The city of Sparr's fiscal year ends on December 31.On July 1,2011,the city issued $1,000,000 of 6%,10-year term bonds with semi-annual interest payments due on July 1 and January 1 each year,beginning on January 1,2012.What amount of expenditures should the city recognize in its debt service fund for the years 2011 and 2012?

Question

Quizplus · Accepted Answer

The city of Sparr issued the bonds on July 1, 2011, which means that no interest payments are due until January 1, 2012. Therefore, there are no debt service expenditures to be recognized in the debt service fund for the year 2011. For the year 2012, the city will recognize $60,000 in expenditures, which represents two semi-annual interest payments of $30,000 each ($1,000,000 x 6% x 6/12). Therefore, the correct answer is D.

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