1. At what point should interest be recognized as an expenditure in a Debt Service Fund?

a. when it accrues

b. when it is paid

c. when it is due and payable

d. when the bonds resulting in payment of interest are issued

2. A city sells $15 million of general obligation bonds on October 1, 2013. The bonds mature at the rate of $1 million a year each September 30, starting September 30, 2014. The amount due September 30, 2014 is paid. How much should the city report as outstanding debt in the Debt Service Fund in its year-end fund level financial statements on December 31, 2014?

a. $15,000,000

b. $14,000,000

c. $13,750,000

d. $0

3. A city keeps its books on a calendar year basis. On April 1, 2013, the city sold $500,000 of 6% general obligation bonds, payable in semi-annual installments. The first installment, due October 31, 2013 covered interest of $15,000 and principal of $25,000. For the year ended December 31, 2013, how much should the Debt Service Fund report as expenditures?

a. $15,000

b. $40,000

c. $15,000, plus an accrual for three months' interest

d. $40,000, plus an accrual for three months' interest and principal

4. A state issues long-term debt to finance a major construction project. The first installment of debt service requires payment of principal of $75,000 and interest of $100,000. Which of the following statements is true on the day that payment for principal and interest is legally due?

a. expenditures of $175,000 should be recognized in the debt service fund.

b. expenditures of $75,000 should be recognized in the capital projects fund and expenditures of $100,000 should be recognized in the debt service fund.

c. expenditures of $100,000 should be recognized in the debt service fund and bonds payable should be reduced by $75,000 in the debt service fund.

d. expenditures of $175,000 should be recognized in the debt service fund and bonds payable should be reduced by $75,000 in the capital projects fund.

5. The following set of facts applies to questions 14, 15, and 16: A state constructs an office building. The construction is financed with: (1) a transfer of $1 million from the General Fund; (2) a grant of $2 million from the federal government; (3) bond proceeds of $7 million; and (4) earnings of $100,000 from temporary investment of bond proceeds. All transactions occur in one year.

Based on the preceding set of facts, how much should be reported as Revenues in the Capital Projects Fund?

a. $100,000

b. $2,100,000

c. $3,100,000

d. $8,100,000

Please provide an explanation as to why the answer is correct.