Based on the following scenario: On January 1, 20X7, Clyde County issued $100 million of 5%, 20-year bonds at 102. Interest is payable semiannually. The proceeds were restricted for the construction of a new county water purification plant for its Water Enterprise Fund. 1. The bond issuance should be reflected in the Water Fund Statement of Revenues, Expenses, and Changes in Fund Net Position as:.
a. revenues of $102 million.
b. other financing sources of $102 million.
c. revenues of $100 million.
d. the transaction does not affect this statement.
2. What effect will the bond premium amortization have on interest expense in 20X7, assuming straight-line amortization is used where appropriate?
A. No effect.
B. Increase interest expense by $100,000.
C. Decrease interest expense by $100,000.
D. Decrease interest expense and increase transfers from Debt Service Funds by $2,000,000.
3. Assume that at the fiscal year end the capital project had not yet begun; thus the debt proceeds were still unspent. What classifications of net position would be affected by this fact?
A. Net investment in capital assets would be reduced because no capital assets have been added to offset the new capital-related debt.
B. Restricted net position would include the unspent cash as well as the outstanding liability.
C. Unrestricted net position would reflect an increase due to the cash received from the debt issuance, but net investment in capital assets would decrease by the amount of unspent debt proceeds.
D. None—net position classifications are not affected by the issuance of long-term debt.
4. How would the Enterprise Fund’s statement of cash flows be affected by the debt issuance?
A. Cash flows from operating activities would increase.
B. Cash flows from noncapital financing activities would increase because bond proceeds have not yet been spent for capital purposes.
C. Cash flows from capital financing activities would increase.
D. Cash flows from investing activities would increase.