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8: Prepare entry that distict would make to relfect first payment of interest on its gov wide stmt. Indicate value at which bonds would be reported immediately following payment. Why is interest expense not equal to amount paid?
Interest expense $ 165,698
Bond premium 14,302
Cash $ 180,000
To record the first payment of interest (unrestricted resources)
- Immediately following the first
- payment the effective liability would be reduced by the amount of the premium
- amortized ($14,302) and would thereby be equal to $6,613,607.
- The reported interest expense is
- equal to 2.5 percent (the yield rate) of $6,627,909 (the effective liability) —
- i.e., the effective interest rate times the effective liability. The amount
- paid, by contrast, is equal to the 3 percent (the coupon rate) times $6,000,000
- (the face value of the debt).
How does district report liability and interest costs in fund stmts?
- In its fund statements the district would not
- report the bond liability. It would report the bond proceeds as an “other financing source.” It would report each period’s interest expenditure as the amount actually due — i.e., an amount based on the coupon rate. It would not
- take into account bond discounts or premiums.
How should overlapping debt be reported?
- information in the statistical section of its annual report
HOw is operating lease expense reported?
What significance is amount of operating lease to a stmt user? Why might this be as important as actual debt?
The note indicates that the operating leases are not cancelable. Therefore, they are as much of a commitment of resources as the reported liabilities
prop fund statements
- statement of net assets
- statements of rev exp and changes in fund net assets
- statement of cash flows
- Interest paid=financing activity
- Interest received=investing activity
Ramifications for other funds (for ISF)
- Duplicate reported expenses
- Transfer of depreciation to governmental funds
- Detract from objectivity of financial statements (revs of ISF are not objective, and so too are changes in net assets for year, and expenditures of gen fund and any other funds; everything is subjective)
- Obscure fund balance suprlus or deficits (gov transfer s or d to ISF, where not maintained).
when a gov self-insures, it retains the risk itself, irr of whether it accounts for the activity in ISF or gen fund. Therefore, self-ins=no insurance.
The cash flows are divided into four categories:
- operating activities;
- noncapital financing activities;
- capital and related financing activities;
- investing activities.