Government and Nonprofit ACCT Chapter 6

A town issues bonds as partial financing for a library construction project. The special sales tax for debt service is estimated to produce revenues of $270,000 for the year. From these revenues, two interest payments totaling $140,000 and a principal redemption payment of $120,000 must be paid. The Serial Bond Debt Service Fund entry to record the budget will include a credit to Budgetary Fund Balance for what amount?

$10,000

A town issues term bonds. Property taxes in the amount of $100,000 were levied and uncollectibles were expected to be $5,000. If actual tax collections during the first six months of the year were $51,000, the entry recorded in the Term Bond Debt Service Fund journal includes a credit to Taxes Receivable—Current for what amount?

$51,000

True or false: Overlapping debt occurs because debt limitation laws are established for each separate government entity affected by the laws.

True

When bonds are sold between interest payment dates, the accrued interest ______

When bonds are sold between interest payment dates, the accrued interest ______

At the government fund level, debt issuance costs are recognized as a(n) ___

expenditure

When a claim is probable and reasonably estimable, governments should report an estimated loss from a claim as which of the following?

expense liability

For most investments, except for certain money market investments with maturities of less than one year, current GASB standards require ___

fair value accounting and reporting

The purpose of a ______ is to set aside resources for a substantial debt payment due at maturity. Multiple choice question.

sinking fund

State and local governments are able to raise large amounts of capital at relatively low cost because of the which of the following?

tax-exempt feature of the bonds issued

General long-term liabilities are reported as liabilities in which of the following?

the government-wide statement of net position only

True or False: The interest earned on most debt issued by state and local governments is exempt from federal taxation and, in some states, from state taxation.

true

Which of the following bond issuance costs are expensed at the time of the bond issuance at the government-wide level?

underwriter fees administrative fees financing charges from rating agencies

Because debt service funds do not issue purchase orders or contracts for goods and services, the use of encumbrance accounting is ______

unnecessary

A town issues bonds as partial financing for a library construction project. The special sales tax for debt service is estimated to produce revenues of $270,000 for the year. From these revenues, two interest payments totaling $140,000 and a principal redemption payment of $120,000 must be paid. The Serial Bond Debt Service Fund entry to record the budget will include a debit to Estimated Revenues for what amount? Multiple choice question.

$270,000

At the end of the preceding year, $6,000 of interest payable had been accrued on outstanding serial bonds. On the first semiannual interest payment of the current year, a payment of interest of $72,000 and the fist redemption of principal of $120,000 was made to the registered owners of the bonds. The entry used to record the payments in the Serial Bond Debt Service Fund journal includes a debit to Expenditures—Bond Interest for what amount? Multiple choice question.

$72,000

town issues term bonds. Revenues and other financing sources are comprised of property taxes levied directly for this debt service fund and earnings on investments of the debt service fund. If property taxes in the amount of $100,000 are levied and uncollectibles are expected to be $5,000, the entry recorded in the Governmental Activities journal includes credits to which of the following?

Allowance for Uncollectible Current Taxes General Revenues—Property Taxes—Restricted for Debt Service

A town issues serial bonds as partial financing for a library construction project. Revenues to pay the interest payments and installments will be raised from a special sales tax recorded directly in the debt service fund. Residual equity is expected to be transferred from the Library Capital Projects Fund. The Serial Bond Debt Service Fund entry to record the budget will include a credit to which of the following?

Appropriations

Any amounts not collected by the due date should be reclassified by a credit to which of the following?

Assessments Receivable—Current

Special assessment bonds, secondarily backed by the general taxing authority of a city, were previously issued to complete a project within a neighborhood. Upon project completion, the city levied assessments amounting to $500,000, payable in 5 equal installments with 5% interest on unpaid installments, on owners of properties in that neighborhood. The entry in the Debt Service Fund journal to record the levy includes debits to which of the following?

Assessments Receivable—Unavailable for $400,000 Assessments Receivable—Current for $100,000

If a state or local government sells bonds at a premium and the bond indenture requires that initial issue premiums be used for debt service, which of the following would be included in the journal entry to record the premium in the debt service fund as an other financing source?

Debit to Cash Credit to Other Financing Sources—Premium on Bonds

Special assessment bonds, secondarily backed by the general taxing authority of a city, were previously issued to complete a project within a neighborhood. Upon project completion, the city levied assessments amounting to $500,000, payable in 5 equal installments with 5% interest on unpaid installments, on owners of properties in that neighborhood. The entry in the Governmental Activities journal to record the levy includes credits to which of the following?

Deferred Inflow of Resources for $400,000 Program Revenue—General Government—Capital Grants and Contributions for $100,000

A town issues term bonds. Revenues and other financing sources are comprised of property taxes levied directly for this debt service fund ($125,000) and earnings on investments of the debt service fund ($5,000). Two interest payments (totaling $60,000) must be made during the current year. The Term Bond Debt Service Fund entry to record the budget will include a debit to which of the following?

Estimated Revenues

At the end of the preceding year, interest payable had been accrued on outstanding serial bonds. On the first semiannual interest payment of the current year, a payment of interest and the first redemption of principal was made to the registered owners of the bonds. The entry used to record the payments in the Serial Bond Debt Service Fund journal includes debits to which of the following accounts?

Expenditures—Bond Principal Expenditures—Bond Interest

Assume that a town enters into a capital lease. If the first lease payment occurs on the first day of the lease and is entirely a payment on the principal of the lease obligation, the entry recorded by the Debt Service Fund includes a debit to which of the following?

Expenditures—Principal of Capital Lease Obligation

The entry made in the Governmental Activities journal to record the payment of interest on serial bonds to the bonds' registered owners includes a debit to which of the following?

Expenses—Interest on Long-term Debt

True or false: The premium on bonds payable must be amortized in the debt service fund.

False

A town issues term bonds. The actual amount of interest earned during a given six-month period is $100 more than the estimated earnings of $1,000 for the period because the actual earnings rate for the period was slightly higher than the rate used in actuarial computations. The entry in the Governmental Activities Fund journal to record the addition of the $1,100 of interest that was added to the Investments account includes a credit to which of the following? Multiple choice question.

General Revenues—Investment Earnings—Restricted for Debt Service

If sales tax revenues for debt service are collected in cash, the entry recorded in the Governmental Activities journal includes a credit to which of the following?

General Revenues—Sales Taxes—Restricted for Debt Service

A town issues term bonds. The actual amount of interest earned during a given six-month period is $100 more than the estimated earnings of $1,000 for the period because the actual earnings rate for the period was slightly higher than the rate used in actuarial computations. The entry in the Term Bond Debt Service Fund journal to record the addition of the $1,100 of interest that was added to the Investments account includes a debit to which of the following?

Investments

If a state or local government sells bonds at a premium and the bond indenture requires that initial issue premiums be used for debt service, which of the following are options for accounting for the premium?

It can be directly recorded in the debt service fund as another financing source. It could be promptly transferred to the debt service fund.

A liability related to pollution remediation should be recognized when which of the following criteria are met?

It is reasonably estimable An obligating event has occurred.

A town issues bonds at a premium. At the government-wide level, which of the following are true of the premium?

It should be amortized using the effective-interest method, over the life of the bonds. It would be recorded as an additional component of the general long-term liability for the bonds.

How should the portion of special assessment debt that will be repaid from property owner assessments be reported?

It should be reported as special assessment debt with governmental commitment.

True or false: Long-term liabilities can arise from the operating activities of governments

True

Special assessment bonds, secondarily backed by the general taxing authority of a city, were previously issued to complete a project within a neighborhood. Upon project completion, the city levied assessments amounting to $500,000, payable in 5 equal installments with 5% interest on unpaid installments, on owners of properties in that neighborhood. The entry in the Debt Service Fund journal to record the levy includes credits to which of the following?

Revenues for $100,000 Deferred Inflow of Resources for $400,000

Special assessment bonds, secondarily backed by the general taxing authority of a city, were previously issued to complete a project within a neighborhood. Upon project completion, the city levied assessments amounting to $200,000, payable in 4 equal installments with 5% interest on unpaid installments, on owners of properties in that neighborhood. Before the second installment payments for principal and interest are made, an entry is recorded in the Debt Service Fund journal with a credit to which of the following?

Revenues for $50,000

Which of the following is prepared to show the total amount of indebtedness being supported by taxable property located within the boundaries of the reporting government?

Statement of direct and overlapping debt

A town issues term bonds. Property taxes in the amount of $100,000 were levied and uncollectibles were expected to be $5,000. If actual tax collections during the first six months of the year were $51,000, the entry recorded in the Term Bond Debt Service Fund journal includes a credit to which of the following?

Taxes Receivable—Current

A town issues term bonds. Revenues and other financing sources are comprised of property taxes levied directly for this debt service fund and earnings on investments of the debt service fund. If property taxes in the amount of $100,000 are levied and uncollectibles are expected to be $5,000, the entry recorded in the Term Bond Debt Service Fund journal includes a debit to which of the following?

Taxes Receivable—Current

Which of the following is true of general long-term liabilities?

They are not reported as liabilities of fiduciary or proprietary funds.

The appropriations budget of a debt service fund must provide for the payment of which of the following?

all interest on general long-term debt that will become legally due during the budget year principal amounts that will become legally due during the budget year

The use of an actuarial basis for determining the required revenues of term bond debt service funds is

allowed

With a(n) ______ serial bond issue, the amount of annual principal repayments increase each year by approximately the same amount that interest payments decrease, so that the total debt service remains reasonably level over the term of the issue. Multiple choice question.

annuity

Interest rate risk may be reduced by which of the following?

avoiding highly interest-rate-sensitive derivative investments holding fixed income securities with lower term to maturity

The legal document which describes key terms of a bond offering is referred to as the __

bond indenture

Under a ______, new bonds are issued to retire previously issued bonds.

bond refunding

Which of the following will reduce the amount of tax--paying property

both exclusions and exemptions

The total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time is referred to as the _____

debt limit

The debt service function may be performed by which of the following?

debt service fund or General Fund

Any portion of special assessment debt that will be repaid directly by the government should be reported as a(n) ______ long-term liability of the government.

general

While the proceeds of long-term debt may be placed in a number of governmental fund types, the long-term liability itself must be recorded in the ______ accounting records. Multiple choice question.

governmental activities

Because governments are able to raise large amounts of capital at a relatively low cost, most states ______.

have statutory limits on the debt that can be incurred

An adjusting entry to accrue unpaid interest on serial bonds at the end of the accounting period in the Governmental Activities journal ______.

includes a debit to Expenses—Interest on Long-Term Debt

The ______ portion of the scheduled future debt service payments is not a present liability and should not be presented as such.

interest

A town issues serial bonds as partial financing for a library construction project. Revenues to pay the interest payments and installments will be raised from a special sales tax recorded directly in the debt service fund. The entry to record the budget in the government-wide journal ______

is not required

For investments (other than external investment pools), the notes to the financial statements of state and local governments must describe which of the following?

legal and contractual provisions for deposits and investments investment policies related to a wide variety of risks

Transfers made from other funds to the debt service fund as budgeted in the debt service fund as ____

other financing sources

Compensated absences should be accrued as liabilities if the leave has which of the following characteristics

payment is probable attributable to past services

Compensated absences should be accrued as liabilities if the leave has which of the following characteristics?

payment is probable attributable to past services

Which of the following long-term liabilities can arise from the operating activities of governments? Multiple select question.

pensions claims and judgments compensated absences

If debt service fund assets accumulated for debt repayment are not sufficient to repay creditors when the debt matures, if the interest rate on the debt is appreciably higher than the government would have to pay on a new bond issue, or if the covenants of the existing bonds are excessively burdensome, governments may elect to issue ______ bonds.

refunding

Obligations that arise from responsibilities related to the cleanup of hazardous wastes or hazardous substances resulting from existing pollution are referred to as pollution ______ obligations.

remediation

In terms of its inclusion in the balance sheet—governmental funds and the statement of revenues, expenditures, and changes in fund balances—governmental funds, if a debt service fund qualifies as a major fund, the financial information for that fund is ___.

reported in a separate column of these two financial statements