Question 1

Unlike individuals and businesses,governments cannot seek protection under the Federal Bankruptcy Code.

Accepted Answer

A) True 
 B)False

Question 2

Governments enter into capital leases rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases

Accepted Answer

A) May be an effective means of circumventing debt limitations. 
B) Are less expensive overall than buy and borrow arrangements. 
C) Reduce the cash outflows related to the asset acquisition. 
D) Have less effect on governmental fund balances than buy and borrow arrangements. 
A) May be an effective means of circumventing debt limitations. 
B) Are less expensive overall than buy and borrow arrangements. 
C) Reduce the cash outflows related to the asset acquisition. 
D) Have less effect on governmental fund balances than buy and borrow arrangements.

Question 3

Salvador County issued $25 million of 5 percent demand bonds for construction of a county maintenance building.Before year-end the county entered into a two-year noncancellable take-out agreement with a local bank with a 10-year payback period.The county estimates that 20 percent of the bonds would be demanded called)by the buyers if interest rates increased by at least One percentage point.At year-end,rates on comparable debt were 7 percent.How should these demand bonds be reported in the county's government-wide financial statements at year-end?

Accepted Answer

A) $25 million in the long-term liabilities section of the governmental activities column. 
B) $5 million in the current liabilities section of the governmental activities column AND $20 million in the long-term liabilities section of the governmental activities column. 
C) $5 million in the governmental activities column AND $20 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the current liabilities section of the governmental activities column. 
A) $25 million in the long-term liabilities section of the governmental activities column. 
B) $5 million in the current liabilities section of the governmental activities column AND $20 million in the long-term liabilities section of the governmental activities column. 
C) $5 million in the governmental activities column AND $20 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the current liabilities section of the governmental activities column.

Question 4

A government is prohibited from ever recognizing bond anticipation notes BANs)as long-term obligations.

Accepted Answer

A) True 
 B)False

Question 5

Dumas County has a December 31 fiscal year-end.In November,the county borrowed $8 million from a local bank,due in six months at 6 percent interest,to finance general government operations.The county pledges property tax revenues to secure the loan.At year-end,how should the county display the bank note in the governmental fund financial statements?

Accepted Answer

A) Nothing in the General Fund;Nothing in the schedule of changes in long-term obligations. 
B) General fund--$8 million in other financing sources;Nothing in the schedule of changes in long-term obligations. 
C) General fund--$8 million in other financing sources;$8 million in the schedule of changes in long-term obligations. 
D) General fund--$8 million in notes payable;Nothing in the schedule of changes in long-term obligations. 
A) Nothing in the General Fund;Nothing in the schedule of changes in long-term obligations. 
B) General fund--$8 million in other financing sources;Nothing in the schedule of changes in long-term obligations. 
C) General fund--$8 million in other financing sources;$8 million in the schedule of changes in long-term obligations. 
D) General fund--$8 million in notes payable;Nothing in the schedule of changes in long-term obligations.

Question 6

A state created a housing authority to provide financing for low-income housing.The authority issues bonds and uses the proceeds for that purpose.Currently the authority has outstanding $200 million in bonds backed by the state's promise to cover debt service shortages should they arise.The state constitution specifically limits the state to no more than $2 million in general obligation debt.How can the state officials defend the $200 million in debt outstanding?

Accepted Answer

A) The debt is not general obligation debt. 
B) The state is only morally obligated for the debt. 
C) The debt is the debt of the authority,not the state. 
D) All of the above. 
A) The debt is not general obligation debt. 
B) The state is only morally obligated for the debt. 
C) The debt is the debt of the authority,not the state. 
D) All of the above.

Question 7

Bond insurance issued by credit enhancement agencies

Accepted Answer

A) Assures the holder of the debt that all interest and principal payments will be made. 
B) Ensures that the bonds receive the highest possible rating. 
C) May seem cost prohibitive to many governments. 
D) All of the above. 
A) Assures the holder of the debt that all interest and principal payments will be made. 
B) Ensures that the bonds receive the highest possible rating. 
C) May seem cost prohibitive to many governments. 
D) All of the above.

Question 8

The work of bond rating agencies is important because

Accepted Answer

A) They ensure that all principal and interest payments on bonds issued will be made. 
B) The rating they assign proves the quality of a particular debt instrument. 
C) They affect the debt's marketability and hence its interest rate. 
D) Bonds cannot be issued without them. 
A) They ensure that all principal and interest payments on bonds issued will be made. 
B) The rating they assign proves the quality of a particular debt instrument. 
C) They affect the debt's marketability and hence its interest rate. 
D) Bonds cannot be issued without them.

Question 9

Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community.Which of the following is a true statement about industrial development bonds?

Accepted Answer

A) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation.The government backs the bonds in the event of default by the private corporation. 
B) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation.The government does not back the bonds in the event of default by the private corporation. 
C) The proceeds are used by the government to build infrastructure to service private corporations,with principal and interest payments made by the government out of the additional tax revenues received from the private corporation. 
D) The proceeds are used by the government to build infrastructure to service private corporations,with principal and interest payments made by the private corporation in lieu of property taxes. 
A) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation.The government backs the bonds in the event of default by the private corporation. 
B) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation.The government does not back the bonds in the event of default by the private corporation. 
C) The proceeds are used by the government to build infrastructure to service private corporations,with principal and interest payments made by the government out of the additional tax revenues received from the private corporation. 
D) The proceeds are used by the government to build infrastructure to service private corporations,with principal and interest payments made by the private corporation in lieu of property taxes.

Question 10

Salvador County issued $25 million of 5 percent demand bonds for construction of a county maintenance building.The county has no take-out agreement related to the bonds.It estimates that 20 percent of the bonds would be demanded called)by the buyers if interest rates increased by at least one percentage point.At year-end,rates on comparable debt were 7 percent.How should these demand bonds be reported in the government-wide financial statements at year-end?

Accepted Answer

A) $25 million in the long-term liabilities section of the governmental activities column. 
B) $5 million in the current liabilities section of the governmental activities column AND $20 million in the long-term liabilities section of the governmental activities column. 
C) $5 million in the governmental activities column AND $20 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the current liabilities section of the governmental activities column. 
A) $25 million in the long-term liabilities section of the governmental activities column. 
B) $5 million in the current liabilities section of the governmental activities column AND $20 million in the long-term liabilities section of the governmental activities column. 
C) $5 million in the governmental activities column AND $20 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the current liabilities section of the governmental activities column.

Question 11

Obligations issued in the name of a government on behalf of a nongovernmental entity are called

Accepted Answer

A) Overlapping debt. 
B) Conduit debt. 
C) Committed debt. 
D) Moral obligation debt. 
A) Overlapping debt. 
B) Conduit debt. 
C) Committed debt. 
D) Moral obligation debt.

Question 12

A government's debt margin is the difference between its authorized debt limit and its outstanding debt.

Accepted Answer

A) True 
 B)False

Question 13

Salvador County issued $25 million of 5 percent demand bonds for construction of a county maintenance building.The county has no take-out agreement related to the debt.It estimates that 20 percent of the bonds would be demanded called)by the buyers if interest rates increased by at least one percentage point.At year-end,rates on comparable debt were 7 percent.How should these demand bonds be reported in the governmental fund financial statements at year-end?

Accepted Answer

A) $25 million in the capital projects fund. 
B) $5 million in the capital projects fund AND $20 million would be reported in the schedule of changes in long-term obligations. 
C) $20 million in the capital projects fund AND $5 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the schedule of changes in long-term obligations. 
A) $25 million in the capital projects fund. 
B) $5 million in the capital projects fund AND $20 million would be reported in the schedule of changes in long-term obligations. 
C) $20 million in the capital projects fund AND $5 million would be reported in the schedule of changes in long-term obligations. 
D) $25 million in the schedule of changes in long-term obligations.

Question 14

Tax anticipation notes TANs)must be reported as current liabilities of the governmental funds in which the related revenues will be reported,as well as in the government-wide statements.

Accepted Answer

A) True 
 B)False

Question 15

Because they are not obligations of the government at large,revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

Accepted Answer

A) True 
 B)False

Question 16

A high bond rating by a recognized agency guarantees the creditworthiness of a government's debt.

Accepted Answer

A) True 
 B)False

Question 17

Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is

Accepted Answer

A) Committed debt. 
B) Overlapping debt. 
C) Conduit debt. 
D) Moral obligation debt. 
A) Committed debt. 
B) Overlapping debt. 
C) Conduit debt. 
D) Moral obligation debt.

Question 18

North City enters into a lease agreement that contains a nonappropriation clause.The clause

Accepted Answer

A) Has been held by courts in 26 states to effectively cancel the lease. 
B) Stipulates that the yearly lease payment must be appropriated by the city council each year. 
C) Prohibits the city from replacing leased property with similar property. 
D) Permits the city to lease at lower rates than would be possible without the presence of the clause. 
A) Has been held by courts in 26 states to effectively cancel the lease. 
B) Stipulates that the yearly lease payment must be appropriated by the city council each year. 
C) Prohibits the city from replacing leased property with similar property. 
D) Permits the city to lease at lower rates than would be possible without the presence of the clause.

Question 19

Olden City entered into a capital lease agreement for several new dump trucks to be used in general government activities.The city maintains its books and records in a manner that facilitates the preparation of the fund financial statements.Acquisition of these dump trucks would require entries in which of the following funds and/or schedules?

Accepted Answer

A) General fund only. 
B) General fund AND schedule of changes in long-term obligations. 
C) General fund AND schedule of changes in capital assets. 
D) General fund,schedule of Changes in Capital assets AND schedule of changes in long-term obligations. 
A) General fund only. 
B) General fund AND schedule of changes in long-term obligations. 
C) General fund AND schedule of changes in capital assets. 
D) General fund,schedule of Changes in Capital assets AND schedule of changes in long-term obligations.

Question 20

Why would a government issue revenue bonds which generally are issued at a higher rate of interest than general obligation bonds)even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments,the government will use resources from general government activities to fund the principal and interest payments?

Accepted Answer

A) Revenue bonds may not require approval of the voters. 
B) Revenue bonds may not be considered in legal debt limitations. 
C) Revenue bonds may permit the interest costs to be passed on to the users of the services financed. 
D) All of the above. 
A) Revenue bonds may not require approval of the voters. 
B) Revenue bonds may not be considered in legal debt limitations. 
C) Revenue bonds may permit the interest costs to be passed on to the users of the services financed. 
D) All of the above.

Unlike individuals and businesses,governments cannot seek protection under the Federal Bankruptcy Code.

Governments enter into capital leases rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases

A government is prohibited from ever recognizing bond anticipation notes BANs)as long-term obligations.

Bond insurance issued by credit enhancement agencies

The work of bond rating agencies is important because

Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community.Which of the following is a true statement about industrial development bonds?

Obligations issued in the name of a government on behalf of a nongovernmental entity are called

A government's debt margin is the difference between its authorized debt limit and its outstanding debt.

Tax anticipation notes TANs)must be reported as current liabilities of the governmental funds in which the related revenues will be reported,as well as in the government-wide statements.

Because they are not obligations of the government at large,revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

A high bond rating by a recognized agency guarantees the creditworthiness of a government's debt.

Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is

North City enters into a lease agreement that contains a nonappropriation clause.The clause

The Government and Not-For-Profit Environment

Fund Accounting

Issues of Budgeting and Control

Recognizing Revenues in Governmental Funds

Recognizing Expenditures in Governmental Funds

Accounting for Capital Projects and Debt Service

Capital Assets and Investments in Marketable Securities

Business-Type Activities

Fiduciary Funds and Permanent Funds

Issues of Reporting, Disclosure, and Financial Analysis

Not-For-Profit Organizations

Colleges and Universities

Health Care Providers

Managing for Results

Auditing Governments and Not-For-Profit Organizations

Federal Government Accounting

Filters

Exam 8: Long-Term Obligations

Unlike individuals and businesses,governments cannot seek protection under the Federal Bankruptcy Code.

Governments enter into capital leases rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases

A government is prohibited from ever recognizing bond anticipation notes BANs)as long-term obligations.

Bond insurance issued by credit enhancement agencies

The work of bond rating agencies is important because

Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community.Which of the following is a true statement about industrial development bonds?

Obligations issued in the name of a government on behalf of a nongovernmental entity are called

A government's debt margin is the difference between its authorized debt limit and its outstanding debt.

Tax anticipation notes TANs)must be reported as current liabilities of the governmental funds in which the related revenues will be reported,as well as in the government-wide statements.

Because they are not obligations of the government at large,revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

A high bond rating by a recognized agency guarantees the creditworthiness of a government's debt.

Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is

North City enters into a lease agreement that contains a nonappropriation clause.The clause

The Government and Not-For-Profit Environment

Fund Accounting

Issues of Budgeting and Control

Recognizing Revenues in Governmental Funds

Recognizing Expenditures in Governmental Funds

Accounting for Capital Projects and Debt Service

Capital Assets and Investments in Marketable Securities

Business-Type Activities

Fiduciary Funds and Permanent Funds

Issues of Reporting, Disclosure, and Financial Analysis

Not-For-Profit Organizations

Colleges and Universities

Health Care Providers

Managing for Results

Auditing Governments and Not-For-Profit Organizations

Federal Government Accounting

Filters