Exam 6: Accounting for General Long-Term Liabilities and Debt Service

On March 2, 2019, 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, 2020. Fiscal year-end occurs on December 31. What is the interest expense for the fiscal year ending December 31, 2019?

Which of the following is not properly recorded in the governmental activities accounts?

On the due date for a bond interest and principal payment, the debt service fund journal entry (or entries) will include: 

If a government has deposited or transferred financial resources dedicated for payment of debt service to the debt service fund and payment of principal and interest is due early in the following year, then the expenditure and related liability may be recognized in the debt service fund prior to year end.

Debt service funds for term bonds would generally include sinking fund investments.

The City of New Haven issued $20 million of tax-supported bonds at 102 to finance a new jail. Upon issuance, how will the premium be recorded? 

The City of Jamestown has agreed to acquire a new city maintenance building under a lease agreement. At the inception of the lease, a payment of $100,000 is to be made; nine annual lease payments, each in the amount of $100,000, are to be made at the end of each year after the inception of the lease. The total amount to be paid under this lease, therefore, is $1,000,000. The town could borrow this amount for nine years at the annual rate of 8 percent; therefore, the present value of the lease at inception, including the initial payment, is $724,689. Assume that the fair value of the building at the inception of the lease is $750,000. a. Prepare the entry that should be made in a capital projects fund at the inception of the lease. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) b. Prepare the entry that should be made at the inception of the lease in the governmental activities journal. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) c. Prepare the entry that should be made in the debt service fund and governmental activities journal to record the second lease payment. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 principal and $15,000 interest payment. The recording of this transaction would include:

Debt service fund activities are reported as part of governmental activities at the government-wide level.

How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?

Which of the following assets would not be found in the balance sheet of a debt service fund?

Notes to the financial statements of a state or local government should include a schedule, or summary, of debt service requirements (principal and interest payments) of debt outstanding on the balance sheet date.

Long-term debt intended to be repaid from tax levies or special assessments is recorded in debt service funds.

General long-term liabilities are those that arise from activities of governmental funds as well as those reported as fund liabilities of a proprietary or fiduciary fund.

The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a $100,000 bond principal and $15,000 interest payment. Subsequent payment of the principal and interest would include:

Compensated absences, pollution remediation obligations, and claims and judgments are examples of long-term liabilities that can arise from operating activities.

Which of the following financial statements are required for a Debt Service Fund?

The use of encumbrance accounting is required for debt service funds.

Which of the following debt service fund accounts would not be closed at the end of each fiscal year?

The debt limit for general obligation debt for Milos City is 1 percent of the assessed property valuation for the city. Assessed property valuation \ 10,863,511,000 Approved but unissued tax-supported debt 10,000,000 Revenue bonds issued 32,000,000 General obligation serial bonds issued 43,000,000 Leases outstanding 5,230,000 Calculate the city's debt limit and debt margin.