Exam 8: Long-Term Obligations

Flora City financed the construction of sidewalks in a newly annexed subdivision by issuing $50 million in special assessment debt.The debt is to be serviced entirely by assessments against the subdivision's property owners.The government does not have any obligation for the debt and has not guaranteed it.Nevertheless, when the property owners in a nearby subdivision were unable to pay their required assessments, the city, fearful of damaging its own credit rating, serviced the debt using its own resources.Should the city report the $50 million in special assessment debt in its government-wide statement of net position? Explain, citing specific GASB provisions.

In governmental fund financial statements, the assets acquired under a capital lease would be reported at

Per GASB Statement No.34, governments generally should report their bonds, notes, and comparable long-term obligations at present value.

Bond insurance issued by credit enhancement agencies

Why would a government issue revenue bonds (which generally are issued at a higher rate of interest than general obligation bonds)even though the government knows that if revenues from the project are not sufficient to cover principal and interest payments, the government will use resources from general government activities to fund the principal and interest payments?

Salvador County issued $25 million of 5 percent demand bonds for construction of a county maintenance building.The county has no take-out agreement related to the bonds.It estimates that 20 percent of the bonds would be demanded (called)by the buyers if interest rates increased by at least one percentage point.At year-end, rates on comparable debt were 7 percent.How should these demand bonds be reported in the government-wide financial statements at year-end?

Although governments may elect to report conduit debt in their government-wide and proprietary fund statements, the GASB has ruled that note disclosure is sufficient.

Financial analysts look at the ratio of assessed value of property to total market value of property as a measure of a government's ability to issue new revenue bonds.

Unlike individuals and businesses, governments cannot seek protection under the Federal Bankruptcy Code.

Because they are not obligations of the government at large, revenue bonds are usually not subject to voter approvals or other forms of voter oversight.

Olden City entered into a capital lease agreement for several new dump trucks to be used in general government activities.The city maintains its books and records in a manner that facilitates the preparation of the fund financial statements.Acquisition of these dump trucks would require entries in which of the following funds and/or schedules?

Identify and define "conduit debt." What are the current reporting standards for conduit debt issued by governments? Do you agree or disagree with the use of conduit debt by governments? Justify your answer.Do you agree or disagree with the current reporting standards related to conduit debt? Why?

A city's electric utility enterprise fund made its annual interest payment on its outstanding $20 million of 6 percent bonds, which were originally issued at a premium.The city maintains its books and records in a manner that facilitates preparation of fund financial statements.The entry to record the interest payment would include a credit to cash for the amount of the interest checks written and debit(s)to