Question 1

Cascade County issued $1 million of 6 percent term bonds at 101. These bonds will be used to finance the construction of highways. The entry in the debt service fund to record the receipt of cash should be

Accepted Answer

The answer of Cascade County issued $1 million of 6...

Question 2

Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt.
-In the debt service fund, what is the appropriate entry when the principal payment is made?

Accepted Answer

When the principal payment is made from the debt service fund, the appropriate entry is to debit Expenditures and credit Cash. This reflects the use of current financial resources to pay down the principal on long-term debt.

Question 3

Due to changes in the prevailing interest rates, Washington County has decided to issue new 5 percent bonds and place the proceeds with a trustee in a manner structured to satisfy all the GASB requirements for an in-substance defeasance of an existing 6.5 percent bond issue.   The 6.5 percent bonds were originally issued to fund highway projects and the debt is reported in the governmental activities column of the government-wide statement of net position.  The old 6.5 percent bonds are still actively traded in the bond market and will be until their maturity.  The new 5 percent bonds will be sold to an institutional buyer who may also sell them in the bond market. 
-Which bonds should be reported on the government-wide statement of net position?

Accepted Answer

The answer of Due to changes in the prevailing interest...

Question 4

Lewis County uses a fiscal agent to distribute payments of interest to bondholders.  Interest payments are due on July 1 of each year.  The fiscal agent requires the county to transfer by June 20 the cash necessary to make the July 1 payments. 
-What entry should be made on July 1 related to the interest payment?

Accepted Answer

Interest payments typically involve reducing a liability (Interest Payable) and decreasing an asset (Cash). This entry reflects the payment of interest that has accrued and is now being paid, reducing the liability and the cash asset.

Question 5

The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.  The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.  The city will oversee the construction of the sidewalks and act as agent for servicing the debt.  If the special assessment is not sufficient to make the principal and interest payments, the city will assume the obligations.  
-When the city collects the special assessment, it should be accounted for in which fund of the City of Arlington?

Accepted Answer

The city is acting as an agent for the collection and payment of the special assessment related to the construction of sidewalks. Therefore, the collections should be accounted for in an Agency fund, which is used to account for resources held by the government in a purely custodial capacity.

Question 6

Harbor City issued 6 percent tax-exempt bonds and used the proceeds to acquire federal government securities yielding 7 percent. After paying the interest on the tax-exempt bonds, the city cleared 1 percent. This is an example of

Accepted Answer

This is an example of arbitrage, where the city is profiting from the difference in interest rates between the tax-exempt bonds it issued and the higher-yielding federal government securities it purchased.

Question 7

Due to changes in the prevailing interest rates, Washington County has decided to issue new 5 percent bonds and place the proceeds with a trustee in a manner structured to satisfy all the GASB requirements for an in-substance defeasance of an existing 6.5 percent bond issue.   The 6.5 percent bonds were originally issued to fund highway projects and the debt is reported in the governmental activities column of the government-wide statement of net position.  The old 6.5 percent bonds are still actively traded in the bond market and will be until their maturity.  The new 5 percent bonds will be sold to an institutional buyer who may also sell them in the bond market. 
-What amount of gain or loss should be recognized on this transaction?

Accepted Answer

The correct answer is the difference between the present value of the principal and interest payments on the old debt and the present value of the principal and interest payments on the new debt. This approach aligns with accounting principles for measuring the gain or loss on debt restructuring or refinancing, focusing on the present value to reflect the time value of money.

Question 8

The City of Twin Falls issued $5 million in special assessment bonds to finance major reconstruction of the turbines and facilities used in generating electricity that is sold to the citizens in the surrounding area. The electric power distribution activities are accounted for in an enterprise fund, which service the debt. If the city is NOT legally obligated for the debt, the appropriate entry in the city's Electric Enterprise Fund to record this event is

Accepted Answer

If the city is not legally obligated for the debt, the issuance of the bonds should be recorded as a capital contribution in the Electric Enterprise Fund, as the fund benefits from the improvements without incurring a liability.

Question 9

The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.  The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.  The city will oversee the construction of the sidewalks and act as agent for servicing the debt.  If the special assessment is not sufficient to make the principal and interest payments, the city will assume the obligations.  
-When the City of Arlington levies the special assessment tax, the best entry would be

Accepted Answer

When the City of Arlington levies a special assessment tax, the correct accounting entry is to debit Special Assessments Receivable and credit Deferred Inflow of Resources. This entry reflects that the city has a receivable indicating an amount to be collected, but it cannot recognize the revenue until certain criteria are met, hence the use of Deferred Inflow of Resources.

Question 10

The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.  The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.  The city will oversee the construction of the sidewalks and act as agent for servicing the debt.  If the special assessment is not sufficient to make the principal and interest payments, the city will assume the obligations.  
-The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

Accepted Answer

The proceeds from the bond issue for the construction of sidewalks should be recorded in a Capital Projects Fund, as this fund is used for financial resources to be used for the acquisition or construction of major capital facilities.

Question 11

Adams County has outstanding $10 million in bonds issued to construct a sewer system in a specific area of the county. The taxpayers in that area voted for the construction and the bonds and agreed to assess themselves to pay the principal and interest on the bonds. The county contracted for the construction and issued the bonds but assumed no legal or moral obligation for the bonds. If the special assessment payments are not sufficient to make the required principal and interest payments, the county will not make up the difference. The liability for the $10 million of bonds should appear in which fund financial statements?

Accepted Answer

Since Adams County has no legal or moral obligation for the bonds and will not make up the difference if the special assessment payments are insufficient, the liability for the bonds should not appear in the fund financial statements of Adams County.

Question 12

The City of Twin Falls issued $5 million in special assessment bonds to finance major reconstruction of the turbines and facilities used in generating electricity that is sold to the citizens in the surrounding area. The electric power distribution activities are accounted for in an enterprise fund, which will service the debt. If the city is legally obligated for the debt, the appropriate entry in the city's Electric Enterprise Fund to record this event is

Accepted Answer

Since the city issued bonds to finance the reconstruction of facilities and is legally obligated for the debt, the correct accounting entry in the Electric Enterprise Fund would be to debit Plant assets, reflecting the investment in the facilities, and credit Bonds payable, indicating the liability incurred from the bond issuance.

Question 13

Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt.
-When the county makes the transfer the entry in the debt service fund should be

Accepted Answer

Transfers from the general fund to the debt service fund to pay principal and interest on long-term debt are recorded as "Other financing sources-nonreciprocal transfer-in" in the debt service fund, reflecting the inflow of resources from another fund without a direct exchange.

Question 14

In early 2017, Jackson City issued $10 million of 6 percent term bonds to finance a highway construction project. Because of problems related to the Endangered Species Act, the city deferred highway construction that year. In early 2018, the city entered into contracts for construction that will begin in summer 2018 and be completed by summer 2019. When the city realized they would not need the bond proceeds in 2018, they invested the proceeds in risk-free federal government securities bought to yield 7 percent. What potential arbitrage liability, if any, should the city recognize as a result of the year 2018 transactions?

Accepted Answer

The answer of In early 2017, Jackson City issued $10...

Question 15

The City of St. Joe had outstanding $5 million of 6 percent bonds with a call provision. Due to changes in the prevailing interest rates, the city issued new bonds at 4.5 percent and used the proceeds to call the 6 percent bonds. This is an example of

Accepted Answer

Debt refunding occurs when an entity issues new debt at a lower interest rate to retire existing higher-rate debt, which is exactly what the City of St. Joe did by issuing new 4.5 percent bonds to replace the 6 percent bonds.

Question 16

The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.  The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.  The city will oversee the construction of the sidewalks and act as agent for servicing the debt.  If the special assessment is not sufficient to make the principal and interest payments, the city will assume the obligations.  
-The proceeds of the bond issue should be recorded in which fund of the City of Arlington?

Accepted Answer

The proceeds of the bond issue should be recorded in the Capital Projects Fund. This fund is used to account for the acquisition or construction of major capital facilities, such as the construction of sidewalks in this case.

Question 17

A government has elected to issue new debt and use the proceeds to redeem existing debt because there is an economic gain in doing so. There is, however, an "accounting loss" associated with these events. The accounting loss is defined as

Accepted Answer

The accounting loss is the difference between the present value of the principal and interest payments on the new debt and the present value of the principal and interest payments on the old debt.

Question 18

The City of Williamsburg decided to defease old 6 percent bonds carried in its Electric Enterprise Fund with new 4.5 percent bonds. As a result of the defeasance, the city incurred an accounting loss. The loss should be recognized

Accepted Answer

The accounting loss from the defeasance should be recognized over the remaining life of the old bonds or the new bonds, whichever is shorter, as it reflects the cost of refinancing.

Question 19

Lewis County uses a fiscal agent to distribute payments of interest to bondholders.  Interest payments are due on July 1 of each year.  The fiscal agent requires the county to transfer by June 20 the cash necessary to make the July 1 payments. 
-How should Lewis County account for the amount transferred on June 20 if the county maintains its books and records in a manner that facilitates the preparation of fund financial statements?

Accepted Answer

The answer of Lewis County uses a fiscal agent to...

Question 20

The citizens of a specific area of the City of Arlington approved the construction of sidewalks in their residential neighborhood and approved a $1 million bond issue to finance construction of those sidewalks.  The citizens agreed to a special assessment on their property for 20 years in an amount sufficient to pay principal and interest on the bonds.  The city will oversee the construction of the sidewalks and act as agent for servicing the debt.  If the special assessment is not sufficient to make the principal and interest payments, the city will assume the obligations.  
-When the city collects the special assessment, it should be accounted for in which fund of the City of Arlington?

Accepted Answer

The city is acting as an agent for the collection and payment of the special assessment related to the construction of sidewalks. Therefore, the collections should be accounted for in an Agency fund, which is used to account for resources held by the government in a purely custodial capacity.

Quiz 6: Accounting for Capital Projects and Debt Service

Cascade County issued $1 million of 6 percent term bonds at 101. These bonds will be used to finance the construction of highways. The entry in the debt service fund to record the receipt of cash should be

Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt. -In the debt service fund, what is the appropriate entry when the principal payment is made?

Harbor City issued 6 percent tax-exempt bonds and used the proceeds to acquire federal government securities yielding 7 percent. After paying the interest on the tax-exempt bonds, the city cleared 1 percent. This is an example of

Calhoun County makes annual transfers from the general fund to the debt service fund to pay principal and interest on long-term debt. -When the county makes the transfer the entry in the debt service fund should be

The City of St. Joe had outstanding $5 million of 6 percent bonds with a call provision. Due to changes in the prevailing interest rates, the city issued new bonds at 4.5 percent and used the proceeds to call the 6 percent bonds. This is an example of

A government has elected to issue new debt and use the proceeds to redeem existing debt because there is an economic gain in doing so. There is, however, an "accounting loss" associated with these events. The accounting loss is defined as

The City of Williamsburg decided to defease old 6 percent bonds carried in its Electric Enterprise Fund with new 4.5 percent bonds. As a result of the defeasance, the city incurred an accounting loss. The loss should be recognized