Question

Items 3-7 are based on the following information. During the fiscal year ending December 31, 2015, the City of X issued 6 percent general obligation bonds in the amount of $2,000,000 at par and used $1,990,000 of the proceeds to construct a police station. The remaining $10,000 was transferred to a debt service fund. The bonds were dated November 1, 2015, and paid interest on May 1 and November 1. The first of 20 equal annual principal payments was due on November 1, 2016.What would be the amount recorded as expenditures by a debt service fund in the year ended December 31, 2015?

a. $0
b. $20,000
c. $53,000
d. $60,000

Answer 1

The amount recorded as expenditures by a debt service fund in the year ended December 31, 2015 would be $60,000.

Step-by-step explanation:

The amount recorded as expenditures by a debt service fund in the year ended December 31, 2015 would be $60,000.

The City of X issued 6 percent general obligation bonds in the amount of $2,000,000 at par. Out of the proceeds, $1,990,000 was used to construct a police station and the remaining $10,000 was transferred to a debt service fund.

Since the first principal payment was due on November 1, 2016, there were no principal payments made in the year ended December 31, 2015. However, the debt service fund recorded interest payments made on May 1 and November 1, which would amount to $60,000 ($2,000,000 x 6%). Therefore, the answer is option d, $60,000.