CPRE Finance and Budgeting 4 — Questions and Answers
Question 1: A park district uses an internal service fund to account for its fleet maintenance operations. Which statement best describes the purpose of this fund type?
- To accumulate resources for long-term capital asset replacement
- To provide services to other departments on a cost-reimbursement basis (Correct answer)
- To record revenues from user fees charged directly to the public
- To account for grant-funded programs restricted by external parties
Correct answer: To provide services to other departments on a cost-reimbursement basis
Internal service funds account for goods or services provided by one department to other departments within the same government on a cost-reimbursement basis.
Question 2: When preparing a parks and recreation budget, a manager identifies a variance between the amended budget and actual expenditures. A favorable variance in expenditures means:
- Actual spending exceeded the budgeted amount
- The budget was revised upward during the year
- Actual spending was less than the budgeted amount (Correct answer)
- Encumbrances were carried over into the next fiscal year
Correct answer: Actual spending was less than the budgeted amount
A favorable expenditure variance occurs when actual costs come in below the budgeted amount, leaving unspent appropriations.
Question 3: A recreation department is evaluating a public-private partnership (P3) for a new aquatic center. The primary financial advantage of a P3 arrangement for the agency is typically:
- The agency retains 100% of operating revenues
- The private partner assumes some or all construction and operational risk (Correct answer)
- The facility is exempt from all local property taxes
- The agency avoids all future capital reinvestment obligations
Correct answer: The private partner assumes some or all construction and operational risk
In a P3, transferring construction and/or operational risk to the private partner is a key financial benefit for the public agency.
Question 4: Which financial ratio best measures a park agency's short-term ability to meet its current liabilities using only its most liquid assets?
- Current ratio
- Debt service coverage ratio
- Quick ratio (Correct answer)
- Return on investment ratio
Correct answer: Quick ratio
The quick ratio (cash + receivables divided by current liabilities) excludes less liquid assets like inventory, providing a stricter measure of short-term liquidity.
Question 5: A parks department receives a $500,000 federal Community Development Block Grant (CDBG) for park improvements in a low-income neighborhood. How should this revenue be classified in the budget?
- Proprietary revenue, since it funds a capital project
- Intergovernmental revenue restricted to the designated purpose (Correct answer)
- General fund revenue available for any departmental use
- Internal transfer from the capital improvement fund
Correct answer: Intergovernmental revenue restricted to the designated purpose
CDBG funds are intergovernmental revenues from the federal government and carry restrictions on how and where they must be spent.
Question 6: A CPRE candidate is reviewing a parks agency's Statement of Net Position. Which item would be classified as a deferred outflow of resources?
- Prepaid insurance premiums paid in the current year
- Pension contributions made after the measurement date (Correct answer)
- Accrued wages payable to employees at year-end
- Unearned revenue from facility rental deposits
Correct answer: Pension contributions made after the measurement date
Under GASB standards, employer pension contributions made after the measurement date are reported as deferred outflows of resources on the Statement of Net Position.
Question 7: A recreation department wants to apply cost-benefit analysis (CBA) to a proposed spray park. A key challenge specific to CBA in public parks contexts is:
- Estimating construction costs from contractor bids
- Quantifying the monetary value of social and health benefits (Correct answer)
- Projecting annual operating expenditures over the asset's life
- Determining the appropriate depreciation schedule for equipment
Correct answer: Quantifying the monetary value of social and health benefits
CBA in public recreation is challenging because social benefits (community health, quality of life, equity) are difficult to express in dollar terms.
CPRE Finance and Budgeting 4
A park district uses an internal service fund to account for its fleet maintenance operations.
Which statement best describes the purpose of this fund type?