Ives7e_TIF_ch06 - Chapter 6 The Governmental Fund...

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Chapter 6: The Governmental Fund Accounting Cycle Capital Projects Funds, Debt Service Funds, and Permanent Funds Multiple Choice 1. What is the purpose of a Debt Service Fund? a. to account for resources that are restricted or otherwise limited to pay the debt service on all debt of the government, including Enterprise fund debt and short-term debt used to finance General Fund operations b. to account for resources that are restricted or otherwise limited to pay principal and interest on general long-term debt c. to account for resources that are restricted or otherwise limited to pay the debt service on all long-term debt of the government, and also to show how much long-term debt is outstanding d. to provide a means of reporting all outstanding long-term debt of the government in a single location Answer: b 2. At what point should interest be recognized as an expenditure in a Debt Service Fund? 3. A city sells $5 million of 20-year general obligation bonds on October 1, 2013. Interest on the debt is payable at the rate of 5% a year on the unpaid balance of the debt, every six months commencing March 31, 2014. How much should the city report as an interest expenditure in the Debt Service Fund for the calendar year ending December 31, 2013?
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4. A city sells $15 million of general obligation bonds on October 1, 2013. The bonds mature at the rate of $1 million a year each September 30, starting September 30, 2014. The amount due September 30, 2014 is paid. How much should the city report as outstanding debt in the Debt Service Fund in its year-end fund level financial statements on December 31, 2014? 5. A city sells $5 million of 6% ten-year general obligation bonds on April 1, 2013. The first installment of debt principal ($250,000) is due to be paid on September 30, 2013. What entry should the city make on September 30, 2013 in the Debt Service Fund regarding the bond principal? a. It should recognize a $250,000 liability for Matured bonds payable. b. It should reduce the $5 million long-term liability by $250,000. c. It should do nothing in the Debt Service Fund, but it should reduce Bonds payable by $500,000 in the Capital Projects Fund d. It should make no entry anywhere until the principal is actually paid. Answer: a
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