g&p ch6

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FALSE

Both general capital assets acquired or constructed from the proceeds of special assessment debt, and
the related long-term liability are recorded in the governmental fund.

FALSE

2. Debt backed by both special assessments and the full faith and credit of a government should be
reported in the government-wide statement of net assets in the Business-type Activities column.

FALSE

3. When a capital lease payment of $20,000 is legally due, an entry is made in the debt service fund to
record the expenditure of $20,000, and an entry is made in the governmental activities accounts to
reduce Capital Lease Obligations Payable by $20,000.

FALSE

Issuance of tax supported debt having a maturity of more than one year from date of issue results in a
journal entry in only the governmental activities general journal.

TRUE

Debt limit is a term used to denote the total amount of indebtedness of specified kinds that is allowed
by law to be outstanding at any one time.

TRUE

Debt margin is the difference between the debt limit and the amount of outstanding debt subject to the
debt limitation.

FALSE

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

TRUE

Disclosures about long-term liabilities should be included in the notes to the financial statements to
provide users with information about authorization of new debt issues, sale of previously authorized
issues, and retirement and refunding of debt during the year.

TRUE

Notes to the financial statements of a state or local government should include a schedule, or
summary, of annual debt service requirements (principal and interest payments) for the year following
the balance sheet date and for all subsequent years until the final maturity of debt outstanding on the
balance sheet date.

FALSE

Debt service funds exist to accumulate resources to pay tax supported bond issues at maturity.
Interest on such bonds is paid from General Fund appropriations rather than from debt service fund
appropriations.

FALSE

All long-term debt, including bonds, notes or warrants, and various other long-term obligations,
intended to be repaid from tax levies or special assessments are accounted for in debt service
funds.

TRUE

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

false

Taxes for debt service are always levied by the General Fund and transferred to a debt service
fund.

false

Debt service funds use the same budgetary procedures as the General Fund and special revenue
funds.

false

The issuance of general long-term bonds requires recognition by the fund receiving the proceeds and
by the business-type activities.

true

The liability for matured bonds payable should be recorded by a debt service fund only if a legal
appropriation for that purpose exists in the proper amount.

TRUE

If all financial resource inflows have been collected, and all debt interest and principal legally due
has been paid, a regular serial bond debt service fund could have no assets, no liabilities, and no fund
balance at year-end.

TRUE

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

False

Term bond debt service funds should always be accounted for on the assumption that they are
operated on an actuarial basis.

False

The premium or discount on bonds purchased as investments is accounted for in the same manner as a
premium or discount on bonds sold (i.e., bond payable).

TRUE

Capital lease payments should be recorded by a debt service fund rather than the fund using the leased
asset.

true

Expenditures for capital lease payments consist of two elements: payment of interest on the lease
obligation, and payment on the obligation itself

True

Ordinarily, the statement of changes in fund balance for a debt service fund is combined with the
statement of revenues and expenditures for the debt service fund.

True

28. Basic financial statements are often supplemented by schedules of securities held at the balance sheet
date, and other schedules detailing securities transactions during the year.

D. Revenue bonds issued by an enterprise fund.

Which of the following is not properly recorded in the governmental activities accounts?
A. Tax-supported general obligation bonds.
B. Obligations under capital leases used to finance general capital assets.
C. The long-term portion of judgments and claims.
D. Revenue bonds issued by an enterprise fund.

C. The governmental activities accounts

The liability for special assessment bonds that carry a secondary pledge of a city's general credit, if
reported in conformity with GAAP, should be reported in the balance sheet(s) of
A. A debt service fund.
B. An agency fund.
C. The governmental activities accounts.
D. An agency fund and disclosed in the notes to the financial statements.

Enterprise fund and a note to the financial statements explaining the contingent liability of the

General obligation bonds issued for the benefit of enterprise funds, with the intent of paying bond
principal and interest from revenues of the enterprise fund, should be reported as a liability in the
balance sheet of the
A. Enterprise fund.
B. Governmental activities.
C. Both the enterprise fund and the governmental activities accounts.
D.Enterprise fund and a note to the financial statements explaining the contingent liability of the
general government if enterprise funds are insufficient to pay principal and interest.

A. A debit to Capital Lease Obligation Payable in the amount of $10,500.

Immediately after making its annual $20,000 lease payment on June 30, 2011, the last day of its fiscal
year, a certain city had an unpaid capital lease obligation of $95,000. The interest rate applicable to
the lease is 10 percent. When the $20,000 lease payment due on June 30, 2012 is made, the journal
entry for the governmental activities accounts will include
A. A debit to Capital Lease Obligation Payable in the amount of $10,500.
B. A debit to Capital Lease Obligation Payable in the amount of $20,000.
C. A debit to Cash in the amount of $20,000.
D. A debit to Capital Lease Obligation Payable in the amount of $12,500.

B. Governmental fund

A debt service fund is a
A. Nonexpendable fund.
B. Governmental fund.
C. Fiduciary fund.
D. Proprietary fund.

A. Property taxes levied by the debt service fund for debt service purposes.

Which of the following resource inflows would be recorded as a revenue of a debt service fund?
A. Property taxes levied by the debt service fund for debt service purposes.
B. Receipt of the premium on a new bond issue.
C. Taxes collected by the General Fund and transferred to the debt service fund.
D. Transfer of the residual equity of a capital project from a capital projects fund to the debt service
fund.

C. A debit to Expenditures—Bond Interest.

On the due date for bond interest, the debt service fund journal entry (or entries) will include
A. A debit to Bonds Payable.
B. A debit to Interfund Transfers Out.
C. A debit to Expenditures—Bond Interest.
D. A debit to Interest Expense

C. Bonds are issued: Yes; Bonds are held as investments: No

Which of the following would result in the amortization of a bond discount or premium?
A. Bonds are issued: No; Bonds are held as investments: No
B. Bonds are issued: No; Bonds are held as investments: Yes
C. Bonds are issued: Yes; Bonds are held as investments: No
D. Bonds are issued: Yes; Bonds are held as investments: Yes

D.Debt service funds are reported in the Governmental Activities column in the government-wide
financial statements.

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

B. Appropriations.

Which of the following budgetary accounts is typically used by a debt service fund?
A. Encumbrances.
B. Appropriations.
C. Estimated Uncollectible Accounts.
D. Reserve for Encumbrances.

D. When the interest is legally payable.

Interest expenditures on bonds payable should be recorded in a debt service fund
A. At the end of the fiscal period if the interest due date does not coincide with the end of the fiscal
period.
B. When bonds are issued.
C. When the interest is paid.
D. When the interest is legally payable.

C. Choice C

Special assessments levied for debt service of bonds issued for a special assessment capital project
will be accounted for by a debt service fund under which of the following situations?
government is secondarily obligated for the debt- yes
government is not secondarily obligated for the debt - no
A. Choice A
B. Choice B
C. Choice C
D. Choice D

B. Fund Balance.

Which of the following debt service fund accounts would not be closed at the end of each fiscal year?
A. Estimated Revenues.
B. Fund Balance.
C. Revenues.
D. Expenditures—Bond Interest.

$0.

Based on the information below, what amount should be accounted for in a debt service fund?
warehouse equip store supplies 200,000
equip for electric power 180,000
rec for complete sidewalks 1,900,000
cash rec from fed govt 1,990,000
A. $200,000.
B. $1,800,000.
C. $1,900,000.
D. $0.

$600,000.

Valencia Village issued the following during the year ended June 30, 2011: (1) $600,000 in bonds for
the installation of street lights, to be assessed against properties benefited, but secondarily backed by
the village; (2) $800,000 in bonds for construction of a Parks and Recreation Department public golf
course to be paid from pledged 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?
A. $0.
B. $600,000.
C. $800,000.
D. $1,400,000.

Governmental activities journa

The liability for general obligation bonds should be recorded in the
A. General Fund.
B. Capital projects fund.
C. Governmental activities journal.
D. Debt service fund.

Expenditures—Bond Interest.

On the due date for bond interest, the debt service fund journal entry (or entries) will include a debit
to
A. Expenditures—Bond Interest.
B. Interfund Transfers In.
C. Appropriations.
D. Interest Expense.

Is transferred to the debt service fund.

When bonds are sold at a premium for a capital project, the premium amount generally
A. Increases the cash available to the capital projects fund.
B. Is transferred to the debt service fund.
C. Is transferred to the General Fund.
D. Is ignored by both the capital projects fund and any other fund.

Capital projects fund.

Typically, proceeds from general obligation bonds will be recorded in the
A. Debt service fund.
B. General obligation bond fund.
C. Permanent fund.
D. Capital projects fund.

A legally required budget should be recorded in the accounts

Which of the following is true for debt service funds?
A. A legally required budget should be recorded in the accounts.
B.
A combining balance sheet may not be prepared for a comprehensive annual financial report
(CAFR) when more than one debt service fund exists.
C. Encumbrance accounting is often used.
D. GAAP requires that a separate debt service fund be established for each bond issue.

All tax-supported bond principal is shown as a liability of the debt service fund.

Which of the following statements is not true for debt service funds?
A.
Special assessment debt for which the government has some obligation is paid through the debt
service fund.
B. Matured interest payable is reported as a liability of the debt service fund.
C. Bond principal is shown as a liability of the debt service fund only when that principal is due and
payable.
D. All tax-supported bond principal is shown as a liability of the debt service fund.

Other financing source and other financing use

If a government issues debt to finance capital acquisition by another government and the proceeds
of the debt are a short time later delivered to the intended beneficiary government, how is the related
long-term debt reflected in a governmental fund of the issuing government?
A. Other financing source and other financing use.
B. Other financing source and expenditure.
C. Revenue and expenditure.
D.
It is not displayed on the face of the financial statements; however, it is disclosed in the notes to the
financial statements.

Proceeds of Refunding Bonds.

Which of the following financing sources used to redeem (or refund) bonds would not result in a debit
to an expenditure account in the debt service fund when the liability for the redeemed (or refunded)
bonds is removed from the governmental activities accounts?
A. Proceeds of Refunding Bonds.
B. Assets previously accumulated in the debt service fund.
C. Interfund Transfer from the General Fund.
D. A grant received from the federal government.

Payment of principal and interest on general long-term debt

Debt service funds are used to account for which of the following?
A. Payment of only interest on general long-term debt.
B. Payment of only principal on general long-term debt.
C. Payment of principal and interest on general long-term debt.
D. Payment of principal and interest on all debt of the government.

Debt service

Premiums received on tax-supported bonds are generally transferred to what fund?
A. Capital projects.
B. Debt service.
C. General.
D. Special revenue.

Equipment

Which of the following assets would not be found in the balance sheet of a debt service fund?
A. Cash with fiscal agent.
B. Investments.
C. Equipment.
D. Interest Receivable.

$0 in 2011; $60,000 in 2012.

The city of Sparr's fiscal year ends on December 31. On July 1, 2011, the city issued $1,000,000 of
6%, 10-year term bonds with semi-annual interest payments due on July 1 and January 1 each year,
beginning on January 1, 2012. What amount of expenditures should the city recognize in its debt
service fund for the years 2011 and 2012?
A. $30,000 in 2011; $60,000 in 2012.
B. $60,000 in 2011; $60,000 in 2012.
C. $3,000 in 2011; $6,000 in 2012.
D. $0 in 2011; $60,000 in 2012.

Term bond debt service fund.

Which of the following debt service funds would normally have the largest balance in its Fund
Balance account?
A. Serial bond debt service fund.
B. Deferred serial bond debt service fund.
C. Irregular serial bond debt service fund.
D. Term bond debt service fund.

A debit to Expenditures—Principal of Capital Lease Obligation

If a city has an unpaid capital lease obligation at the beginning of its fiscal year, the journal entry in
the debt service fund to record the lease payment at the end of that fiscal year will include
A. A debit to Capital Lease Obligations Payable.
B. A credit to Expenditures—Principal of Capital Lease Obligation.
C. A debit to Expenditures—Principal of Capital Lease Obligation.
D. A debit to Interest Expense on Capital Leases.

A debit to Assessments Receivable—Current for $50,000.

On June 1, 2012, Brooktown levied special assessments in the amount of $500,000, payable in 10
equal annual installments beginning on June 30, 2012. The assessment installments are intended to
pay principal and interest on special assessment bonds for which the town has pledged its full faith
and credit should assessments be insufficient. Assuming no allowance for uncollectible receivables,
the journal entry in the debt service fund on June 1, 2012 would include:
A. A debit to Assessments Receivable—Current for $500,000.
B. A debit to Assessments Receivable—Current for $50,000.
C. A credit to Revenues for $500,000.
D. No journal entry is made in the debt service fund because special assessments are used.

The government must place cash or other assets in an irrevocable trust sufficient to pay all future
interest and principal payments for the debt being defeased.

Which of the following is a true statement regarding in-substance defeasance of bonds?
A. The government must place cash or other assets in an irrevocable trust sufficient to pay all future
interest and principal payments for the debt being defeased.
B.
The government must agree to maintain sufficient cash and investment balances in its debt service
fund to cover all interest and principal payments for the debt being defeased.
C.
The government must pledge to transfer amounts to an escrow agent prior to the due date for each
interest and principal payment for the debt being defeased.
D.
The government must agree to maintain sufficient unrestricted cash and investments in its
governmental funds to cover all interest and principal payments for the debt being defeased.

It is used to account for interest, with the exception that interest is paid when legally due.

Modified accrual accounting is used for debt service funds in which of the following ways?
A. It is used without exception.
B. It is not used in any transaction.
C. It is used to account for interest, with the exception that interest is paid when legally due.
D. It is used for revenue transactions.

Both principal and interest payments of debt issues

Debt service funds are used to record
A. Both principal and interest payments of debt issues.
B. Only interest payments on debt issues.
C. Only principal payments of debt issues.
D. Neither principal nor interest payments of debt issues.

Reflects both principal and interest payments

When the debt service fund makes a payment of principal and interest on an outstanding long-term
debt, the governmental activities accounts
A. Reflect the principal payment only.
B. Reflect the interest payment only.
C. Has no record of the transaction.
D. Reflects both principal and interest payments.

105,000

The city of Superior's fiscal year ends on December 31. On July 1, 2011 Superior issues $1,000,000
of 8%, 10-year term bonds with semi-annual interest payments due on July 1 and January 1 each year.
The General Fund transferred $100,000 to the debt service fund on July 1, 2011 to pay for interest to
bondholders for the year. The debt service fund invests the money at an annual rate of 10%. What is
the amount of total assets in the debt service fund at the end of 2011?
A. $65,000
B. $105,000
C. $965,000
D. $1,005,000

No basic financial statement contains a column for the total of all debt service funds.

Which of the following basic financial statements contains a column for the total of all debt service
funds?
A. Statement of cash flows.
B. Statement of revenues, expenditures, and changes in governmental fund balances.
C. Statement of revenues, expenses, and changes in proprietary net assets.
D. No basic financial statement contains a column for the total of all debt service funds.

In an enterprise fund as a liability.

The sale of revenue bonds by a water utility fund would be recorded
A. In the governmental activities accounts as a liability.
B. In an enterprise fund as "Proceeds of Bonds."
C. In an enterprise fund as a liability.
D. In an enterprise fund as a revenue.

Debt service funds, unlike the General Fund and special revenue funds, do not use budgetary
accounting procedures.

Which of the following is not true?
A.The debt service activity of a government may be properly accounted for within the General Fund
unless law mandates the use of a debt service fund.
B.Debt service funds, unlike the General Fund and special revenue funds, do not use budgetary
accounting procedures.
C.Expenditures for interest on tax supported long-term debt are not accrued, even though debt service
funds are accounted for on the modified accrual basis.
D.At year-end, budgetary and operating statement accounts of a debt service fund are closed in the
same manner as is true for a General Fund or special revenue funds.

in substance deasance

a transaction in which low risk us government securities are placed into an irrevocable trust for the benefit of debt holders

annuity serial bonds

bonds for which the amount of annual principal repayments is scheduled to increase each year by approximately the same amount that interest payments decrease

regular serial bonds

bonds payable in which the total principal is repayable in a specified number of equal annual installments

debt limit

the maximum amount of gross or net debt that is legally permitted

legal defeasance

a transaction in which debt is legally satisfied based on certain provisions in the debt instrument even though the debt has not been repaid

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