Question

A city issued bonds on July 1. Interest of $600,000 is payable the following January 1. On December 31, the city transfers the required $600,000 from its general fund to its debt service fund. On its December 31 debt service fund statement of revenues, expenditures, and changes in fund balance, the city :______

a. Must report interest expenditure of $0
b. Must report interest expenditure of $600,0000
c. Must report interest expenditure of $500,000
d. May report interest expenditure of either $0 or $600,000

Answer 1

d. May report interest expenditure of either $0 or $600,000

Step-by-step explanation:

Government entities used modified accrual accounting system and one of the main difference with accrual accounting system used by private businesses is that they do not have to report accrued interests on their end of year balance sheets. They can choose to report them or not, it is optional.