Use the following to answer the next four questions:
On April 1, 2014, the City of Southern Ponds issued $4,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $3,990,000 was used to construct the police station, which was completed before December 31, 2014, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2014, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $200,000 is due April 1, 2015.
-How would the $3,990,000 be accounted for?

Question

Quizplus · Accepted Answer

The $3,990,000 represents the cost of constructing the new police station, which is a capital asset and should be reported as such in the government-wide Statement of Net Assets. It is also an expenditure in the capital projects fund, which is used to account for the construction of capital assets.

Answer: 20 years
 The bonds have an annual principal payment of $200,000, and the total amount issued was $4,000,000. Therefore, the bonds will be repaid in 20 years ($4,000,000 ÷ $200,000 = 20).

Answer: Debt Service Fund
 The premium received from the sale of the bonds ($40,000 or 1% of $4,000,000) was transferred to the debt service fund. This fund is used to account for the payment of principal and interest on the bonds.

Answer: $40,000
 The premium received from the sale of the bonds was $40,000 (1% of $4,000,000). This premium is transferred to the debt service fund and will be used to pay principal and interest on the bonds.

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