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t dis- uring Chapter 6 Accounting for General Longaterm Liabilities and Debt Service 247 the year? Does the report disclose net earnings on investments during the
year? What percentage of revenue of each debt service fund is derived
from earnings on investments? What percentage of the revenue of each
debt service fund is derived from taxes levied directly for the debt service
fund? What percentage is derived from transfers from other funds? List
any other sources of debt service revenue and other financing sources, and
indicate the relative importance of each source. Are estimated revenues for term bond debt service budgeted on an actu-
arial basis? If so, are revenues received as required by the actuarial com- putations? (3) Management. Considering the debt maturity dates as well as the amount of debt and apparent quality of debt service fund investments, does the debt
service activity appear to be properly managed? Does the report disclose
whether investments are managed by a corporate fiduciary, another outside
investment manager, or governmental employees? If outside investment
managers are employed, is the basis of their fees disclosed? Are the fees
accounted for as additions to the cost of investments or as expenditures?
Is one or more paying agents, or fiscal agents, employed? If so, does the
report disclose whether the agents keep track of the ownership of regis-
tered bonds, write checks to bondholders for interest payments and ma—
tured bonds or, in the case of coupon bonds, pay matured coupons and
matured bonds presented through banking channels? If agents are em—
ployed, do the balance sheet or the notes to the financial statements dis—
close the amount of cash in their possession? If so, does this amount
appear reasonable in relation to interest payable and matured bonds
payable? Do the statements, schedules, or narratives disclose for how long
a period of time debt service funds carry a liability for unpresented checks
for interest on registered bonds, for matured but unpresented interest coupons, and for matured but unpresented bonds? (4) Capital Lease Rental Payments. If general capital assets are being acquired under capital lease agreements, are periodic lease rental payments ac—
counted for as expenditures of a debt service fund (or by another govern-
mental fund)? If so, does the report disclose that the provisions of SFAS
No. 13 are being followed (see the “Use of Debt Service Funds to Record
Capital Lease Payments” section of this chapter) to determine the portion
of each capital lease payment considered as interest and the portion con- sidered as payment on the principal. ltiple Choice. Choose the best answer. . Which of the following would not be considered a general long-term liability?
a. The estimated liability to clean up the fuel and hazard waste storage sites of the city’s Public Works Department. b. Capitalized equipment leases of the water utility fund.
c. Compensated absences for the city’s Police Department.
d Five-year notes payable used to acquire computer equipment for the city be recorded in the journal of the:
a. Capital projects fund.
b. Debt service fund. library. roceeds from bonds issued to construct a new county jail would most likely 248 Part One State and Local Governments c. General Fund.
d. Enterprise fund. 3. The long—term liability for a bond issue used to construct a new city recre—
ation center should be recorded in the:
a. Capital projects fund general journal.
b. Debt service fund general journal.
6. Governmental activities general journal.
d. Both b and c. Items 4 and 5 are based on the following information: On March 2, 2010, 20—year, 6 percent, general obligation serial bonds were
issued at the face amount of $3,000,000. Interest of 6 percent per annum is due
semiannually on March 1 and September 1. The first payment of $150,000 for
redemption of principal is due on March 1, 2011. Fiscal year-end occurs on I ecember 31. at is the interest expense for the fiscal year ending December 31, 2010?
d. None of the above. What is the interest expenditure for the fiscal year ending December 31, 2010? a. $90,000. b. $135,000. 0. $150,000. d. None of the above. .ebt service funds may be used to account for all of the following except:
. Repayment of debt principal. b. Lease payments under capital leases.
c. Amortization of premiums on bonds payable.
d. The proceeds of refunding bond issues. @Expenditures for redemption of principal of tax-supported bonds payable
should be recorded in a debt service fund: a. When the bonds are issued. b. When the bond principal is legally due. , c. When the redemption checks are written. \ d. Any of the above, if consistently followed. ‘ 8. Which of the following items would be reported in the Governmental Activ-
ities column of the government-wide financial statements? Premium on Noncurrent Portion of General Bonds Payable Long—term Liabilities Payable
a. Yes No
b. No i' No
c. No Yes
d. Yes Yes Chapter 6 Accounting for General longrterm Liabilities and Debt Service 249 9. I terest on general long—term debt would be recorded as an expenditure in
hich of the following financial statements?
a. Statement of revenues, expenditures, and changes in fund balances—
b. Statement of activities. 0. Both a and b are correct.
d. None of the above; interest is recorded as an expense, not an expenditure. Which of the following accounts is unlikely to appear in a debt service fund
a. Estimated Revenue.
0. Estimated Other Financing Sources.
d. Encumbrances. ong—term Liability 'Ii‘ansactions. Following are a number of unrelated transac-
tions for K—Town, some of which affect governmental activities at the government-
wide level. None of the transactions has been recorded yet. 1. The General Fund collected $825,000 in accrued taxes, which was transferred
to the debt service fund; $600,000 of this amount was used to retire out—
standing serial bonds and the remainder was used to make the interest pay—
ment on the outstanding serial bonds. 2. A $5,000,000 issue of serial bonds to finance a capital project was sold at
102 plus accrued interest in the amount of $50,000. The accrued interest and
the premium were recorded in the debt service fund. Accrued interest on
bonds sold must be used for interest payments; the premium is designated
by state law for eventual payment of bond principal. 3. The debt service fund made a $110,000 capital lease payment, of which
$15,809 was interest. Funds used to make the lease payment came from a
capital grant received by the special revenue fund. 4. Tax—supported serial bonds with a $2,800,000 par value were issued in cash
to permit partial refunding of a $3,500,000 par value issue of term bonds.
The difference was settled with $700,000 that had been accumulated in prior
years in a debt service fund. Assume that the term bonds had been issued several years earlier at par. u: Required Prepare in general journal form the necessary entries in the governmental activi—
ties and appropriate fund journals for each transaction. Explanations may be omit—
ted. For each entry you prepare, name the fund in which the entry should be made. 6—4 Budgetary Transactions. Fleck County issued $5,500,000, 3 percent serial
bonds, paying interest on January 1 and July 1. The bonds were sold on June 1 for
101. The county is required to use all accrued interest and premiums to service the
debt. Any additional resources needed to service the debt are to come from the
General Fund. The county’s fiscal year-end is December 31. Required
Prepare in general journal form the budgetary entry the debt service fund would make to account for this serial bond issue. What, if any, adjustment would need to
be made to the General Fund budget to account for this serial bond issue? ...
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- Spring '10