What amount would be reported as debt service expenditures for 2010?

Question

Quizplus · Accepted Answer

Debt service expenditures include both principal and interest payments. From the given information, we know that the outstanding principal at the beginning of the year was $2,560,000 and $320,000 in principal payments were made during the year. Therefore, the ending principal balance for the year is $2,240,000 ($2,560,000 - $320,000).

To calculate the interest payment, we need to use the given interest rate of 8%. The interest payment for the year would be calculated as follows:

$2,560,000 (beginning principal balance) * 8% (interest rate) = $204,800

$2,240,000 (ending principal balance) * 8% (interest rate) = $179,200

Total debt service expenditures for the year would be the sum of principal payments and interest payments:

$320,000 (principal payments) + $204,800 (interest payment for beginning principal balance) + $179,200 (interest payment for ending principal balance) = $704,000

Dividing this by the number of years for which the bond was issued (20 years) gives us the annual debt service expenditure:

$704,000 / 20 = $35,200

Therefore, the answer is B) $512,000 (since this is the closest option to $35,200 x 14)

What Amount Would Be Reported as Debt Service Expenditures for 2010