Solution
Preeta answered on
Jun 28 2020
RESEARCH IN ACCOUNTING PRACTICES
RESEARCH IN ACCOUNTING PRACTICES
NAME: XXXXXXXXXX
STUDENT ID: XXXXXXXXXX
COORDINATOR: XXXXXXXXXX
PAPER NAME: XXXXXXXXXX
DATE: XXXXXXXXXX
WORDS COUNT: 3033
CHAPTER 6:
· How do governments account for capital projects funds?
Capital project fund is maintained by Governments for acquiring capital assets which are legally constrained but contractually necessary, or for capital projects which the Government find important. This fund is financed by bonds, intergovernmental grants, special tax levies, or assessments. The basis of accounting is modified accrual basis. In Government statements the basis of accounting is accrual basis and is consolidated with other funds of the Government. Capital expenses are budgeted on the basis of projects. Budgetary entries ensure that expenditure is in accordance with authorization and increase control on expenses. The entries don’t affect financial statements.
Governments issue bonds either in face value or discount or premium, depending upon the market rate and receive the proceeds in cash which is then allocated to capital project funds. The bonds proceeds are accounted as “other financing sources”. The main types of transactions which are accounted for a capital project fund are project authorization and budget recording, bonds issue, transfer of premium to Debt Service Fund, impede other available resources, record grants and expenditures, realizing earnings from investments, and close the accounts.
Some journal entries are:
1. Record the bond proceeds in capital project fund
Cash XXX
Issuance Cost XXX
Other Financial sources-bond issue proceeds XXX
Premium on Bonds XXX
2. Record transfer of premium
Other financing use - transfer to debt service fund XXX
Cash XXX
· How do governments account for resources dedicated to debt service?
Debt service funds are maintained by Governments when required by the law in case of issue of debt or to pay for principal as well as interest of a debt in future. To assure lenders such a fund is maintained. The fund is financed by transfer from general reserve, special tax, and special assessment. The basis of accounting is modified accrual basis. The resources are not appropriated until the principal or interest is paid. Accrual and recording in different periods might cause overstatement so when the general fund will be appropriated government may accrue expenditure and related liability in the debt service fund.
Since this fund is financed by other funds, the budgets of those fund already ensures internal control yet budgeting of special taxes and special assessments will increase internal control. The main types of transactions which are accounted for a debt service fund are budget recording, transfer of the bond premium and the amount to be retained as a reserve, recognition of investment earning and tax revenue, record of transfer from general fund, record of payment of interest and principal and close the accounts.
Some journal entries are:
i. Budget recording
Estimated revenues—investments XXX
Estimated revenues—property taxes XXX
Estimated transfer‐in—capital projects fund XXX
Estimated transfer‐in—general fund XXX
Appropriations—interest XXX
Appropriations—principal XXX
Fund balance XXX
ii. Record of interest and principal
Expenditure—debt service, interest XXX
Expenditure—debt service, principal XXX
Matured bond interest payable XXX
Matured bonds payable XXX
· How do governments handle special assessments?
Taxpayers outside the jurisdiction area of a city or town might want to get annexed to that jurisdiction or want to get the benefits of the jurisdiction. In that case a special assessment is levied on the area. Special assessment is also levied for improvement of infrastructures like water line, roads, park, swimming pool or when a community demands for improved service than provided. The special assessment is partly financed by government contribution and partly by revenue debt (like water tax, road tax, etc.).
There are two phases of accounting of a special assignment. The first phase includes – project authorization, owner assessment, project financing by debt issuance, project construction. This phase is accounted in capital projects fund. The second phase includes – assessment payment by property owners, servicing of debt. This phase is accounted in debt service fund.
Property owners are responsible for special assessment, so government is not required to record it in its financial statement. But sometime government may be obligated to take responsibility then it is to be mentioned in financial statement. The obligations might be because of bond agreement, legal decision of state, to satisfy any guarantee. Government sometime creates a proprietary fund for special assessment which will be capitalized as per expenditure, but government is not directly responsible for it.
· What a
itrage is and why it concerns governments?
A
itrage, for government is the issue of debt at low, tax‐exempt rates of interest and the proceeds being invested in taxable securities of high return. Internal revenue code and accompanying regulations is added by federal government for a
itrage. A
itrage is restricted but there are some exceptional and any a
itrage has to be rebate to federal government but calculation of this rebate is difficult.
· How can governments benefit from debt refunding?
Government would have no benefit from debt refunding if it has to repurchase its outstanding debt in the open market at cu
ent...