G&p Chapter 8 - Mc 15-32

Front 1

Which of the following funds is most likely to receive the pro

ceeds of revenue bonds?

a)

General fund.

b)

Capital projects fund.

c)

City utility enterprise fund.

d)

Highway department special revenue fund.

Back 1

C

Front 2

Obligations of property owners within a particular government

for their proportionate share

of debts of other governments with whom their government shares bou

ndaries are called

a)

Overlapping debt.

b)

Conduit debt.

c)

Committed debt.

d)

Moral obligation debt.

Back 2

A

Front 3

Overlapping debt should be reported in which of the following wa

ys?

a)

It should be reported in the schedule of changes in long-ter

m obligations.

b)

It should be disclosed as a note to the financial stat

ements.

c)

It should be reported in a schedule in the statistica

l section of the annual report.

d)

It should not be reported anywhere in the annual report.

Back 3

C

Front 4

Obligations issued in the name of a government on behalf of a

nongovernmental entity are

called

a)

Overlapping debt.

b)

Conduit debt.

c)

Committed debt.

d)

Moral obligation debt.

Back 4

B

Front 5

Pacheco City issued $20 million of bonds at par. The city

loaned the proceeds to Sharpe

Cheese Processors to expand the size of its facility, whi

ch would allow Sharpe to hire

additional workers. The loan payments from Sharpe to the ci

ty are established to match the

principal and interest payments on the bond issue. The bonds

are payable exclusively from

the loan repayments by Sharpe. The bonds are secured by the addi

tional plant facilities built

by Sharpe. Where should the city report the bonds in its a

nnual financial report?

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.

Back 5

D

Front 6

Industrial development bonds are issued in the name of a governm

ent with the proceeds used

to attract private businesses to a community. Which of the

following is a true statement about

industrial development bonds?

a)

The proceeds are used by the private corporations and princ

ipal and interest payments are

made by the private corporation. The government backs the bond

s in the event of default

by the private corporation.

b)

The proceeds are used by the private corporations and princ

ipal 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 infrastructur

e 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 infrastructur

e to service private

corporations, with principal and interest payments made by

the private corporation in lieu

of property taxes.

Back 6

B

Front 7

Easterly City has $47 million of debt recorded in its sched

ule of changes in long-term

obligations, made up of $30 million of general obligation debt, $1

million of compensated

absences payable, $4 million of claims and judgments, and $12 mi

llion of obligations under

capital leases. The state limits the amount of general

obligation debt that can be issued by a

city to 20 percent of the assessed value of its taxable pr

operty. The assessed value of

property in Easterly City is $250 million. The city’s leg

al debt margin is

a)

$ 3 million.

b)

$ 20 million.

c)

$ 30 million.

d)

$50 million.

Back 7

B

Front 8

A state created a housing authority to provide financing fo

r low-income housing. The

authority issues bonds and uses the proceeds for that purpos

e. 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 speci

fically 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?

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.

Back 8

D

Front 9

Debt that is issued by one entity but backed by the promise o

f another entity to make up any

debt service deficiency is

a)

Committed debt.

b)

Overlapping debt.

c)

Conduit debt.

d)

Moral obligation debt.

Back 9

D

Front 10

Beaver city entered into a long-term capital lease for

some office equipment. The city

maintains its books and records in a manner to facilitate

preparation of fund financial

statements. What entry should be made in its general fund

to record this event?

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 r

esources.

Back 10

A

Front 11

A city’s electric utility enterprise fund made its annual

interest payment on its outstanding

$20 million of 6 percent bonds, which were originally issued

at a premium. The city

maintains its books and records in a manner that facilit

ates preparation of fund financial

statements. The entry to record the interest payment woul

d include a credit to cash for the

amount of the interest checks written and debit(s) to

a)

Interest expenditure AND bond premium.

b)

Interest expense AND bond premium.

c)

Interest expenditure only.

d)

Interest expense only.

Back 11

B

Front 12

Which of the following is likely to be used by a bond rating a

gency to rate a government’s

general obligation bonds?

a)

A review of the basic financial statements.

b)

Consideration of economic statistics such as unemployment rat

es.

c)

Consideration of legal debt margin.

d)

All of the above.

Back 12

D

Front 13

In a bond covenant, a city agreed to create and maintai

n a $2 million reserve. These funds

can be used

a)

Only to make the final year’s interest and principal payment

s 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 them from other resources.

c)

To make either the final year’s interest and principal payme

nts on the bonds or to make

the payments in any year that the city is unable to make the

m from other resources.

d)

By the city as it chooses since the funds legally belong t

o the city.

Back 13

C

Front 14

Bond insurance issued by credit enhancement agencies

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.

Back 14

D

Front 15

The work of bond rating agencies is important because

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 intere

st rate.

d)

Bonds cannot be issued without them.

Back 15

C

Front 16

A major exception to the general rule of expenditure accrual

for governmental funds of a

state or local government relates to unmatured

Interest on General Principal of general

Long-term debt Long-term debt

a)

Yes No

b)

No Yes

c)

Yes Yes

d)

No No

Back 16

C

Front 17

Flora City is accumulating financial resources that

are legally restricted to payments of

general long-term debt principal and interest maturing in futur

e years. At year-end,

$7,000,000 has been accumulated for principal payments, and $2,200,000 h

as been

accumulated for interest payments. These restricted

funds should be accounted for in the

General Fund

Debt Service Fund

a)

$0 $9,200,000

b)

$9,200,000 $0

c)

$2,200,000 $7,000,000

d)

$7,000,000 $0

Back 17

A