Question

Which of the following is correct with respect to Debt Service Funds? 1. Debt service funds account for and report finencial resources that are restricted, committed or assigned to expenditure for principle and interest for al governmental long-term debt 2. Debt service funds must acerue interest on long term debt at yeer end. 3. Debt service funds account for end repon finencial resources that are restricted, commimed or assigned to expenditure for principle and interest for governmental debts except debt of proorietnry and fiduciary funds who account for their own interest end principle payments 4. Debt service tunds report the balance of govemmental debts escept debt of proprietery and fiduciery funds.

Answer 1

Answer: 3. Debt service funds account for end reporting Financial resources that are restricted, committed or assigned to expenditure for principle and interest for governmental debts except debt of proprietary and fiduciary funds who account for their own interest end principle payments.

Step-by-step explanation:

Debt Service funds are a type of fund or cash reserve that the government holds to be able to pay off the interest and principal on certain types of loans for Government projects such as loans issued to build a Government building.

The interest will be serviced from the fund and this therefore reduces the risk to investors who will feel like there is a better chance of repayment. This leads to a lower interest rate which is ultimately good for the Government.

There is a problem of the requirement that some of the loan proceeds has to go into the fund though. This will inadvertently reduce the amount of money available to embark on the Government project.