Question

Dunn-Whitaker Construction has agreed to construct a plant in a new industrial park. To finance the construction, the county government issued $4,000,000 of 10-year, 5.25 percent revenue bonds for $4,100,000 on December 31, 2011. Dunn-Whitaker will pay the interest and principal on the bonds.
When the bonds are repaid, Dunn-Whitaker will receive title to the plant. In the interim, Dunn-Whitaker will pay property taxes as if it owned the plant. This financing arrangement is attractive to Dunn-Whitaker, as state and local government bonds are exempt from federal income taxation and thus carry a lower interest rate. The bonds are attractive to investors, as both Dunn-Whitaker and the county are issuers. The bonds pay interest semiannually on June 30 and December 31.

Required:
1. Prepare an amortization table through December 31, 2013, for these revenue bonds assuming straight-line amortization.
2. Discuss whether or not Dunn-Whitaker should record the plant as an asset after it is constructed.
3. Discuss whether or not Dunn-Whitaker should record the liability for these revenue bonds.


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  • CreatedSeptember 22, 2015
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