Question 1

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 principal and $15,000 interest payment. The recording of this transaction would include:
A) A debit to Interest Expenditures in the General Fund.
B) A debit to Interest Expenditures in the governmental activities accounts.
C) A credit to Other Financing Sources - Interfund Transfers In in the debt service fund only.
D) A credit to Other Financing Sources - Interfund Transfers In in both the debt service fund and governmental activities accounts.

Accepted Answer

BThe correct answers are B) A debit to Interest Expenditures in the governmental activities accounts, and C) A credit to Other Financing Sources - Interfund Transfers In in the debt service fund only. In governmental accounting, interest expenditures related to debt are recorded in the governmental activities accounts at the government-wide level. The transfer from the General Fund to the Debt Service Fund for debt payments is recorded as an "Other Financing Sources - Interfund Transfers In" in the receiving fund, which in this case is the Debt Service Fund. There is no double entry for transfers in both the fund and governmental activities accounts for the same transaction; they are recorded in the context of their respective accounting perspectives.

Question 2

Explain the essential differences between regular serial bonds, deferred serial bonds, annuity serial bonds, and irregular serial bonds. How do regular serial bonds differ from term bonds?

Accepted Answer

The answer of Explain the essential differences between regular serial...

Question 3

The City of Jamestown has agreed to acquire a new city maintenance building under a lease agreement. At the inception of the lease, a payment of $100,000 is to be made; nine annual lease payments, each in the amount of $100,000, are to be made at the end of each year after the inception of the lease. The total amount to be paid under this lease, therefore, is $1,000,000.
The town could borrow this amount for nine years at the annual rate of 8 percent; therefore, the present value of the lease at inception, including the initial payment, is $724,689. Assume that the fair value of the building at the inception of the lease is $750,000.
a. Prepare the entry that should be made in a capital projects fund at the inception of the lease. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
b. Prepare the entry that should be made at the inception of the lease in the governmental activities journal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
c. Prepare the entry that should be made in the debt service fund and governmental activities journal to record the second lease payment. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Accepted Answer

The answer of The City of Jamestown has agreed to...

Question 4

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 bond principal and $15,000 interest payment. Subsequent payment of the principal and interest would include:
A) A debit to Expenditures - Bond Interest in the debt service fund.
B) A debit to Other Financing Uses - Principal and Interest Payments in the debt service fund.
C) A debit to Expenditures - Bond Interest in the General Fund.
D) A debit to Interest Expenditures in the governmental activities accounts.

Accepted Answer

The debt service fund records expenditures for bond interest payments, so a debit to Expenditures - Bond Interest is appropriate when the interest payment is made.

Question 5

As of December 31, 2019, Westport had $9,500,000 in 4.5 percent serial bonds outstanding. The serial bonds pay interest semiannually on July 1 and December 31, with $500,000 in bonds being retired on each interest payment date. Resources for payment of principal and interest are transferred from the General Fund. Prepare debt service fund and government-wide entries in general journal form to reflect, as necessary, the following information and transactions for FY 2020. 
(1) The operating budget for FY 2020 consists of other financing sources (transfers from the General Fund) equal to estimated principal and interest payments. Appropriations also must be provided for interest payments and bond redemptions on July 1 and December 31. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
(2) Cash was received from the General Fund and checks were written and mailed for the July 1 principal and interest payments.

Accepted Answer

The answer of As of December 31, 2019, Westport had...

Question 6

On March 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2020. Fiscal year-end occurs on December 31. What is the interest expense for the fiscal year ending December 31, 2019?
A) $90,000.
B) $135,000.
C) $150,000.
D) None of the options are correct.

Accepted Answer

The interest expense for 2019 includes two semiannual payments. The first payment on September 1, 2019, is $90,000 (6% of $3,000,000 for half a year), and the second payment on March 1, 2020, is also $90,000. However, for the fiscal year ending December 31, 2019, only the September 1 payment is considered, so the interest expense is $90,000.

Question 7

The debt limit for general obligation debt for Milos City is 1 percent of the assessed property valuation for the city.
 $ \begin{array}{lr}\text { Assessed property valuation } & \$ 10,863,511,000 \ \text { Approved but unissued tax-supported debt } & 10,000,000 \ \text { Revenue bonds issued } & 32,000,000 \ \text { General obligation serial bonds issued } & 43,000,000 \ \text { Leases outstanding } & 5,230,000\end{array} $
Calculate the city's debt limit and debt margin.

Accepted Answer

The answer of The debt limit for general obligation debt...

Question 8

In the current fiscal year, St. George County issued $3,000,000 in general obligation term bonds for 102. The county is required to use any accrued interest or premiums for servicing the debt issue.
a. How would the bond issue be recorded at the fund and government-wide levels?
b. How would the bond issue be reported in the fund financial statements and the government-wide financial statements?
c. What effect, if any, do interest payments have on the carrying value of the bond issue as reported in the financial statements?

Accepted Answer

The answer of In the current fiscal year, St. George...

Question 9

On March 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2020. Fiscal year-end occurs on December 31. What is the interest expenditure for the fiscal year ending December 31, 2019?
A) $90,000.
B) $135,000.
C) $150,000.
D) None of the options are correct.

Accepted Answer

The interest expenditure for the fiscal year ending December 31, 2019, is $90,000. This is because the first interest payment of $90,000 was made on September 1, 2019, and the second interest payment of $90,000 will be made on March 1, 2020.

Question 10

Select the key term that relate to accounting for general long-term liabilities and debt service from the list that best matches with the following definition.
A. Legal defeasance
B. Regular serial bonds
C. In-substance defeasance
D. Irregular serial bonds
E. Debt limit
F. Annuity serial bonds
G. Debt margin
________ 1. A transaction in which cash or other assets are placed into an irrevocable trust for the benefit of debt holders
________ 2. Bonds for which the amount of annual principal repayments is scheduled to increase each year by approximately the same amount that interest payments decrease
________ 3. Bonds payable in which the total principal is repayable in a specified number of equal annual installments
________ 4. The maximum amount of gross or net debt that is legally permitted
________ 5. A transaction in which debt is legally satisfied based on certain provisions in the debt instrument even though the debt has not been repaid

Accepted Answer

The answer of Select the key term that relate to...

Question 11

Explain the financial reporting for special assessment bonds when a government assumes responsibility for debt service should special assessment collections be insufficient, and when the government assumes no responsibility whatsoever.

Accepted Answer

The answer of Explain the financial reporting for special assessment...

Question 12

"The entire debt arising from the acquisition of general capital assets under a lease agreement should be reported as debt of the fund that accounts for the activities of the department or function using the leased asset. Only debt arising from the lease of equipment used by a number of departments should be reported in the governmental activities accounts, rather than a fund." Do you agree? Why or why not?

Accepted Answer

The answer of "The entire debt arising from the acquisition...

Question 13

The sale of revenue bonds by a water utility fund would be recorded:
A) In the governmental activities column as a liability.
B) In an enterprise fund as Proceeds of Bonds.
C) In an enterprise fund as a liability.
D) In an enterprise fund as a revenue.

Accepted Answer

The revenue bonds sold by a water utility fund are considered a liability of the enterprise fund. Therefore, the sale of these bonds would be recorded in an enterprise fund as a liability.

Question 14

How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?

Accepted Answer

The answer of How are general long-term liabilities distinguished from...

Question 15

A government's MD&A states that government-wide net position decreased as a result of the issuance of a long-term liability during the current reporting period. Does this sound correct? How does the issuance of long-term debt typically affect net position in the year of issuance?

Accepted Answer

The answer of A government's MD&A states that government-wide net...

Quiz 6: Accounting for General Long-Term Liabilities and Debt Service

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 principal and $15,000 interest payment. The recording of this transaction would include:

Explain the essential differences between regular serial bonds, deferred serial bonds, annuity serial bonds, and irregular serial bonds. How do regular serial bonds differ from term bonds?

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 bond principal and $15,000 interest payment. Subsequent payment of the principal and interest would include:

Explain the financial reporting for special assessment bonds when a government assumes responsibility for debt service should special assessment collections be insufficient, and when the government assumes no responsibility whatsoever.

The sale of revenue bonds by a water utility fund would be recorded:

How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?

A government's MD&A states that government-wide net position decreased as a result of the issuance of a long-term liability during the current reporting period. Does this sound correct? How does the issuance of long-term debt typically affect net position in the year of issuance?