Select the best answer.
1. A town signs a ten-year capital lease by which it acquires equipment with a market value of $1million. The lease incorporates an implicit interest rate of 8 percent per year. Accordingly, annual lease payments are $149,029. When the town makes its second annual lease payment, it would report in its government-wide statements
a. Interest expense of $80,000
b. Rent expense of $149,029
c. Interest expense of $74,478
d. Rent expense of $100,000

2. State courts that have held that capital leases do not qualify as long-term debt subject to debt limitations commonly base their decision on the inclusion in the lease agreement of a
a. Nonsubstitution clause
b. Nonappropriation clause
c. Nonparticipation clause
d. Forward funding clause

3. Revenue bonds, compared with general obligation bonds, generally
a. Are paid out of property or sales tax revenues
b. Bear lower interest rates
c. Are subject to the same debt limitations
d. Are not backed by the full faith and credit of the issuing government

4. A town is located within both a school district and a county. The assessed property valuations and bonded debts of the three governments are as follows (in millions):

5. Clifford City has issued $10 million of revenue bonds to help finance a factory for Travis, Inc., a private manufacturing company. The city owns the factory and leases it to the company. The bonds are payable exclusively from the lease payments. In the event the company defaults on its lease payments, the bond-holders have claims only on the factory. The city has no obligation for the bonds other than to transmit to the bondholders the lease payments that it receives from the company. In its annual financial statements the city should report the bonds
a. On its government-wide statement of net position but not in any fund statements
b. Only in notes
c. Only as required supplementary information
d. Both on its government-wide statement of net position and in its proprietary funds balance sheet

6. Which of the following is not a common reason for issuing revenue bonds rather than general obligation bonds?
a. To obtain lower interest rates
b. To incorporate debt service costs into user fees
c. To avoid debt limitations or voter approvals
d. To shift a portion of the burden of paying for the project to parties who reside outside the issuer€™s jurisdiction but nevertheless benefit from the project

7. On December 1, 2015, a city issued $20 million in BANs and $6 million in RANs. By April 15, 2016, the date the city issued its financial statements for the fiscal year ending December 31, 2015, the city had neither converted the BANs into long-term bonds nor entered into a refinancing agreement to do so. However, the city repaid the RANs on February 28, 2016. The amount the city should report as an obligation of its general fund in its December 31, 2015, financial statements is
a. $0
b. $6 million
c. $20 million
d. $26 million

8. A state agency issues moral obligation debt. This debt
a. Is probably backed by the full faith and credit of the state
b. Is probably subject to the same debt limitations as if it had been issued by the state itself
c. Probably bears a lower interest rate than if there were no moral obligation associated with it
d. Imposes greater pressure upon the agency to repay the debt than if there were no moral obligation associated with it


9. Certificates of participation have the most in common with
a. Revenue bonds
b. Pension annuities
c. Participating preferred stock
d. Operating leases

10. A city issues the following bonds:
Revenue bonds to fund improvements to the town-owned electric utility $50 million
Conduit bonds issued to assist a fast-food franchise to construct a restaurant $7 million
The amount that the city should report as an obligation in its government-wide statement of net position and its proprietary funds balance sheet is
Government-Wide . Proprietary Fund
a. $57 million ... $57 million
b. $57 million ... $ 0
c. $50 million ... $50 million
d. $ 0 ..... $0

Transcribed Image Text:

AssessedBonded Valuation Debt 800 S1,600 $2,400 $40 School district County