Module 8: Long Term Obligations

Question 1

Bond Anticipation Notes

Answer 1

short term interest bearing notes issued by a lendor in the expectation that they will soon be replaced by long-term bonds

Question 2

Capital Leases

Answer 2

a lease which is essentially an installment purchase and meets the criteria of FASB statement 11. The lessee (purchaser) records the acquired property as an asset and corresponding recognizes the present value of the agreed upon lease payments as a liability

Question 3

Certificate of Partcipation

Answer 3

A long term debt instrument that, although similar in economic substance to a bond, is secured by a long term capital lease

Question 4

Conduit Debt

Answer 4

obligations issued in the name of a government on behalf of a non-governmental entity. The debt is expected to be serviced by the non-government entity

Question 5

Debt Margin

Answer 5

the difference between the amount of the debt outstanding computed according to applicable legal provisionand the maximum amount of debt that can legally be issued

Question 6

Demand Bonds

Answer 6

long term debt instruments with demand provisions that require the issuer to repurchase the bonds, upon noitce from the bondholder, at a special price that is usually equal to the principal plus accrued interest. To ensure their ability to redeem the bonds, issuers of the demand bonds frequently enter into standby liquidity agreements with banks or other financial instruments

Question 7

Fiscal Funding Clause

Answer 7

A clause in a lease agreement providing that the lease is cancelable if the legislature or other funding authority does not appropriate the funds necessary for the govt unit to fulfill its obligations under the lease agreement

Question 8

Industrial Development Bonds

Answer 8

bonds issued by governmental units at low interest rates to encourage private development in their area. Repayment of the debt is expected to be the responsibility of the beneficiary of the bond

Question 9

Insolvant

Answer 9

the condition of being unable to meet debts or discharge liabilities owing to a defciency of avilable financial resources

Question 10

lessee

Answer 10

the entity that rents an asset fro the asset’s owner, the lessor

Question 11

lessor

Answer 11

the owner of rental property who transfers the right to use the property for a specified fee and for a specified period of time, ot the user, the lessee

Question 12

long term debt

Answer 12

in government, obligations that are not expected to be paid with currently available financial resources. In not-for-profits, obligations that are not expected to be paid in cash or other operating assets within one year or the entity’s normal operating cycle

Question 13

moral obligation debt

Answer 13

bonds or notes issued by one entity (usually a state agency), but backed by the implied (not legally binding) promise of another entity (usually the state itself) to make up any debt service deficiencies

Question 14

nonappropriation clause

Answer 14

A clause in a lease agreement providing that the lease is cancelable if the legislature or other funding authority does not appropriate the funds necessary for the govt unit to fulfill its obligations under the lease agreement

Question 15

noncommitment debt

Answer 15

obligations issued in the name of a government on behalf of a non-governmental entity. The debt is expected to be serviced by the non-government entity

Question 16

non-substitution clause

Answer 16

a provision often incorporated into government’s capital lease agreements that prohibits the leasee (the government) from replacing the leased property with similar property in the event that it cancels the lease

Question 17

operating leases

Answer 17

a rental agreement permitting an entity to use an asset for a specified period of time, but does not meet the criteria, set forth in FASB stmt No 13, of a capital lease

Question 18

overlapping debt

Answer 18

the proportionate share that property within the reporting government must bear of the debts of all other governments located wholly or in part within geographic boundries

Question 19

revenue anticipation notes

Answer 19

short term notes issued in anticipation of the collection of revenues, that will not be converted into long term instruments

Question 20

take-out agreement

Answer 20

an agreement between an issuer of demand bonds and a financial institution per which the financial institution will provide funding for the issuer in the event that bondholders demand redemption of their bonds

Question 21

tax anticipation notes

Answer 21

short-term notes, not expected to be converted into long term debts, issued in anticipation of future collections of taxes