Chapter 6accounting for General Long-Term Liabilities and Debt Service

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(re: 12/e)
6-1Reasons for general long-term liabilitiesExplain6-2
6-2Disclosures of types and changes in liabilitiesExplain6-6 6-3General obligation bondsDescribe6-3
6-4GO Bonds and enterprise fundsExplain6-5
6-5Debt marginExplain6-7
6-6Purpose of debt service fundsExplain6-8
6-7Number of debt service fundsExplain6-11
6-8Year end balanceExplain6-12
6-9Amortization of premiums and discountsExplain6-14
6-10Advance refunding of bondsDescribe6-15

Analysis of general obligation debt burdenAssessNew
6-1Examine the CAFRExamine6-1 revised
6-2VariousMultiple Choice6-2 revised
6-3Long-term liability transactionsJournal Entries6-3
6-4Statement of legal debt marginFinancial Schedule6-5
6-5Capital leaseJournal Entries6-4
6-6Direct and overlapping debtFinancial Schedule6-6
6-7DSF and financial statementsJEs and FS6-8
6-8Term bond debt service fund transactions; advance refundingJEs New 6-9
Comprehensive capital assets/long-term liabilities problem
JEs & FS6-9


Answers to Questions

6-1.General long-term liabilities are often incurred to finance general capital assets that will be used in governmental activities. Liabilities may also be incurred for operating expenses of governmental activities or estimated losses from long-term claims and judgments.

6-2.During the period covered by the report even a relatively small governmental unit may have issued several kinds of debt instruments for various purposes; incurred capital lease obligations; repaid matured issues; called issues; purchased unmatured issues, or portions of them, on the open market; canceled leases, etc. A schedule that presents all of the information together and relates it to the amount of debt outstanding at the beginning of the year and at the end of the year, as shown in Illustration 6-1, is useful.

6-3.a.The premium on bonds payable is reported in the government-wide statement of net assets, where it increases the long-term liability, and is amortized over the life of the bonds.

b.Same as answer to a. At the government-wide level, it does not make any difference what the premium will be used for.

6-4.The bonds should be shown as an enterprise fund liability, as well as a liability of business-type activities on the government-wide statement of net assets. The contingent liability due to the bonds' general obligation (G.O.) status should be disclosed in the notes to the financial statements.

6-5.The amount of bonds authorized but unissued has passed the stage where it can be controlled by taxpayers. To ignore debt authorized but unissued would make it possible to exceed the debt limit if the debt is issued.

6-6.False. The statement is too inclusive. Debt service funds account for resources segregated to pay interest on tax-supported general long-term debt and special assessment long-term debt, and to repay such debt when due. Long-term debt service payable from revenues of enterprises is accounted for by enterprise funds. Tax-supported and special assessment long-term debt should be accounted for as governmental activities in the government-wide financial statements.

6-7.Disagree. All tax supported and special assessment long-term debt may be accounted for in a single debt service fund, as far as GASB standards are concerned. Generally, as few debt service funds should be created as applicable laws and good management allow.

Ch. 6, Answers (Cont'd)

6-8.Good financial management would usually dictate the use of a debt service fund to account for revenue raised to service regular serial bonds, to keep track of transactions between the governmental unit and its paying agent and/or...
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