Exam 6: Accounting for Capital Projects and Debt Service

Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

Use of a Debt Service Fund is required

Use the following information to answer questions The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.The City will oversee the construction of the sidewalks and act as agent for servicing the debt.If the special assessment is not sufficient to make the principal and interest payments, the City will assume the obligations. -The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

In which fund type would a governmental entity's debt service fund be found?

When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

In early 2010, Jackson City issued $10 million of 6% term bonds to finance a highway construction project.Because of problems related to the Endangered Species Act, the City deferred highway construction that year.In early 2011, the City entered into contracts for construction that will begin in summer 2011 and be completed by summer 2012.When the City realized they would not need the bond proceeds in 2011, they invested the proceeds in risk-free federal government securities bought to yield 7%.What potential arbitrage liability, if any, should the City recognize as a result of the year 2010 transactions?

Adams County has outstanding $10 million in bonds issued by the County to construct a sewer system in a specific area of the county.The taxpayers in that area voted for the construction and the bonds and agreed to assess themselves to pay the principal and interest on the bonds.The County contracted for the construction and issued the bonds but the City assumed no legal or moral obligation for the bonds.If the special assessment payments are not sufficient to make the required principal and interest payments, the County will not make up the difference.The $10 million of bonds should appear in which fund financial statements or schedule?

Use the following information to answer questions The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.The citizens agreed to assess themselves for 20 years in an amount sufficient to pay principal and interest on the bonds.The City will oversee the construction of the sidewalks and act as agent for servicing the debt.The City does not guarantee the debt nor does it assume any legal or moral obligation for the bonds. -When the City collects the special assessment, it should be accounted for in which fund of the City of Arlington?

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5% and were sold at 101.Which of the following entries should be made in the Capital Projects Fund to record this event?

Use the following information to answer question Due to changes in the prevailing interest rates, Washington County has decided to issue new 5% bonds and place the proceeds with a trustee in a manner structured to satisfy all the GASB requirements for an in-substance defeasance of an existing 6.5% bond issue.The 6.5% bonds were originally issued to fund highway projects and the debt is reported in the Schedule of Long-term Obligations and in the governmental activities column of the government-wide financial statements.The old 6.5% bonds are still actively traded in the bond market and will be until their maturity.The new 5% bonds will be sold to an institutional buyer who may also sell them in the bond market. -Which bonds should be recognized in the Schedule of Long-Term Obligations?

Sister City was notified by the State that they had been awarded a $5 million grant to aid in the construction of a senior citizens center.At the time of the notification what is the appropriate entry in the capital projects fund assuming that the City has met all eligibility requirements and maintains its books and records in a manner to facilitate the preparation of the fund financial statements?

Use the following information to answer questions Several years ago, the City of Russell issued $7 million of 6% serial bonds at 101.Principal payments of $350,000 are due each June 30 for 20 years.Interest on the bonds is payable each December 31 and June 30.As of June 30, 2011, the City has not paid the June 30 principal and interest payment. -The amount of bonds payable that should be included on the balance sheet for the debt service fund of the City of Russell at June 30, 2011 would be

Use the following information to answer question Due to changes in the prevailing interest rates, Washington County has decided to issue new 5% bonds and place the proceeds with a trustee in a manner structured to satisfy all the GASB requirements for an in-substance defeasance of an existing 6.5% bond issue.The 6.5% bonds were originally issued to fund highway projects and the debt is reported in the Schedule of Long-term Obligations and in the governmental activities column of the government-wide financial statements.The old 6.5% bonds are still actively traded in the bond market and will be until their maturity.The new 5% bonds will be sold to an institutional buyer who may also sell them in the bond market. -The City of Williamsburg decided to defease old 6% bonds carried in its Electric Enterprise Fund with new 4.5% bonds.As a result of the defeasance, the City incurred an accounting loss.This loss should be recognized

With regard to the resources dedicated to the acquisition of fixed assets that will be used in general government activities, which of the following is true?

The City of St.Joe had outstanding $5 million of 6% bonds with a call provision.Due to changes in the prevailing interest rates, the City issued new bonds at 4.5% and used the proceeds to call the 6% bonds.This is an example of

Use the following information to answer questions Several years ago, the City of Russell issued $7 million of 6% serial bonds at 101.Principal payments of $350,000 are due each June 30 for 20 years.Interest on the bonds is payable each December 31 and June 30.As of June 30, 2011, the City has not paid the June 30 principal and interest payment. -Sue City has outstanding $5 million in general obligation term bonds used to finance the construction of the new City Library.Sue City has a June 30 fiscal year-end.Interest at 6% is payable each January 1 and July 1.The principal of the bonds is due 10 years in the future.The City budgeted the July 1, 2011 interest payment in the budget for the fiscal year ended June 30, 2011.On June 30, cash was transferred from the General Fund to the Debt Service Fund to make the required payment.The maximum amount of interest payable that may be included on the balance sheet of the debt service fund of Sue City at June 30 would be

Use the following information to answer questions Lewis County uses a fiscal agent to distribute payments of interest to bondholders.Interest payments are due on July 1 of each year.The fiscal agent requires the County to transfer by June 20 the cash necessary to make the July 1 payments. -What entry would be made on June 30 related to this transfer?

Capital projects funds do not report long-term obligations in the fund.

Special assessments are imposed nonexchange transactions, similar to property tax levies.

Use the following information to answer questions Voters in Phillips City approved the construction of a new city hall building and approved a $5 million bond issue with a stated rate of interest of 6% to fund the construction.When the bonds were issued, they sold for 101.What are appropriate entries related to the premium? -In the debt service fund