ACCY 4070 - Exercise 6-2 Multiple Choice

Ch. 6 General Long-Term Liabilities and Debt Service - Ex 6-2 (LO6-1 through LO6-3)

1. Which of the following would NOT be considered a general long-term liability?

Equipment lease liabilities of the water utility fund.

2. Proceeds from bonds issued to construct a new city hall would most likely be recorded in the journal of the

Capital projects fund.

3. The liability for long-term debt issued to finance construction of a general capital asset will appear in which financial statement?

Government-wide statement of net position.

4. Which one of the following statements regarding debt margin is correct?

Debt margin is the difference between the legal debt limit and the amount of net indebtedness subject to limitation.

5. Debt service funds are

Often used to record resources restricted for debt service purposes.

6. On March 2, 2026, 20-year, 3 percent, general obligation serial bonds were issued by Mossy County at the face amount of $3,000,000. Interest of 3 percent per year is due semiannually on March 1 and September 1. The first principal payment of $150,000 is due on March 1, 2027. The county's fiscal year-end is December 31. What amounts are reported as interest expense (government-wide) and interest expenditure (debt service fund) for 2026?

Interest Expense $75,000; Interest Expenditure $45,000

7. A city has an ordinance limiting debt issuances to 4 percent of its $750 million net property valuation. Assume $10.5 million in direct debt is outstanding, of which $1 million is not subject to the debt limit and $2.5 million is set aside in a debt service fund for repayment. What is the city's debt limit and debt margin?

Debt Limit $30 million; Debt Margin $23 million

8. A lease rental payment of $20,000, constituting $12,892 of principal and $7,108 of interest, is made. Which entries are required at the debt service fund and government-wide level?

DSF: Dr Expenditures-Principal of Lease Obligation 12,892; Dr Expenditures-Interest on Lease Obligation 7,108; Cr Cash 20,000. GA: Dr Lease Obligations Payable 12,892; Dr Expenses-Interest on Leases 7,108; Cr Cash 20,000

9. The liability for special assessment bonds for which the city is not obligated in any manner should be recorded in a

None of the fund or governmental activities general journals but should be disclosed in the notes to the financial statements.

10. Total general long-term indebtedness subject to debt margin calculations typically does NOT include

Lease obligations.

11. Which of the following financial statements are required for a debt service fund?

Balance sheet and statement of revenues, expenditures, and changes in fund balance only.

12. Debt issuance costs

Include legal and administrative fees associated with bond issuance.

13. Carson City's capital projects fund issued $1,000,000 of 10-year 3% serial bonds at 102 on June 15, 2027. Interest is paid each December 15 and June 15. Annual principal payments begin June 15, 2028. If the premium is amortized evenly over 20 interest periods, which entries would be required to record the June 15, 2027, debt issuance?

GA: Dr Cash 1,020,000; Cr Bonds Payable 1,000,000; Cr Premium on Bonds Payable 20,000. DSF: Dr Cash 1,020,000; Cr OFS-Proceeds of Bonds 1,000,000; Cr OFS-Premium on Bonds 20,000

14. Carson City's capital projects fund issued $1,000,000 of 10-year 3% serial bonds at 102 on June 15, 2027. Interest is paid each December 15 and June 15. If the premium is amortized evenly over 20 interest periods, which entries would be required to record the December 15, 2027, interest payment?

DSF: Dr Expenditures-Bond Interest 15,000; Cr Cash 15,000. GA: Dr Expenses-Interest on Long-Term Debt 14,000; Dr Premium on Bonds Payable 1,000; Cr Cash 15,000

15. The liability for bond anticipation notes (BANs)

Should be treated as a long-term liability if all legal steps have been taken to refinance the BANs and the intent is supported by an ability to consummate refinancing the short-term notes on a long-term basis.