Select the best answer. 1. A government opts to set aside $ 10 million of general-fund resources

Question:

Select the best answer.
1. A government opts to set aside $ 10 million of general-fund resources to ﬁnance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.
a. The government must account for the $10 million in a capital projects fund, and in its government-wide statements it must report the $10 million as “restricted.”
b. The government may account for the $10 million in a capital projects fund, and in its government-wide statements it may report the $10 million as “restricted.”
c. The government may not account for the $10 million in a capital projects fund, and in its government-wide statements it may not report the $10 million as ‘‘unrestricted.”
d. The government may account for the $10 million in a capital projects fund, but in its government-wide statements it may not report the $10 million as ‘‘restricted.’’

2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and in a governmental fund should
a. Report them as expenditures
b. Add them to the of the bond
c. Report them in a separate account and amortize them over the life of the bond
d. Deduct them from the bond premiums or add them to the bond discount
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
a. Transfer an amount equal to the premiums from the capital projects fund to a debt service fund, and an amount equal to the discounts from a debt service fund to the capital projects fund
b. Transfer an amount equal to the premiums from the capital projects fund to a debt service fund, but make no transfer of an amount equal to the discounts from a debt service fund to the capital projects fund

c. Make no transfers between the capital projects fund and a debt service fund
d. Transfer an amount equal to the discounts from a debt service fund to the capital projects fund, but make no transfer of an amount equal to the premiums from the capital projects fund to the debt service fund

4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
a. $0
b. $14,000
c. $36,000
d. $50,000

5. Which of the following accounts is least likely to be shown on the of a debt service fund?
a. Bonds payable
b. Investments (at fair value)
c. Cash
d. Special assessments receivable

6. Special assessment debt should be reported on the of a city if the debt is to be paid from assessments on property owners and
a. The city has guaranteed payment of the debt and the probability of the city having to make good on the guarantee is 50 percent or greater
b. The city has guaranteed payment of the debt but the probability of the city having to make good on the guarantee is remote
c. The city has no legal responsibility for the debt, but in the past has made up for any property owner defaults
d. All of the above
7. In its governmental fund statements a government should recognize revenue from special assessments
a. Entirely in the year in which the assessment is imposed
b. In the years in which the assessments are paid
c. In the years in which the assessments are due
d. In the years in which the assessments become available for expenditure

8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
a. The amount of the assessment, plus anticipated interest, as both revenue and an asset
b. The amount of the assessment as both revenue and an asset
c. Only the amount of the assessment due in the current year as revenue but the full amount of the assessment as an asset
d. Only the amount of the assessment due in the current year as both revenue and an asset

9. Under existing federal statutes, arbitrage as it applies to state and local governments
a. Is illegal
b. Is illegal unless the government can demonstrate
a ‘‘just cause’’ for engaging in it
c. Is legal in some circumstances, but the government may be required to remit arbitrage earnings to the federal government
d. Is illegal unless there is no more than a 2 percent difference between interest earned and interest paid

10. Bond refunding’s are most likely to result in an economic gain when
a. The bonds are subject to arbitrage
b. There is an inverted yield curve
c. The bonds were initially issued at a premium
d. The bonds are subject to a call provision

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