1. What is the purpose of a Debt Service Fund? a. to account for resources that are restricted or…

 
   

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1. What is the purpose of a Debt Service Fund?
a. to
account for resources that are restricted or otherwise limited to pay the debt
service on all debt of the government, including Enterprise fund debt and
short-term debt used to finance General Fund operations
b. to
account for resources that are restricted or otherwise limited to pay principal
and interest on general long-term debt
c. to
account for resources that are restricted or otherwise limited to pay the debt
service on all long-term debt of the government, and also to show how much
long-term debt is outstanding
d. to
provide a means of reporting all outstanding long-term debt of the government
in a single location

2. At
what point should interest be recognized as an expenditure in a Debt Service
Fund?
a. when it accrues
b. when it is paid
c. when it is due and payable
d. when the bonds resulting in payment of
interest are issued

3. A
city sells $5 million of 20-year general obligation bonds on October 1, 2013. Interest
on the debt is payable at the rate of 5% a year on the unpaid balance of the
debt, every six months commencing March 31, 2014. How much should the city
report as an interest expenditure in the Debt Service Fund for the calendar
year ending December 31, 2013?
a. $0
b. $30,000
c. $60,000
d. $120,000

4. A
city sells $15 million of general obligation bonds on October 1, 2013. The
bonds mature at the rate of $1 million a year each September 30, starting
September 30, 2014. The amount due September 30, 2014 is paid. How much should
the city report as outstanding debt in the Debt Service Fund in its year-end
fund level financial statements on December 31, 2014?
a. $15,000,000
b. $14,000,000
c. $13,750,000
d. $0

5. A
city sells $5 million of 6% ten-year general obligation bonds on April 1, 2013.
The first installment of debt principal ($250,000) is due to be paid on
September 30, 2013. What entry should the city make on September 30, 2013 in
the Debt Service Fund regarding the bond principal?
a. It should recognize a $250,000 liability for
Matured bonds payable.
b. It should reduce the $5 million long-term
liability by $250,000.
c. It
should do nothing in the Debt Service Fund, but it should reduce Bonds payable
by $500,000 in the Capital Projects Fund
d. It
should make no entry anywhere until the principal is actually paid.

6. A
city keeps its books on a calendar year basis. On April 1, 2013, the city sold
$500,000 of 6% general obligation bonds, payable in semi-annual installments.
The first installment, due October 31, 2013 covered interest of $15,000 and
principal of $25,000. For the year ended December 31, 2013, how much should the
Debt Service Fund report as expenditures?
a. $15,000
b. $40,000
c. $15,000, plus an accrual for three months’
interest
d. $40,000, plus an accrual for three months’
interest and principal

7. What
kinds of expenditures are accounted for in Debt Service Funds?
a. only the principal payments on general
obligation long-term debt
b. only the interest expenditures on general
obligation long-term debt
c. both
principal payments and interest expenditures on general obligation long-term
debt
d. all debt service on all governmental debt,
regardless of the purpose of the debt

8. A
state issues long-term debt to finance a major construction project. The first installment
of debt service requires payment of principal of $75,000 and interest of
$100,000. Which of the following statements is true on the day that payment for
principal and interest is legally due?
a. expenditures
of $175,000 should be recognized in the debt service fund.
b. expenditures
of $75,000 should be recognized in the capital projects fund and expenditures
of $100,000 should be recognized in the debt service fund.
c. expenditures
of $100,000 should be recognized in the debt service fund and bonds payable
should be reduced by $75,000 in the debt service fund.
d. expenditures
of $175,000 should be recognized in the debt service fund and bonds payable
should be reduced by $75,000 in the capital projects fund.

9. In
what circumstances are Debt Service Funds required to be used in governmental
accounting?
a. a
legal requirement dictates that a Debt Service fund be established
b. a
government is currently accumulating resources for the payment of principal and
interest on long-term debt in future years
c. a
government issues general obligation bonds
d. both
a and b
e. both
a and c

10. In
what circumstance is a Capital Projects Fund required to be used in
governmental accounting?
a. to
record the acquisition or construction of all capital assets
b. to
record the acquisition or construction of any capital asset that is not
recorded in an Enterprise Fund
c. when
capital projects are at least partially financed by general obligation bond
proceeds
d. to
record the acquisition or construction of all major capital assets, except
infrastructure assets