Chapter FAR 8-3 MCQs: Governmental Funds >> Debt Service Fund and Capital Project Funds Flashcards Preview

FAR CPA Review - (Becker, Roger, Wiley CPA Excel, NINJA) > Chapter FAR 8-3 MCQs: Governmental Funds >> Debt Service Fund and Capital Project Funds > Flashcards

Flashcards in Chapter FAR 8-3 MCQs: Governmental Funds >> Debt Service Fund and Capital Project Funds Deck (16):

What is the exception to the Modified Accrual basis rule on Long-term debt's interest and principal payments?

Interest payment and principal payment on Long-term Debt are recorded when they become due and payable (able to pay off)

NOT when they accrue (record interest payment/ principal payment when they occur way before paying it off).


Which of the following is Other Financing Sources and Debt Service expenditures:

Face amount on General Obligations Bonds
Bond premium (i.e. 101, 102, 103)
Underwriter fees
Debt Issue costs

Other financing sources:

>> Bond face amount
>> Bond premium

Debt Service Expenditures:
>> Underwriter fees
>> Debt issue costs


What is the calculation on bond Face amount and bond prmium (i.e. 101, 102, etc) to get the total debt proceeds on bond in debt service fund?

Bond face amount x Bond premiums = total proceeds from bond obligations

Bond face amount 1,000,000
Bond premium 101 x 1.01
= Total proceeds 1,010,000


What is the journal entries in Debt Service fund on handling:

Bond total proceeds received
Underwriter fee
Debt issue costs

Bond total proceeds received - Journal Entries:

Dr: Cash
Cr. Other financing source - Bond proceeds

Underwrite fees - Journal Entries:
Dr. Underwriter Feeds
Cr. Cash

Issue costs - Journal Entries
Dr. Debt Issue Costs
Cr. Cash


What accounts are increased when a government unit has a capital lease on an equipment that the later becomes an acquisition of general fixed asset?

What is the journal entry for this transaction to be reported on the Fund financial statement?

How is this transaction reported on the Government-wide F/S if a governmental fund acquired this capital lease asset?

Increase expenditures
Increase Other Financing Sources

Dr: Expenditures - Capital lease
Cr. Other financing source - capital lease

Government wide F/S:
Debit: General capital assets
Credit: General Long-term liabilities

This appears on the Governmental-activities column.


Where does payment on special assessment debt maturing in 2 years, 3-years, 4-years, 5-years, (more than 1 year) gets reported on what type of Government financial statement?

Government-wide financial statements.


Are bond premium/discount amortization reported in the debt service fund? If so or if not, please explain why.

Also how is bond preium reported in a fund?

Bond premium/discount amortization are not reported in the Debt Service fund financial statements.

This is because premium/discount amortization is not reported in the governmental funds's financial statements, including debt service fund.

Bond premium and discount (not amortization) is reported in the fund receiving the proceeds on the bond.

If debt service fund receive the bond premium when receiving the bond proceeds, then:

Bond premium = revenue on Debt Service Fund.


When a capital projects receives the following

Grant from state government
Proceeds from general obligation bond issue
Transfer from the General Fund

Which one is the revenue?
Which one is the Other financing sources?

Revenue = Grant from state government
This because grants from a state government is a revenue when you spend it the grant revenue.
Other words: Government accounting rule on revenue-type: it's a revenue when spend it.

Other financing sources =
a) Proceeds from general bond issue
b) Transfer from general fund


On government-wide financial statements:

What type of amount is reported for the following acquiring method:

Capital lease

Purchase = report at cost (purchase cost)

Construction = report at cost to construct it

Capital lease = P.V. on lease payments

Donated = report on Fair market value (fair value)

Forfeiture = report on, pick the lower amount
>> Pick the cost if that's the lower amount
>> Pick the fair market value if that's the lower amount


There are times where debt service fund and capital projects fund rely on each other for the funding in building a capital construction project (like building a stadium, a dam, etc.)

What is the difference between Debt Service Fund and Capital projects fund?

Debt service fund = a fund to accumulate sources to pay general long term debt's principal amount and interest amount (usually on paying off bonds).

Capital project funds = receives sources from Bond obligation proceeds, grant money, and transfers from General fund to buy equipment, machinery to construct a building or or some capital construction project.


Are interest expenditures accrued between payment dates on paying off the interest on general obligation bonds?


This is because according to the Government accounting (modified accrual basis) rules:

Interest expenditures are recorded when legally payable per bond agreement. That means report the interest expenditure depending on the payment date.

If the payment date on interest is the same day as balance sheet date = record interest expenditure.

If payment date is like 4 months after balance sheet date, NO record interest expenditures.


When a capital projects fund receive a receivable for a state grant, what is the rule when the state grant is reported as revenue?

The state grant in a capital projects fund would be reported as Revenue when:

Used the state grant to incur Capital outlay expenditure (used it start buying equipment/machines, etc.)


Satisfy other requirements before receiving the state grant money.


What are the journal entries to close the Capital projects at year end?

Closing Budget at year-end:
Dr: Appropriations
Cr. Estimated Revenue

Close activity at year-end:
Dr. Other Financing sources - bond issue proceeds
Dr. Investment revenue
Dr. Other financing sources - bond premium
Cr. Expenditures
Cr. Inter-fund-transfers to debt service, investment revenue
Cr. Inter-fund transfers to debt service bond premium
Cr. Unreserved Fund balance

Close encumbrance (purchase orders) at year end:
Dr. budgetary fund balance reserved for encumbrances
Cr. Encumbrances


Capital projects fund:

What is the journal entry to handle outstanding encumbrances?

Dr. Unreserved Fund Balance
Cr. Fund Balance


What is the composition of unreserved fund balance?

Beginning fund balance
+ Proceeds from bond issue
+ Interest income
- Expenditures
- Inter-fund transfer to debt service
= ending fund balance


When is interest payable recorded in governmental fund accounting?

Interest payable is recorded

when interest is not paid on the due date.

Example: June 1st - due date on paying interest
But, government did not pay it on June 1st.

Therefor, on June 2nd, record Interest payable

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