During the fiscal year ended December 31, 2015, the City of Johnstown issued 6%

Question

During the fiscal year ended December 31, 2015, the City of Johnstown issued 6% general obligation serial bonds in the amount of $2,000,000 at 102 ($2,040,000) and used $1,980,000
of the proceeds to construct a fire station. The $40,000 premium was transferred to a debt service fund. The $20,000 left in the capital projects fund at the end of the project was later
transferred to the debt service fund. The bonds were dated April 1, 2015 and paid interest on October 1 and April 1. The first of 10 equal annual principal payments was due on April 1, 2016.

What would be the amount of expenditures recorded by the debt service fund for the fiscal year ended December 31, 2016?

A) $440,000.
B) $324,000.
C) $320,000.
D) $120,000.

why is C the answer?

Explanation / Answer

Particulars Amount ($) Interest expense (2,000,000 * 6%) 120,000 Annual principal repayment (2,000,000 / 10 ) 200,000 Amount of expenditure recorded 320,000 Please hit the like button if the answer helped you else leave a comment for further clarification. Thank you! All the best!

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