Deck 6: Governmental Activities - Accounting for Capital Projects and Debt Service

Question 1

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5% and were sold at 101.Which of the following entries should be made in the Capital Project Fund to record this event?

A)Debit Cash $2.02 million; Credit Bonds Payable $2 million and Premium on Bonds Payable $.02 million.
B)Debit Cash $2.02 million; Credit Bonds Payable $2 million and Other Financing Sources $.02 million.
C)Debit Cash $2.02 million; Credit Other Financing Sources $2.02 million.
D)Debit Cash $2.02 million; Credit Other Financing Sources $2 million and Revenue $.02 million.
Use the following information to answer questions # 8 and #9
Voters in Lincoln School District approved the construction of a new high school and approved a $10 million bond issue with a stated rate of interest of 6% to fund the construction.Bids were received and the low bid was $10 million.When the bonds were issued, they sold for face value less bond underwriting fees of $.5 million.The School Board voted to fund the balance of the construction by a transfer from the general fund.

Answer 1

C

Question 2

The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

Answer 2

False

Question 3

GASB Statement No.34 does not require a budgetary comparison statement for capital projects funds as it does for the general fund and for each major special revenue fund that has a legally adopted annual budget.

Answer 3

True

Question 4

In which fund type would a governmental entity's debt service fund be found?

A)Governmental fund type.
B)Proprietary fund type.
C)Fiduciary fund type.
D)Capital project fund type.

Question 5

With regard to the resources dedicated to the acquisition of fixed assets which will be used in general government activities, which of the following is true?

A)Governments must maintain capital project funds for resources that are legally restricted to the acquisition of fixed assets.
B)Governments may maintain capital project funds for resources that are legally restricted to the acquisition of fixed assets.
C)Governments may account for any resources dedicated (whether legally or not)to the acquisition of fixed assets in any of the governmental funds.
D)Government must account for all resources set aside for fixed asset acquisition in a capital project fund.

Question 6

The capital project fund of a governmental entity is accounted for using which of the following bases of accounting?

A)Budgetary basis.
B)Cash basis.
C)Modified accrual basis.
D)Accrual basis.

Question 7

When bonds are issued at a premium, the capital projects fund can transfer those excess resources to the debt service fund.

Question 8

Nongovernmental not-for-profits must account for defeasances differently than governments.

Question 9

Special assessments are imposed nonexchange transactions, similar to property tax levies.

Question 10

Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt-that is, long-term debt associated primarily with governmental activities.

Question 11

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be accumulated in a long-term asset account.

Question 12

When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

Question 13

Salt City issued $5 billion of bonds at face value to fund the reconstruction of the major interstate highways in and around their city.The bond underwriters withheld $2 million for underwriting fees and remitted the balance to the City.Assuming the City maintains its books and records in a manner that facilitates the preparation of fund financial statement, how would the underwriting fee be accounted for in the capital project fund?

A)Reduce Other financing sources $2 million.
B)Reduce Bonds payable $2 million.
C)Increase Expenditures $2 million.
D)It would not be accounted for in the capital project fund.

Question 14

The entry in the capital project fund to record the receipt of the bond proceeds would be

A)Debit Cash $9.5 million; Credit Bonds Payable $9.5.
B)Debit Cash $9.5 million; Credit Other Financing Sources $9.5.
C)Debit Cash $9.5 million and Expenditures $.5 million; Credit Bonds Payable $10 million.
D)Debit Cash $9.5 million and Expenditures $.5 million; Credit Other Financing Sources $10.

Question 15

The debt service fund of a governmental entity is accounted for using which of the following bases of accounting?

A)Budgetary basis.
B)Cash basis.
C)Modified accrual basis.
D)Accrual basis.

Question 16

When governments establish capital projects funds, they may choose to maintain a separate fund for each major project, or they may choose to combine two or more projects in a single fund.

Question 17

Capital projects funds do not report long-term obligations in the fund.

Question 18

In which fund type would a governmental entity's capital project fund be found?

A)Governmental fund type.
B)Proprietary fund type.
C)Fiduciary fund type.
D)Capital project fund type.

Question 19

The resources to service all long-term debts of the governmental entity are typically accounted for in debt service funds.

Question 20

In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

Question 21

Sue City has outstanding $5 million in general term bonds used to finance the construction of the new City Library.Sue City has a June 30 fiscal year-end.Interest at 6% is payable each January 1 and July 1.The principal of the bonds is due 10 years in the future.The City budgeted the July 1, 1999 interest payment in the budget for the fiscal year ended June 30, 1999.On June 30, cash was transferred from the General Fund to the Debt Service Fund to make the required payment.The maximum amount of interest payable that may be included on the balance sheet of the debt service fund of Sue City at June 30 would be

A)$ -0-
B)$150,000.
C)$300,000.
D)$3,000,00.
Use the following information to answer questions #19 and #20
Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt.

Question 22

When the County makes the transfer the entry in the debt service fund should be

A)Debit Cash; Credit Revenue.
B)Debit Cash; Credit Other Financing Sources.
C)Debit Cash; Credit Interest Payable.
D)Debit Cash with Fiscal Agent; Credit Other Financing Sources.

Question 23

The entry in the capital project fund to record the additional funding for the construction would be

A)Debit Due from General Fund $.5 million; Credit Other financing Sources $.5 million.
B)Debit Due from General Fund $.5 million; Credit Revenue $.5 million.
C)Debit Cash $.5 million; Credit Due to General Fund $.5 million.
D)Debit Other Financing Sources $.5 million; Credit Due to General Fund $.5 million.
Use the following information to answer questions #10 and #11
Voters in Phillips City approved the construction of a new $10 million city hall building and approved a $10 million bond issue with a stated rate of interest of 6% to fund the construction.When the bonds were issued, they sold for 101.What are appropriate entries related to the premium?

Question 24

In the debt service fund

A)Debit Cash $100.000; Credit Revenues $100,000 ; no other entries required.
B)Debit Cash $100,000; Credit Other Financing Sources-Nonreciprocal Transfer $100,000; No other entries required.
C)Other Financing Sources-Nonreciprocal Transfer $100,000; credit Cash $100,000.
D)No entry in the Debt Service Fund

Question 25

The City of St.Joe had outstanding $5 million of 6% bonds with a call provision.Due to changes in the prevailing interest rates, the City issued new bonds at 4.5% and used the proceeds to call the 6% bonds.This is an example of

A)Debt retirement.
B)Debt refunding.
C)In-substance defeasance.
D)Economic defeasance.

Question 26

Previously Atomic City had issued bonds with a face value of $10 million to construct a new city hall.Because the money will not be needed for several months, the city invested the bond proceeds in U.S.Government securities.Assuming that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements, what is the appropriate entry when the City receives interest on the investments?

A)Debit Cash; Credit Revenue.
B)Debit Cash; Credit Other Financing Source
C)Debit Cash; Credit Deferred Revenue
D)No entry required.

Question 27

A City issued bonds for the purpose of financing a major capital improvement.Which fund is the most appropriate fund in which to record the receipt of the bond proceeds?

A)General Fund.
B)Special Revenue Fund.
C)Capital Project Fund.
D)Debt Service Fund.

Question 28

The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

A)Agency Fund.
B)Special Assessment Fund.
C)Capital Project Fund.
D)Debt Service Fund.

Question 29

Sister City was notified by the State that they had been awarded a $6 million grant to aid in the construction of a senior citizens center.At the time of the notification what is the appropriate entry in the capital project fund (assuming that the City maintains its books and records in a manner to facilitate the preparation of the fund financial statements)?

A)No entry at the time of the notification
B)Debit Grants Receivable $6 million; Credit Revenue $6 million
C)Debit Grants Receivable $6 million; Credit Deferred Revenue $6 million.
D)Debit Grants Receivable $6 million; credit Other Financing Sources-Nonreciprocal Transfer $6 million.

Question 30

In the debt service fund, what is the appropriate entry when the principal payment is made?

A)Debit Bonds Payable; Credit Cash.
B)Debit Expenditures; Credit Cash.
C)Debit Other Financing Uses-Nonreciprocal Transfer; Credit Cash.
D)No entry is required.
Use the following information to answer questions #21 and #22.
The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.The citizens agreed to tax themselves for 20 years in an amount sufficient to pay principal and interest on the bonds.The City will oversee the construction of the sidewalks and act as agent for servicing the debt.The City does not guarantee the debt nor does it assume any legal or moral obligation for the bonds.

Question 31

When the City collects the special tax, the proceeds of that tax should be accounted for in which fund of the City of Arlington?

A)Agency Fund.
B)Special Assessment Fund.
C)Capital Project Fund.
D)Debt Service Fund.
Use the following information to answer questions #23 - #25.
The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.The citizens agreed to a special tax on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.The City will oversee the construction of the sidewalks and act as agent for servicing the debt.If the special tax is not sufficient to make the principal and interest payments, the City will assume the obligations.

Question 32

Adams County has outstanding $10 million in bonds issued by the County to construct a sewer system in a specific area of the county.The taxpayers in that area voted for the construction and the bonds and agreed to tax themselves to pay the principal and interest on the bonds.The County contracted for the construction and issued the bonds but the City assumed no legal or moral obligation for the bonds.If the special tax payments are not sufficient to make the required principal and interest payments, the County will not make up the difference.The $10 million of bonds should appear in which fund financial statements or schedule?

A)Capital Project Fund.
B)Special Assessment Fund.
C)Schedule of Long-term Obligations.
D)The bonds need not appear on the face of the financial statements of Adams County.

Question 33

Harbor City issued 6% tax-exempt bonds and used the proceeds to acquire federal government securities yielding 7%.After paying the interest on the tax-exempt bonds, the City cleared 1%.This is an example of

A)An illegal act.
B)Poor fiscal management.
C)Arbitrage.
D)Debt refunding.

Question 34

Previously Rose City issued bonds with a face value of $10 million to construct a new city maintenance facility.Assuming that the City maintains its books and records in a manner that facilitates the preparation of the fund financial statements, what is the appropriate entry when the City receives a progress billing from the contractor?

A)Debit Building; Credit Cash
B)Debit Building; Credit Accounts Payable.
C)Debit Expenditure; Credit Accounts Payable
D)No entry is required.

Question 35

When the City of Arlington levies the special assessment tax, the best entry would be

A)Debit Taxes Receivable; Credit Revenues.
B)Debit Taxes Receivable; Credit Deferred Revenues.
C)Debit Taxes Receivable; Credit Liability.
D)Debit Taxes Receivable; Credit Fund Balance.

Question 36

The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

A)Agency Fund.
B)Special Assessment Fund.
C)Capital Project Fund.
D)Debt Service Fund.

Question 37

Six years ago Hill City issued $10 million of 6% term bonds, due 30 years from the date of issue.Interest on the bonds is payable semi-annually on January 1 and July 1.Hill City has a September 30 fiscal year end.The amount of interest payable that would be included on the balance sheet for the debt service fund of Hill City at September 30 would be

A)$ -0-
B)$150,000
C)$300,000
D)$600,000

Question 38

Use of a Debt Service Fund is required

A)When financial resources are being accumulated for the purpose of paying for capital asset acquisition.
B)When financial resources are being accumulated for the purpose of paying principal and interest when it matures.
C)For all bonded debt service payments.
D)For all debt service payments.

Question 39

When the City collects the special tax, the proceeds of that tax should be accounted for in which fund of the City of Arlington?

A)Agency Fund
B)Special Assessment Fund.
C)Capital Project Fund.
D)Debt Service Fund.

Question 40

In the capital project fund

A)Debit Cash $100.000; Credit Revenues $100,000 ; no other entries required.
B)Debit Cash $100,000; Credit Other Financing Sources $100,000; No other entries required.
C)Debit Cash $100,000; Credit Revenues; ALSO Debit Other Financing Uses-Nonreciprocal Transfer $100,000; Credit Cash $100,000
D)Debit Cash $100,000; Credit Other Financing Sources-$100,000; ALSO Debit Other Financing Uses-Nonreciprocal Transfer $100,000; Credit Cash $100,000

Question 41

A governmental entity has elected to issue new debt and use the proceeds to redeem existing debt because there is an economic gain in doing so.There is, however, an 'accounting loss' associated with these events.An accounting loss is defined as

A)The present value of the principal and interest payments on the new debt less the present value of the principal and interest payments on the old debt.
B)The present value of the principal and interest payments on the old debt less the present value of the principal and interest payments on the new debt.
C)The cash paid to redeem the old debt less the book value of the old debt.
D)The face value of the new debt less the cash paid to redeem the old debt.