Chapter 08D - Debt Service Funds Chapter 8 Learning Objectives for DSFs Understand basic purpose and nature of DSFs and liabilities serviced by

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Debt Service Funds Chapter 8
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Learning Objectives for DSFs Understand basic purpose and nature of DSFs and liabilities serviced by them Understand when DSFs are required and when other funds may be used Understand when expenditures on GLTL are recognized Understand when governments may accrue principal and interest expenditures before maturity Record transactions and prepare financial statements Understand accounting and reporting for special assessment DSFs Understand requirements for GLTL term bonds and deep discount debt Understand, record, & report refundings of GLTL
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Purpose of DSFs To account for the accumulation of resources for, and the payment of, general long-term debt principal and interest Required only if Legally mandated, or Financial resources are being accumulated for principal and interest payments in future years
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Debt Terminology General obligation indicates “full faith and credit” of the governmental unit pledged to repay the debt Revenue debt indicates specific revenue source dedicated to repay the debt Double barrel is revenue debt with repayment guaranteed by full faith and credit of governmental unit
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Types of Long-Term Liabilities Bonds Notes Time Warrants Capital Leases (including leases, lease- purchase agreements, certificates of participation, and installment purchase contracts)
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Bonds Usually issued in $1,000 or $5,000 denominations Maturity runs from 15 to 25 years Interest paid annually or semi-annually Types Serial – the most widely used, principal comes due in installments Term – principal comes due at a single point in time
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Notes Typically less formal than bonds May be Short-term – 30 to 90 days – reported as fund liabilities Long-term – 3 to 5 years – reported in GLTL Single note used for entire transaction rather than multiple bonds
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Warrants Notes – multiple year warrants that are the same as notes payable Checks Check warrant Promises to pay Money must be in bank on date it comes due Reported in GLTL if maturity date is more than 1 year in future “Normal check” Order to pay Money must be in bank on date written
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Capital Leases, et. al. Instruments have widespread use in public sector Certificates of participation (CoPs) divide leases into shares that are sold to investors Some leases made with deep discounts – little or no interest paid during term
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Other Bond Terms Interest rates Fixed – most common – aids in planning for expenditures Variable – more flexibility Debt service payments – try to minimize fluctuations Fiscal agents – process interest and principal payments
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Other Bond Terms (continued)
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This note was uploaded on 10/17/2011 for the course ACCT 4325 taught by Professor Staff during the Spring '08 term at UT Arlington.

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Chapter 08D - Debt Service Funds Chapter 8 Learning Objectives for DSFs Understand basic purpose and nature of DSFs and liabilities serviced by

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