Exam 8: Debt Service Funds

The City of Armona has decided to refinance $8,000 par value of general government, general obligation bonds outstanding. The bonds had a related unamortized bond premium of $200. The city issues $6,000 of refunding bonds and transfers $2,700 from the General Fund to the Debt Service Fund. The city paid $8,700 from the Debt Service Fund into an irrevocable trust to cover future payments on the original bonds. All amounts are in thousands of dollars. $\underline{\text{ Requirements: }}$ 1. Record the above transactions in the Debt Service Fund assuming the refinancing meets the conditions for treatment as a defeasance in substance. 2. Record the above transactions in the Debt Service Fund assuming the refinancing does not meet the conditions for treatment as a defeasance in substance. 3. For both requirements (1) and (2), indicate the effects of each transaction on the accounting equation of the Debt Service Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put "NE" in the appropriate box.

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Question 1

Correct Answer:

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$\textbf{ Requirement 3 } Refunding \begin{array} { | r | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Trans } \\ \# \end{array} & \text { Assets } & \text { Liabilities } & \begin{array} { c } \text { Fund } \\ \text { Balance } \end{array} & \text { GCA } & \text { GLTL } & \begin{array} { c } \text { Net } \\ \text { Position } \end{array} \\ \hline 1 & 6,000 & \mathrm { NE } & 6,000 & \text { NE } & 6,000 & ( 6,000 ) \\ \hline 2 & 2,700 & \mathrm { NE } & 2,700 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\ \hline 3 & ( 8,700 ) & \mathrm { NE } & ( 8,700 ) & \mathrm { NE } & ( 8,200 ) & 8,200 \\ \hline \end{array} Investment (non-Refunding) \begin{array} { | r | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Trans } \\ \# \end{array} & \text { Assets } & \text { Liabilities } & \begin{array} { c } \text { Fund } \\ \text { Balance } \end{array} & \text { GCA } & \text { GLTL } & \begin{array} { c } \text { Net } \\ \text { Position } \end{array} \\ \hline 1 & 6,000 & \mathrm { NE } & 6,000 & \text { NE } & 6,000 & ( 6,000 ) \\ \hline 2 & 2,700 & \mathrm { NE } & 2,700 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\ \hline 3 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\ \hline \end{array} *Investments increase and cash decreases by equal amounts.$ $\textbf{ Requirement 3 }$
Refunding
$\begin{array} { | r | c | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Trans } \\\#\end{array} & \text { Assets } & \text { Liabilities } & \begin{array} { c } \text { Fund } \\\text { Balance }\end{array} & \text { GCA } & \text { GLTL } & \begin{array} { c } \text { Net } \\\text { Position }\end{array} \\\hline 1 & 6,000 & \mathrm { NE } & 6,000 & \text { NE } & 6,000 & ( 6,000 ) \\\hline 2 & 2,700 & \mathrm { NE } & 2,700 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\\hline 3 & ( 8,700 ) & \mathrm { NE } & ( 8,700 ) & \mathrm { NE } & ( 8,200 ) & 8,200 \\\hline\end{array}$ Investment (non-Refunding)
$\begin{array} { | r | c | c | c | c | c | c | } \hline \begin{array} { c } \text { Trans } \\\#\end{array} & \text { Assets } & \text { Liabilities } & \begin{array} { c } \text { Fund } \\\text { Balance }\end{array} & \text { GCA } & \text { GLTL } & \begin{array} { c } \text { Net } \\\text { Position }\end{array} \\\hline 1 & 6,000 & \mathrm { NE } & 6,000 & \text { NE } & 6,000 & ( 6,000 ) \\\hline 2 & 2,700 & \mathrm { NE } & 2,700 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\\hline 3 & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } & \mathrm { NE } \\\hline\end{array}$ *Investments increase and cash decreases by equal amounts.

A government has $3,000,000 of 6%, 10-year general obligation bonds outstanding. The bonds were issued on July 2, 20X7 to finance construction of a general capital asset. Interest is payable semiannually on January 1 and July 1. What is the maximum amount of interest expenditures that the government would be permitted to report on the bonds for the year ended December 31, 20X7?

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Question 2

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Debt Service Fund expenditures reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance commonly exclude

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Question 3

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A government paid $6,000,000 into an irrevocable trust to be used to service $5,000,000 of outstanding general obligation bonds, but the transaction does not meet the defeasance in-substance criteria. The payment included $3,000,000 of proceeds from a new bond issue that was issued to provide resources for the old bond. The other $3,000,000 had been accumulated over previous years from taxes and interest earnings in the Debt Service Fund. The government should report this transaction in its Debt Service Fund as

(Multiple Choice)

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Question 4

A government has $1,000,000 of 6%, 10-year general obligation bonds outstanding. The bonds were issued on August 15, 20X6 to finance construction of a general capital asset. Interest is payable semiannually on February 15 and August 15. What is the maximum amount of interest expenditures that the government would be permitted to report on the bonds for the year ended December 31, 20X6?

(Multiple Choice)

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Question 5

What measurement focus does a Debt Service Fund use?

(Multiple Choice)

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Question 6

Revenues in a Debt Service Fund are recognized when

(Multiple Choice)

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Question 7

A Debt Service Fund received an annual payment from the General Fund to finance upcoming debt service payments. The amount received from the General Fund should be reported in the Debt Service Fund statement of revenues, expenditures, and changes in fund balance as

(Multiple Choice)

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Question 8

All of the following statements regarding a Debt Service Fund are true except

(Multiple Choice)

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Question 9

If General Fund cash is transferred to a Debt Service Fund to provide resources to refund outstanding debt, the Debt Service Fund statement of revenues, expenditures, and changes in fund balance would report

(Multiple Choice)

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Question 10

Debt Service Fund expenditures would include all of the following except

(Multiple Choice)

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Question 11

If a special tax is levied to finance debt service for a particular debt issue, the entry to record the levy in the Debt Service Fund would include

(Multiple Choice)

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Question 12

Debt service expenditures on general long-term debt principal should be recognized in the period that the liability:

(Multiple Choice)

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Question 13

Which of the following is not usually a requirement of a Debt Service Fund (DSF) for a term bond issue?

(Multiple Choice)

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Question 14

Assume that a county with a June 30 fiscal year end levied $900,000 in special assessments to finance debt service on a special assessment debt issuance. The levy date was January 20X1. The levy is to be paid by the property owners over a 10-year period beginning in January 20X2. The amount of revenue recognized by the county in the Debt Service Fund as of June 30, 20X1 would be

(Multiple Choice)

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Question 15

Equity in a Debt Service Fund is known as

(Multiple Choice)

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Question 16

Assume that the fair market value of investments in a Debt Service Fund decreased by $25,000 as of the end of the fiscal year. What entry would be necessary to reflect this change?

(Multiple Choice)

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Question 17

Which of the following financial statements is not presented for a Debt Service Fund?

(Multiple Choice)

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Question 18

A government retired $5,000,000 of outstanding general obligation bonds when due. The government used $3,000,000 of proceeds from new bonds issued to provide resources for retiring the old bonds. The other $2,000,000 had been accumulated from tax and interest revenues over the years that the old bonds were outstanding. The government should report this transaction in its Debt Service Fund as

(Multiple Choice)

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Question 19

The GASB Codification sets forth circumstances in which a state or local government is permitted to accrue expenditures related to unmatured principal and interest on general obligation long-term liabilities. Which of the following are those circumstances? I. Dedicated financial resources to pay the maturing principal and interest have been accumulated in a Debt Service Fund by year end. II. The debt service payment is due early next year (within 30 days). III. The debt service payment is due early next year (within 60 days).

(Multiple Choice)

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Question 20

Showing 1 - 20 of 47

Debt Service Fund expenditures reported on the Statement of Revenues, Expenditures, and Changes in Fund Balance commonly exclude

What measurement focus does a Debt Service Fund use?

Revenues in a Debt Service Fund are recognized when

A Debt Service Fund received an annual payment from the General Fund to finance upcoming debt service payments. The amount received from the General Fund should be reported in the Debt Service Fund statement of revenues, expenditures, and changes in fund balance as

All of the following statements regarding a Debt Service Fund are true except

If General Fund cash is transferred to a Debt Service Fund to provide resources to refund outstanding debt, the Debt Service Fund statement of revenues, expenditures, and changes in fund balance would report

Debt Service Fund expenditures would include all of the following except

If a special tax is levied to finance debt service for a particular debt issue, the entry to record the levy in the Debt Service Fund would include

Debt service expenditures on general long-term debt principal should be recognized in the period that the liability:

Which of the following is not usually a requirement of a Debt Service Fund (DSF) for a term bond issue?

Equity in a Debt Service Fund is known as

Assume that the fair market value of investments in a Debt Service Fund decreased by $25,000 as of the end of the fiscal year. What entry would be necessary to reflect this change?

Which of the following financial statements is not presented for a Debt Service Fund?

Governmental and Nonprofit Accountingenvironment and Characteristics

State and Local Government Accounting and Financial Reporting Modelthe Foundation

Budgeting, Budgetary Accounting, and Budgetary Reporting

The General Fund and Special Revenue Funds

Revenue Accountinggovernmental Funds

Expenditure Accountinggovernmental Funds

Capital Projects Funds

General Capital Assets; General Long-Term Liabilities; Permanent Fundsintroduction to Interfund-Gca-Gltl Accounting

Enterprise Funds

Internal Service Funds

Trust and Agency Fiduciary Funds Summary of Interfund-Gca-Gltl Accounting

Financial Reportingthe Basic Financial Statements and Required Supplementary Information

Financial Reporting Deriving Government-Wide Financial Statements and Required Reconciliations

Financial Reportingthe Comprehensive Annual Financial Report and the Financial Reporting Entity

Non-Slg Not-For-Profit Organizations

Accounting for Colleges and Universities

Accounting for Health Care Entities

Federal Government Accounting

Auditing Governments and Not-For-Profit Organizations

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