Académique Documents
Professionnel Documents
Culture Documents
6
Accounting for General LongTerm Liabilities and Debt
Service
McGraw-Hill/Irwin
Learning Objectives
6-2
6-3
6-4
Examples of General
Long-term Liabilities
Tax-supported bonds
Long-term warrants
Long-term notes
Capital lease obligations
Unfunded compensated absences
(vacation and sick leave)
Unfunded pension obligations
Long-term portion of judgments and claims
Pollution remediation obligations
6-5
6-6
6-7
6-8
ExampleOverlapping Debt
6-9
Debt Burden
Debt Limit: A ceiling on the amount of debt, defined as
a statutory percentage of assessed valuation or
some other valuation of taxable property
Debt margin: The difference between the debt limit and
the amount of debt outstanding subject to the limit
6-11
6-14
6-15
6-16
Financial Statements/Schedules
6-17
6-18
6-19
Illustrative Transactions
Serial Bond DSF
A certain city issued $100,000 of 6% serial general
obligation (G.O.) bonds on Dec. 1, 2010. Interest on the
G.O. bonds of $3,000 is due on June 1, 2011 and
December 1, 2011, and in decreasing amounts every June
1 and December 1 for the next 19 years after that. The
first principal maturity of $5,000 is due on December 1,
2011
At Issuance
Governmental Activities:
Cash
Serial Bonds Payable
Dr.
100,000
Cr.
100,000
6-20
Illustrative Transactions
Serial Bond DSF (Contd)
The budget approved for FY 2011 requires the General
Fund to transfer $11,000 to the DSF for debt service which
includes principal repayment of $5,000 and two interest
payments totaling $6,000 ($3,000 each)
Debt Service Fund:
Estimated Other Financing Sources
Appropriations
Due from General Fund
OFSInterfund Transfers In
Governmental Activities:
No entry needed
Dr.
11,000
Cr.
11,000
11,000
11,000
6-21
Illustrative Transactions
Serial Bond DSF (Contd)
On May 28, 2011, the transfer from the General Fund was
received
Debt Service Fund:
Cash
Due from General Fund
Dr.
3,000
Cr.
3,000
Illustrative Transactions
Serial Bond DSF (Contd)
The June 1, 2011, the interest payment was made on
schedule
Debt Service Fund:
ExpendituresBond Interest
Cash
Governmental Activities:
ExpensesInterest on Long-Term Debt
Cash
Dr.
3,000
Cr.
3,000
3,000
3,000
6-23
Illustrative Transactions
Serial Bond DSF (Contd)
The remaining $8,000 transfer was received from the
General Fund on November 29, 2011. On December 1, the
city paid the interest and principal maturing that date
Debt Service Fund:
Cash
Due From General Fund
ExpendituresBond Principal
ExpendituresBond Interest
Cash
Governmental Activities:
ExpensesInterest on Long-Term Debt
Serial Bonds Payable
Cash
Dr.
8,000
Cr.
8,000
5,000
3,000
8,000
3,000
5,000
8,000
6-24
Illustrative Transactions
Serial Bond DSF (Contd)
Adjusting entry on December 31, 2011:
Governmental Activities:
Dr.
Cr.
475
6-25
Illustrative Transactions
Serial Bond DSF (Contd)
Closing entry on December 31, 2011:
Debt Service Fund:
Dr.
Cr.
Appropriations
11,000
Estimated Other Financing Sources
11,000
OFSInterfund Transfers In
11,000
ExpendituresBond Principal
5,000
ExpendituresBond Interest
6,000
Governmental Activities:
Closing entry not shown. All governmental activities temporary
accounts would be closed in a single entry to Net Assets
Unrestricted
6-26
6-27
Dr.
23,389
Cr.
3,000
20,389
23,389
23,389
6-29
Dr.
3,000
Cr.
3,000
3,000
3,000
20,389
20,389
6-30
Dr.
17,389
Cr.
17,389
6-31
Dr.
3,000
20,389
OFSInterfund Transfers In
ExpendituresBond Interest
Fund Balance
23,389
Cr.
23,389
3,000
20,389
6-32
Dr.
23,389
23,389
ExpendituresBond Interest
Cash
Cr.
1,217
6,000
18,606
23,389
3,000
3,000
6-33
3,000
3,000
20,389
20,389
6-34
Cr.
17,389
1,517
1,517
6-35
Dr.
Cr.
23,389
1,517
Appropriations
6,000
Budgetary Fund Balance
18,606
Estimated Other Financing Sources
Estimated Revenues
Investment Earnings
6,000
18,906
23,389
1,217
6-36
Entries for fiscal years 2012 and 2013 are omitted for
brevity; actual investment earnings in those two years
were the same as budgeted (see amortization table)
Year 2014: The 1-1-14 budgetary entry is the same as in
2011 except that Estimated RevenuesInvestment
Earnings is the amount shown in the amortization table.
The 1-1-14 and 7-1-14 interest payments are the same
as in 2011
Journal entries for the interfund transfer from the General
Fund on 12-31-14, and the 1-1-15 budgetary entry and
other transactions are shown on next two slides
6-37
Cash
Due from General Fund
Dr.
Cr.
20,389
20,389
5,604
5,604
Dr.
103,000
Cr.
103,000
Dr.
Cr.
500
500
500
500
6-41
Special Assessment
Debt Service Funds
6-42
Special Assessment
Debt Service Funds (Contd)
Example: $1,000,000 of special assessments were
levied on property owners in a special benefit district,
payable in 10 equal annual installments of $100,000
each
Debt Service Fund:
Assessments ReceivableCurrent
Assessments ReceivableDeferred
Revenues
Deferred Revenues
Dr.
100,000
900,000
Cr.
100,000
900,000
Governmental Activities:
Not shown heresee Chapter 6
6-43
Special Assessment
Debt Service Funds (Contd)
Assume all Assessments ReceivableCurrent were
collected during the fiscal year, along with 8% of
interest on the previous unpaid balance. The entry is:
Debt Service Fund:
Cash
Assessments ReceivableCurrent
Revenues
Dr.
180,000
Cr.
100,000
80,000
6-44
Special Assessment
Debt Service Funds (Contd)
Bond principal of $100,000 and interest of 8% were
paid on schedule:
Debt Service Fund:
ExpendituresBond Principal
ExpendituresBond Interest
Cash
Dr.
100,000
80,000
Cr.
180,000
6-45
Special Assessment
Debt Service Funds (Contd)
At year-end, the following reclassification entries would
be made:
Debt Service Fund:
Assessments ReceivableCurrent
Assessments ReceivableDeferred
Deferred Revenues
Revenues
Dr.
100,000
Cr.
100,000
100,000
100,000
6-46
Liabilities Arising
from Capital Lease Agreements
The acquisition of a long-lived asset through a capital
lease was shown in Chapter 5. The general longterm liability arising from that capital lease is recorded
by the following entry in the governmental activities
journal at the government-wide level:
Governmental Activities:
Equipment
Capital Lease Obligation Payable
Dr.
50,000
Cr.
50,000
6-47
10,000
6-48
Dr.
100,000
Cr.
100,000
6-50
Advance Refundings
6-51
Concluding Comments
END
6-52