CMO Financial Management & Budgeting 2 — Questions and Answers
Question 1: A municipality uses a line-item budget but wants to link spending to measurable outcomes. Which budget format best achieves this?
- Performance-based budgeting (Correct answer)
- Incremental budgeting
- Cash-basis budgeting
- Allotment budgeting
Correct answer: Performance-based budgeting
Performance-based budgeting ties appropriations to measurable program outcomes rather than simply listing expenditure categories.
Question 2: Which financial statement reports a government's assets, liabilities, and net position as of a specific date?
- Statement of revenues and expenditures
- Statement of net position (Correct answer)
- Statement of cash flows
- Budget variance report
Correct answer: Statement of net position
The statement of net position (balance sheet equivalent) presents assets, deferred outflows, liabilities, deferred inflows, and net position at a point in time.
Question 3: Under GASB standards, what is the primary criterion for including a component unit in a municipality's financial reporting?
- The unit receives more than 50% of its revenue from the municipality
- The municipality is financially accountable for the unit (Correct answer)
- The unit is located within municipal boundaries
- The unit employs more than 10 municipal staff
Correct answer: The municipality is financially accountable for the unit
GASB Statement No. 14 requires inclusion when the primary government is financially accountable for the component unit.
Question 4: A city council approves $500,000 for road repairs but the public works director spends $520,000. This constitutes a:
- Budget surplus
- Supplemental appropriation
- Over-expenditure of appropriation (Correct answer)
- Encumbrance violation
Correct answer: Over-expenditure of appropriation
Spending beyond the legally adopted appropriation is an over-expenditure, which is prohibited without a formal budget amendment.
Question 5: What does the term 'fund balance' represent in governmental accounting?
- Total cash held in the general fund
- Difference between fund assets/deferred outflows and liabilities/deferred inflows (Correct answer)
- The amount budgeted but not yet spent
- Outstanding long-term debt of the fund
Correct answer: Difference between fund assets/deferred outflows and liabilities/deferred inflows
Fund balance is the residual of fund assets plus deferred outflows of resources minus liabilities and deferred inflows of resources.
Question 6: Which type of municipal bond is backed solely by the revenue generated from the financed project?
- General obligation bond
- Tax increment bond
- Revenue bond (Correct answer)
- Special assessment bond
Correct answer: Revenue bond
Revenue bonds are repaid exclusively from the income produced by the specific project or enterprise they finance, not from general tax revenues.
Question 7: A municipality wants to set aside funds annually to retire a bond issue at maturity. This fund is called a:
- Debt service reserve fund
- Capital project fund
- Sinking fund (Correct answer)
- Pension trust fund
Correct answer: Sinking fund
A sinking fund accumulates regular contributions to ensure sufficient resources are available to repay bond principal at maturity.
CMO Financial Management & Budgeting 2
A municipality uses a line-item budget but wants to link spending to measurable outcomes.
Which budget format best achieves this?