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Chapter 6 Flashcards

0
Q

debt service funds

A

resources to service debts

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1
Q

capital projects funds

A

are used to account for financial resources that are legally restricted and contractually required for the aquisition of capital assets.

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2
Q

Basis of accounting used in Capital Projects funds

A

Modified accrual basis

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3
Q

Capital Projects budgeted on what basis?

A

Projects not period (might not have an annual budget)

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4
Q

Unique feature of capital projects funds is

A

financial statements prepared at the end of the fiscal year may be considered interim financial statements (project fund only exist for the term of project under construction)

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5
Q

bonds

A

formal certificates of indebtedness, most frequently issued by governments for the long term

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6
Q

How to account for proceeds of bonds or other long-term obligations received

A

“other financing sources” as they do not report long-term obligations in government funds

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7
Q

Issue costs

A

Bond underwriters charge for their services and will withold a portion of the gross proceeds as fees

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8
Q

premiums and discounts

A

bond coupon rate is rarely exactly equal to the market rate at time of sale.

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9
Q

coupon rate

A

stated interest rate

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10
Q

bond sold to yield an interest rate greater than the coupon rate is sold at a ?

A

discount

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11
Q

bond sold to yield n interest rate less than the coupon rate will be sold at a

A

premium

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12
Q

Governments report the underwriting and other issue costs as

A

expenditure

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13
Q

If the issue costs are not set out separately from premiums and discounts

A

then the government should estimate them

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14
Q

debt service funds are maintained to account for and report on

A

financial resources that are restricted, committed, or assigned to expenditure for principal and interest on all general long-term debt itself

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15
Q

debt service funds do not account

A

for the long-term debt itself

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16
Q

only time principal of debt is reported as an obligation

A

is when it has matured but actual payment has been delayed

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17
Q

GAAP direct that debt service funds be established when?

A
  • Legally required

* Financial resources are being accumulated for principal and interest payments maturing in future years

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18
Q

debt service funds receive resources

A
  • Transfers from the general fund
  • Special taxes restricted to the payment of debt
  • Special assessments
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19
Q

debt service funds are on accounted for on the basis of

A

modified accrual basis

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20
Q

Construction phase of special assessments

A

accounted for in the capital projects fund

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21
Q

Debt service phase of special assessments are accounted

A

accounted for in a debt service fund

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22
Q

If government is not obligated for the debt (special assessment) just collects the money then it should?

A
  • report the debt service transactions in an agency fund
  • report construction activities, like other capital improvements, in a capital projects fund
  • Report the capital assets in the schedule of capital assets and the government-wide statements
  • Disclose in notes to the financial statements the amount of debt and the governments role. do not report debt on schedules
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23
Q

arbitrage

A

issuance of debt at relatively low, tax-exempt rates of interest and the investment of the proceeds in taxable securities yielding a higher return,

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24
arbitrage restrictions
issuers are permitted to invest both construction funds and reserve funds for a limited period of time (i.e. must be spent withing x# of years.)
25
arbitrage rebates
regulations require that all arbitrage earnings, again with some exceptions be remitted to the federal government
26
bond refundings
early retirement of existing debt so that it can be replaced with new debt
27
Refinance
governments refund their debt to take advantage of more favorable (lower) interest rates, to shorten or lengthen the debt payout period, or to rid themselves of restrictive bond covenants.
28
economic cost
present value of all future payments
29
call prices
predetermined price at which the issuer of bonds may redeem the bonds irrespective of the current market price.
30
in-substance defeasance
advance refunding in which the government places sufficient resources in a trust account to cover all required principal and interest payments on the defeased debt.
34
Capital Assets are maintained in a
schedule of capital assets
35
CPF basis of accounting on the Government statements
full accrual basis
36
CPF Capital outlays include
acquisition or construction of capital facilities
37
Types of capitla projects
*General (public benefit)
38
General capital projects
Public buildings, roads, highways and bridges, park improvements, sewer systems, plant and equipment
39
Special assessment projects
Benefits citizens in a specified benefit district (street improvements, curbs, sidewalks, street lighting, and sewage)
40
Construction Cylce
Phase 1 Preconstruction Phase (Project & Financing authorization) Phase 2 Construction Phase Phase 3 Debt Servicing Phase
41
Types of lont-term financing
*Tax supported Debt General obligation bonds or special taxes restricted to payment of debt *Grants *Other forms of financing-Special assessments
42
Tax Supported Debt
*Voter approval required *Memo entry for bond/tax authorization *Proceeds accoounted for as "other financing sources." Difference between face value of bonds and cash recieved is either issue costs and or premiums and discounts
43
Special Assessments are?
taxes levied when taxpayers in areas beyond their jurisdiction want to benefit from certain facilities and services or the improvements will increase the value of taxpayer owned property
44
Budgets help CPF by?
control individual project expenditures
45
Gasab requires CPF
budgeting over integrated funds when control cannot be established by other means
46
DSF
Debt Service Funds
47
DSF does not include
debt issued for and serviced by Enterprise or Internal Service Funds and some trust funds
48
DSF basis of accounting
modified accrual basis of accounting
49
Interest and pricipal are considered current liabiliteis of DSF when
the period in which they must be paid
50
DSF resources may come form
Tax supported Debt | Other means of financing
51
GASB requires DSF be estbalished when
legally required | Financial resources are being accumulated for principal and interest payments maturing in future years.
52
GASB recommends for DSF
A single DSF for all debt serviced by property taxes | Governments hold number of funds to a minimum
53
Tax Supported Debt types
Serial Bonds | Term Bonds
54
Serial bonds
amount budgeted for revenues or inter-fund transfers in, is usually just what is needed that fiscal year for matured principal and interest (Advantage-Self Amortizing) Principal matures in annual installments
55
Term bonds
Principal matures in one lump-sum amount at end of the bond term Not used as frequently for municipal financing as serial bonds
56
Disadvantages of Term bonds
Usually requires a sinking fund and therefore investment management Sinking fund investments are reported at fair market value Changes in FMV are reproted as a component of investment earnings More complex accounting than for serial bonds
57
DSF Special assessment revenues and receivables are accounted
using full accrual basis
58
Government obligated to account for special assessment when
Govenrment accounts for dsf on special assessment debt in a dsf when the government is obligated in some manner for the debt GASB states
59
Gasb States Obligated for Special assessment debt
it is responsible for the debt in the event of property owner default it is legally liable for assuming the debt or gives indication taht it may honor the debt in the event of default
60
Not obligated to account for special assessmetn debt
when both the special assessment debt and the debt service are account for in an agency fund disclose the amount of debt in the notes to the financial statements
61
When Special Assessments Debt is paid from a proprietary fund
All transactions are reported in the proprietary fund | improvemnets financed with assessment should be capitalized
62
arbitrage
* results from investment of idle cash * issuance of debt at low tax-exempt interest rates and investment of proceeds in taxable securities yielding higher return. * Interest received is exempt from federal taxes
63
Provisions to prevent arbitrage abuse
*Arbitrage restrictions: State and local governments must observe arbitrage regulations *Rebate on arbitrage: Arbitrage rules and regulations are complex and contain several exemptions and exceptions. Investment revenues should be redued and rebate liabilities established
64
In-substance defeasance
* provision for the government to lock the savings that would result from a decline in the interest rates * Advance refunding in which the borrower economically satisfies its existing obligations * Journal entries are similar to those for regualt refundings
65
In-substance defeasance should satisy the following conditions
* debtor must place cash/assets with an escrow agent to be solely used for servicing/retiring the debt * Possibility of debtor having to make future payments on the debt must be remote * Assets in escrow fund must be investments considered "risk-free" like US Treasury Bonds * Amortize loss (or gain) over future years using the shorter of the original term or the term of the new debt
66
Debt refunding
* bond refunding is the early retirement of existing debt with so that it can be replaced with new debt * Existing debt may have a "call feature" that lets the government repay face value early * Bonds without a call feature that are not actively traded are more challenging-this is the situation that leads to use of "in-substance defeasance"
93
Primary purpose of Capital Projects Funds
To ensure and demonstrate the expenditure of the dedicated financial resource is both legally and contractually compliant.
94
Capital Projects Funds
CPF
95
CPF does not account for...
Capital assets themselves.

Accounting (14 decks)

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