29 Jan Terms Bonds Payable

CHAPTER 6

Questions 1 to 5

1. How are general long-term liabilities distinguished from other long-term ;liabilities of the government? How does the financial reporting of general long term liabilities differ from the financial reporting of other long term liabilities?

2. What disclosures about long-term liabilities are required in the notes to the financial statements?

3. In the current fiscal year, St. George County issued $3,000,000 in general obligation term bonds for 102. The county is required to use any accrued interest or premiums for servicing the debt issue.

(A)How would the bond issue be recorded at the fund and government-wide levels?

(B) How would the bond issue be reported in the fund financial statements and the government-wide financial statements?

(C) What effect, if any, do interest payments have on the carrying value of the bond issue as reported in the financial statements?

4. Explain the financial reporting for special assessment bonds when

a) a government assumes responsibility for debt service should special assessment collections be insufficient

b) the government assumes no responsibility whatsoever.

5. The debt limit for general obligation debt for Milos City is 1 percent of the assessed property valuation for the city. Using the following information, calculate the city’s debt margin.

Assessed property valuation

$10,863,511,000

Approved but unissued tax-supported debt

10,000,000

Revenue bonds issued

32,000,000

General obligation serial bonds issued

43,000,000

Capital leases outstanding

5,230,000

Exercises & Problems

6-2 Multiple Choice

1. Which of the following would not be considered a general long-term liability?

a) The estimated liability to clean up the fuel and hazardous waste storage sites of the city’s Public Works Department.

b) Capitalized equipment leases of the water utility fund.

c) Compensated absences for the city’s Police Department.

d) Five-year notes payable used to acquire computer equipment for the city library.

2. Proceeds from bonds issued to construct a new county jail would most likely be recorded in the journal of the:

a) Capital projects fund.

b) Debt service fund.

c) General fund.

d) Enterprise fund.

3. The liability for long-term debt issued to finance a capital project will appear in which financial statement?

a) Government-wide statement of net position.

b) Capital projects fund balance sheet.

c) Debt service fund balance sheet.

d) General fund balance sheet.

On March 2, 2013, 20-year, 6 percent, general obligation serial bonds were issued at the face amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2014. Fiscal year-end occurs on December 31.

4. What is the interest expense for the fiscal year ending December 31, 2013

a) $90,000

b) $135,000

c) $150,000

d) None of the above

5. What is the interest expenditure for the fiscal year ending December 31, 2013?

a) $90,000

b) $135,000

c) $150,000

d) None of the above

6. Debt service funds may be used to account for all of the following except:

a) Repayment of debt principal

b) Lease payments under capital leases

c) Amortization of premiums on bonds payable

d) The proceeds of refunding bond issues

7. Expenditures for redemption of principal of tax-supported bonds payable should be recorded in a debt service fund:

a) When the bonds are issued

b) When the bond principal is legally due

c) When the redemption checks are written

d) Any of the above, if consistently followed

8. Which of the following items would be reported in the Governmental Activities column of the government-wide financial statements?

a) Premium on Bonds Payable: Yes Noncurrent Portion of General Long-term Liabilities Payable: No.

b) Premium on Bonds Payable: No Noncurrent Portion of General Long-term Liabilities Payable: No.

c) Premium on Bonds Payable: No Noncurrent Portion of General Long-term Liabilities Payable: Yes.

d) Premium on Bonds Payable: Yes Noncurrent Portion of General Long-term Liabilities Payable: Yes.

9. The liability for special assessment bonds for which the city is not obligated in any manner should be recorded in a (an):

a) Debt service fund general journal

b) Agency fund general journal

c) Governmental activities general journal

d) None of the fund or governmental activities general journals, but should be disclosed in the notes to the financial statements

10. Which of the following statements regarding debt-service funds is true?

a) Given the size and relevance of general long-term liabilities, debt service funds are always reported as major funds.

b) GASB standards require a separate debt service fund to be established for each issuance of tax-supported or special assessment debt.

c) A debt service fund is used only for debt service activities released to general long-term liabilities.

d) Annual budgets must be prepared for debt service funds and reported in the statement of revenues, expenditures, and changes in fund balances – budget and actual.

6-3 Long-term Liability Transactions.

4.

Debit

Credit

Cash

2,800,000

Other Financing Sources-Proceeds of Refunding Bonds

2,800,000

Debt Service Fund:

Other Financing Uses-Refunded Bonds

2,800,000

Expenditures

700,000

Cash

3,500,000

Governmental Activities

Cash

2,800,000

Serial Bonds Payable

2,800,000

Terms Bonds Payable

3,500,000

Cash

3,500,000