Quiz 10: Analysis of Governmental Financial Performance
Business
Q 1Q 1
An effective system of monitoring financial condition may permit management to identify unfavorable financial trends in sufficient time to take preventive action to avoid financial distress.
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True False
True
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True False
True
Q 3Q 3
The key cause of municipal financial crises is the failure of management to raise taxes quickly enough in response to adverse environmental factors.
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True False
False
Q 4Q 4
Internal managers and credit analysts evaluate financial condition of a government in the same way.
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True False
Q 5Q 5
The financial condition of a government is easily determined by calculating the financial ratios discussed in Chapter 10.
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True False
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True False
Q 7Q 7
Failure to achieve interperiod equity may negatively impact a government's financial condition.
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True False
Q 8Q 8
Management practices and legislative policies are very relevant in the evaluation of a government's financial performance.
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True False
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True False
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True False
Q 11Q 11
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.
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True False
Q 12Q 12
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.
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True False
Q 13Q 13
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
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True False
Q 15Q 15
A large intergovernmental revenues ratio can be viewed as a positive sign concerning a government's financial condition.
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True False
Q 16Q 16
One measure of interperiod equity is whether net revenues are exceeding a government's total expenses.
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True False
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True False
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True False
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True False
Q 20Q 20
Electronic Municipal Market Access (EMMA)is a source of all state and local government comprehensive annual financial reports (CAFRs).
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True False
Q 21Q 21
Electronic Municipal Market Access (EMMA)is an electronic database of government financial reports provided by the Securities and Exchange Commission.
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True False
Q 22Q 22
FitchRatings,Thomson Municipal Market,and Standard & Poor's are the three major agencies that provide credit ratings for state and local government debt.
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True False
Q 23Q 23
Factors common to the bond rating agencies' risk assessment are the economy and a government's debts.
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True False
Q 24Q 24
Which of the following is not a typical reason for evaluating 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.
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Multiple Choice
Q 25Q 25
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.
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Multiple Choice
Q 26Q 26
The term that is closely related to the concept of liquidity is
A) Financial condition.
B) Interperiod equity.
C) Financial position.
D) Economic condition.
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Multiple Choice
Q 27Q 27
Which of the following financial concepts has been defined by the GASB as "the probability that a government will meet both its financial obligations to creditors,consumers,employees,taxpayers,suppliers,constituents,and others as they become due and its service obligation to constituents,both currently and in the future"?
A) Financial condition.
B) Financial position.
C) Financial leverage.
D) Liquidity.
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Multiple Choice
Q 28Q 28
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.
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Multiple Choice
Q 29Q 29
Which of the following ratios would be most helpful in assessing the operating position of a governmental 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/operating revenues.
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Multiple Choice
Q 30Q 30
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.
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Multiple Choice
Q 31Q 31
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.
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Multiple Choice
Q 32Q 32
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.
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Multiple Choice
Q 33Q 33
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) An increasing ratio of total revenues to total expenditures.
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Multiple Choice
Q 34Q 34
Which of the following is a measure of the extent to which the government's business-type activities are self-supporting?
A) 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.
D) Total revenues/total expenses.
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Multiple Choice
Q 35Q 35
A measure of whether the government lived within its means in the measurement year,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) Total revenues/total expenditures.
D) Total net position (governmental activities and business-type activities) less total net position at the beginning of the year.
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Multiple Choice
Q 36Q 36
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) Total net position (governmental activities and business-type activities) less total net position at the beginning of the year.
D) Total revenues/total expenses.
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Multiple Choice
Q 37Q 37
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.
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Multiple Choice
Q 38Q 38
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.
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Multiple Choice
Q 39Q 39
Political culture,such as attitudes towards taxes,is an example in the ICMA's Financial Trend Monitoring Systems of:
A) Environmental factors.
B) Organizational factors.
C) Financial factors.
D) Management practices and legislative policies.
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Multiple Choice
Q 40Q 40
Which of the following statements about credit analysts' models is ?
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.
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Multiple Choice
Q 41Q 41
For which of the following is a low or decreasing value of the item associated with a stronger financial condition of a governmental entity?
A) Unfunded pension liability.
B) Property values.
C) Home ownership.
D) Employment rate.
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Multiple Choice
Q 42Q 42
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.
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Multiple Choice
Q 43Q 43
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.
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Multiple Choice
Q 44Q 44
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.
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Multiple Choice
Q 45Q 45
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.
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Multiple Choice
Q 46Q 46
The three major rating agencies for governments have each developed quantitative tools for assessing credit risk. Which of the following general factors is used by all three rating agencies in assessing credit risk?
A) Economy.
B) Budgetary flexibility.
C) Revenue dispersion.
D) Geographic location.
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Multiple Choice
Q 47Q 47
Identify the following factors that affect financial condition as environmental factors (E)or financial factors (F).
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Short Answer
Q 48Q 48
Match the following financial ratios that are based on comprehensive annual financial report (CAFR)information with the explanation for that ratio.Answers can only be used once.
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Short Answer
Q 49Q 49
The following are key terms in Chapter 10 that relate to analysis of governmental financial performance:
A.Benchmarking
B.Budgetary solvency
C.Cash solvency
D.Economic condition
E.Financial condition
F.Financial position
G.Fiscal capacity
H.Long-run solvency
I.Service capacity
J.Service-level solvency
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.
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Short Answer
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Essay
Q 51Q 51
Distinguish and describe key financial performance concepts,such as financial position,financial condition,and economic condition.
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Q 52Q 52
Explain the relationships among environmental factors,organizational factors,and financial factors in determining government financial condition.
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Q 53Q 53
Describe how financial performance is related to the operating performance of a government entity.
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Q 54Q 54
Discuss how despite significant improvements in the quality of government financial reporting over the years there are still serious,high profile public sector financial crises.How does the quality of financial reporting affect the ability to evaluate financial condition?
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Q 55Q 55
How do the objectives of evaluating financial condition differ between internal managers and credit analysts? How are their objectives similar?
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Q 56Q 56
"Financial statements are virtually useless in evaluating a city's financial condition." Do you agree with this statement? Why or why not?
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Essay
Q 57Q 57
How do credit analysts assist decision makers in evaluating the credit worthiness of a state or local government?
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Essay
Q 58Q 58
"Benchmarking is a simple method for comparing one government to another." Do you agree or disagree with this statement? Explain.
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Essay
Q 59Q 59
Describe some ratios that can be calculated using the basic financial statements that will help a decision maker assess the financial position of the government.
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Essay