A city sells $5 million of 20-year general obligation bonds on October 1, 2019. Interest on the debt is payable at the rate of 5% a year on the unpaid balance of the debt, every six months commencing March 31, 2020. How much should the city report as an interest expenditure in the Debt Service Fund for the calendar year ending December 31, 2019?

Question

Quizplus · Accepted Answer

Under modified accrual accounting, interest on long-term debt is not recorded as an expenditure until it becomes legally due (matures), rather than being accrued based on the passage of time, as is the case in full accrual accounting. No interest is legally due on December 31, 2019.

A City Sells $5 Million of 20-Year General Obligation Bonds