duty

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The board's fiduciary duty has two components: (1) Board members are required toavoid conflicts of interest and acting out of self-interest. (2) They are alsorequired to actas reasonable people in managing the association's affairs.True or false.The "business judgment rule" means that if a board has exercisedreasonable business judgment in making a decision, the court will generally notconsider the board negligent in its fiduciary duty.-Answer-TrueThrough judicial decision, a substantial body of law has developed concerning thestandards to which directors must conform while conducting a community association'saffairs. Many courts apply the "business judgment rule" to a board's actions.Which of the following community association committees typically are assignedresponsibilities related to elections, nominations, and architectural standards?a. standing committeesb. professional committeesc. ad hoc committeesd. mandatory committees-Answer-d. mandatory committeesA mandatory committee is one that is required by the governing documents. Mandatorycommittees typically are assigned responsibilities related to elections, nominations, andarchitectural standards.True or false. The role of the professional community association manageris to makeall decisions for the association and to delegate information-gathering and fact-findingsupport to the board of directors.-Answer-FalseThe professional community association manager is charged with assisting the board ofdirectors' decision making process by means of providing information-gathering andfact-finding support, implementing the decisions of the board; and administering theservices, programs, and operations of the community association within the policies andguidelines set bythe board.In which of the following forms of community association management is the associationmanaged by the board itself or by committees under the direction of the board?a. management companyb. volunteer or self-managementc. association-employedmanagerd. municipal management-Answer-b. volunteer or self-managementSelf-managed community associations make up a majority of all associations in theUnited States; approximately 150,000 self-managed community associations currentlyexist in the U.S. In self managed associations, the board itself is responsible for allcommunity association functions, including maintaining accounting records, preparingbudgets, collecting dues, and staying informed about association resources and bestpractices.

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True or false. An increase in assessment delinquencies that is not due to a pooreconomy may be an example of a warning sign of a weak management situation.-Answer-TrueWhen assessment delinquencies increase, the manager should investigate the reasonsforthe increase as soon as possible and as objectively as he or she can. In addition, ifthe demands of the community association and the board of directors are unreasonableor exceed the manager's ability to perform the required services, it is the manager'sresponsibility to communicate this to the board before it creates a weak managementsituation.Complete the following sentence: A ________________ is a statement of goals andobjectives approved by the board that includes the yearly cycle of tasks thatmanagement should perform on the community association's behalf.a. management auditb. management contractc. management pland. employment agreement-Answer-c. management planTypically, a management plan includes tasks that address the community association'sgovernance, business, and community aspects. Managers should have a managementplan so both they and their boards are clear on what is expected. In most instances, itwill be up to the manager to propose a plan to the board for approval. Managersshouldset goals for the year in relation to the community association's budget.True or false. It is ethically acceptable for a professional community associationmanager to arrange for a kickback for giving a contractor an association contract.-Answer-FalseThe manager of a community association has a professional duty to avoid attempting tomake any secret profits when acting on the community's behalf. Arranging for akickback for giving a contractor an association contract—without disclosing relationshipto the board—constitutes making secret profits and is ethically unacceptable. Managersshould review and consult the CAI codes of ethics. The Professional CommunityAssociation Manager (PCAM) code of ethics sets forth the general and technicalstandards for integrity and objectivity, professional courtesy, conflict of interest, use ofclient funds, and limitations of practice.Reasons for establishing community rules and architectural guidelines include each ofthe following EXCEPT:a. There is theneed to create a sense of fairness and equity among residents.b. In contemporary society, people are more likely to question and challenge authority.c. In cases where rules have been poorly developed or enforced, the courts are rulingagainst communityassociations.

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d. Fines imposed on residents who break community rules are frequently the primarysource of association income.-Answer-d. Fines imposed on residents who breakcommunity rules are frequently the primary source of association income.Careful rule making and enforcement are essential for community associations. Rulesshould never be passed simply to collect income for the association—they must benecessary and intended to contribute to the betterment of the community.True or false. According to the general hierarchy of authority for operating communityassociations, rules and regulations take precedence over the articles of incorporation.-Answer-FalseThe hierarchy of authority means that rules and architectural guidelines may notcontradict or be in conflict with the legal sources that take precedence over them.Although rules and architectural guidelines are lower in the hierarchy of authority forcommunity associations, they may clarify and expand a community's governingdocuments—butmay not conflict with the other governing documents, such as thearticles of incorporation.Which of the following is an example of an architectural guideline?a. petsb. noisec. fencingd. parking-Answer-c. fencingAn architectural guideline is arule that applies to the appearance of an owner's lot orthe exterior of his or her unit or improvements, such as fencing. A rule is a specificstatement of required behavior whose violation carries a penalty. Pets, noise, andparking are all examples of areas that often prompt community association rules.Each of the following are benefits to using the resolution process to adopt rulesEXCEPT:a. Provides an oral record of all rules madeb. Protects owners from arbitrary board actionsc. Protects the community from charges that could result in inoperable rulesd. Provides for consistency in making and wording rules-Answer-There are severalbenefits to using the resolution process to adopt rules, as opposed to using the simplerprocess of making motions.Among these benefits is that it provides a formal, writtenrecord of all rules made.Each of the following are sections of a resolution EXCEPT:a. Authorityb. Purposec. Scope and Intentd. Self help-Answer-d. Self help

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The fourth component of a resolution is the specifications section (instead of self help).This section states clearly and completely what those bound by the rule will be expectedto do.Which of the following is not one of the basic steps in a due process procedure?a. Issue a "cease and desist" letterb. Issue a hearing notice if the violation does not end within the stated timec. Hold the scheduled hearing if the violation does not end within the stated timed. Issue a decision before a hearing is held-Answer-d. Issue a decision before ahearing is heldThe hearing panel should issue a decision only after a hearing is held. The hearingpanel determines the facts, whether or not a rule has been violated, the penalty to beimposed, if any, and the enforcement date of the penalty,if any. The hearing panel thenissues this information in the form of a decision.True or false. Using alternative dispute resolution to encourage residents to comply withrules and guidelines is more costly and time consuming than going through the courtsystem.-Answer-FalseAlternative dispute resolution (ADR) involves submitting a dispute to a trained,uninvolved third party for assistance with resolution. The third party's decision may benonbonding or the third party may merely act as afacilitator in the case of a mediator.However, this approach can be a more efficient and effective way to resolve a disputethan other means. A community association might propose ADR when confronted with adifficult rule enforcement situation or the possibility of prolonged litigation. In manyjurisdictions ADR is either required or encouraged before filing suit or during suit, butbefore trial.Which of the following is an internal resource a community can use to encourage anowner or tenant to conformto community association rules?a. Relying on the local health department to determine the appropriate number ofoccupants in a unitb. Asking for the local zoning department's help in removing vehicles, boats, and trailersfrom lots and common areasc. Having the police enforce traffic regulationsd. Suspending an owner's voting rights-Answer-d. Suspending an owner's votingrightsSuspending an owner's voting rights is an example of an internal resource a communityassociation can use to encourage residents to obey association rules. While this may bea rather mild action, it can be a very useful resource for encouraging rule violators toconform to community association rules. Each of the other examples listed areexamples of external resources available to community associations.

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True or false. To increase the likelihood that a court of law will uphold an association'senforcement of architectural guidelines, the board of directors should turn a blind eyetowards violations and permit unapproved architectural changes to exist.-Answer-FalseA manager should advise a board of any violations of architectural guidelines as soonas they are discovered—for example, during inspection of the property. The boardshould also refrain from turning a blind eyetowards violations. They should report anyknown violations to the manager in a timely manner. If unapproved architecturalchanges are permitted to exist, the association may be hindered if it later tries toenforce the rule that was violated.Which of the following responsibilities relate to the governance function of a communityassociation board of directors?a. Decide issues of policy for the owners in the communityb. Promote harmony through service programs and regular communication with ownersc. Monitor financial matters for the purpose of preserving and enhancing the communityd. Hear appeals of committee and management decisions that are protested by groupsof owners-Answer-a. Decide issues of policy for the owners in the communityThere are three areas of board decision making which relate to the three functions of acommunity association board of directors: business, governance, and community. Asvolunteer leaders responsible for governing an organization, a board must decideissues of policyfor the owners in the community.Complete the following sentence: A notice of meeting should be sent in writing to boardmembers at least _________ before a meeting.a. a yearb. 2 daysc. 3 monthsd. a week-Answer-d. a weekCommunity managers shouldsend a notice of meeting in writing to board members atleast a week before a meeting. Exactly how far in advance a notice of meeting can besent may be set by a community association's governing documents.True or false. An agenda is more than an announcement of the order of business for ameeting; it is a meeting management tool.-Answer-TrueBy specifying the duration of a meeting in the agenda or allotting agenda items specificamounts of time, managers are helping the board to proceed with its business in atimely manner. Note that meetings that run more than two hours often degenerate intoan unproductive effort.In addition to a meeting agenda, board members should receive each of the followingsupporting materials prior to a meeting EXCEPT:

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a.Minutes from the last meetingb. Financial reportsc. Community newsletterd. Committee reports-Answer-c. Community newsletterIn a properly prepared board meeting, all members should have had all the informationneeded for discussion before the meeting. The community newsletter is not typically anitem required to conduct a board meeting.True or false. It is perfectly acceptable to hold a board meeting in the home of theassociation president.-Answer-FalseIf a community association does not havea meeting room, board meetings should bescheduled in public places. Avoid meetings in homes of board members, as the spacewill not always be adequate. Nor is a board member's home a public and neutral sitethat will encourage owners' attendance.Whichof the following is not one of the basic principles of parliamentary procedure thatapply to every meeting?a. Minority ruleb. Justicec. Courtesyd. Protection of Rights-Answer-a. Minority ruleParliamentary procedure recognizes a few basic principles of conduct for everymeeting, including majority rule (instead of minority rule). Majority rule means that thewill of the majority should decide issues.True or false. A board of directors can legally conduct the business of the associationwithout a quorum.-Answer-FalseA quorum is the number of members required to be present for the board to legallyconduct the business of the association. In the absence of a quorum, the only formalactions a board may take are to recess, adjourn, or take measuresto obtain a quorum.A community's bylaws set the quorum for a board meeting.Which of the following terms regarding the process of making a motion most closely fitsthis definition: "to change a motion by inserting, adding, striking out, striking out andinserting, or substituting words."a. Take a motion from the tableb. Second a motionc. Amend a motiond. Table a motion-Answer-c. Amend a motionTo amend a motion means to change a motion by inserting, adding, striking out, strikingout and inserting, or substituting words. Only the maker of the motion can amend it.

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True or false. Personnel issues are an example of a topic that often require anexecutive session and are allowable by law.-Answer-TrueThere are times when a board must hold a discussion or make decisions of a sensitivenature. Many states have so-called "sunshine laws" which limit the reasons why agoverning board may go into a closed or executive session. The topics that commonlyrequire an executive session and are allowable by law usually include personnel issues,contract negotiations and discussions, lawsuits and other legal matters, and governingdocument violations.Complete the following sentence: A _______________ is a written means of votingwhen secrecy is desired.a. proxyb. residents forumc. action item listd. ballot-Answer-d. ballotUnit owners' meetings often require the use of ballots. A ballot is a written means ofvoting when secrecy is desired.True or false. Community managers are ultimately responsible for establishing,approving, and monitoring the community's budget.-Answer-FalseMost boards of directors are responsible for establishing, approving, and monitoring thecommunity's budget. Although they have the power to establish a budget, most willdelegate preparation authority to their manager.Which of the following board members is responsible for seeing to it that the draftbudget is prepared and reviewed?a. Treasurerb. Presidentc. Secretaryd. Vice President-Answer-a. TreasurerThecommunity treasurer is usually responsible for seeing to it that the draft budget isprepared and reviewed. He or she will usually delegate initial preparation of the budgetto the manager. Then the treasurer will review the draft budget with a financecommittee. It is important that the treasurer consult all committee chairpersons andinvite owner input to ensure support.Each of the following agencies are federally established secondary mortgageinstitutions EXCEPT:a. Environmental Protection Agencyb.Federal National Mortgage Associationc. Veterans' Administration

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d. Federal Home Loan Mortgage Corporation-Answer-a. Environmental ProtectionAgencyFederally established secondary mortgage institutions may set requirements thatcommunity associationshave to meet if owners are to participate in their financingprograms. These agencies regulate and influence such items as the amount ofinsurance a community association must carry, procedures for financial operations, andrequirements for the upkeep ofproperty. The Environmental Protection Agency is not anexample of a secondary mortgage institution.True or false. The two main components of a community budget are revenue andexpenses.-Answer-TrueThe two main components of a community budget are revenue and expenses. Therevenue and expense categories used in a budget must be the same categories used infinancial records, reports, and statements.Which of the following is not a typical source of revenue for a community association?a. Owner assessmentsb. Major improvement expensesc. Penalty feesd. Interest-Answer-b. Major improvement expensesAs the name indicates, major improvement expenses are not a source of revenue for acommunity association—they are an association expense. Major improvementexpenses consist of items that are not necessarily required, but are added to improvethe overall welfare, safety, or life of the residents—or enhance the value of thecommunity association as reflected in the resale value of units. Improvements aredifferent from maintenance, repairs, or replacements. They increase the life, usefulness,or value of a property.Each of the following are reasons for maintaining a replacement fund EXCEPT:a. Maintaining a replacement fund meets legal, fiduciary, and professional requirementsb. Maintaining a replacement fund increases the likelihood that an association willrequire a special assessmentc. Maintaining a replacement fund equalizes the contributions of old and new ownersd. Maintaining a replacement fund enhances resale values-Answer-b. Maintaining areplacement fund increases the likelihood that an association will require a specialassessmentOwners, especially those on fixed incomes, frequently have limited resources. Theymay not be able to afford the large special assessments that would be required ifreserves are insufficient to cover a major replacement. Maintaining a replacement fundminimizes the need for special assessments.Which of the following is an example of a discretionary line item in a community budget?

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a. recreational expensesb. income taxesc. utilitiesd. maintenance-Answer-a. recreational expensesDiscretionary line items are based on owner, board, and committee desires. They areitems peoplewould like to have—given their values, lifestyle, and preferred level ofservice, e.g. social and recreational expenses, picnic areas. Mandatory line items, onthe other hand, are based on community and owner needs. They are requirements thatthe community is obligated to meet, e.g. income taxes, repairs, utilities, andmaintenance.True or false. With historical trend budgeting, all line items are set to zero and theamount of funds allotted to each must be justified.-Answer-FalseWith zero-base budgeting, all line items are set to zero and the amount of funds allottedto each must be justified. Historical trend budgeting begins with the assumption thatexisting line items are needed. The amount of funds allotted to each one during thecurrent year isadjusted for expected changes in the coming year.True or false. Board member liability is a potential consequence of not having a reservestudy.-Answer-TrueNot having a reserve study can expose board members to claims of fiscalirresponsibility andloss of D&O insurance coverage.Complete the following sentence: Utilizing a(n) ___________________ meansmanagers and boards can obtain proposals from competent reserve providers andmake informed business decisions to responsibly fund their association's reserves.a. Community Insurance and Risk Management Specialistb. Association Management Specialistc. Professional Community Association Managerd. Reserve Specialist-Answer-d. Reserve SpecialistCAI established the Reserve Specialist (RS)designation program to help communitymanagers and board members identify qualified reserve study providers and to assistcommunities in developing their reserve study.Each of the following statements regarding community association assessments aretrueEXCEPT:a. Assessments penalize residents for violating association rulesb. An assessment is the owner's financial obligation to the community associationduring a given period of timec. An assessment for an owner's share of the common expenses is a binding legalobligation based on the community association's governing documents

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d. An annual assessment may be paid on a monthly, quarterly, or annual basis-Answer-a. Assessments penalize residents for violating association rulesAssessments are not a penalty or fine for residents who violate association rules.Instead, assessments cover an owner's share of the common expenses, and are one ofthe three defining characteristics of all community associations.Because a community association relies on the timely collection of assessments inorder to meet operating expense requirements, delinquent payments may result in eachof the following EXCEPT:a. Property beginning to appear run-downb. A budget surplusc. Disharmony between paying owners and delinquentonesd. Essential maintenance becoming unaffordable-Answer-b. A budget surplusInstead of creating a budget surplus, a large number of delinquent payments canactually lead a community association to increase annual assessments for all residentsto cover the deficit.True or false. An established collection policy educates owners about their obligationsto the community association and the consequences of not meeting those obligationson time.-Answer-TrueIf owners are informed about their obligations and the consequences of not meetingthem, they are more likely to avoid delinquent payments.An effective collection policy should exhibit each of the following EXCEPT:a. Be established by a proper formal resolution of the boardb. Prohibit the referral of delinquent assessments to legal counselc. Set a firm due date for assessmentsd. Allow for discretion in special cases-Answer-b. Prohibit the referral of delinquentassessments to legal counselAn effective collection policy should specifywhen to refer a delinquent assessment tolegal counsel. This step should be automatic once a delinquent assessment reaches aspecified age or amount. Once an account is turned over to legal counsel, it is criticalthat all further communication be betweenthe community association's attorney and thedelinquent owner or the owner's attorney. The manager and/or board should not beinvolved in discussions with anyone other than the association's legal counsel.True or false. Acceleration is the collection ofall assessments due on a monthly basis.-Answer-FalseAcceleration is the collection of all assessments due through the end of the fiscal year.This is a common method for collecting assessments from owners who are frequentlydelinquent.

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Which of the following is not an extra-judicial procedure for encouraging an owner topay off a delinquent account?a. Removing the owner's assigned parking spaceb. Collecting the rent from a delinquent owner's tenantc. Imposing a late charge on delinquent accountsd.Foreclosing on an owner-Answer-d. Foreclosing on an ownerInitiating the foreclosure process is not an example of an extra-judicial remedy forencouraging an owner to pay off a delinquent account. Foreclosure is a legalproceeding filed in court whereby a party with a claim against an owner can claimownership of the unit involved in order to recover the money it is owed. Extra-judicialremedy consist of remedies outside the courts that a community association can use toencourage a delinquent owner topay what is owed. If a board wants to use extra-judicial procedures, it must be provided for in a state statute, the governing documents,or a formal resolution of the board.True or false. When a community association determines that a debt cannot becollected from an owner after a reasonable effort has been made, it must take a baddebt write-off.-Answer-TrueA payment that cannot be collected from an owner is called a bad debt. When acommunity association determines that a debt cannot be collectedfrom an owner aftera reasonable effort has been made, it must take a bad debt write-off. A bad debt write-off consists of recording an uncollectible debt as an expense that the association mustabsorb. This usually requires a resolution of the board.Complete the following sentence: A ____________ is a legal claim by one party(community association) on the property of another (delinquent owner) to obtain thepayment of a debt or the satisfaction of an obligation.a. foreclosureb. personal money judgmentc. liend. bad debt write-off-Answer-c. lienPlacing a lien on an owner's property protects the community association's interests. Itencourages payment of the debt. Among other consequences of a lien, the ownercannot sell or transfer the unitwithout settling the debt. The recording of a lien againstan owner's unit must be authorized by a community association's applicable statutes orgoverning documents.True or false. When a community association forecloses on a unit and it is auctioned off,the association will always get the money it is owed.-Answer-FalseA community association may foreclose on an owner if it thinks it can recover what it isowed. Sometimes the act of foreclosing will prompt an owner to pay what is owed—

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especially ifthe owner's mortgage payments are current. If an owner has little equity inthe unit—that is, still owes most of the mortgage—the community association standslittle chance of getting the money it is owed. When a community association or anothercreditor foreclose on a unit and it is auctioned off, the association still may not get themoney it is owed. The unit must sell for a price that is high enough to pay off thedelinquent assessments as well as any other debts that take precedence over theassociation's claim.Which of the following types of bankruptcy is called a reorganization because it isdesigned to allow for an orderly payment to creditors that enables a corporation tocontinue?a. Chapter 7b. Chapter 11c. Chapter 13d. Chapter 21-Answer-b. Chapter 11Chapter 11 involves the development of a plan to pay off debts in a timely manner.Once a judge approves a plan as "fair and equitable," it is binding and discharges alldebts not provided for under the plan. Creditors usually receive more ofwhat they areowed under a Chapter 11 than a Chapter 7. However, they don't necessarily receive allthey are owed.Which of the following accounting methods records income when it is collected andexpenses when they are paid?a. cash basisb. accrual basisc. modified cash basisd. modified accrual basis-Answer-a. cash basisA community association's financial reports will reflect one of three possible accountingmethods. Cash basis records income when it is collected and expenses when they arepaid.Accrual basis records income when it is earned (or assessed to owners) andexpenses when they are incurred or acquired. Modified cash basis records income andexpenses on a cash basis with selected items recorded on an accrual basis.True or false. The commercial reporting method consists of preparing separate columnsfor operating, reserve, and any special funds.-Answer-FalseThe fund reporting method consists of preparing separate columns for operating,reserve, and any special funds. This is different from the commercial method whichcombines operating and reserve activities in the same column.Complete the following sentence: A ___________ occurs when expenses are greaterthan income.a. net incomeb. net loss

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