Question

Which of the following is correct with respect to Debt Service Funds? Multiple Choice Debt service funds account for and report finencial resources that are restricted, committed or assigned to expenditure for principle and interest for al governmental long-term debt Debt service funds must acerue interest on long term debt at yeer end. Debt service funds account for end repon finencial resources that are restricted, commimed or assigned to expenditure for principle and interest for governmental debts except debt of proorietnry and fiduciary funds who account for their own interest end principle payments Debt service tunds report the balance of govemmental debts escept debt of proprietery and fiduciery funds.

Answer 1

Option C

Debt Service Funds account for end report financial resources that are restricted, committed or assigned to expenditure for principle and intrest for governmental debts except debt of proprietary and fiduciary funds who account for their own intrest and principle payments.

A debt service fund is a cash reserve that is used to pay for the interest and principal payments on certain types of debt. The existence of a debt service fund is intended to reduce the risk of a debt security for investors, which makes it more attractive to them and also reduces the effective interest rate needed to sell the offering. However, it ties up a portion of the cash that the debt issuer receives from the debt offering, so that it cannot be applied to more useful investments.

Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period. If an individual is taking out a mortgage or a student loan, the borrower needs to calculate the annual or monthly debt service required on each loan. In the same way, companies must meet debt service requirements for loans and bonds issued to the public. The ability to service debt is a factor when a company needs to raise additional capital to operate the business.

• Debt service is the cash required to pay back the principal and interest of outstanding debt for a particular period of time.
• The debt service ratio is a tool used to assess a company's leverage.
• Lenders are interested in knowing that a company is able to cover its current debt load in addition to any potential new debt.
• In order to carry a high debt load, a company must generate consistent and reliable profits to service the debt.