Question 1

Revenue debt is secured only by designated revenue streams.

Accepted Answer

A) True 
 B)False  True

Question 2

Voters of Valley School District, a public school district, approved construction of a new high school at a cost not to exceed $20 million.The District will finance the construction by issuing $20 million of 6% term bonds payable in 20 years.Because the site had already been prepared, the School district began construction immediately but the bonds would not be issued for nearly a year.Shortly before the fiscal year-end, the School District borrowed $5 million from a local bank due in one year with interest at 6.2%.The note will be repaid from bond proceeds.The School District secured a financing agreement with the bank to convert the debt to a 10-year debt if the School District is unable to sell the bonds by the due date.At year-end, how should the $5 million note be displayed in the governmental fund financial statements?

Accepted Answer

A) Capital Projects Fund-Notes Payable $5 million; Nothing in the Schedule of Changes in Long-Term Obligations. 
B) Capital Projects Fund-Notes Payable $5 million; $15 million in the Schedule of Changes in Long-Term Obligations. 
C) Capital Projects Fund-Encumbrances of $5 million; $15 million in the Schedule of Changes in Long-Term Obligations. 
D) Nothing in the Capital Projects Fund AND $5 million notes payable in the Schedule of Long-Term Obligations. 
A) Capital Projects Fund-Notes Payable $5 million; Nothing in the Schedule of Changes in Long-Term Obligations. 
B) Capital Projects Fund-Notes Payable $5 million; $15 million in the Schedule of Changes in Long-Term Obligations. 
C) Capital Projects Fund-Encumbrances of $5 million; $15 million in the Schedule of Changes in Long-Term Obligations. 
D) Nothing in the Capital Projects Fund AND $5 million notes payable in the Schedule of Long-Term Obligations. D

Question 3

A governmental entity that is unable to satisfy claims against it

Accepted Answer

A) Is prohibited from filing bankruptcy. 
B) May seek protection under the federal Bankruptcy Code, using the same section that is used by businesses. 
C) May seek protection under the federal Bankruptcy Code, using a special section directed to governments. 
D) Is automatically placed under the jurisdiction of a higher level of government. 
A) Is prohibited from filing bankruptcy. 
B) May seek protection under the federal Bankruptcy Code, using the same section that is used by businesses. 
C) May seek protection under the federal Bankruptcy Code, using a special section directed to governments. 
D) Is automatically placed under the jurisdiction of a higher level of government. C

Question 4

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 5

The City of Pocahontas issued $20 million in bonds at par.The City loaned the proceeds to Domsee Fish Processors to expand the size of its facility, which would allow Domsee to hire additional workers.The loan payments from Domsee to the City are established to match the principal and interest payments on the bond issue.The bonds are payable exclusively from the loan repayments by Domsee.The bonds are secured by the additional plant facilities built by Domsee.Where should the City report the bonds in its annual financial report?

Accepted Answer

A) In the government-wide financial statements. 
B) In the notes to the financial statements. 
C) In the proprietary fund financial statements. 
D) In any of the above ways. 
A) In the government-wide financial statements. 
B) In the notes to the financial statements. 
C) In the proprietary fund financial statements. 
D) In any of the above ways.

Question 6

In the government-wide financial statements, the assets acquired under a capital lease would be reported at

Accepted Answer

A) They are not reported in the government-wide financial statements. 
B) The present value of the required lease payments. 
C) The undiscounted total of required lease payments. 
D) The total of all payments required under the lease. 
A) They are not reported in the government-wide financial statements. 
B) The present value of the required lease payments. 
C) The undiscounted total of required lease payments. 
D) The total of all payments required under the lease.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A City entered into a long-term capital lease for some office equipment.Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in its General Fund to record this event?

Accepted Answer

A) Debit Expenditures; Credit Other financing sources-leases. 
B) Debit Equipment; Credit Other financing sources-leases. 
C) Debit Equipment; Credit Leases payable. 
D) No entry because this event had no effect on financial resources. 
A) Debit Expenditures; Credit Other financing sources-leases. 
B) Debit Equipment; Credit Other financing sources-leases. 
C) Debit Equipment; Credit Leases payable. 
D) No entry because this event had no effect on financial resources.

Question 9

The work of bond rating agencies is important because

Accepted Answer

A) They insure 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 insure 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 10

To seek protection under the federal Bankruptcy Code, a governmental entity must

Accepted Answer

A) Be unable to provide the level of services it has provided in the recent past. 
B) Be unable to pay its debt in its current year. 
C) Have budgeted expenditures in excess of revenues. 
D) Both b and c. 
A) Be unable to provide the level of services it has provided in the recent past. 
B) Be unable to pay its debt in its current year. 
C) Have budgeted expenditures in excess of revenues. 
D) Both b and c.

Question 11

Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

Accepted Answer

A) True 
 B)False

Question 12

Governments may enter into operating leases, but may not enter into capital leases.

Accepted Answer

A) True 
 B)False

Question 13

When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as an other financing source on the operating statement.

Accepted Answer

A) True 
 B)False

Question 14

When the proceeds of long term debt are reported in governmental fund financial statements

Accepted Answer

A) They are reported only as an increase in liabilities in the funds. 
B) They are reported only as revenues in the funds. 
C) They are reported only as an other financing source-debt proceeds. 
D) They are reported only as an other financing use-debt proceeds. 
A) They are reported only as an increase in liabilities in the funds. 
B) They are reported only as revenues in the funds. 
C) They are reported only as an other financing source-debt proceeds. 
D) They are reported only as an other financing use-debt proceeds.

Question 15

In governmental fund financial statements, the assets acquired under a capital lease would be reported at

Accepted Answer

A) They are not reported in the fund financial statements. 
B) The present value of the required lease payments. 
C) The undiscounted total of required lease payments. 
D) The total of all payments required under the lease. 
A) They are not reported in the fund financial statements. 
B) The present value of the required lease payments. 
C) The undiscounted total of required lease payments. 
D) The total of all payments required under the lease.

Question 16

Governmental entities 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 17

Which of the following funds is most likely to receive the proceeds of revenue bonds?

Accepted Answer

A) General Fund. 
B) Capital Project Fund. 
C) City Utility Enterprise Fund. 
D) Highway Department Special Revenue Fund. 
A) General Fund. 
B) Capital Project Fund. 
C) City Utility Enterprise Fund. 
D) Highway Department Special Revenue Fund.

Question 18

In a bond covenant, a city agreed to create and maintain a $2 million reserve.These funds can be used

Accepted Answer

A) Only to make the final year's interest and principal payments on the bonds. 
B) Only to make the interest and principal payments on the bonds in a year in which the city is unable to make the required debt service payments from other resources. 
C) To make either the final year's interest and principal payments on the bonds or in the event that the city is unable to make the interest and principal payments on the bonds. 
D) By the city as it chooses since it legally belongs to the city. 
A) Only to make the final year's interest and principal payments on the bonds. 
B) Only to make the interest and principal payments on the bonds in a year in which the city is unable to make the required debt service payments from other resources. 
C) To make either the final year's interest and principal payments on the bonds or in the event that the city is unable to make the interest and principal payments on the bonds. 
D) By the city as it chooses since it legally belongs to the city.

Question 19

Which of the following is likely to be used by a bond rating agency to rate the general obligations bonds of a governmental entity?

Accepted Answer

A) A review of the Basic Financial Statements. 
B) Consideration of economic statistics such as unemployment rates. 
C) Consideration of legal debt margin. 
D) All of the above. 
A) A review of the Basic Financial Statements. 
B) Consideration of economic statistics such as unemployment rates. 
C) Consideration of legal debt margin. 
D) All of the above.

Question 20

The Southside City has $47 million of debt recorded in its Schedule of Changes in Long-term Obligations, made up of $30 million of general obligation debt, $1 million of compensated absences payable, $4 million claims and judgments, and $12 million of obligations under capital leases.The State limits the amount of general obligation debt that can be issued by a City to 20% of the assessed value of its taxable property.The assessed value of property in Southside City is $250 million.The legal debt margin for Southside City is

Accepted Answer

A) $ 3 million. 
B) $ 20 million. 
C) $ 30 million. 
D) $50 million. 
A) $ 3 million. 
B) $ 20 million. 
C) $ 30 million. 
D) $50 million.

Revenue debt is secured only by designated revenue streams.

A governmental entity that is unable to satisfy claims against it

In the government-wide financial statements, the assets acquired under a capital lease would be reported at

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

A City entered into a long-term capital lease for some office equipment.Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in its General Fund to record this event?

The work of bond rating agencies is important because

To seek protection under the federal Bankruptcy Code, a governmental entity must

Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

Governments may enter into operating leases, but may not enter into capital leases.

When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as an other financing source on the operating statement.

When the proceeds of long term debt are reported in governmental fund financial statements

In governmental fund financial statements, the assets acquired under a capital lease would be reported at

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

Which of the following funds is most likely to receive the proceeds of revenue bonds?

In a bond covenant, a city agreed to create and maintain a $2 million reserve.These funds can be used

Which of the following is likely to be used by a bond rating agency to rate the general obligations bonds of a governmental entity?

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

Revenue debt is secured only by designated revenue streams.

A governmental entity that is unable to satisfy claims against it

In the government-wide financial statements, the assets acquired under a capital lease would be reported at

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

A City entered into a long-term capital lease for some office equipment.Assuming the city maintains its books and records in a manner to facilitate preparation of fund financial statements, what entry would be made in its General Fund to record this event?

The work of bond rating agencies is important because

To seek protection under the federal Bankruptcy Code, a governmental entity must

Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

Governments may enter into operating leases, but may not enter into capital leases.

When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as an other financing source on the operating statement.

When the proceeds of long term debt are reported in governmental fund financial statements

In governmental fund financial statements, the assets acquired under a capital lease would be reported at

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

Which of the following funds is most likely to receive the proceeds of revenue bonds?

In a bond covenant, a city agreed to create and maintain a $2 million reserve.These funds can be used

Which of the following is likely to be used by a bond rating agency to rate the general obligations bonds of a governmental entity?

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