Exam 6: Accounting for Capital Projects and Debt Service

Use the following information to answer question The voters in Ohio City approved the construction of a new city hall building and approved a $10 million bond issue with a stated rate of interest of 6% to fund the construction.When the bonds were issued, they sold for 99.Assuming that the City's has agreed to transfer money from its General Fund to make up the difference, what are appropriate entries related to the discount? -In the debt service fund

The resources to service all general long-term debts of the governmental entity are typically accounted for in debt service funds.

In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

Use the following information to answer questions Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt. -In the debt service fund, what is the appropriate entry when the principal payment is made?

Cascade County issued $1 million of 6% term bonds at 101.These bonds will be used to finance the construction of highways.The entry in the debt service fund to record the receipt of cash should 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. -What amount of gain or loss should be recognized on this transaction?

The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be reported in the fund as general capital assets.

The debt service fund of a governmental entity is accounted for using which of the following bases of accounting?

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. -When the City of Arlington levies the special assessment tax, the best entry would be

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 capital projects fund

A City issued bonds for the purpose of financing a major capital improvement.Which fund is the most appropriate fund in which to record the receipt of the bond proceeds?

Previously Atomic City had issued bonds with a face value of $10 million to construct a new city hall.Because the money will not be needed for several months, the city invested the bond proceeds in U.S.Government securities.Assuming that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements, what is the appropriate entry when the City receives interest on the investments?

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. -When the City collects the special assessment, it should be accounted for in which fund of the City of Arlington?

Harbor City issued 6% tax-exempt bonds and used the proceeds to acquire federal government securities yielding 7%.After paying the interest on the tax-exempt bonds, the City cleared 1%.This is an example of

The capital projects fund of a governmental entity is accounted for using which of the following bases of accounting?

Nongovernmental not-for-profits must account for defeasances differently than governments.

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. -The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt-that is, long-term debt associated primarily with governmental activities.

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 interest payable assuming an outstanding balance of $4,000,000 of bonds that would be included on the balance sheet for the debt service fund of the City of Russell at June 30, 2011 would be