ACC 410 WEEK 4 QUIZ 3

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CHAPTER 6

Accounting for Capital Projects and Debt Service

TRUE/FALSE (CHAPTER 6)

1. The resources to service all general long-term debt of governments are typically accounted for in debt service funds.

2. When governments establish capital projects funds, they may choose to maintain a separate fund for each major project, or they may choose to combine two or more projects in a single fund.

3. Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

4. Capital projects funds do not report long-term obligations in the fund.

5. When bonds are issued at a premium, the capital projects fund can transfer those excess resources to the debt service fund.

6. When bonds are issued at a discount, the debt service fund usually transfers an amount to the capital projects fund to make up for the deficiency.

7. In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays would be reported in the fund as general capital assets.

8. Debt service funds are maintained to account for resources accumulated to pay interest and principal on general long-term debt—that is, long-term debt associated primarily with governmental activities.

9. In contrast to the accounting for debt service fund expenditures, the interest revenue on bonds held as investments should be accrued in the period the revenue is earned.

10. Special assessments are imposed nonexchange transactions, similar to property tax levies.

11. The interest paid on debt issued for public purposes by state and local governments is generally subject to federal taxation.

12. Nongovernmental not-for-profits must account for defeasances differently than governments do.

13. In the statement of revenues, expenditures, and changes in fund balance of a debt service fund, the fund balance amount should be reported as restricted for debt service.

14. Governments should account for special assessment debt service transactions in a debt service fund, even if they are not obligated to pay the debt.

15. Arbitrage is the process of negotiating resolution of conflicts between the federal government and municipalities over the applicability of federal regulations.

16. Sound fiscal policy dictates that the maturity of debt should be no longer than the life of the assets it is used to finance.

17. Proceeds of debt issued to finance a capital project should be reported in a capital projects fund as a liability until the project is completed.

18. Special assessment debt to be paid from a water utility fund should be accounted for in that fund along with the related capital improvements.

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