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On October 1, 2013, the City of Mizner issued $3,500,000 in 4%, general obligation bonds at 101 for the purpose of constructing an addition to City Hall. The premium was transferred to a debt service fund. A total of $3,475,000 was used to construct the addition, which was completed prior to June 30, 2014. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2013, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $175,000 is due October 1, 2014. The fiscal year for Mizner is July 1- June 30.
-What amount would be reported as debt service expenditures in the year ended June 30,2014?

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Quizplus · Accepted Answer

The debt service expenditures for the year ended June 30, 2014, would include the interest payment made on April 1, 2014. The interest for six months on $3,500,000 at 4% is $70,000. Since the bonds were issued at a premium, the premium of $35,000 (1% of $3,500,000) was transferred to the debt service fund. Therefore, the total debt service expenditures would be $70,000 (interest) + $70,000 (interest) = $140,000.

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