34. The City of Twin Falls issued $5 in special assessment bonds to finance major reconstruction of

34. The City of Twin
Falls issued $5 in special assessment bonds to finance major reconstruction of
the turbines and facilities used in generating electricity that is sold to the
citizens in the surrounding area. The
electric power distribution activities are accounted for in an Enterprise
Fund. The Enterprise Fund will service
the debt. If the City is legally
obligated for the debt, the appropriate entry in the City’s Electric Enterprise
Fund to record this event is
a) Debit
Plant Assets; Credit Bonds Payable.
b) Debit
Plant Assets; Credit Contributed Capital.
c) Debit
Plant Assets; Credit Contributed Revenue.
d) No entry
should be made in the Electric Enterprise Fund.

35. The City of Twin
Falls issued $5 in special assessment bonds to finance major reconstruction of
the turbines and facilities used in generating electricity that is sold to the
citizens in the surrounding area. The
electric power distribution activities are accounted for in an Enterprise
Fund. The Enterprise Fund will service
the debt. If the City is NOT legally
obligated for the debt, the appropriate entry in the City’s Electric Enterprise
Fund to record this event is
a) Debit
Plant Assets; Credit Bonds Payable.
b) Debit
Plant Assets; Credit Capital Contributions.
c) Debit
Plant Assets; Credit Retained Earnings.
d) No entry
should be made in the Electric Enterprise Fund.

36. In early 2006,
Jackson City issued $10 million of 6% term bonds to finance a highway
construction project. Because of
problems related to the Endangered Species Act, the City deferred highway
construction that year. In early 2007,
the City entered into contracts for construction that will begin in summer 2007
and be completed by summer 2008. When
the City realized they would not need the bond proceeds in 2007, they invested
the proceeds in risk-free federal government securities bought to yield
7%. What potential arbitrage liability,
if any, should the City recognize as a result of the year 2006 transactions?
a) None.
b) The
amount of the earnings from the federal government securities.
c) The
amount of the interest paid on the term bonds.
d) The
difference between the earnings from the federal government securities and the
interest paid on the bonds.

37. Harbor City
issued 6% tax-exempt bonds and used the proceeds to acquire federal government
securities yielding 7%. After paying the
interest on the tax-exempt bonds, the City cleared 1%. This is an example of
a) An
illegal act.
b) Poor
fiscal management.
c) Arbitrage.
d) Debt
refunding.

38. The City of St.
Joe had outstanding $5 million of 6% bonds with a call provision. Due to changes in the prevailing interest
rates, the City issued new bonds at 4.5% and used the proceeds to call the 6%
bonds. This is an example of
a) Debt
retirement.
b) Debt
refunding.
c) In-substance
defeasance.
d) Economic
defeasance.

Use the following information to answer question #39 and
#40.

Due to changes in the prevailing interest rates, Washington
County has decided to issue new 5% bonds and place the proceeds with a trustee
in a manner structured to satisfy all the GASB requirements for an in-substance
defeasance of an existing 6.5% bond issue.
The 6.5% bonds were originally issued to fund highway projects and the
debt is reported in the Schedule of Long-term Obligations and in the
governmental activities column of the government-wide financial
statements. The old 6.5% bonds are still
actively traded in the bond market and will be until their maturity. The new 5% bonds will be sold to an
institutional buyer who may also sell them in the bond market.

39. What amount of
gain or loss should be recognized on this transaction?
a) None.
b) The
difference between the total principal and interest payments on the old debt
and the total principal and interest payments on the new debt.
c) The
difference between the present value of the principal and interest payments on
the old debt and the present value of the principal and interest payments on
the new debt.
d) The
difference between the economic cost and the call price.

40. Which
bonds should be recognized in the Schedule of Long-Term Obligations?

a) Neither
the 6.5% nor the 5% bonds.
b) Both the
6.5% bonds and the 5% bonds.
c) Only the
6.5% bonds.
d) Only the
5% bonds.

41. A governmental
entity has elected to issue new debt and use the proceeds to redeem existing
debt because there is an economic gain in doing so. There is, however, an “accounting lossâ€
associated with these events. An
accounting loss is defined as
a) The
present value of the principal and interest payments on the new debt less the
present value of the principal and interest payments on the old debt.
b) The
present value of the principal and interest payments on the old debt less the
present value of the principal and interest payments on the new debt.
c) The cash
paid to redeem the old debt less the book value of the old debt.
d) The face
value of the new debt less the cash paid to redeem the old debt.

42. The City of Williamsburg decided to defease old 6% bonds
carried in its Electric Enterprise Fund with new 4.5% bonds. As a result of the defeasance, the City
incurred an accounting loss. This loss
should be recognized

a) As an
adjustment to retained earnings since it is applicable to prior periods.
b) In the
year of the defeasance.
c) Over the
remaining life of the old bonds or the new bonds, whichever is shorter.
d) It should
not be recognized.

43. Assuming that the
government is not obligated in any manner, the debt service transactions of a
special assessment bond issue should be reported in a(n)

a) Debt
service fund
b) Enterprise
fund
c) Special
revenue fund
d) Agency
fund

44. Characteristics
of capital projects include:

a) Involves
long-lived assets
b) Usually
requires long-range planning and extensive financing
c) Usually
has a year-to-year focus
d) All of
the above
e) A & B
only

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