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Exam 8: Long-Term Obligations

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Question 21

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General long-term debt of a governmental entity includes

A) All future financial obligations.
B) All future financial obligations that result from past transactions.
C) All future financial obligations that result from past transactions for which the government has already received a benefit.
D) 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.

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Question 22

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Industrial development bonds are issued in the name of a government 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 principal and interest payments are made by the private corporation.The government backs the bonds in the event of default by the private corporation.
B) The proceeds are used by the private corporations and principal 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 infrastructure 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 infrastructure to service private corporations with principal and interest payments made by the private corporation in lieu of property taxes.

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Question 23

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Bond insurance issued by credit enhancement agencies

Salmon County issued $25 million of 5% demand bonds for construction of a county maintenance building.Before year-end the County entered into a two-year noncancellable take-out agreement with a local bank with a 10-year payback period.The County estimates that 20% of the bonds would be demanded called by the buyers if interest rates increased at least 1%.At year-end rates on comparable debt were 7%.How should these demand bonds be reported in the County's government-wide financial statements at year-end?

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.

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.

A major exception to the general rule of expenditure accrual for governmental funds of a state or local government relates to unmatured $\begin{array} { c c c } & \begin{array} { c } \text { Interest on General } \\\text { Long-term debt }\end{array} & \begin{array} { c } \text { Principal of general } \\\text { Long-term debt }\end{array} \\\hline \text { a } & \text { Yes } & \text { No } \\\text { b } & \text { No } & \text { Yes } \\\text { c } & \text { Yes } & \text { Yes } \\\text { d } & \text { No } & \text { No }\end{array}$

Debt that is issued by one entity but backed by the promise of another entity to make up any debt service deficiency is

Why would a government issue revenue bonds which generally are issued at a higher rate of interest than general obligation bonds even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments, the government will use resources from general government activities to fund the principal and interest payments?

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.

New City entered into a capital lease agreement for several new dump trucks to be used in general government activities.Assuming the City maintains its books and records in a manner that facilitates the preparation of the fund financial statements, acquisition of these dump trucks would require entries in which of the following funds and/or schedules?

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.

Salmon County issued $25 million of 5% demand bonds for construction of a county maintenance building.The County has no take-out agreement related to the debt.It estimates that 20% of the bonds would be demanded called by the buyers if interest rates increased at least 1%.At year-end rates on comparable debt were 7%.How should these demand bonds be reported in the governmental fund financial statements at year-end?

Overlapping debt should be reported in which of the following ways?

Pulling County has a December 31 fiscal year-end.In November, the County borrowed $8 million from a local bank, due in six months at 6% interest, to finance general government operations.The county pledges property tax revenues to secure the loan.At year-end, how should the bank note be displayed in the governmental fund financial statements?

Southwest City enters into a lease agreement that contains a nonappropriation clause.The clause

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

A City Electric Utility Enterprise Fund made its annual interest payment on its outstanding $20 million of 6% bonds, which were originally issued at a premium.Assuming the City maintains it books and records in a manner that facilitates preparation of its fund financial statements, the entry to record this would include a credit to Cash for the amount of the interest checks written and debits to

Obligations of property owners within a particular government for their proportionate share of debts of other governments with whom they share boundaries are called

Obligations issued in the name of a government on behalf of a nongovernmental entity is called