Use the following to answer the next five questions:
On October 1, 2014, the City of Mizner issued $4,000,000 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 $3,975,000 was used to construct the addition, which was completed prior to June 30, 2015. The remaining funds were transferred to the debt service fund. The bonds were dated October 1, 2014, and paid interest on April 1 and October 1. The first of 20 annual principal payments of $200,000 is due October 1, 2015. The fiscal year for Mizner is July 1- June 30.
-In addition to a capital asset in the government-wide Statement of Net Position,how would the construction costs of $3,975,000 be reported at year-end?

Question

Quizplus · Accepted Answer

The construction costs of $3,975,000 should be reported as an expenditure of the capital projects fund and a capital asset in the government-wide Statement of Net Position.

Answer: A 
 The premium of $40,000 should be reported as a transfer to the debt service fund in the capital projects fund and as an increase in the debt service fund in the government-wide Statement of Net Position.

Answer: $162,000 
 The annual interest payment is calculated as $4,000,000 x 4% = $160,000. The premium of $40,000 is amortized over the life of the bonds, resulting in an additional interest expense of $2,000 per year. Therefore, the total annual interest payment is $162,000 ($160,000 + $2,000).

Answer: $200,000 
 The annual principal payment is $200,000.

Answer: $4,000,000 
 The face value of the bonds is $4,000,000.

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