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Chapter 8 (ACCT-410) - 8 Chapter Long-term Obligations...

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8 Chapter Long-term Obligations TRUE/FALSE (CHAPTER 8) 1. Unlike individuals and businesses, governments cannot seek protection under the Federal Bankruptcy Code. 2. General obligation debt is the obligation of the government at large and is thereby backed by the government s general credit and revenue-raising powers. 3. Revenue debt is secured only by designated revenue streams. 4. When the proceeds of general long-term debt are received by a governmental fund, rather than reporting a liability on the balance sheet, the inflow of resources is treated as an other financing source on the operating statement. 5. Per GASB Statement No. 34, governments generally should report their bonds, notes, and comparable long-term obligations at present value. 6. A government is prohibited from ever recognizing bond anticipation notes (BANs) as longterm obligations. 7. Tax anticipation notes (TANs) must be reported as current liabilities of the governmental funds in which the related revenues will be reported, as well as in the government-wide statements. 8. Governments may enter into operating leases, but may not enter into capital leases. 9. In accounting for operating leases, the rental payments should be recognized as expenditures in a governmental fund and as expenses in the government-wide statement of activities in the periods in which they apply. 10. Because they are not obligations of the government at large, revenue bonds are usually not subject to voter approvals or other forms of voter oversight. 11. Although governments may elect to report conduit obligations in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient. ch08 Page 1 MULTIPLE CHOICE (CHAPTER 8) 1. A governmental entity that is unable to satisfy claims against it a) Is prohibited from filing bankruptcy. b) May seek protection under the federal Bankruptcy Code, using the same section that is used by businesses. c) May seek protection under the federal Bankruptcy Code, using a special section directed to governments. d) Is automatically placed under the jurisdiction of a higher level of government. 2. To seek protection under the federal Bankruptcy Code, a governmental entity must a) Be unable to provide the level of services it has provided in the recent past. b) Be unable to pay its debt in its current year. c) Have budgeted expenditures in excess of revenues. d) Both (b) and (c). 3. General long-term debt of a governmental entity includes a) All future financial obligations. b) All future financial obligations that result from past transactions. c) All future financial obligations that result from past transactions for which the government has already received a benefit. d) All future financial obligations that are backed by the government s general credit and revenue raising power and that result from past transactions for which the government has already received a benefit. 4. When the proceeds of long term debt are reported in governmental fund financial statements a) They are reported only as an increase in liabilities in the funds. b) They are reported only as revenues in the
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