Reference no: EM13941661

Multiple Choice Problem. Choose the best answer

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 Net Assets as

a. revenues of $102 million 
b. other financung sources of $102 million 
c. revenues of $100 million 
d. other financing sources of $100 million 
e. Nonr of the above 

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. none of the above 

3. Assume that as of the end of the year the capital project had not yet begun thus the debt proceeds were still unspent. What classification of net assets would be affected by this fact. 

a. invested in capital assets, net of related debt, would be rduced as no capital assets have been added to offset the new capital related debt. 
b.restricted net assets would include the unspent cash as wekk as the outstanding liability 
c. unrestricted net asset would reflect an increase due to the cash received from the debt issuance, but invested in capital assets, net of relateddebt, would decrease by the amount of unspent debt proceeds. 
d. none net asset classifications are not affect 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 flowa from noncapital financing activities would increase as the bond proceeds have not yet been spent for capital purposes 
c. cash flow from capital financing activities would increase 
d. cash low from investing activities would increase.