Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Governments should account for special assessment debt service transactions in a debt service fund, even if they are not obligated to pay the debt.

Accepted Answer

A) True 
 B)False

Question 3

When a government issues bonds at a discount, where should it report the discount on its (a)fund statements and (b)government-wide statements?

Accepted Answer

The answer of When a government issues bonds at a...

Question 4

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

Accepted Answer

A) Governmental fund type. 
B) Proprietary fund type. 
C) Fiduciary fund type. 
D) Governmental activities.

Question 5

What is arbitrage? What are its potential uses and/or abuses? How are potential abuses regulated?

Accepted Answer

The answer of What is arbitrage? What are its potential...

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Special assessment debt to be paid from a water utility fund should be accounted for in that fund along with the related capital improvements.

Accepted Answer

A) True 
 B)False

Question 8

The entry in the capital projects fund to record the additional funding for the construction should be

Accepted Answer

A) Debit Due from general fund $0.5 million; Credit Other financing sources-nonreciprocal transfer-in $0.5 million. 
B) Debit Due from general fund $0.5 million; Credit Revenue $0.5 million. 
C) Debit Cash $0.5 million; Credit Due to general fund $0.5 million. 
D) Debit Other financing sources $0.5 million; Credit Due to general fund $0.5 million.
Use the following information to answer questions 10 and 11
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?

Question 9

Under existing federal statutes, arbitrage, as it applies to state and local governments is

Accepted Answer

A) Illegal. 
B) Illegal unless the government can demonstrate a "just cause" for engaging in it. 
C) Legal in some circumstances, but the government may be required to remit arbitrage earnings to the federal government. 
D) Illegal unless there is no more than a 2 percent difference between interest earned and interest paid.

Question 10

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

Accepted Answer

A) Agency fund. 
B) Special assessment fund. 
C) Capital projects fund. 
D) Debt service fund.

Question 11

How should Lewis County account for the amount transferred on June 20 if the county maintains its books and records in a manner that facilitates the preparation of fund financial statements?

Accepted Answer

A) Debit Cash with fiscal agent and expenditures; Credit Cash and interest payable. 
B) Debit Cash with fiscal agent and interest expense; Credit Cash and interest payable. 
C) Debit Expenditures; Credit Cash. 
D) Debit Cash with fiscal agent; Credit Cash.

Question 12

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

Accepted Answer

A) Debit Plant assets; Credit Bonds payable. 
B) Debit Plant assets; Credit Contributed capital. 
C) Debit Plant assets; Credit Contributed revenue. 
D) No entry should be made in the Electric Enterprise Fund.

Question 13

In its governmental fund financial statements, a government should recognize revenue from special assessments

Accepted Answer

A) In the year it imposes a special assessment. 
B) In the year an assessment is due. 
C) In the year an assessment is paid. 
D) In the year an assessment becomes available for expenditure.

Question 14

What entry should be made on July 1 related to the interest payment?

Accepted Answer

A) Debit Interest payable; Credit Cash. 
B) Debit Interest payable; Credit Cash with fiscal agent. 
C) Debit Expenditure; Credit Cash with fiscal agent. 
D) No entry required.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Capital projects funds do not report long-term obligations in the fund.

Accepted Answer

A) True 
 B)False

Question 17

Governments often receive interest on the temporary investment of capital debt proceeds.Some believe that governments are inconsistent in the way they report interest and other earnings on investments compared to interest on their debt.Explain this comment.Do you believe the reporting is inconsistent?

Accepted Answer

The answer of Governments often receive interest on the temporary...

Question 18

Cascade County issued $1 million of 6 percent 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

Accepted Answer

A) Debit Cash $10,000; Credit Revenue, $10,000. 
B) Debit Cash $10,000; Credit Other financing sources-nonreciprocal transfer-in, $10,000. 
C) Debit Cash $1,010,000; Credit Bonds payable $1,000,000 and premium on bonds $10,000. 
D) Debit Cash $1,010,000; Credit Other financing sources-nonreciprocal transfer-in $1,010,000.
Use the following information to answer questions 26 and 27
Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt.

Question 19

In early 2014, Jackson City issued $10 million of 6 percent term bonds to finance a highway construction project.Because of problems related to the Endangered Species Act, the city deferred highway construction that year.In early 2015, the city entered into contracts for construction that will begin in summer 2015 and be completed by summer 2016.When the city realized they would not need the bond proceeds in 2015, they invested the proceeds in risk-free federal government securities bought to yield 7 percent.What potential arbitrage liability, if any, should the city recognize as a result of the year 2015 transactions?

Accepted Answer

A) None. 
B) The amount of the earnings from the federal government securities. 
C) The amount of the interest paid on the term bonds. 
D) The difference between the earnings from the federal government securities and the interest paid on the bonds.

Question 20

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5 percent and were sold at 101.Which of the following entries should be made in the capital projects fund to record this event?

Accepted Answer

A) Debit Cash $2.02 million; Credit Bonds payable $2 million and Premium on bonds payable $0.02 million. 
B) Debit Cash $2.02 million; Credit Bonds payable $2 million and Other financing sources $0.02 million. 
C) Debit Cash $2.02 million; Credit Other financing sources $2.02 million. 
D) Debit Cash $2.02 million; Credit Other financing sources $2 million and Revenue $0.02 million.
Use the following information to answer questions 8 and 9
Voters in Lincoln School District approved the construction of a new high school and approved an $8 million bond issue with a stated rate of interest of 6 percent to fund the construction.Bids were received and the low bid was $8 million.When the bonds were issued, they sold for face value less bond underwriting fees of $0.5 million.The school board voted to fund the balance of the construction by a transfer from the general fund.

Exam 6: Accounting for Capital Projects and Debt Service

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

Governments should account for special assessment debt service transactions in a debt service fund, even if they are not obligated to pay the debt.

When a government issues bonds at a discount, where should it report the discount on its (a)fund statements and (b)government-wide statements?

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

What is arbitrage? What are its potential uses and/or abuses? How are potential abuses regulated?

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.

Special assessment debt to be paid from a water utility fund should be accounted for in that fund along with the related capital improvements.

The entry in the capital projects fund to record the additional funding for the construction should be

Under existing federal statutes, arbitrage, as it applies to state and local governments is

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

How should Lewis County account for the amount transferred on June 20 if the county maintains its books and records in a manner that facilitates the preparation of fund financial statements?

In its governmental fund financial statements, a government should recognize revenue from special assessments

What entry should be made on July 1 related to the interest payment?

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.

Capital projects funds do not report long-term obligations in the fund.

Cascade County issued $1 million of 6 percent 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

Sugar City issued $2 million of bonds to fund the construction of a new city office building.The bonds have a stated rate of interest of 5 percent and were sold at 101.Which of the following entries should be made in the capital projects fund to record this event?