Question 1

Debt service fund activities are reported as part of governmental activities at the government-wide level.

Accepted Answer

Debt service fund activities are reported as part of governmental activities at the government-wide level under the modified accrual basis of accounting.

Question 2

Debt margin is the difference between the debt limit and the amount of outstanding debt subject to the debt limitation.

Accepted Answer

Debt margin is calculated by subtracting the outstanding debt subject to the limit from the debt limit. Therefore, the statement is true.

Question 3

Long-term debt intended to be repaid from tax levies or special assessments is recorded in debt service funds.

Accepted Answer

Long-term debt is not recorded in debt service funds; instead, debt service funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. Long-term debt itself is recorded in the government-wide financial statements.

Question 4

The debt service activity of a government may be accounted for within the General Fund unless law mandates the use of a debt service fund.

Accepted Answer

Debt service activities are typically accounted for in the General Fund unless there is a legal requirement or specific financial policy that mandates the use of a separate Debt Service Fund.

Question 5

Debt limit is a term used to denote the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time.

Accepted Answer

The statement correctly defines the term "debt limit."

Question 6

Resources to pay interest on tax-supported bond issues are generally accumulated in special revenue funds.

Accepted Answer

Resources to pay interest on tax-supported bond issues are typically accumulated in debt service funds, not special revenue funds. Special revenue funds are used to account for specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service.

Question 7

Notes to the financial statements of a state or local government should include a schedule,or summary,of debt service requirements (principal and interest payments)of debt outstanding on the balance sheet date.

Accepted Answer

This is a required disclosure under generally accepted accounting principles (GAAP) for state and local governments to provide transparency and accountability to stakeholders regarding their debt obligations.

Question 8

All special assessment debt should be reported in the government-wide statement of net position in the Business-type Activities column.

Accepted Answer

Special assessment debt is reported in the government-wide statement of net position only if the government is obligated in some manner for the debt; it is not exclusively reported in the Business-type Activities column but rather based on the nature of the activity it finances, which could be governmental or business-type.

Question 9

Issuance of tax-supported debt having a maturity of more than one year from date of issue results in a journal entry in only the governmental activities general journal.

Accepted Answer

Issuance of tax-supported debt with a maturity of more than one year affects both the governmental activities general journal and the fund financial statements, as it impacts long-term liabilities and fund balances.

Question 10

Since the debt of a government is subject to a legal debt limit,there cannot be any legal overlapping debt.

Accepted Answer

While a legal debt limit exists, it is possible for a government to exceed that limit through various means such as the issuance of bonds or the borrowing of funds from other sources. This can result in overlapping debt that exceeds the legal limit.

Question 11

Debt service funds for term bonds would generally include sinking fund investments.

Accepted Answer

Debt service funds for term bonds typically involve setting aside money in a sinking fund to ensure that the principal of the bonds can be paid off when they mature. This sinking fund may include investments to generate additional returns on the funds being saved.

Question 12

Debt margin is a term used to denote the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time,while debt limit is the difference between the debt margin and the amount of outstanding debt subject to the debt limitation.

Accepted Answer

The definitions provided for debt margin and debt limit are reversed. The debt limit refers to the total amount of indebtedness allowed by law, while the debt margin is the difference between that limit and the amount of outstanding debt.

Question 13

Although some governments have issued taxable debt,the interest earned on most debt issued by state and local governments is exempt from federal taxation and,in some states,from state taxation.

Accepted Answer

This statement is true. Interest earned on most debt issued by state and local governments is exempt from federal taxation and, in some states, from state taxation. This exemption is intended to encourage investment in state and local government debt, which in turn helps these governments borrow at lower interest rates.

Question 14

If a government has deposited or transferred financial resources dedicated for payment of debt service to the debt service fund and payment of principal and interest is due early in the following year,then the expenditure and related liability may be recognized in the debt service fund prior to year end.

Accepted Answer

This is because the purpose of the debt service fund is to account for the payment of principal and interest on debt, so it is appropriate to recognize the expenditure and related liability in the fund prior to year end if the resources have already been deposited or transferred.

Question 15

Financial statement note disclosures on long-term liabilities should include information on authorization of new debt issues,sale of previously authorized issues,and retirement and refunding of debt during the year.

Accepted Answer

This is a true statement as financial statement note disclosures on long-term liabilities should include information on authorization of new debt issues, sale of previously authorized issues, and retirement and refunding of debt during the year. This information is important for investors and other stakeholders to understand the company's debt management and financing activities.

Question 16

When a capital lease payment is legally due,an entry is made in the debt service (or appropriate governmental)fund to record an expenditure,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.

Accepted Answer

This is correct. When a capital lease payment is due, an entry is made in the debt service (or appropriate governmental) fund to record an expenditure, and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.

Question 17

The use of long-term debt is a traditional part of the fiscal policy of state and local governments.

Accepted Answer

Long-term debt is often used by state and local governments to finance large capital projects, such as infrastructure improvements or major construction projects. It allows these governments to spread out the cost of the project over time, and may offer more favorable interest rates than short-term borrowing. However, the use of long-term debt can also result in higher overall costs due to interest payments over time.

Question 18

General long-term liabilities are those that arise from activities of governmental funds as well as those reported as fund liabilities of a proprietary or fiduciary fund.

Accepted Answer

General long-term liabilities are typically only those that arise from activities of governmental funds and are not reported as fund liabilities of proprietary or fiduciary funds, which have their own separate accounting and reporting mechanisms.

Question 19

A given parcel of real estate may be subject at a given time to assessments for the payment of taxes to retire bonds issued by two or more governments.

Accepted Answer

It is possible for a property to be subject to assessments for tax payment to multiple governmental bodies that have issued bonds.

Question 20

Governmental fund liabilities and expenditures for debt service on general long-term debt are generally recognized in the reporting period that debt payments are due.

Accepted Answer

Liabilities and expenditures for debt service on general long-term debt are recognized when the debt payments are due, which is typically within the reporting period.

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