Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) An effective system for evaluating financial performance helps management to assess whether
financial performance can meet creditor and service obligations.
2) A tax watchdog group is an example of an intermediary that represents citizen interests.
3) The key cause of municipal financial crises is the failure of management to raise taxes quickly
enough in response to adverse environmental factors.
4) Internal managers and credit analysts evaluate financial condition of a government in the same
way.
5) The financial condition of a government is easily determined by calculating a set of financial
ratios.
6) The term financial position is closely related to the term liquidity.
7) Failure to achieve interperiod equity may negatively impact a government’s financial condition.
8) Management practices and legislative policies are very relevant in the evaluation of a
government’s financial performance.
9) Environmental factors facing a government have little impact on a city’s fiscal policy.
10) Budget solvency is the government’s ability to provide services at the level and quality that are
required for the health, safety, and welfare of its citizens.
11) Cash solvency is the government’s long-run ability to pay all the costs of doing business.
12) Political culture, one of the environmental factors affecting financial condition, includes such
factors as form of government and the entity’s economic, political, and social history.
13) Fiscal capacity is the government’s ongoing ability and willingness to supply the capital and
human resources needed to meet its commitments to provide services.
14) Service-level solvency is the government’s ability to meet its current budget by expending no
more resources than were appropriated.
15) Population demographics have an impact on financial factors such as revenue per capita.
16) A large intergovernmental revenues ratio can be viewed as a positive sign concerning a
government’s financial condition.
17) One measure of interperiod equity is whether net revenues are exceeding a government’s total
expenses.
18) To provide a meaningful interpretation of a financial ratio a benchmark is needed.
19) Use of trend data is an acceptable method of benchmarking for governments.
20) A revenues to expenditures ratio of over 0.90 is considered acceptable.
21) Electronic Municipal Market Access (EMMA) is a source of all state and local government
comprehensive annual financial reports (CAFRs).
22) Electronic Municipal Market Access (EMMA) is an electronic database of government
financial reports provided by the Securities and Exchange Commission.
23) FitchRatings, Thomson Municipal Market, Standard & Poor’s, and Kroll Bond Rating Agency
are the four major agencies that provide credit ratings for state and local government debt.
24) Factors common to the bond rating agencies’ risk assessment are the economy and a
government’s debts.
25) Which of the following is not a typical reason for evaluating a government’s financial
condition?
A) Help identify and prevent financial crises from developing.
B) Hold management accountable for complying with laws and regulations.
C) Determine if the government can continue to offer the needed level of services.
D) Determine whether residents will receive dividends.
26) Which of the following terms is defined as determining whether current-year revenues are
sufficient to pay for current-year services and whether future taxpayers will be required to assume
the burdens of services previously provided?
A) Financial position.
B) Interperiod equity.
C) Financial condition.
D) Economic condition.
27) The term that is closely related to the concept of liquidity is:
A) Financial condition.
B) Interperiod equity.
C) Financial position.
D) Economic condition.
28) According to the GASB, which of the following financial concepts can be defined as the
probability that a government will meet its financial obligations, both currently and in the future?
A) Financial condition.
B) Financial position.
C) Financial leverage.
D) Liquidity.
29) 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.
30) Which of the following ratios would be most helpful in assessing the operating position of a
government entity?
A) Net tax-supported long-term debt/population.
B) Own source revenues/total revenues.
C) Debt service expenditures/total expenditures.
D) General Fund balance/General Fund operating revenues.
31) All of the following are appropriate benchmarks for a state or local government to use as a
basis for comparing performance except:
A) A government’s own operating results and financial position from prior years.
B) International City/County Management Association’s Financial Trend Monitoring System
results for governments of similar types and size.
C) Federal agencies’ financial information for a comparable time period.
D) Socioeconomic and demographic trends of governments of similar types and size available
from U.S. Census Bureau.
32) After financial ratios are calculated, the results should be compared to any of the following
except:
A) The same indicator from prior years.
B) Budgeted information for the government for the upcoming year.
C) Comparable government ratios calculated from the Government Finance Officers Association’s
Financial Indicators Database.
D) Credit analyst measures or other red flag indicators.
33) Which of the following ratios would be considered favorable if it was low?
A) Total revenues to population.
B) Debt service to total revenues.
C) Capital outlay from operating funds to operating expenditures.
D) Cash and short-term investments to current liabilities.
34) A recognizable signal of fiscal stress is:
A) Total revenues from own sources increasing as a percent of total revenues for all sources.
B) Increasing population.
C) Declining property values.
D) A decreasing ratio of total operating expenditures to population.