56) On June 1, Brooktown levied special assessments in the amount of $500,000, payable in 10
equal annual installments beginning on June 30. The assessment installments are intended to pay
principal and interest on special assessment bonds for which the town has pledged its full faith and
credit should assessments be insufficient. Assuming no allowance for uncollectible receivables,
the journal entry in the debt service fund on June 1 would include:
A) A debit to Assessments Receivable—Current for $500,000.
B) A debit to Assessments Receivable—Current for $50,000.
C) A credit to Revenues for $500,000.
D) No journal entry is made in the debt service fund because special assessments are used.
57) Which of the following is a true statement regarding in-substance defeasance of bonds?
A) The government must place cash or other assets in an irrevocable trust sufficient to pay all
future interest and principal payments for the debt being defeased.
B) The government must agree to maintain sufficient cash and investment balances in its debt
service fund to cover all interest and principal payments for the debt being defeased.
C) The government must pledge to transfer amounts to an escrow agent prior to the due date for
each interest and principal payment for the debt being defeased.
D) The government must agree to maintain sufficient unrestricted cash and investments in its
governmental funds to cover all interest and principal payments for the debt being defeased.
58) When the debt service fund makes a payment of principal and interest on an outstanding
long-term debt, the governmental activities accounts:
A) Reflect the principal payment only.
B) Reflect the interest payment only.
C) Have no record of the transaction.
D) Reflect both principal and interest payments.
59) Which of the following basic financial statements contains a column for the total of all debt
service funds?
A) Statement of cash flows.
B) Statement of revenues, expenditures, and changes in governmental fund balances.
C) Statement of revenues, expenses, and changes in proprietary net position.
D) No basic financial statement contains a column for the total of all debt service funds.
60) Which of the following financial statements are required for a Debt Service Fund?
A) Statement of net position only.
B) Statement of revenues, expenditures, and changes in fund balances only.
C) Balance sheet and statement of revenues, expenditures, and changes in fund balance only.
D) Balance sheet; statement of revenues, expenditures, and changes in fund balance; and statement
of cash flows.
61) The sale of revenue bonds by a water utility fund would be recorded:
A) In the governmental activities column as a liability.
B) In an enterprise fund as Proceeds of Bonds.
C) In an enterprise fund as a liability.
D) In an enterprise fund as a revenue.
62) The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a
$100,000 principal and $15,000 interest payment. The recording of this transaction would include:
A) A debit to Interest Expenditures in the General Fund.
B) A debit to Interest Expenditures in the governmental activities accounts.
C) A credit to Other Financing Sources — Interfund Transfers In in the debt service fund only.
D) A credit to Other Financing Sources — Interfund Transfers In in both the debt service fund and
governmental activities accounts.
63) The General Fund of the City of Castle Rock transfers $115,000 to the debt service fund for a
$100,000 bond principal and $15,000 interest payment. Subsequent payment of the principal and
interest would include:
A) A debit to Expenditures — Bond Interest in the debt service fund.
B) A debit to Other Financing Uses — Principal and Interest Payments in the debt service fund.
C) A debit to Expenditures – Bond Interest in the General Fund.
D) A debit to Interest Expenditures in the governmental activities accounts.
64) On March 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face
amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and
September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2020.
Fiscal year-end occurs on December 31. What is the interest expense for the fiscal year ending
December 31, 2019?
A) $90,000.
B) $135,000.
C) $150,000.
D) None of the options are correct.
65) On March 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face
amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and
September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2020.
Fiscal year-end occurs on December 31. What is the interest expenditure for the fiscal year ending
December 31, 2019?
A) $90,000.
B) $135,000.
C) $150,000.
D) None of the options are correct.
66) Select the key term that relate to accounting for general long-term liabilities and debt service
from the list that best matches with the following definition.
A. Legal defeasance
B. Regular serial bonds
C. In-substance defeasance
D. Irregular serial bonds
E. Debt limit
F. Annuity serial bonds
G. Debt margin
________ 1. A transaction in which cash or other assets are placed into an irrevocable trust for the
benefit of debt holders
________ 2. Bonds for which the amount of annual principal repayments is scheduled to increase
each year by approximately the same amount that interest payments decrease
________ 3. Bonds payable in which the total principal is repayable in a specified number of equal
annual installments
________ 4. The maximum amount of gross or net debt that is legally permitted
________ 5. A transaction in which debt is legally satisfied based on certain provisions in the debt
instrument even though the debt has not been repaid
67) The debt limit for general obligation debt for Milos City is 1 percent of the assessed property
valuation for the city.
Assessed property valuation
$
10,863,511,000
Approved but unissued tax-supported debt
10,000,000
Revenue bonds issued
32,000,000
General obligation serial bonds issued
43,000,000
Leases outstanding
5,230,000
Calculate the city’s debt limit and debt margin.