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Chapter 10

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State & Local Govt - Analysis of Financial Performance

Question 1 of 30

1

Which of the following trends is most likely to be a signal of impending fiscal stress?

Select one of the following:

  • An increasing ratio of own source revenues to total revenues.

  • A decreasing ratio of total revenues to total expenditures.

  • A decreasing ratio of debt service expenditures to operating revenues.

  • A decreasing ratio of operating expenditures to total revenues.

Explanation

Question 2 of 30

1

Which of the following ratios would be most helpful in assessing the operating position of a governmental entity?

Select one of the following:

  • Net tax-supported long-term debt/population.

  • Own source revenues/total revenues.

  • Debt service expenditures/total expenditures.

  • General fund balance/operating revenues.

Explanation

Question 3 of 30

1

The term that is closely related to the concept of liquidity is

Select one of the following:

  • Financial condition.

  • Interperiod equity.

  • Financial position.

  • Economic condition.

Explanation

Question 4 of 30

1

Which of the following ratios would be considered favorable if it was low?

Select one of the following:

  • Total revenues to population.

  • Debt service to total revenues.

  • Capital outlay from operating funds to operating expenditures.

  • Cash and short-term investments to current liabilities.

Explanation

Question 5 of 30

1

A measure of whether the government lived within its means in the measurement year, or was required to use prior year resources to fund a portion of current year costs, or shifted the funding of some current year costs to future periods, is

Select one of the following:

  • Business-type activities revenues/business-type activities expenses.

  • Unrestricted net position/total revenues.

  • Total revenues/total expenditures.

  • Total net position (governmental activities and business-type activities) less total net position at the beginning of the year.

Explanation

Question 6 of 30

1

A term that describes a government's ongoing ability and willingness to raise revenues, incur debt, and meet its financial obligations as they become due is

Select one of the following:

  • Financial condition.

  • Fiscal capacity.

  • Economic condition.

  • Financial position.

Explanation

Question 7 of 30

1

For which of the following is a low or decreasing value of the item associated with a stronger financial condition of a governmental entity?

Select one of the following:

  • Unfunded pension liability.

  • Property values.

  • Home ownership.

  • Employment rate.

Explanation

Question 8 of 30

1

A financial capability ratio that measures the degree to which the annual budget is loaded with disbursements to pay off long-term debt is:

Select one of the following:

  • Revenue dispersion.

  • Debt service load.

  • Financing margin-bonded debt per capita.

  • Financing margin-legal debt limit.

Explanation

Question 9 of 30

1

Which of the following is not a typical reason why people evaluate a government's financial condition?

Select one of the following:

  • Prevent financial crises from developing.

  • Hold management accountable for the use of tax revenues.

  • Determine if the government can continue to offer the current level of services.

  • Determine whether residents will receive dividends.

Explanation

Question 10 of 30

1

All of the following are appropriate benchmarks for a state or local government to use as a basis for comparing performance except

Select one of the following:

  • A government's own operating results and financial position from prior years.

  • International City/County Management Association's Financial Trend Monitoring System results for governments of similar types and size.

  • Federal agencies' financial information for a comparable time period.

  • Socioeconomic and demographic trends of governments of similar types and size available from U.S. Census Bureau.

Explanation

Question 11 of 30

1

Early warning systems to identify trends or practices that may adversely impact the long- and short-term solvency of a government are:

Select one of the following:

  • Effective if they help decision makers assess solvency; i.e., cash solvency, budgetary solvency, long-run solvency, and service-level solvency.

  • Used by government managers as well as credit analysts, oversight bodies, and other decision makers.

  • As important today as it they were when the International City/County Management Association (ICMA) developed such a monitoring system in 1980

  • All of the statements are true.

Explanation

Question 12 of 30

1

GASB defines the probability that a government will meet its financial and service obligations to various constituents, both currently and in the future, as:

Select one of the following:

  • Economic condition.

  • Fiscal capacity.

  • Financial condition.

  • Financial position.

Explanation

Question 13 of 30

1

The term used by the GASB to describe the short-term financial concept readily determined from the financial statements of governmental funds is:

Select one of the following:

  • Economic condition.

  • Financial position.

  • Fiscal capacity.

  • Financial condition.

Explanation

Question 14 of 30

1

The GASB has tentatively decided to use of the term economic condition as a broad concept that includes all of the following components except:

Select one of the following:

  • Financial condition.

  • Fiscal capacity.

  • Financial position.

  • Service capacity.

Explanation

Question 15 of 30

1

Which type of solvency indicates a government's ability to generate enough revenue over a normal period to meet its expenditures and not incur deficits?

Select one of the following:

  • Cash solvency.

  • Budgetary solvency.

  • Long-run solvency.

  • Service-level solvency.

Explanation

Question 16 of 30

1

The Financial Trend Monitoring System lists political culture, such as attitudes towards taxes, and the political process as examples of:

Select one of the following:

  • Financial factors.

  • Environmental factors.

  • Organizational factors.

  • Business factors.

Explanation

Question 17 of 30

1

Condition of the capital plant, as measured by maintenance effort and capital outlay, is an example in the Financial Trend Monitoring System of:

Select one of the following:

  • Financial factors.

  • Environmental factors.

  • Organizational factors.

  • Management practices and legislative policies.

Explanation

Question 18 of 30

1

Management practices and legislative policies of a government are:

Select one of the following:

  • Critical determinants of its financial condition.

  • Difficult to measure.

  • Examples of organizational factors affecting financial condition.

  • All of the statements are correct.

Explanation

Question 19 of 30

1

An argument for presenting a comprehensive annual financial report (CAFR) in addition to the basic financial statements is:

Select one of the following:

  • Generally accepted accounting principles require a CAFR to be prepared by governments.

  • The complex nature of financial condition and lack of a "bottom-line" performance measure for governments makes all three sections of the CAFR useful for decision makers.

  • Narrative information is always better than mere financial statements.

  • The management's discussion and analysis included in a CAFR provides useful information not available in the basic financial statements or required supplementary information.

Explanation

Question 20 of 30

1

The use of benchmarks to aid interpretation of state and local government ratios for performance analysis can best be described as:

Select one of the following:

  • More widespread for government-wide statements than for fund statements.

  • Comparable across states as all local government structures are the same across the country.

  • Most easily done by comparing one government to itself over time.

  • Easy since data sources useful for comparing one government to its peers are readily available.

Explanation

Question 21 of 30

1

An advantage of government-wide financial statements required under the GASB reporting model is:

Select one of the following:

  • Basic financial statements, such as the government-wide statements, use modified accrual accounting and focus on fiscal accountability.

  • They show the revenues and expenditures for all governmental, business-type, and fiduciary activities.

  • Fund financial statements do not use the accrual basis of accounting and as such are not useful.

  • Questions not easily addressed with disaggregated fund financial statements can be answered.

Explanation

Question 22 of 30

1

For which of the following indicators is a low or decreasing value of the ratio associated with a stronger economic condition?

Select one of the following:

  • The ratio of capital outlays to total operating expenditures.

  • The ratio of net revenues to total expenses.

  • The ratio of General Fund spendable fund balances to operating revenues.

  • The ratio of debt to assessed property values.

Explanation

Question 23 of 30

1

For which of the following indicators is a trend of decreasing values for the ratio associated with a weaker economic condition?

Select one of the following:

  • The ratio of one-time revenues to operating revenues.

  • The ratio of pension obligations to salaries and wages.

  • The ratio of revenues to debt principal and interest payments.

  • The ratio of current liabilities to operating revenue.

Explanation

Question 24 of 30

1

Which of the following items describes a measure of the change from the prior period in total net position of the government as a whole for governmental and business-type activities (BTA)?

Select one of the following:

  • Total ending net position (governmental activities and BTA) less total beginning net position (governmental activities and BTA).

  • Total revenue divided by total expenses.

  • Unrestricted net position divided by total revenue.

  • BTA service charge revenues divided by BTA total expenses.

Explanation

Question 25 of 30

1

Which ratio measures the degree to which the government's total assets have been funded with debt, indicating the extent of true ownership of government assets?

Select one of the following:

  • Total revenues divided by total expenses.

  • Total debt divided by total assets.

  • Current assets divided by current liabilities.

  • Total ending net position less total beginning net position.

Explanation

Question 26 of 30

1

Which ratio measures the government's ability to meet its current financial obligations from available cash and equivalents?

Select one of the following:

  • Total revenue divided by total expenses.

  • Current assets divided by current liabilities.

  • Business-type activities revenue divided by business-type activity expenses.

  • Each revenue source divided by total revenue.

Explanation

Question 27 of 30

1

A citizen watch group is concerned that the bond investors and lenders might try to take over and run the city. Which performance measure best addresses whether the government can pay its bond investors and lenders on time so the group's concerns are groundless?

Select one of the following:

  • Debt service coverage.

  • Liquidity.

  • Financing margin.

  • Self-sufficiency.

Explanation

Question 28 of 30

1

Which of the following is a true statement about information used by decision makers in evaluating governments' financial performance?

Select one of the following:

  • Internal managers do not have access to as much information as do credit analysts.

  • Internal managers have an informational advantage over credit analysts with respect to their own governments.

  • Internal managers have an informational advantage over bond rating agency analysts with respect to benchmark information.

  • None of the statements are true.

Explanation

Question 29 of 30

1

A composite reading of the financial health of a government can be useful for:

Select one of the following:

  • Assisting decision makers to compare the government's financial health over time.

  • Assisting government managers to compare its financial health to other governments.

  • Credit analysts who are comparing a government's financial health to one another.

  • All of the statements are ways that a composite reading can be useful.

Explanation

Question 30 of 30

1

A General Fund operating deficit as a percentage of operating revenues and transfers:

Select one of the following:

  • Will be negative indicating that the budget will be out of balance.

  • May be positive.

  • May not indicate a problem if the total of spendable fund balances is adequate to cover the difference.

  • None of the above.

Explanation

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