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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) An effective system for evaluating financial performance helps management to assess
whether financial performance can meet creditor and service obligations.
⊚ true
⊚ false
2) A tax watchdog group is an example of an intermediary that represents citizen interests.
⊚ true
⊚ false
3) The key cause of municipal financial crises is the failure of management to raise taxes
quickly enough in response to adverse environmental factors.
⊚ true
⊚ false
4) Internal managers and credit analysts evaluate financial condition of a government in the
same way.
⊚ true
⊚ false
5) The financial condition of a government is easily determined by calculating a set of
financial ratios.
⊚ true
⊚ false
6) The term financial position is closely related to the term liquidity.
⊚ true
⊚ false
7) Failure to achieve interperiod equity may negatively impact a government’s financial
condition.
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⊚ true
⊚ false
8) Management practices and legislative policies are very relevant in the evaluation of a
government’s financial performance.
⊚ true
⊚ false
9) Environmental factors facing a government have little impact on a city’s fiscal policy.
⊚ true
⊚ false
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.
⊚ true
⊚ false
11) Cash solvency is the government’s long-run ability to pay all the costs of doing business.
⊚ true
⊚ false
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.
⊚ true
⊚ false
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.
⊚ true
⊚ false
14) Service-level solvency is the government’s ability to meet its current budget by
expending no more resources than were appropriated.
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⊚ true
⊚ false
15) Population demographics have an impact on financial factors such as revenue per capita.
⊚ true
⊚ false
16) A large intergovernmental revenues ratio can be viewed as a positive sign concerning a
government’s financial condition.
⊚ true
⊚ false
17) One measure of interperiod equity is whether net revenues are exceeding a government’s
total expenses.
⊚ true
⊚ false
18) To provide a meaningful interpretation of a financial ratio a benchmark is needed.
⊚ true
⊚ false
19) Use of trend data is an acceptable method of benchmarking for governments.
⊚ true
⊚ false
20) A revenues to expenditures ratio of over 0.90 is considered acceptable.
⊚ true
⊚ false
21) Electronic Municipal Market Access (EMMA) is a source of all state and local
government comprehensive annual financial reports (CAFRs).
⊚ true
⊚ false
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22) Electronic Municipal Market Access (EMMA) is an electronic database of government
financial reports provided by the Securities and Exchange Commission.
⊚ true
⊚ false
23) FitchRatings, Moody’s Investor Services, Standard & Poor’s, and Kroll Bond Rating
Agency are the four major agencies that provide credit ratings for state and local government
debt.
⊚ true
⊚ false
24) Factors common to the bond rating agencies’ risk assessment are the economy and a
government’s debts.
⊚ true
⊚ false
25) Ratios calculated using either the governmental fund financial statements or the
government-wide statements will provide the same type of performance information.
⊚ true
⊚ false
26) A declining trend in the capital outlay ratio could be an indicator of deferred replacement
of capital assets.
⊚ true
⊚ false
27) An interperiod equity ratio of less than 1.0 indicates the government was not able to
cover expenses with net revenues for the period.
⊚ true
⊚ false
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MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
28) 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 tax refunds.
29) 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.
30) The term that is closely related to the concept of liquidity is:
A) Financial condition.
B) Interperiod equity.
C) Financial position.
D) Economic condition.
31) 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.
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32) The International City/County Management Association indicates that financial condition
is composed of four types of solvency. Which of the following is not one of the four types?
A) Service-level solvency.
B) Long-run solvency.
C) Credit solvency.
D) Budgetary solvency.
33) The GASB term financial position most closely aligns with which International
City/County Management Association term?
A) Cash-solvency.
B) Long-run solvency.
C) Credit solvency.
D) Budgetary solvency.
34) Economic condition is broad in scope and includes all of the following except:
A) Service capacity.
B) Fiscal capacity.
C) Financial position.
D) Budgetary capacity.
35) 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.
36) Which of the following ratios would be most helpful in assessing the operating position
of a government entity?
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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.
37) 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.
38) 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.
39) 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.
40) A recognizable signal of fiscal stress is:
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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.
41) Which of the following is a measure of the extent to which the government’s business-
type activities are self-supporting?
A) Business-type activities unrestricted net position/total revenues.
B) Business-type activities revenues/business-type activities expenses.
C) Total net position (governmental activities and business-type activities) less total net
position at the beginning of the year divided by total beginning net position.
D) Total revenues/total expenses.
42) A measure of whether the government lived within its means in the current 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:
A) Business-type activities revenues/business-type activities expenses.
B) Unrestricted net position/total revenues.
C) Net revenues/total expenses.
D) Total net position (governmental activities and business-type activities) less total net
position at the beginning of the year divided by beginning net position.
43) A measure of the adequacy of the amount of the government’s total unrestricted net
position or deficit at the measurement date is:
A) Unrestricted net position/total revenues.
B) Business-type activities revenues/business-type activities expenses.
C) Unrestricted net position (governmental activities and business-type activities) less
unrestricted net position at the beginning of the year divided by beginning unrestricted net
position.
D) Net revenues/total expenses.
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44) Which of the following is one of the most important reasons for evaluating a
government’s financial performance?
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.
45) Which of the following terms best describes a government’s ongoing ability and
willingness to meet its financial obligations and service commitments as they become due?
A) Financial condition.
B) Fiscal capacity.
C) Economic condition.
D) Financial position.
46) Political culture, such as attitudes towards taxes, is an example in the International
City/County Management Association (ICMA) Financial Trend Monitoring Systems of:
A) Environmental factors.
B) Organizational factors.
C) Financial factors.
D) Management practices and legislative policies.
47) There are many indicators that can be used to determine a community’s needs and
resources. Which of the following is not a community needs and resources indictor?
A) Local unemployment rate.
B) Property values.
C) Attitudes toward taxes.
D) Home ownership.
48) Which of the following could be an indicator of financial mismanagement?
A) Increase in property valuations.
B) Increasing short-term borrowing.
C) Increasing capital expenditures.
D) Decreasing operating expenditures.
49) There are several environmental factors that can impact a government’s financial
condition. Some factors are more difficult to measure or assign probabilities to. Which of the
following environmental factors is the most difficult to measure or assign a probability to?
A) Business activity.
B) Revenue restrictions.
C) Rate of inflation.
D) Political culture and climate.
50) The federal government’s restrictions on spending grant funds it provides is an example
of which of the following environmental factors affecting financial condition?
A) Political culture.
B) Intergovernmental constraint.
C) Management practices.
D) External economic conditions.
51) Which of the following statements about credit analysts’ models is true?
A) Credit analysts focus primarily on demographic statistics and management’s long-
term investment strategies.
B) Credit analysts have access to the same set of information that internal managers use.
C) Credit analysts are concerned with assessing a government’s ability to pay interest
and principal on debt when due.
D) Credit analysts rarely use comprehensive annual financial reports.
52) For which of the following is a low or decreasing value of the item associated with a
stronger financial condition of a government entity?
A) Unfunded pension liability.
B) Property values.
C) Home ownership.
D) Employment rate.
53) Which ratio or concept describes the extent to which the government has lived within its
means for the year?
A) Debt to assets.
B) Interperiod equity.
C) Current ratio.
D) Revenue dispersion.
54) Which of the following financial capability indicators is a measure of a government’s
capacity to issue bonded debt?
A) Revenue dispersion.
B) Property taxes per capita.
C) Bonded debt per capita.
D) Available legal debt limit.
55) Which of the following governments would have publicly accessible information
available through the Electronic Municipal Market Access (EMMA)?
A) A city that had issued revenue bonds.
B) A county that has entered into a capital lease.
C) All state and local governments over 25,000 in population.
D) Those state and local governments who have issued debt subject to Securities and
Exchange Commission (SEC) oversight.
56) An investor could find all but one of the following pieces of information through the
Electronic Municipal Market Access (EMMA). Which of the following is not available on
EMMA?
A) Credit rating for the debt issuance.
B) Comprehensive Annual Financial Report.
C) Interest rate and size of the debt issuance.
D) Credit report on the government issuing the debt.
57) Two major rating agencies (Moody’s and Standard and Poor’s) for governments have
developed quantitative tools for assessing credit risk. Which of the following general factors is
used by both rating agencies in assessing credit risk?
A) Economy.
B) Budgetary flexibility.
C) Revenue dispersion.
D) Geographic location.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
58) Identify the following factors that affect financial condition as environmental factors (E)
or financial factors (F).
1.Community needs and resources
2.Disaster risk
3.Revenues
4.Intergovernmental constraints
5.External economic conditions
6.Expenditures
7.Debt structure
8.Political culture
9.Unfunded liabilities
10.Condition of capital plant
11.Operating position