PREPARING AND USING A LIABILITY TABLE. Girves Development Corporation has agreed to construct a plant in a
Question:
PREPARING AND USING A LIABILITY TABLE. Girves Development Corporation has agreed to construct a plant in a new industrial park. To finance the construction, the county government has sold $5,000,000 of 10-year, 4.75% revenue bonds for $5,125,000. Girves will pay the interest and principal on the bonds. When the bonds are repaid, Girves will receive title to the plant. In the interim, Girves will pay property taxes as if it owned the plant. This financing arrangement is attractive to Girves, as state and local government bonds are exempt from federal income taxation and thus carry a lower interest rate. The bonds are attractive to investors, as both Girves and the county are issuers. The bonds pay interest semiannually.
REQUIRED:
1. Prepare the first four lines of a liability table for these revenue bonds.
2. Should Girves record the plant as an asset after it is constructed? Why?
8. Should Girves record the liability for these revenue bonds?
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