Exam 8: Long-Term Obligations

Flora City is accumulating financial resources that are legally restricted to payments of general long-term debt principal and interest maturing in future years. At year-end, $7,000,000 has been accumulated for principal payments, and $2,200,000 has been accumulated for interest payments. These restricted funds should be accounted for in the

What is "overlapping debt" and why is it important to financial analysts and others who use government financial statements?

A government's debt margin is the difference between its authorized debt limit and its outstanding debt.

On December 31, 2017 Morse City issued $50 million of 8 percent, 20-year, demand bonds that give bondholders the opportunity to "put" (i.e. sell) the securities back to the issuer at face value, beginning on January 1, 2018. On December 31, 2017, prevailing interest rates on comparable bonds were 6.7 percent. Should the city report the bonds as a liability on its December 31, 2017 governmental fund financial statements? Explain, indicating any additional information you would need to make a determination.

Overlapping debt should be reported in which of the following ways?

Dumas County has a December 31 fiscal year-end. In November, the county borrowed $8 million from a local bank, due in six months at 6 percent interest, to finance general government operations. The county pledges property tax revenues to secure the loan. At year-end, how should the county display the bank note in the governmental fund financial statements?

A government that is unable to satisfy claims against it

Rand City entered into the following transactions during the current year. REQUIRED: Assume that the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements. Prepare entries to record the following transactions. Indicate the fund in which the entry is being made. a) The city issues $5 million of tax anticipation notes, backed by property taxes that will be recorded in the general fund. b) The city issues $2 million of 90-day bond anticipation notes that it expects to roll over into long-term bonds. c) The city repays the $5 million in (a) plus $0.125 million in interest. d) The city successfully issues $20 million in long-term bonds and repays the notes in (b).

Which of the following is likely to be used by a bond rating agency to rate a government's general obligation bonds?

What is the distinction between general obligation debt and revenue bond debt? Why might a government issue revenue bond debt instead of general obligation debt?

Bond insurance issued by credit enhancement agencies

In the government-wide financial statements, the assets acquired under a capital lease would be reported at

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?

Per GASB, governments should report resources and actual short-term obligations.

When the government acts as a lessor, which of the following is true? Which of the following is true? i. The lessor is selling the rights to the entire economic life of the asset. ii. The lessor is selling a portion of the life economic life of the asset. iii. The lessor should offset the receivable with the depreciation of the asset. iv. The lessor should offset the receivable with deferred inflow of resources

When the proceeds of long term debt are reported in governmental fund financial statements

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

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?

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?

Generally accepted accounting principles require governments to report many assets to be reported at market value. However, few liabilities are reported at market value. Present arguments for and against reporting liabilities at market value.