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Chapter 6 - Accounting for General Long-Term Liabilities and Debt Service True/False 1.

Both general capital assets acquired or constructed from the proceeds of special assessment debt, and the long-term liability are accounted for in the governmental activities accounts. TRUE 2. Debt backed by both special assessments and the full faith and credit of a governmental unit should be reported in the CAFR in the business-type activities accounts. FALSE 4. Issuance of tax supported debt having a maturity of more than one year from date of issue must be recorded only in the governmental activities accounts. FALSE 5. Debt margin is a term used to denote the total amount of indebtedness of specified kinds that is allowed by law to be outstanding at any one time. FALSE 6. Debt margin is the difference between the debt limit and the amount of outstanding debt subject to the limitation. TRUE 9. Notes to the financial statements of a state or local government should include a schedule, or summary, of annual debt service requirements (principal and interest payments) for the year following the balance sheet date and for all subsequent years until the final maturity of debt outstanding on balance sheet date. TRUE 10. Debt service funds exist to accumulate resources to pay tax supported bond issues at maturity. Interest on such bonds is paid from General Fund appropriations, not from debt service fund appropriations. FALSE 11. All long-term debt, including bonds, notes or warrants, and various other long-term obligations, intended to be repaid from tax levies or special assessments are accounted for in debt service funds. FALSE 17. At year-end, budgetary and operating statement accounts of a debt service fund are closed in the same manner as is true for a General Fund or for special revenue funds. TRUE 20. Expenditures for interest on tax supported long-term debt are not accrued, even though debt service funds are accounted for on the modified accrual basis. TRUE

Multiple Choice
30. Which of the following are properly accounted for in the governmental activities accounts? A) B) C) D) Tax-supported general obligation bonds. Obligations under capital leases used to finance general capital assets. The long-term portion of judgments and claims. All of the above.

31. The liability for special assessment bonds that carry a secondary pledge of a city's general credit, if reported in conformity with GAAP, should be reported in the balance sheet(s) of A) A debt service fund. B) The governmental activities accounts. C) An agency fund.

D) An agency fund and disclosed in the notes to the financial statements. 32. General obligation bonds issued for the benefit of enterprise funds, with the intent of paying bond principal and interest from revenues of the enterprise fund, should be reported as a liability in the balance sheet of the A) B) C) D) Enterprise fund. Governmental activities. Both the enterprise fund and the governmental activities accounts. Enterprise fund and a note to the financial statements explaining the contingent liability of the general government if enterprise funds are insufficient to pay principal and interest.

34. A debt service fund is a (an) A) B) C) D) Governmental fund. Nonexpendable fund. Fiduciary fund. Proprietary fund.

35. Which of the following resource inflows would be recorded as a revenue of a debt service fund? A) B) C) D) Taxes collected by the General Fund and transferred to the debt service fund. Receipt of the premium on a new bond issue. Property taxes levied by the debt service fund for debt service purposes. Transfer of the residual equity of a capital project from a capital projects fund to the debt service fund.

39. Which of the following budgetary accounts is typically used by a debt service fund? A) B) C) D) Appropriations. Encumbrances. Both A and B. None of above.

40. Interest expenditures on bonds payable should be recorded in a debt service fund A) At the end of the fiscal period if the interest due date does not coincide with the end of the fiscal period. B) When bonds are issued. C) When legally payable. D) When paid.

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