Question

The city of spartan's fiscal year ends on december 31. on october 1, 2017, the city issued $1,000,000 of 6%, 10-year term bonds with semi-annual interest payments due on march 1 and october 1 each year, beginning on april 1, 2018. what amount of expenditures should the city recognize in its debt service fund for the years 2017 and 2018?

Answer 1

Answer: There was $0 in 2017 and $60,000 in 2018.

Explanation: The amount of interest that it is paying for each year on the bonds needs to be recognized in the debt service fund. In 2017 there was not payment made on the bond interest, because they were issued on October 1.

In 2018 there were two bond payments made. The annual interest is 6%, so the total interest to be recorded as an expenditure for the year is .06 x $1,000,000 = $60,000.