Question 1

When bonds are sold at a premium for a capital project,the premium amount generally:

Accepted Answer

When bonds are sold at a premium, the premium amount is typically transferred to the debt service fund. This is because the premium can be used to pay future interest or principal on the bonds, thus reducing the overall cost of borrowing for the entity.

Question 2

Which of the following financial statements are required for a Debt Service Fund?

Accepted Answer

The Debt Service Fund requires a balance sheet and a statement of revenues, expenditures, and changes in fund balance. A statement of net position is not required because it only presents the assets and liabilities of the fund at a specific point in time, while the balance sheet shows these items as well as the fund balance. The statement of cash flows is not necessary because the Debt Service Fund is not engaged in ongoing operating activities that generate cash inflows and outflows.

Question 3

Which of the following assets would not be found in the balance sheet of a debt service fund?

Accepted Answer

Equipment is not a typical asset found in a debt service fund. The purpose of a debt service fund is to account for resources set aside to pay principal and interest on debt. The assets typically found in a debt service fund include cash and cash equivalents, investments, and accounts receivable such as interest receivable. Equipment is not directly related to debt service and therefore would not be included in the balance sheet of a debt service fund.

Question 4

On the due date for bond interest,the debt service fund journal entry (or entries)will include a debit to:

Accepted Answer

The debit to Expenditures-Bond Interest represents the actual payment made by the debt service fund to the bondholders for their interest earned on the bonds. This is the primary purpose of the debt service fund, to set aside and pay for bond interest and principal payments when they become due. The other options, Interfund Transfers In, Appropriations, and Interest Expense, do not reflect the payment made for bond interest on the due date.

Question 5

Which of the following debt service funds would normally have the largest balance in its Fund Balance account?

Accepted Answer

A term bond debt service fund typically has a larger balance in its Fund Balance account as the principal and interest payments for term bonds are usually made less frequently (such as once per year or every few years) but in larger amounts, compared to serial bonds where payments are made in smaller amounts but more frequently (such as every six months). This results in a larger balance in the Fund Balance account of a term bond debt service fund.

Question 6

The liability for general obligation bonds should be recorded in the:

Accepted Answer

The answer of The liability for general obligation bonds should...

Question 7

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt,the governmental activities accounts:

Accepted Answer

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt, the governmental activities accounts reflect both the principal and interest payments. This is because the debt service fund is used to make debt payments for the governmental activities, so the principal and interest payments made by the fund are recorded in the appropriate accounts for the governmental activities.

Question 8

On June 1,2018,Brooktown levied special assessments in the amount of $500,000,payable in 10 equal annual installments beginning on June 30,2018.The assessment installments are intended to pay principal and interest on special assessment bonds for which the town has pledged its full faith and credit should assessments be insufficient.Assuming no allowance for uncollectible receivables,the journal entry in the debt service fund on June 1,2018 would include:

Accepted Answer

The journal entry would include a debit to Assessments Receivable-Current for $50,000, representing the first installment due within the year.

Question 9

Which of the following is a statement regarding in-substance defeasance of bonds?

Accepted Answer

In-substance defeasance of bonds requires the government to place cash or other assets in an irrevocable trust sufficient to pay all future interest and principal payments for the debt being defeased. Option B refers to debt service fund, which is not relevant in this context. Option C refers to an escrow agent, which may or may not be used in the process of in-substance defeasance. Option D refers to unrestricted cash and investments in governmental funds, which is again not relevant in context of in-substance defeasance.

Question 10

Special assessments levied for debt service of bonds issued for a special assessment capital project will be accounted for by a debt service fund under which of the following situations? Government is secondarily Government is not secondarily
Obligated for the debt obligated for the debt

Accepted Answer

Special assessments for debt service are accounted for in a debt service fund when the government is secondarily obligated for the debt, but not when it is not obligated.

Question 11

Which of the following debt service fund accounts would not be closed at the end of each fiscal year?

Accepted Answer

Fund balance is not closed at the end of each fiscal year. It is carried forward to the next fiscal year and serves as the beginning balance for that year. The other accounts listed, including estimated revenues, revenues, and expenditures, are closed at the end of each fiscal year and start fresh in the next fiscal year.

Question 12

If a city has an unpaid capital lease obligation at the beginning of its fiscal year,the journal entry in the debt service fund to record the lease payment during that fiscal year will include:

Accepted Answer

The lease payment will reduce the principal amount owed on the capital lease obligation, which means there will be a debit to Expenditures-Principal of Capital Lease Obligation. The unpaid balance of the capital lease obligation will be a credit to Capital Lease Obligations Payable. Interest Expense on Capital Leases is only recorded when interest is incurred on the unpaid balance of the capital lease obligation.

Question 13

Typically,proceeds from general obligation bonds will be recorded in the:

Accepted Answer

General obligation bonds are typically issued to finance capital projects such as building roads, schools, or other infrastructure projects. Therefore, the proceeds from these bonds are recorded in the Capital Projects Fund, which is used to account for financial resources to be used for the acquisition or construction of major capital facilities.

Question 14

The Town of Windsor issued the following during the year: (1)$600,000 in bonds for the installation of street lights,to be assessed against properties benefited,but secondarily backed by the town; (2)$800,000 in bonds for construction of a public golf course to be paid from fees collected from golf course users.How much should be accounted for through debt service funds for payments of principal over the life of the bonds?

Accepted Answer

The answer of The Town of Windsor issued the following...

Question 15

Which of the following statements is not for debt service funds?

Accepted Answer

Not all tax-supported bond principal is shown as a liability of the debt service fund, only the portion that is due and payable.

Question 16

Which of the following basic financial statements contains a column for the total of all debt service funds?

Accepted Answer

The answer of Which of the following basic financial statements...

Question 17

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?

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).

Question 18

The City of New Haven issued $20 million of tax-supported bonds at 102 to finance a new prison.Upon issuance,how will the premium be recorded?

Accepted Answer

The premium on bonds is considered an other financing source in the debt service fund, and it increases the amount of money available to pay debt service. In the governmental activities, the premium is recorded as a premium on bonds payable, which reduces the carrying value of the debt and hence reduces the amount of interest expense that will be recorded in the future. Therefore, the best choice is D, which correctly records the premium as an other financing source in the debt service fund and a premium on bonds payable in governmental activities.

Question 19

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 expense should the city recognize in its governmental activities journal for the years 2017 and 2018?

Accepted Answer

The answer of The City of Spartan's fiscal year ends...

Question 20

Debt service funds are used to account for which of the following?

Accepted Answer

Debt service funds are used to account for the payment of both principal and interest on general long-term debt. It does not include all types of debt of the government, nor does it separate principal and interest payments.

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