407 ch 6 questions
a town issues bonds are 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:
$10,000
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 Appropriations for:
$260,000
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 appropriations for:
$260,000
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 $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:
1. Program Revenue - General Government - Capital Grant and Contributions for $100,000 2. Deferred Inflows 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 $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:
1. Revenues for $100,000 2. Deferred Inflows of Resources - Unavailable Revenues for $400,000
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 Governmental Activities journal includes credits to:
1. Allowance for Uncollectible current taxes 2. General Revenues - Property Taxes - Restricted for debt service
debt service funds may be required for:
1. Bond liabilities 2. notes or warrants having a maturity more than one year after date of issue
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 fist redemption of principal was made to the registered owners of the bonds. The entry used to record the payments in the Governmental activities journal includes debits to:
1. Bonds payable 2. expenses - interest on long-term debt 3. interest payable
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 ($5000). 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 credits to:
1. Budgetary Fund Balance 2. Appropriations
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 debits to:
1. Estimated Revenues 2. Estimated Other Financing Sources
the notes to the financial statements of state and local governments with serial or term bonds must describe:
1. custodial credit risk 2. concentration of credit risk 3. credit quality ratings of investments in debt securities 4. interest rate risk of investments in debt securities
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, the premium:
1. must be promptly transferred to the debt service fund 2. will be directly recorded in the debt service fund as another financing source
most increases in general long-term liabilities arising from debt issuances are recorded as a(n):
1. other financing source in a governmental fund 2. general long term liability at the government wide level
accounts recommended for use by debt service funds are:
1. similar to but not exactly the same as those recommended for use by special revenue funds 2. similar to but not exactly the same as those recommended for use by the General Fund
the general long-term liability disclosures required by GASB reporting standards provide detail of:
1. the portion of the liabilities payable within one year 2. additions to those liabilities 3. ending liabilities 4. reductions of those liabilities 5. beginning of period long-term liabilities
any amounts not collected by the due date should be reclassified by a debit to:
Assessment Receivable - Delinquent and a credit to Assessment 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 $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 debit to:
Deferred inflow of resources for $50,000
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:
Expenditures - Principal of Capital lease obligation
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 $1000 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:
General Revenues - Investment Earnings - Restricted for Debt Service
the entry to record accrued interest sold in the Debt Service Fund journal includes a credit to:
Revenues
True or false: Long-term liabilities can arise from the operating activities of governments.
True
general long-term liabilities
are not reported as liabilities of fiduciary or proprietary funds
required revenues of term bond debt service funds may be determined on a(n) ____ basis or on less sophisticated bases designated to produce approximately level contributions during the life of the issue
actuarial
In many governmental jurisdictions, property owned by governments, churches, charitable organizations, and some others, depending on state laws, is legally excluded even from ____
assessment
The portion of special assessment debt that will be repaid from property owner assessments should:
be reported as special assessment debt with governmental commitment
A town issues long term bonds. Property taxes were levied for debt service on those bonds for the current year but not collected during the year become delinquent as of December 31. The portion considered collectible is expected to be received within 60 days of year-end ____ be included in tax revenue for the current year
can
concentration risk
can be minimized through diversification of investments to avoid investing in securities of a single issuer that exceed 5% of total investments
Leaves of absence for which employees earn the right to be paid, such as vacation or sick leave, are referred to as ___ absences
compensated
When determining how capital lease payments are allocated to interest and principal, GASB standards specify that a ___ periodic rate of interest must be used.
constant
the difference between the amount of debt limit calculated as prescribes by law and the net amount of outstanding indebtedness subject to limitation is sometimes referred to as borrowing power or
debt margin
Debt that is being serviced by the reporting government is referred to as ___ debt
direct
debt service funds:
do budget, but do not use encumbrance accounting
the interest earned on most debt issued by state and local governments is ___ from federal taxation and, in some states, from state taxation.
exempt
types of serial bond issues are found in practice are:
regular, deferred, annuity, irregular
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:
expenses - interest on long-term debt
GASB standards require debt service fund accounting to be on the same basis of accounting as ___ and ___ ____ funds.
general and special revenue
if sales tax revenues for debt service are collected in cash, the entry recorded in the governmental activities journal includes a credit to:
general revenues - sales taxes - restricted for debt service
debt service activities are reported as part of ___ activities at the government-wide level
governmental
as a general rule, entries to reflect increases or decreases in general long-term liabilities are made in the ___ general journal at the government-wide level
governmental activities
An adjusting entry to accrue unpaid interest on term bonds at the end of the accounting period in the Governmental Activities journal:
includes a debit to Expenses - Interest on Long-term Debt
Debt service payments, including both periodic payments and the repayment of debt principal when due, are typically specified in a bond ___.
indenture
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 term bonds. The tax levy for this fund must yield collection in the first six months totaling at least $60,000, so that $20,000 can be invested and $40,000 can be paid in interest to bondholders, both as of the end of the first six-month period. Actual tax collections during the first six months of the year were $61,000. The entry to record the subsequent addition to the sinking fund investments in the serial bond debt service fund journal includes a debit to:
investments
An adjusting entry to accrue unpaid interest on serial bonds at the end of the accounting period in the Serial Bond Debt Service Fund journal:
is not required
In-substance defeasance occurs when debt is considered settled for accounting and financial reporting purposes, even though ____ defeasance has not occurred
legal
serial bonds
mature in installments
term bonds
mature in their entirety on a given date
interest rate risk
may be reduced by holding fixed income securities with lower term to maturity (duration) and avoiding highly interest-rate-sensitive derivative investments
Custodial credit risk
may be reduced by holding other securities as collateral
When a given parcel of real estate or object of personal property is the basis of debt beyond the legal limit and subject to assessments for the payment of taxes to retire bonds issued by two or more governments, this is referred to as:
overlapping debt
Governments should report an estimated loss from a claim as an expense and as a liability in the government-wide financial statements if a claim is reasonably estimable and:
probable
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
if sales tax revenues for debt service are collected in cash, the entry recorded in the Serial Bond Debt Service Fund journal includes a credit to:
revenues
if sales tax revenues for debt service are collected in cash, the entry recorded in the serial bond debt service fund journal includes a credit to:
revenues
setting aside resources for the substantial debt payment due at maturity is the purpose of a ____ fund.
sinking
All changes in the fair value of investments during the period, both realized and unrealized, are reported as revenue in the:
statement of revenues, expenditures, and changes in fund balances - governmental funds
when taxes are raised by another fund and transferred to a debt service fund, revenue is recognized in:
the fund that raises the taxes
debt service related to long-term liabilities reported in proprietary and fiduciary funds is reported in:
those funds
True or False: If neither law nor sound financial administration requires the use of debt service funds, the function may be performed within the accounting and budgeting framework of the general fund
true
