Exam 6: Accounting for General Long-Term Liabilities and Debt Service

Debt service funds for term bonds would generally include sinking fund investments.

On the due date for bond interest,the debt service fund journal entry (or entries)will include a debit to

From records available in various offices of Baraga County,you find the following information about changes in long-term liabilities of the county during the year ended June,2012: 1)At the end of the 2011 fiscal year,$500,000 was still outstanding on an issue of a 3 percent serial bond that matures at the rate of $250,000 per year.The payment during fiscal year 2012 has been made by the debt service fund. 2)Baraga County council decided to fund a General Fund deficit with an issue of four-year notes totaling $480,000.The notes were issued on July 1,2011,and were to be retired at the rate of $120,000 per year; the first payment was to be made on July 1,2012 by the debt service fund. 3)At the end of the 2011 fiscal year,$100,000 par value general obligation serial bonds were outstanding,from an original amount of $400,000.Annual maturities of $25,000 have been paid on December 31 of each year. 4)In FY 2011 an issue of 7 percent serial bonds was sold in the amount of $6,000,000.The issue matures at the rate of $300,000 per year.The first payment was made in FY 2012. 5)On June 30,2011 the county had outstanding $200,000 of 4 percent serial bonds that had been issued to finance a revenue-producing recreation facility.On June 1,2012 bonds in the amount of $50,000 were paid.The bonds are being paid from enterprise revenues; they carry a covenant that obligates the county to levy taxes to service the debt if enterprise revenues are insufficient.It is expected that enterprise revenues will be sufficient to retire the bonds on schedule. 6)During FY 2012 a $300,000 issue of 6 percent term bonds matured,with little provision having been made for their payment.The bonds were closely held,and arrangements were made with holders of all but $25,000 to accept 8 percent refunding serial bonds.Cash was paid to creditors who declined to accept refunding bonds. Required: Prepare a schedule disclosing the changes in long-term liabilities for Baraga County for the year ended June 30,2012.

The city of Spartan's fiscal year ends on December 31.On September 1,2014,the city issued $1,000,000 of 6%,10-year term bonds with semi-annual interest payments due on March 1 and September 1 each year,beginning on March 1,2015.What amount of expenditures should the city recognize in its debt service fund for the years 2014 and 2015?

Term bond issues mature in their entirety on a given date,in contrast to serial bonds,which mature in installments.

Explain the financial reporting for special assessment bonds when (a)a government assumes responsibility for debt service should special assessment collections be insufficient,and when (b)the government assumes no responsibility whatsoever.

When a capital lease payment is legally due,an entry is made in the debt service (or appropriate governmental)fund to record an expenditure,and an entry is made in the governmental activities accounts to reduce Capital Lease Obligations Payable.

The purpose of a sinking fund is to set aside resources for a substantial debt payment due at maturity.

Which of the following debt service funds would normally have the largest balance in its Fund Balance account?

Debt limit is a term used to denote the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time.

Debt service funds exist to accumulate resources to pay tax-supported bond issues at maturity.Interest on such bonds is paid from General Fund appropriations rather than from debt service fund appropriations.

Debt margin is a term used to denote the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time,while debt limit is the difference between the debt margin and the amount of outstanding debt subject to the debt limitation.

How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?

The town of Terra Cotta issued the following during the year ended June 30,2014: (1)$600,000 in bonds for the installation of street lights,to be assessed against properties benefited,but secondarily backed by the village; (2)$800,000 in bonds for construction of a Parks and Recreation Department public golf course to be paid from pledged fees collected from golf course users.How much should be accounted for through debt service funds for payments of principal over the life of the bonds?

Debt service funds are used to record

As of the fiscal year ending September 30,2013,Crystal Beach had $10,000,000 in 5 percent serial bonds outstanding.The serial bonds pay interest semiannually on March 1 and September 1,with $500,000 in bonds being retired on each interest payment date.Resources for payment of principal are transferred from the General Fund,and the debt service fund levies property taxes annually to cover interest payments.Any excess is reserved for future debt service payments. Prepare debt service fund and government-wide entries in general journal form to reflect,as necessary,the following information and transactions for FY 2014. (1)The operating budget for FY 2014 consists of estimated revenues of $500,000 and estimated other financing sources equal to the amount of principal to be paid in FY 2014.Appropriations must be provided for interest payments and bond redemptions on March 1 and September 1. (2)Property taxes in the amount of $500,000 were levied (no estimate for uncollectible accounts has been made). (3)Property taxes in the amount of $500,000 were collected. (4)Cash was received from the General Fund and checks were written and mailed for the March 1 principal and interest payments. (5)Cash was received from the General Fund and checks were written and mailed for the September1 principal and interest payments. (6)At the fund level,entries were made to close budgetary and operating statement accounts.(Ignore closing entries in the government activities journal.)

The debt service activity of a government may be properly accounted for within the General Fund unless law mandates the use of a debt service fund.

Under a bond refunding,the proceeds of a new bond issuance are either deposited in escrow to pay the debt service on the outstanding bonds when due or used to promptly retire previously issued bonds.

Special assessments levied for debt service of bonds issued for a special assessment capital project will be accounted for by a debt service fund under which of the following situations?

If a city has an unpaid capital lease obligation at the beginning of its fiscal year,the journal entry in the debt service fund to record the lease payment during that fiscal year will include