Question 1

As of December 31, 2019, Westport had $9,500,000 in 4.5 percent serial bonds outstanding. The serial bonds pay interest semiannually on July 1 and December 31, with $500,000 in bonds being retired on each interest payment date. Resources for payment of principal and interest are transferred from the General Fund. Prepare debt service fund and government-wide entries in general journal form to reflect, as necessary, the following information and transactions for FY 2020. 
(1) The operating budget for FY 2020 consists of other financing sources (transfers from the General Fund) equal to estimated principal and interest payments. Appropriations also must be provided for interest payments and bond redemptions on July 1 and December 31. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
(2) Cash was received from the General Fund and checks were written and mailed for the July 1 principal and interest payments.

Accepted Answer

(1)
 $$\begin{array} { | c | c | c | } 
\hline & \underline { \text { Debits } } & \underline { \text { Credits } } \
\hline \text { Serial Bond Debt Service Fund: } & & \
\hline \text { ESTMMATED OTHER FINANCING SOURCES } & 1,416,25 & \
\hline \text { APPROPRIATIONS } & & 1,416,250 \
\hline
\end{array}$$ 
Budget For FY 2020: Interest = $9,500,000 × 0.045 × ½ For July 1 payment = $213,750 and $9,000,000 × 0.045 × ½ = $202,500 for December 31 payment, two principal payments = $1,000,000.
Governmental Activities: No entries required
(2)
 $$\begin{array} { | l | l | l | } 
\hline \text { Serial Bond Debt Service Fund: } & & \
\hline \text { CASH } & 713,750 & \
\hline \text { OTHER FINANCING SOURCES- } & & \
\text { INTERFUND TRANSFERS IN } & & 713,750 \
\hline
\end{array}$$ $$\begin{array} { | l | r | r | } 
\hline \text { EXPENDITURES-BOND INTEREST } & 213,750 & \
\hline \text { EXPENDITURES-BOND PRINCIPAL } & 500,000 & \
\hline \text { CASH } & & 713,750 \
\hline \text { Governmental Activities: } & & \
\hline \text { INTEREST EXPENSE } & 213,750 & \
\hline \text { BONDS PAYABLE } & 500,000 & \
\hline \text { CASH } & & 713,750 \
\hline
\end{array}$$

Question 2

All special assessment debt should be reported in the government-wide statement of net position in the Business-type Activities column.

Accepted Answer

A) True 
 B)False  False

Question 3

Since the debt of a government is subject to a legal debt limit, there cannot be any legal overlapping debt.

Accepted Answer

A) True 
 B)False  False

Question 4

Governmental fund liabilities and expenditures for debt service on general long-term debt are generally recognized in the reporting period that debt payments are due.

Accepted Answer

A) True 
 B)False

Question 5

A given parcel of real estate may be subject at a given time to assessments for the payment of taxes to retire bonds issued by two or more governments.

Accepted Answer

A) True 
 B)False

Question 6

"The entire debt arising from the acquisition of general capital assets under a lease agreement should be reported as debt of the fund that accounts for the activities of the department or function using the leased asset. Only debt arising from the lease of equipment used by a number of departments should be reported in the governmental activities accounts, rather than a fund." Do you agree? Why or why not?

Accepted Answer

The answer of "The entire debt arising from the acquisition...

Question 7

Under a bond refunding, the proceeds of a new bond issuance are either deposited in escrow to pay the debt service on the outstanding bonds when due or used to promptly retire previously issued bonds.

Accepted Answer

A) True 
 B)False

Question 8

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt, the governmental activities accounts:

Accepted Answer

A)   Reflect the principal payment only.
B)   Reflect the interest payment only.
C)   Have no record of the transaction.
D)   Reflect both principal and interest payments.

Question 9

The issuance of general long-term bonds is reported in the fund receiving the proceeds and in the business-type activities column of the government-wide statements.

Accepted Answer

A) True 
 B)False

Question 10

When a lease payment is made, an entry is made in the debt service (or appropriate governmental) fund to record an expenditure, and an entry is made in the governmental activities accounts to reduce Lease Obligations Payable.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is always True concerning the reporting of debt service funds?

Accepted Answer

A)   Debt service funds are reported in a separate column in the governmental fund financial statements.
B)   Debt service funds are reported in a separate column in the government-wide financial statements.
C)   Debt service funds are reported in the Other Governmental Funds column in the governmental fund financial statements.
D)   Debt service funds are reported in the Governmental Activities column in the government-wide financial statements.

Question 12

Compensated absences are leaves of absence for which employees earn the right to be paid, but likely will not be paid due to insufficient government funds.

Accepted Answer

A) True 
 B)False

Question 13

The use of long-term debt is a traditional part of the fiscal policy of state and local governments.

Accepted Answer

A) True 
 B)False

Question 14

The purpose of a sinking fund is to set aside resources for a substantial debt payment due at maturity.

Accepted Answer

A) True 
 B)False

Question 15

If a city has an unpaid lease obligation at the beginning of its fiscal year, the journal entry in the debt service fund to record the lease payment during that fiscal year will include:

Accepted Answer

A)   A debit to Lease Obligations Payable.
B)   A credit to Expenditures-Principal of Lease Obligation.
C)   A debit to Expenditures-Principal of Lease Obligation.
D)   A debit to Interest Expense on Leases.

Question 16

Compensated absences may be reported in governmental funds.

Accepted Answer

A) True 
 B)False

Question 17

Governments should report an estimated loss from a claim or judgment as an expense and as a liability in the government-wide financial statements if a claim appears reasonable.

Accepted Answer

A) True 
 B)False

Question 18

When bonds are sold at a premium for a capital project, the premium amount generally:

Accepted Answer

A)   Increases the cash available to the capital projects fund.
B)   Is transferred to the debt service fund.
C)   Is applied against the principal balance by the fiduciary agent.
D)   Is recorded in a fiduciary fund since it does not belong to the capital projects fund.

Question 19

The Town of Windsor issued the following during the year: (1) $600,000 in bonds for the installation of street lights, to be assessed against properties benefited, but secondarily backed by the town; (2) $800,000 in bonds for construction of a public golf course to be self-supported from fees collected from golf course users. How much should be accounted for through debt service funds for payments of principal over the life of the bonds?

Accepted Answer

A)   $0.
B)   $600,000.
C)   $800,000.
D)   $1,400,000.

Question 20

The debt service activity of a government may be accounted for within the General Fund unless law mandates the use of a debt service fund.

Accepted Answer

A) True 
 B)False

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

All special assessment debt should be reported in the government-wide statement of net position in the Business-type Activities column.

Since the debt of a government is subject to a legal debt limit, there cannot be any legal overlapping debt.

Governmental fund liabilities and expenditures for debt service on general long-term debt are generally recognized in the reporting period that debt payments are due.

A given parcel of real estate may be subject at a given time to assessments for the payment of taxes to retire bonds issued by two or more governments.

Under a bond refunding, the proceeds of a new bond issuance are either deposited in escrow to pay the debt service on the outstanding bonds when due or used to promptly retire previously issued bonds.

When the debt service fund makes a payment of principal and interest on an outstanding long-term debt, the governmental activities accounts:

The issuance of general long-term bonds is reported in the fund receiving the proceeds and in the business-type activities column of the government-wide statements.

When a lease payment is made, an entry is made in the debt service (or appropriate governmental) fund to record an expenditure, and an entry is made in the governmental activities accounts to reduce Lease Obligations Payable.

Which of the following statements is always True concerning the reporting of debt service funds?

Compensated absences are leaves of absence for which employees earn the right to be paid, but likely will not be paid due to insufficient government funds.

The use of long-term debt is a traditional part of the fiscal policy of state and local governments.

The purpose of a sinking fund is to set aside resources for a substantial debt payment due at maturity.

If a city has an unpaid lease obligation at the beginning of its fiscal year, the journal entry in the debt service fund to record the lease payment during that fiscal year will include:

Compensated absences may be reported in governmental funds.

Governments should report an estimated loss from a claim or judgment as an expense and as a liability in the government-wide financial statements if a claim appears reasonable.

When bonds are sold at a premium for a capital project, the premium amount generally:

The debt service activity of a government may be accounted for within the General Fund unless law mandates the use of a debt service fund.