GAC GAC Debt Management & Capital Financing

Question 1

Which type of municipal bond is backed solely by the issuing government's pledge of its full faith, credit, and taxing power?

Accepted Answer

General obligation bond

Answer

General obligation (GO) bonds are backed by the issuer's taxing power and full faith and credit, making them generally considered lower risk than revenue bonds.

Question 2

A revenue bond issued by a municipal water utility would typically be repaid from:

Accepted Answer

User charges collected from water customers

Answer

Revenue bonds are repaid solely from the revenues generated by the specific enterprise or project for which they were issued, not from general tax revenues.

Question 3

Under GASB standards, long-term debt of a government is reported in which financial statement?

Accepted Answer

Statement of Net Position (government-wide)

Answer

Long-term liabilities, including bonds payable, are reported in the government-wide Statement of Net Position because it uses full accrual accounting.

Question 4

A government issues $10 million in bonds at a premium. What does a bond premium indicate?

Accepted Answer

The stated interest rate is higher than the market interest rate

Answer

A bond premium occurs when the stated (coupon) rate exceeds the current market rate, causing investors to pay more than face value to acquire the higher-yield security.

Question 5

Which federal law requires state and local governments to obtain voter approval before issuing most general obligation bonds?

Accepted Answer

State constitutional and statutory debt limitation laws

Answer

Most states have constitutional or statutory provisions requiring voter approval for general obligation bond issuances because they pledge the government's taxing power.

(GAC) Governmental Accounting Certification Practice Test

(GAC) Governmental Accounting Certification Practice Test

GAC GAC Debt Management & Capital Financing