Use the following to answer the next four questions:
On April 1, 2015, the City of Southern Ponds issued $3,500,000 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 $3,490,000 was used to construct the police station, which was completed before December 31, 2015, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2015, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $175,000 is due April 1, 2016.
-What amount would be reported as debt service expenditures for 2016?

Question

Quizplus · Accepted Answer

The annual principal payment of $175,000 plus the interest payments of $140,000 ($3,500,000 x 4% = $140,000) equals a total annual debt service of $315,000.

Answer: A, C
 The premium of $35,000 (101 - 100 x $3,500,000) was transferred to the debt service fund at the time of issuance. The remaining funds were also transferred to the debt service fund. Therefore, the fund balance in the debt service fund should include the premium of $35,000 and the unused funds of $10,000 ($3,500,000 - $3,490,000). The total amount in the debt service fund is $45,000. This information is useful for financial statement reporting, but it is not directly related to the debt service expenditures for 2016.

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