CMO Financial Management & Budgeting 4

Question 1

A municipality's debt service coverage ratio for a revenue bond is 1.05. This means the project's net revenue covers debt payments by:

Accepted Answer

5% above the required amount

Answer

A coverage ratio of 1.05 means net revenues are 5% greater than required debt service payments, providing a thin but positive margin.

Question 2

Which fund type accounts for resources held by a government in a trustee or custodial capacity for others?

Accepted Answer

Fiduciary fund

Answer

Fiduciary funds (pension trusts, investment trusts, private-purpose trusts, and custodial funds) hold resources for the benefit of parties outside the government.

Question 3

A city manager wants to ensure that unspent appropriations in departmental budgets lapse at year-end rather than carry over. This practice:

Accepted Answer

Encourages responsible annual spending discipline

Answer

Annual appropriation lapse policies prevent departments from hoarding unspent funds, encouraging efficient use of resources within the budget year.

Question 4

What is the function of an encumbrance in municipal budgeting?

Accepted Answer

To reserve budget authority for outstanding purchase orders and contracts

Answer

Encumbrances set aside a portion of appropriation authority when a purchase order or contract is executed, preventing over-commitment of the budget before actual payment.

Question 5

Under GASB 87, how must municipalities account for most lease agreements lasting more than 12 months?

Accepted Answer

Recognize a right-of-use asset and corresponding lease liability

Answer

GASB 87 requires governments to recognize a right-of-use asset and lease liability on the statement of net position for leases exceeding 12 months.

(CMO) Certified Municipal Officer Practice Test

(CMO) Certified Municipal Officer Practice Test

CMO Financial Management & Budgeting 4