Question

Use the following to answer the next six questions: During the fiscal year ended December 31, 2017. the City of Johnstown issued 6% genera obligation serial bonds in the amount of $2.000.000 at 102 ($2.040,000) and used $1,980,000 of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $20.000 left in the capital projects fund at the end of the project was later transferred to the debt service fund. The bonds were dated April 1, 2017 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2018 41. How would the bond sale be recorded? A) As a liability in the debt service fund. B) As a liability in the capital projects fund. C) As an other financing source in the debt service fund. D) As an other financing use in the capital projects fund. 42. The amount of capital outlay expenditures reported by the capital projects fund would A) $1,980,000. B) $2,000,000 C) $2,040,000. D) $3,000,000. 43. How would the government account for the transfer of the unused bond proceeds? A) As an other financing source in the debt service fund and as an other financing use in the capital projects fund. B) As a revenue in the debt service fund and as an expenditure in the capital projects fund. C) As an other financing source in the capital projects fund and as an other financing use in the debt service fund. D) As a special item in both the debt service and capital project funds. 44. How would the $40,000 premium be accounted for? A) Amortized to interest expenditure in the debt service fund. B) As an other financing source in the debt service fund. C) Both (a) and (b) above. D) None of the above. 45. What would be the amount of expenditures recorded by the debt service fund for the fiscal year ended December 31, 2017? A) $320,000. B) $120,000. c) $ 90,000. D) $ 60,000 46. What would be the amount of expenditures recorded by the debt service fund for the fiscal year ended December 31, 2018? A) $440,000. B) $324,000. 81 Page

Answer 1

Ans to Q 41. This bond sale is for Construction of Fire station which is a Capital asset.  Governments use of debt for large capital projects, the issuance of debt is the most significant source of resources for capital projects funds and it is reported as an other financing source.

The answer is Option D.

Ans to Q42. Out of Total proceeds of 2,040,000 , 1,980,000 has been used for fire station and remaining 60000 (40000+20000) was transferred to Debt service Fund for repayment of Debts. Ans is Option A

Ans to Q43. The remaining 60000 balance at the end of Capital project fund needs to be transferred to Debt service fund to close the capital project fund. This transfer will utilise the available funds in Capital project fund and create a source in Debt service fund. Ans is Opt A

Ans to Q44 . The transfer of 60000 to debt service fund is creating a source to be utilize for future payments. Hence this will be recorded as Financing source in Debt service Fund Option B.

Ans to Q 45 - Bonds Issued - 2,000,000 at 6% with one half yearly coupon payment - 2,000,000 * 6% / 2 = 60000 Ans Option D

Ans to Q 46 - Bonds Issued - 2,000,000 at 6% with two half yearly coupon payment - 2,000,000 * 6% = 120,000

Bonds outstanding = 2,000,000 - 60,000 trfd to debt fund = 1,940,000

1st installment = 1,940,000 / 10 = 194,00Total Payments = 194,000 + 120,000 = 314,000 Ans Option C