Exam 6: Accounting for Capital Projects and Debt Service

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?

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 percent 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

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. Assume that the city maintains its books and records in a manner that facilitates the preparation of fund financial statements. What is the appropriate entry when the city receives interest on the investments?

How should the fund balance of a debt service fund generally be incorporated into the government-wide statement of net position?

On October 1, 2018, the Central School District issued $20 million of 6 percent bonds at par to construct a new junior high school. The first interest payment of $600,000 is due on March 31, 2019. In December 2018 the district transferred $600,000 from its general fund to a debt service fund to cover the March 2019 interest payment. How much interest expense/expenditure should the district recognize for 2018 in its 1. general fund? ____________ 2. debt service fund? ____________ 3. government-wide statements? _____________

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

Avon 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?

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

Governments can account for enterprise-related special assessments in enterprise funds or funds where they account for other special assessments.

The City of Twin Falls issued $5 million in special assessment bonds to finance major reconstruction of the turbines and facilities used in generating electricity that is sold to the citizens in the surrounding area. The electric power distribution activities are accounted for in an enterprise fund, which will service the debt. If the city is legally obligated for the debt, the appropriate entry in the city's Electric Enterprise Fund to record this event is

Which bonds should be reported on the government-wide statement of net position?

The resources to service all general long-term debt of governments are typically accounted for in debt service funds.

A government held the following equity securities in its debt service fund as of January 1, 2018. During 2018 it engaged in the following transactions as indicated. A. Ignoring dividends, what would be the effect of the transactions on 2018 debt service fund revenues or expenditures? B. What would be the effect of the transactions on 2018 government-wide revenues or expenses?

Adams County has outstanding $10 million in bonds issued 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 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 liability for the $10 million of bonds should appear in which fund financial statements?

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

Augur City received voter approval to issue $12 million of 5% bonds to construct a city office building. The estimated total cost of construction is $18 million. The city hopes to raise the balance needed through private donations. The city has a June 30 fiscal year-end. REQUIRED: Assume that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements. Prepare journal entries to record the following transactions. Indicate in which fund the entry should be made. (a) On July 1 the city issued $12 million of 5% serial bonds at face to fund construction of the new office building. The bonds pay interest on January 1 and July 1. The first principal payments are due five years hence. (b) On July 15 the city signed a $18 million contract with a local construction company for construction of the buildings. (c) On September 1 a local benefactor donated $6 million cash for the office building. (d) On October 1, the contractor requested a progress payment of $3 million for the earthwork and foundation work on the new building. The city paid the contractor. (e) On January 1, the city transferred from the general fund the amount necessary to make the first interest payment. The city made the first interest payment on the bonds. (f) On June 1 the contractor requested and received a progress payment of $12 million.

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?

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

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