Multiple Choice Questions
Identify the best answer for each of the following:
1. Which of the following is not a common type of general government long-term liability?
a. Bonds.
b. Contracts payable.
c. Capital leases.
d. Notes.

2. As a general rule, debt service expenditures in a Debt Service Fund are recognized
a. when the debt service payment is due.
b. when resources to be used for the repayment are made available to a Debt Service Fund.
c. when due for principal repayments but on an accrual basis for interest.
d. in accordance with the requirements of the original bond order that specifies the basis of expenditure recognition.

3. Which of the following financial statements are required for a Debt Service Fund?
a. Balance Sheet only.
b. Statement of Revenues, Expenditures, and Changes in Fund Balance only.
c. Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balance.
d. Balance Sheet; Statement of Revenues, Expenditures, and Changes in Fund Balance; and Statement of Cash Flows.

4. Which of the following statements about Special Assessment Debt Service Funds is false?
a. Most of the receivables in a typical Special Assessment Debt Service Fund are noncurrent.
b. Revenue accounting for special assessments follows the same principles as that for property taxes.
c. Debt Service Funds must be used to service all debt issued for special assessment capital projects even if the government is not obligated in any manner for the debt.
d. It is common for deferred revenues to be reported in a Special Assessment Debt Service Fund.

5. What are the characteristics of a term bond?
a. Term bonds may not exceed 15 years.
b. Principal and interest on the entire principal are paid throughout the life of the issue.
c. No interest is paid during the life of the issue.
d. Principal is paid at the end of the bond issue term.

6. Which of the following statements concerning debt refundings is false?
a. Advance refundings do not result in immediate, direct retirement of existing long-term debt.
b. Often, resources of an irrevocable trust are used to service old long-term debt, even though the liability has been removed from the financial statements of the issuing government.
c. Both legal defeasance and in-substance defeasance may result in the removal of the old debt from the original issuer’s balance sheet.
d. Expenditures are reported in a legal defeasance and other financing uses are reported in an in-substance defeasance.

7. Nondefeasance, in a refunding transaction, would result in
a. both the old debt and the new debt being recorded as liabilities by the issuing government, even if resources to service the old debt have been placed in an irrevocable trust.
b. both the old debt and the new debt being recorded as liabilities by the issuing government, but only if resources to service the old debt have not been placed in an irrevocable trust.
c. the reporting of only the old debt liability. The new debt liability would not be reported until the old debt is extinguished.
d. a budgetary compliance violation in the Debt Service Fund.

8. In the year that any advance refunding occurs, which of the following disclosures is not required by GAAP?
a. Difference in debt service requirements of the old defeased issue and new issue, adjusted for any additional cash paid or received.
b. Difference between the present value of the new issue’s debt service requirements and the old defeased issue’s debt service requirements.
c. Any clarification necessary concerning whether the defeasance was a legal defeasance or an in-substance defeasance.
d. Identity of the escrow agent managing the irrevocable trust established to service the old defeased issue’s debt service requirements.