Acct365 Ch10
- 1.
Which of the following groups or parties generally has taken the most initiative to evaluate the financial condition of a city?
- A.
Citizens
- B.
Managers
- C.
Credit market analysts
- D.
Legislative and oversight bodies
Correct Answer
C. Credit market analystsExplanation
Credit market analysts generally take the most initiative to evaluate the financial condition of a city. They specialize in analyzing the creditworthiness of individuals, organizations, and governments, including cities. By assessing factors such as debt levels, revenue streams, and economic indicators, credit market analysts provide valuable insights into the financial health of a city. This information is crucial for investors, lenders, and policymakers in making informed decisions about the city's financial stability and potential risks.Rate this question:
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- 2.
Which oof the following terms or concepts focuses primarily on a government's ability to generate enough cash over a 30- or 60- day period ti pay bills?
- A.
Interperiod equity
- B.
Financial condition
- C.
Budgetary solvency
- D.
Cash solvency
Correct Answer
D. Cash solvencyExplanation
Cash solvency focuses primarily on a government's ability to generate enough cash over a 30- or 60-day period to pay bills. It refers to the government's ability to meet its short-term financial obligations and maintain a positive cash flow. Cash solvency is important for ensuring that the government can cover its immediate expenses and avoid cash flow problems or defaulting on payments.Rate this question:
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- 3.
Which of the following environmental factors reveals the entity's underlying philosophies regarding willingness to support higher taxes, issuances of long-term debt, and increased social services?
- A.
Political culture
- B.
Community needs and resources
- C.
External economic conditions
- D.
Management practices and legislative policies
Correct Answer
A. Political cultureExplanation
Political culture refers to the shared values, beliefs, and attitudes of a society towards political and economic issues. It encompasses the entity's underlying philosophies regarding willingness to support higher taxes, issuances of long-term debt, and increased social services. Political culture influences the decision-making process and policies of the government, which in turn affect the entity's environmental factors. Therefore, understanding the political culture helps in understanding the entity's stance on these issues.Rate this question:
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- 4.
The group of factors that largely determines how fiscal policy is influenced by environmental factors is:
- A.
Natural disasters and emergencies
- B.
Unfunded liabilities
- C.
External economic conditions
- D.
Management practices and legislative policies
Correct Answer
D. Management practices and legislative policiesExplanation
Management practices and legislative policies play a significant role in determining how fiscal policy is influenced by environmental factors. These factors encompass the actions and decisions made by government officials and policymakers in managing the economy and implementing fiscal measures. Effective management practices and well-designed legislative policies can help mitigate the impact of environmental factors on fiscal policy, ensuring stability and sustainability in the economic system. Conversely, poor management practices and inadequate legislative policies may exacerbate the effects of environmental factors, leading to fiscal instability and inefficiency.Rate this question:
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- 5.
Which of the following would be an effective means of benchmarking?
- A.
Comparing the city's key ratios to those of special purpose governments in the area.
- B.
Comparing current-period ratios to published medians of the same ratios for cities of similar size or in the same geographic region.
- C.
Comparing key ratios to published medians of the same ratios for larger cities in other parts of the country.
- D.
Comparing current-period ratios to estimates for future periods.
Correct Answer
B. Comparing current-period ratios to published medians of the same ratios for cities of similar size or in the same geographic region.Explanation
Comparing current-period ratios to published medians of the same ratios for cities of similar size or in the same geographic region would be an effective means of benchmarking. This method allows for a comparison of the city's performance to that of other cities with similar characteristics, providing a more accurate benchmark for evaluation. By using published medians, which represent the average performance of cities in the same category, it ensures a standardized comparison and helps identify areas where the city may be performing above or below average.Rate this question:
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- 6.
Which of the following conditions could signal impending fiscal stress?
- A.
Decreasing unemployment
- B.
Increasing property values
- C.
Decreasing revenues relative to expenditures
- D.
Decreasing levels of unfunded pension obligations and other post employment retirement benefits
Correct Answer
C. Decreasing revenues relative to expendituresExplanation
A decrease in revenues relative to expenditures could signal impending fiscal stress because it indicates that the government or organization is spending more money than it is earning. This imbalance could lead to a budget deficit, which may result in the need for borrowing or cutting back on essential services. It suggests that the entity is facing financial difficulties and may struggle to meet its financial obligations in the future.Rate this question:
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- 7.
Credit rating agencies such as Moody's, Standard & Poor's, and Fitch examine which of the following factors when assessing creditworthiness for purposes of rating tax-supported bonds?
- A.
Economy, finances, management, service capacity
- B.
Finances, management, service capacity, debt
- C.
Management, service capacity, debt, education
- D.
Demographics, finances, management, debt
Correct Answer
D. Demographics, finances, management, debt -
- 8.
Which of the following statements is correct regarding the relationship between financial condition and economic condition?
- A.
As defined by GASB, economic, condition is a broader term that would include the concepts embedded in the term financial condition
- B.
Financial condition as defined by the ICMA incorporates cash solvency, budgetary solvency, long-run solvency, and service-level solvency, making it broader than the term economic condition
- C.
Financial condition and economic condition relate to the government's ability to meet its short-term obligations
- D.
None of the above
Correct Answer
A. As defined by GASB, economic, condition is a broader term that would include the concepts embedded in the term financial conditionExplanation
The correct answer is that economic condition is a broader term that includes the concepts embedded in the term financial condition, as defined by GASB. This means that financial condition is a subset of economic condition, and economic condition encompasses a wider range of factors and indicators.Rate this question:
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- 9.
Which of the following suggests a government that is relying primarily on revenues it directly controls?
- A.
Property taxes, 20%; chargers for services, 70%; grants and contributions, 5%, investment income, 5%
- B.
Property taxes, 20%; chargers for services, 60%; grants and contributions, 10%, investment income, 10%
- C.
Property taxes, 40%; chargers for services, 40%; grants and contributions, 10%, investment income, 10%
- D.
Property taxes, 60%; chargers for services, 5%; grants and contributions, 30%, investment income, 5%
Correct Answer
A. Property taxes, 20%; chargers for services, 70%; grants and contributions, 5%, investment income, 5%Explanation
The correct answer is Property taxes, 20%; chargers for services, 70%; grants and contributions, 5%, investment income, 5%. This answer suggests a government that relies primarily on revenues it directly controls because property taxes and charges for services make up the majority of the revenue at 20% and 70% respectively. Grants and contributions and investment income only make up a small portion of the revenue at 5% each. This indicates that the government is relying on taxes and fees collected from property owners and service users, rather than relying heavily on external sources of funding.Rate this question:
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- 10.
Which of the following best defines fiscal capacity?
- A.
The probability that a government will meet its financial obligations and sustain services in the future
- B.
The ability and willingness of the government to meet its obligations when they are due
- C.
The government's ability and willingness to provide services
- D.
Current assets are sufficient to pay current liabilites
Correct Answer
B. The ability and willingness of the government to meet its obligations when they are dueExplanation
Fiscal capacity refers to the ability and willingness of the government to meet its financial obligations and sustain services in the future. It encompasses both the government's ability to generate revenue and its commitment to fulfilling its obligations on time. This definition emphasizes the importance of not only having the necessary resources but also the willingness to use them responsibly to meet financial commitments.Rate this question:
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- 11.
The term that is defined as determining whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided is:
- A.
Financial position
- B.
Interperiod equity
- C.
Financial condition
- D.
Economic condition
Correct Answer
B. Interperiod equityExplanation
Interperiod equity is the term that refers to the concept of determining whether current-year revenues are enough to cover the services provided in that year and if future taxpayers will have to bear the burden of services previously provided. It focuses on the fairness and balance between different time periods, ensuring that the costs and benefits of government services are distributed equitably over time. This concept helps in evaluating the fiscal sustainability and responsibility of a government entity.Rate this question:
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- 12.
The term that is closely related to the concept of liquidity is:
- A.
Financial position
- B.
Interperiod equity
- C.
Financial condtion
- D.
Economic condition
Correct Answer
A. Financial positionExplanation
The term "liquidity" refers to the ability of an entity to convert its assets into cash quickly without incurring significant losses. Financial position is closely related to liquidity because it represents the overall financial health of an entity, including the availability of liquid assets such as cash and short-term investments. A strong financial position indicates that an entity has sufficient liquid resources to meet its short-term obligations, which is a key aspect of liquidity. On the other hand, interperiod equity refers to the concept of fairness in distributing resources over different time periods, financial condition refers to the overall financial health of an entity, and economic condition refers to the state of the economy as a whole, which are not directly related to liquidity.Rate this question:
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- 13.
Which of the following trends is most likely to be a signal of impending fiscal stress?
- A.
An increasing ratio of own source revenues to total revenues.
- B.
A decreasing ratio of total revenues to total expenditures.
- C.
A decreasing ratio of debt service expenditures to operating revenues.
- D.
A decreasing ratio of operating expenditures to total revenues.
Correct Answer
B. A decreasing ratio of total revenues to total expenditures.Explanation
A decreasing ratio of total revenues to total expenditures is most likely to be a signal of impending fiscal stress because it indicates that the government is spending more than it is earning. This could lead to budget deficits and a potential inability to meet financial obligations in the long term. It suggests that the government's expenses are outpacing its income, which can lead to unsustainable levels of debt and potential financial instability.Rate this question:
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- 14.
One of the most important reasons to evaluate the financial performance of a government is to:
- A.
Determine if property taxes and other revenue sources should be increased.
- B.
Assign responsibility for success or failure of the government to certain parties.
- C.
Determine whether the government is accomplishing its mission.
- D.
Have an early warning of impending financial difficulty for a diverse set of decision makers.
Correct Answer
D. Have an early warning of impending financial difficulty for a diverse set of decision makers.Explanation
The correct answer is to have an early warning of impending financial difficulty for a diverse set of decision makers. Evaluating the financial performance of a government allows decision makers to identify any potential financial difficulties that may arise in the future. This early warning system helps in making informed decisions and taking necessary actions to prevent any financial crisis. It enables the government to allocate resources effectively, make necessary budget adjustments, and ensure the accomplishment of its mission. By evaluating the financial performance, decision makers can proactively address any financial challenges and maintain the stability and sustainability of the government's finances.Rate this question:
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- 15.
A term that describes a government's ongoing ability and willingness to raise revenues, incur debt, and meet its financial obligations
- A.
Financial condition.
- B.
Fiscal capacity.
- C.
Economic condition.
- D.
Financial position.
Correct Answer
B. Fiscal capacity.Explanation
Fiscal capacity refers to a government's ability and willingness to generate revenue, borrow money, and fulfill its financial obligations. It encompasses the government's overall financial strength and stability. This term specifically addresses the government's ongoing capability to raise funds and manage its finances effectively. It goes beyond just the current economic condition or financial position of the government and focuses on its long-term capacity to meet its fiscal responsibilities.Rate this question:
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- 16.
Which of the following is not a typical reason why people evaluate a government's financial condition?
- A.
Prevent financial crises from developing.
- B.
Hold management accountable for the use of tax revenues.
- C.
Determine if the government can continue to offer the current level of services.
- D.
Determine whether residents will receive dividends.
Correct Answer
D. Determine whether residents will receive dividends.Explanation
The reason why "Determine whether residents will receive dividends" is not a typical reason why people evaluate a government's financial condition is because governments do not typically distribute dividends to their residents. Dividends are typically paid by corporations to their shareholders as a share of the company's profits. Governments, on the other hand, generate revenue through taxes and other sources to fund public services and programs. Therefore, evaluating a government's financial condition is more focused on ensuring the government's ability to provide services, manage tax revenues, and prevent financial crises.Rate this question:
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- 17.
The key cause of municipal financial crises is the failure of management to raise taxes quickly enough in response to adverse environmental factors.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The explanation for the given correct answer (False) is that the key cause of municipal financial crises is not solely the failure of management to raise taxes quickly enough in response to adverse environmental factors. While this can be a contributing factor, there are various other reasons for such crises, including mismanagement of funds, excessive spending, economic downturns, and inadequate revenue sources. Therefore, it is incorrect to state that the failure to raise taxes quickly enough is the sole cause of municipal financial crises.Rate this question:
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- 18.
A tax watchdog group is an example of an intermediary that represents citizen interests.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A tax watchdog group is an organization that monitors and advocates for fair and responsible taxation policies on behalf of citizens. They work as intermediaries between the government and the citizens, ensuring that the government is held accountable for tax decisions and representing the interests of the citizens in tax-related matters. Therefore, it is true that a tax watchdog group is an example of an intermediary that represents citizen interests.Rate this question:
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- 19.
The term financial position is closely related to the term liquidity while financial condition is much broader in scope, including not only financial position but also consideration of long-term solvency.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that the statement accurately reflects the relationship between financial position and liquidity. Financial position refers to the current state of a company's assets, liabilities, and equity, while liquidity specifically refers to the ability to convert assets into cash quickly. Financial condition, on the other hand, is a broader concept that encompasses not only financial position but also considers the long-term solvency of a company. Therefore, it is true that financial position is closely related to liquidity, and financial condition is a broader term that includes both financial position and long-term solvency.Rate this question:
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- 20.
Cash solvency is the government's long-run ability to pay all the costs of doing business.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Cash solvency refers to a government's ability to meet its short-term financial obligations, particularly its ability to pay its current liabilities with available cash. It does not pertain to the government's long-run ability to cover all costs of doing business. Therefore, the given statement is false.Rate this question:
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Mar 21, 2023Quiz Edited by
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Dec 03, 2013Quiz Created by
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