CH 6 Hw Flashcards
Explain the relationship between Debt Service Funds and Capital Projects Funds.
Debt covenant requirements make it prudent for a government to establish a Capital Projects Fund to account for the construction of the capital asset and a Debt Service Fund to account for accumulating resources to repay the debt and to make interest and bond principal payments as they come due.
Are acquisitions of capital assets always accounted for through Capital Projects Funds? Explain.
No, capital assets of a relatively minor nature, such as furniture and automobiles, usually are financed through the General Fund or a Special Revenue Fund
Under what circumstances are Capital Projects Funds used?
Capital Projects Funds are used when there is acquisition or construction of major capital facilities and other capital assets.
Governmental GAAP requires that a government use a Capital Projects Fund if the project is financed wholly or partly by general obligation bond proceeds.
Revenue for spending money that is dedicated or restricted for a particular purpose
ON FINAL EXAM.
How are Capital Projects Funds controlled?
Capital Projects are normally controlled by Capital Budgets
Capital Projects Funds are generally controlled through provisions of bond indentures, provisions of grant agreements, and so forth
The borrowing agreement imposes certain restrictions. A board can impose controls upon themselves, and they often do.
GASB does NOT require a budget for a Capital Projects Fund, but it is a great idea.
Are capital assets recorded in the Capital Projects Funds? Why or why not?
Capital assets are not recorded in the Capital Projects Fund.
Governmental funds only record current assets and liabilities under the modified accrual basis of accounting.
Under what circumstances are Debt Service Funds used?
A debt service fund is used when a government accumulates resources for the purpose of repaying the interest and principal of the debt, or it is legally required.
What is arbitrage, and what is its significance in government financial management?
Borrowing money at a certain interest rate while investing the money at a higher interest rate.
The government is not allowed to make a profit.
Under what circumstances are Permanent Funds used?
To account for resources that are legally restricted in a manner that only earnings on the principal of these resources can be expended and the earnings must be used to support the programs that benefit the government or its citizens in general.
