The City of Spartan's fiscal year ends on December 31.On October 1,2017,the city issued $1,000,000 of 6%,10-year term bonds with semi-annual interest payments due on March 1 and October 1 each year,beginning on April 1,2018.What amount of expenditures should the city recognize in its debt service fund for the years 2017 and 2018?

Question

Quizplus · Accepted Answer

The expenditures in the debt service fund represent the payment of principal and interest on the bond. However, the bond was issued on October 1, 2017, which is near the end of the fiscal year, and therefore no interest payments were due in 2017. Therefore, the answer cannot be A, B, or C. The first interest payment of $30,000 ($1,000,000 x 6% x 6/12) will be due on April 1, 2018. Therefore, the expenditures for the debt service fund in 2018 will be $60,000 ($30,000 for March 1 and $30,000 for October 1).

The City of Spartan's Fiscal Year Ends on December 31