1. Which of the following is true with respect to bankruptcy? a. Per the federal bankruptcy code,...

Question:

1. Which of the following is true with respect to bankruptcy?
a. Per the federal bankruptcy code, a municipality can be declared bankrupt but not insolvent.
b. Several major cities have avoided bankruptcy by being placed under the control of ﬁnancial control boards by their state governments.
c. The concept of bankruptcy does not apply to governments because they have the authority to increase taxes and reduce services.
d. Municipalities that are declared bankrupt by a court are brought under the control of independent trustees whose primary objective is to ensure that obligations to bond holders are satisﬁed in full.

2. A government issues $1 million in 30-year, 6 percent bonds at a discount of $27,092. The bonds were sold to yield 6.2 percent. At what amount would the bonds be reported (net) in the government-wide statement of net position and governmental fund immediately upon issuance?
Government-Wide Fund
a. $1,000,000 $1,000,000
b. $ 972,908 $ 972,908
c. $ 972,908 $ 0
d. $ 972,908 $1,000,000

3. The government issues the bonds described in question 2. It makes its ﬁrst semiannual interest payment of $30,000. How much interest expense/expenditure would it likely have to report in its government-wide and governmental fund statements?
Government-Wide Fund
a. $30,000 $30,000
b. $30,160 $30,160
c. $30,160 $ 0
d. $30,160 $30,000

4. The government makes subsequent interest payments. Reported interest expense/expenditure in the government-wide and governmental fund statements will:
Government-Wide .... Fund
a. Increase .... Remain the same
b. Increase .... Increase
c. Remain the same . Remain the same
d. Decrease ..... Remain the same

5. Suppose a government issues $1 million in bonds at a premium of $50,000. It temporarily invests the proceeds of $1,050,000 in U.S. Treasury bonds having a of $1 million (i.e., at a premium of $50,000). At what value would the government report the bonds payable and the investment in bonds in its government-wide statements subsequent to the date of the transactions?
Bond Payable .. Investment in Bonds
a. Amortized cost .. Fair value
b. Fair value ..... Fair value
c. Amortized cost ... Amortized cost
d. Fair value ..... Amortized cost

6. Which of the following is true of demand bonds?
a. They give the issuer the right to call the bonds at a preestablished price.
b. They give the issuer the right to demand that the bondholders purchase additional bonds at a preestablished price.
c. They give the bondholder the right to demand repayment prior to maturity.
d. They give the bondholder the right of ﬁrst refusal with respect to any additional bonds sold by the issuer.

7. Demand bonds should be reported as governmental fund liabilities
a. If the government has not entered into a take-out agreement
b. If prevailing interest rates are higher than the interest rate on the bonds
c. If prevailing interest rates are lower than the interest rate on the bonds
d. If the government, by the time it issues its ﬁnancial statements, has neither reﬁnanced the bonds nor entered into an agreement to do so

8. A city issues bond anticipation notes on October 21, 2014. It refunds the notes with 30-year bonds in January 2015. In its ﬁnancial statements for the ﬁscal year ending December 31, 2014, which are issued in April 2015, it should report the bond anticipation notes as obligations
a. In both its government-wide statement of net position and a governmental fund In its government-wide statement of net position but not its governmental fund In its governmental fund but not its government-wide statement of net position
d. In neither its governmental fund nor its government-wide statement of net position

9. A city issues revenue anticipation notes on October 21, 2014. It repays the notes in January 2015. In its ﬁnancial statements for the ﬁscal year ending December 31, 2014, which are issued in April 2015, it should report the revenue anticipation notes as obligations
a. In both the government-wide statement of net position and a governmental fund In the government-wide statement of net position but not a governmental fund In a governmental fund but not the government-wide statement of net position
d. In neither a governmental fund nor the government-wide statement of net position

10. Which of the following conditions would not automatically classify a lease as a capital lease?
a. Ownership is transferred to the lessee at the end of the lease term.
b. The term of the lease is 75 percent of the useful life of the property.
c. The lease contains an option permitting the lessee to purchase the property at a bargain price.
d. The present value of rental and other minimum lease payments equals or exceeds 50 percent of the fair value of the leased property.

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