Question 1

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

Accepted Answer

This is the correct definition of a government's debt margin.

Question 2

In accounting for operating leases,the rental payments should be recognized as expenditures in a governmental fund and as expenses in the government-wide statement of activities in the periods in which they apply.

Accepted Answer

This is the correct treatment according to GASB standards.

Question 3

Financial analysts look at the ratio of assessed value of property to total market value of property as a measure of a government's ability to issue new revenue bonds.

Accepted Answer

The ratio of assessed value of property to total market value of property is actually used as a measure of a government's tax base, not necessarily its ability to issue new revenue bonds.

Question 4

General long-term debt of a government includes

Accepted Answer

General long-term debt of a government includes all future financial obligations that are backed by the government's general credit and revenue raising power and that result from past transactions for which the government has already received a benefit. Choice A is too broad, as it includes all future obligations, regardless of whether they resulted from past transactions or not. Choice B is also too broad, as it includes all obligations resulting from past transactions, regardless of whether the government has received a benefit from them. Choice C is closer, but still too narrow, as it only includes obligations resulting from past transactions for which the government has received a benefit, but does not consider whether those obligations are backed by the government's credit and revenue raising power.

Question 5

Overlapping debt refers to the obligations of property owners within a government's boundaries for their proportionate share of the debt of other governments with overlapping geographic boundaries.

Accepted Answer

The description provided is accurate and refers to overlapping debt.

Question 6

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

Accepted Answer

The proceeds of long term debt are reported as an other financing source-debt proceeds in governmental fund financial statements. This is because the funds do not recognize the borrowing as revenue but as a financing source to cover the cost of capital expenditures or other non-operating costs.

Question 7

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

Accepted Answer

Governments can recognize bond anticipation notes (BANs) as long-term obligations if they are intended to be refinanced by the issuance of long-term debt. BANs are typically short-term instruments but can be part of a longer-term financing strategy.

Question 8

Revenue debt is secured only by designated revenue streams.

Accepted Answer

Revenue debt is a type of debt that is secured only by designated revenue streams, such as taxes or user fees. This distinguishes it from general obligation debt, which is backed by the full faith and credit of the issuer.

Question 9

General obligation debt is the obligation of the government at large and is thereby backed by the government's general credit and revenue-raising powers.

Accepted Answer

General obligation debt is, in fact, backed by the government's general credit and revenue-raising powers.

Question 10

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

Tax anticipation notes represent a liability that is expected to be paid within one year, therefore, they are considered as current liabilities and should be reported in the balance sheet of the governmental funds that will receive the related revenues. Additionally, they should also be reported in the government-wide statements, which present a consolidated view of the government's financial activities.

Question 11

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

Accepted Answer

Governments may enter into both operating leases and capital leases. However, the accounting treatment for operating leases differs from the accounting treatment for capital leases. Under operating leases, the leased asset is not recorded on the government's balance sheet, but under capital leases, the leased asset is recorded as a capital asset on the government's balance sheet.

Question 12

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

Accepted Answer

The statement is true, as the GASB has ruled that note disclosure is sufficient for conduit debt in government-wide and proprietary fund statements.

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

When the proceeds of general long-term debt are received by a governmental fund, it is treated as an other financing source on the operating statement, and no liability is reported on the balance sheet.

Question 14

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

Accepted Answer

Assets acquired under a capital lease should be reported at the present value of the required lease payments. This is because a capital lease is essentially a financing arrangement, and the asset should be recorded on the balance sheet at the present value of the lease payments, rather than the total or undiscounted amount. This is consistent with generally accepted accounting principles (GAAP) for capital leases.

Question 15

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

Accepted Answer

Governments can indeed seek protection under the Federal Bankruptcy Code, specifically through Chapter 9 which is designed for municipalities and other local government entities.

Question 16

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

Revenue bonds are not backed by the full faith and credit of the government, so they do not require voter approvals or oversight like general obligation bonds do. Instead, they are backed by the revenue generated by the specific project they are financing.

Question 17

A government that is unable to satisfy claims against it

Accepted Answer

A government that is unable to satisfy claims against it may seek protection under the Federal Bankruptcy Code, using a special section directed to governments. This is done under Chapter 9 of the Federal Bankruptcy Code. Unlike businesses, governments are not eligible to file for bankruptcy under other chapters of the code.

Question 18

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

Accepted Answer

The answer of In governmental fund financial statements,the assets acquired...

Question 19

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

Accepted Answer

A high bond rating indicates a strong creditworthiness assessment by the rating agency at the time of the rating, but it does not guarantee future performance or the absolute safety of the investment. Economic conditions and government policies can change, affecting the government's ability to meet its debt obligations.

Question 20

Per GASB Statement No.34,governments generally should report their bonds,notes,and comparable long-term obligations at present value.

Accepted Answer

GASB Statement No. 34 requires governments to report their bonds, notes, and similar long-term obligations at present value. This reporting method provides a more accurate representation of the government's financial position and long-term debt obligations. Present value takes into account the time value of money, which means that future cash flows are discounted to their current value.

Quiz 8: Long-Term Obligations