Question 1

Which of the following is not true?

Accepted Answer

This statement is not true. Debt service funds do use budgetary accounting procedures, just like the General Fund and special revenue funds.

Question 2

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt,the governmental activities accounts

Accepted Answer

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt, the governmental activities accounts reflect both principal and interest payments. This is because the debt service fund is a part of the governmental activities, and the payment of principal and interest reduces the overall debt of the governmental activities.

Question 3

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 4

Bonds and other debt of enterprise funds may legally,at least contingently,have the status of tax-supported debt.In the event that enterprise fund resources are insufficient for debt service on such debt,why might the government as a whole find it necessary or desirable to assume responsibility for debt service? How would assumption of responsibility for such debt by the government as a whole be accounted for in the governmental activities accounts in the enterprise fund?

Accepted Answer

The answer of Bonds and other debt of enterprise funds...

Question 5

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

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 6

Which of the following basic financial statements contains a column for the total of all debt service funds?

Accepted Answer

The answer of Which of the following basic financial statements...

Question 7

"All taxes raised for payment of interest and principal on general long-term debt are recognized as other financing sources of the debt service fund." Do you agree? Why or why not?

Accepted Answer

The answer of "All taxes raised for payment of interest...

Question 8

Which of the following financial statements are required for a Debt Service Fund?

Accepted Answer

Debt Service Fund requires a balance sheet and a statement of revenues, expenditures, and changes in fund balance to report the financial position and activities of the fund. A statement of net position may not provide all the necessary information regarding the fund's operations, and a statement of cash flows is not required for governmental funds under GAAP.

Question 9

If general capital assets are being acquired by a government under a capital lease agreement,describe the entries that should be recorded in a governmental fund (logically,a debt service fund)for each lease payment.

Accepted Answer

The answer of If general capital assets are being acquired...

Question 10

In many jurisdictions,the statutory debt limit is relatively low,but overlapping debt is not prohibited.From the standpoint of the property owner and taxpayer,how does that situation compare with a relatively high total statutory debt limit?

Accepted Answer

The answer of In many jurisdictions,the statutory debt limit is...

Question 11

As of the fiscal year ending September 30,2013,Crystal Beach had $10,000,000 in 5 percent serial bonds outstanding.The serial bonds pay interest semiannually on March 1 and September 1,with $500,000 in bonds being retired on each interest payment date.Resources for payment of principal are transferred from the General Fund,and the debt service fund levies property taxes annually to cover interest payments.Any excess is reserved for future debt service payments.
Prepare debt service fund and government-wide entries in general journal form to reflect,as necessary,the following information and transactions for FY 2014.
(1)The operating budget for FY 2014 consists of estimated revenues of $500,000 and estimated other financing sources equal to the amount of principal to be paid in FY 2014.Appropriations must be provided for interest payments and bond redemptions on March 1 and September 1.
(2)Property taxes in the amount of $500,000 were levied (no estimate for uncollectible accounts has been made).
(3)Property taxes in the amount of $500,000 were collected.
(4)Cash was received from the General Fund and checks were written and mailed for the March 1 principal and interest payments.
(5)Cash was received from the General Fund and checks were written and mailed for the September1 principal and interest payments.
(6)At the fund level,entries were made to close budgetary and operating statement accounts.(Ignore closing entries in the government activities journal.)

Accepted Answer

The answer of As of the fiscal year ending September...

Question 12

"Bonds to be retired by a debt service fund are recorded in that fund throughout their life." Do you agree or disagree? Why or why not?

Accepted Answer

The answer of "Bonds to be retired by a debt...

Question 13

The following key terms from Chapter 6 relate to accounting for general long-term liabilities and debt service:
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
  For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Accepted Answer

The answer of The following key terms from Chapter 6...

Question 14

In the current fiscal year,Casper County issued $10,000,000 in general obligation term bonds at 102 for construction of a new county complex.The county is required to use any accrued interest or premiums for servicing the debt issue.
a.Prepare journal entries to record the bond issuance 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,Casper County issued...

Question 15

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

Accepted Answer

The transfer of funds from the General Fund to the Debt Service Fund is considered a financing source for the Debt Service Fund. Therefore, the transaction would include a credit to "Other Financing Sources - Interfund Transfers In" in the Debt Service Fund only. The interest expenditure would already have been recorded in the General Fund when the interest was accrued. Also, the transfer does not affect the governmental activities accounts, so option B and D can be eliminated.

Question 16

"The entire debt arising from the acquisition of general capital assets under a capital 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 17

Compute the legal debt margin for Mountain City given the following information regarding its bonded debt.
1)The legal debt limit is 10 percent of total assessed valuation.
2)Bonds outstanding and bonds authorized are:
  Note: The city has no general obligation liability for the revenue bonds or the industrial development bonds.
3)Total assessed valuation of property within Mountain City is $200,000,000.

Accepted Answer

The answer of Compute the legal debt margin for Mountain...

Question 18

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

Accepted Answer

Revenue bonds issued by a water utility fund, which is typically an enterprise fund, are recorded as a liability in the enterprise fund's financial statements. This reflects the obligation to repay the bondholders.

Question 19

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

Accepted Answer

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

Question 20

Explain the essential differences between regular serial bonds and term bonds and how debt service fund accounting differs for the two types of bonds.

Accepted Answer

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

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