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Chap006 - CHAPTER 6 ACCOUNTING FOR GENERAL LONG-TERM...

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CHAPTER 6: ACCOUNTING FOR GENERAL LONG-TERM LIABILITIES AND DEBT SERVICE OUTLINE Number Topic Type/Task Status (re: 12/e) Questions: 6-1 Reasons for general long-term liabilities Explain 6-2 6-2 Disclosures of types and changes in liabilities Explain 6-6 6-3 General obligation bonds Describe 6-3 6-4 GO Bonds and enterprise funds Explain 6-5 6-5 Debt margin Explain 6-7 6-6 Purpose of debt service funds Explain 6-8 6-7 Number of debt service funds Explain 6-11 6-8 Year end balance Explain 6-12 6-9 Amortization of premiums and discounts Explain 6-14 6-10 Advance refunding of bonds Describe 6-15 Cases: 6-1 Analysis of general obligation debt burden Assess New Exercises/Problems: 6-1 Examine the CAFR Examine 6-1 revised 6-2 Various Multiple Choice 6-2 revised 6-3 Long-term liability transactions Journal Entries 6-3 6-4 Statement of legal debt margin Financial Schedule 6-5 6-5 Capital lease Journal Entries 6-4 6-6 Direct and overlapping debt Financial Schedule 6-6 6-7 DSF and financial statements JEs and FS 6-8 6-8 Term bond debt service fund transactions; advance refunding JEs New 6-9 Comprehensive capital assets/long-term liabilities problem JEs & FS 6-9 99
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CHAPTER 6: ACCOUNTING FOR GENERAL LONG-TERM LIABILITIES AND DEBT SERVICE Answers to Questions 6-1. General long-term liabilities are often incurred to finance general capital assets that will be used in governmental activities. Liabilities may also be incurred for operating expenses of governmental activities or estimated losses from long-term claims and judgments. 6-2. During the period covered by the report even a relatively small governmental unit may have issued several kinds of debt instruments for various purposes; incurred capital lease obligations; repaid matured issues; called issues; purchased unmatured issues, or portions of them, on the open market; canceled leases, etc. A schedule that presents all of the information together and relates it to the amount of debt outstanding at the beginning of the year and at the end of the year, as shown in Illustration 6-1, is useful. 6-3. a . The premium on bonds payable is reported in the government-wide statement of net assets, where it increases the long-term liability, and is amortized over the life of the bonds. b . Same as answer to a . At the government-wide level, it does not make any difference what the premium will be used for. 6-4. The bonds should be shown as an enterprise fund liability, as well as a liability of business-type activities on the government-wide statement of net assets. The contingent liability due to the bonds' general obligation (G.O.) status should be disclosed in the notes to the financial statements. 6-5. The amount of bonds authorized but unissued has passed the stage where it can be controlled by taxpayers. To ignore debt authorized but unissued would make it possible to exceed the debt limit if the debt is issued.
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