Question 1

Taxes for debt service are always levied by the General Fund and transferred to a debt service fund.

Accepted Answer

Taxes may be levied for a debt service fund directly, or debt service activity may be recorded in the General Fund.

Question 2

Installments of special assessments to be collected within one year are recorded as Assessments Receivable-Current; installments due in periods after one year are recorded as Assessments Receivable-Deferred.

Accepted Answer

This describes the proper accounting for assessment receivables as illustrated in Chapter 6.

Question 3

Notes to the financial statements of a state or local government should include a schedule,or summary,of annual debt service requirements (principal and interest payments)for the year following the balance sheet date and for all subsequent years until the final maturity of debt outstanding on the balance sheet date.

Accepted Answer

This provision of GASB standards is described in Chapter 6.

Question 4

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

This paraphrases the definition given in Chapter 6.

Question 5

Both general capital assets acquired or constructed from the proceeds of special assessment debt,and the related long-term liability are recorded in the governmental fund.

Accepted Answer

GASB requires general capital assets and the related long-term liabilities to be reported in the government-wide statements, not in governmental funds.

Question 6

In a particular debt service fund journal entry the offsetting credit to debits for Assessments Receivable-Current could be to Assessments Receivable-Deferred.

Accepted Answer

The credit in the initial year should be to revenues; however, the suggested entry does occur in subsequent years to reclassify deferred revenues to current. At the same time deferred revenues are reclassified to revenues.

Question 7

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 also called "borrowing power."

Question 8

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

Accepted Answer

Property ordinarily lies in many different taxing jurisdictions simultaneously. Although each jurisdiction may be subject to a legal debt limit, the property is taxed to service the debt of all jurisdictions within which the property is located.

Question 9

Disclosures about long-term liabilities should be included in the notes to the financial statements to provide users with information about authorization of new debt issues,sale of previously authorized issues,and retirement and refunding of debt during the year.

Accepted Answer

Creditors, potential creditors, and other users of financial reports are presumed to find this information helpful.

Question 10

Debt backed by both special assessments and the full faith and credit of a government should be reported in the government-wide statement of net assets in the Business-type Activities column.

Accepted Answer

GASB standards require that the obligation for special assessment debt be recorded in the governmental activities accounts if the government is obligated in any manner for the debt, even though primary responsibility for the debt rests with taxpayers in the special benefit district.

Question 11

All long-term debt,including bonds,notes or warrants,and various other long-term obligations,intended to be repaid from tax levies or special assessments are accounted for in debt service funds.

Accepted Answer

Debt service funds should be used to account for revenues or other financing sources used to provide debt service, and the related expenditures of these resources for the debt service. However, the long-term debt itself should be accounted for in the governmental activities accounts.

Question 12

When a capital lease payment of $20,000 is legally due,an entry is made in the debt service fund to record the expenditure of $20,000,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable by $20,000.

Accepted Answer

The first part of the statement is correct, but the reduction of Capital Lease Obligations Payable in the governmental activities accounts should only be for the portion of the payment that is a payment on principal of the lease obligation, not for the portion that is a payment of interest on the unpaid lease obligation.

Question 13

At year-end,budgetary and operating statement accounts of a debt service fund are closed in the same manner as are those of a General Fund or special revenue funds.

Accepted Answer

This is illustrated in Chapter 6.

Question 14

Expenditures for interest on tax supported long-term debt are accrued in debt service funds.

Accepted Answer

Under current GAAP, a government ordinarily does not record interest on tax supported long-term debt until the interest is legally due. Therefore, the debt service fund would not accrue interest on debt.

Question 15

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

Accepted Answer

Only those funds required by law or by sound financial management are needed. Bond covenants or ordinances are usually interpreted, however, as requiring the use of a debt service fund, and it generally is good financial management to report assets held for debt service separately from assets available for salaries, etc.

Question 16

Debt service funds exist to accumulate resources to pay tax supported bond issues at maturity.Interest on such bonds is paid from General Fund appropriations rather than from debt service fund appropriations.

Accepted Answer

Debt service funds are created to account for interest expenditures and revenues raised, as well as for principal repayment.

Question 17

Debt service funds use the same budgetary procedures as the General Fund and special revenue funds.

Accepted Answer

Debt service funds, like the General Fund and special revenue funds, use Estimated Revenues and Appropriations accounts. However, unlike those funds, debt service funds do not use Encumbrance accounts.

Question 18

If all financial resource inflows have been collected,and all debt interest and principal legally due has been paid,a regular serial bond debt service fund could have no assets,no liabilities,and no fund balance at year-end.

Accepted Answer

Regular serial bond debt service funds commonly raise only the amount of revenue that will have to be expended each year. If collections equal disbursements there is nothing to report in a balance sheet.

Question 19

The liability for matured bonds payable should be recorded by a debt service fund only if a legal appropriation for that purpose exists in the proper amount.

Accepted Answer

Even though bonds (and interest) may mature, a debt service fund may pay matured bonds only if a legal appropriation exists. However, the bond indenture normally contains wording which contractually obligates the issuer to make principal and interest payments when due.

Question 20

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

The fund or funds that received the proceeds of the debt must also record the issuance.

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