Question: For each of the following items relating to the debt

For each of the following items relating to the debt of Marfa City, indicate whether and how the debt would be reported on a balance sheet of one of the city's governmental funds. If it would not be reported on a balance sheet of one of the city's governmental funds, then state whether it would be reported instead on the government wide statement of net position or in notes to the financial statements. Insofar as you would need additional information to determine how the debt should be reported, specify such information and tell how it would affect the determination. Briefly justify your response.
1. The city issues $10 million in 30-year, 6 percent revenue bonds to enable a local nursing home to construct new facilities. The facilities will be leased to the home for the term of the bonds, and the lease payments will be exactly equal to the debt service on the bonds. At the expiration of the lease, the property will revert to the home. The bonds are backed exclusively by the lease payments from the nursing home.
2. The city issues $20 million in 8 percent BANs, which it expects to refund approximately nine months after year-end, when, it hopes, long-term interest rates will drop.
3. As part of an annexation agreement, the city constructs roads to an adjacent municipal utility district. The city funds the roads by issuing $15 million in bonds. The bonds are backed exclusively by assessments on the district's property owners. Although the city will collect the assessments and transmit the required payments to the bond trustee, the city is barred by both the state constitution and its own charter from assuming responsibility for the debt in the event of property owner defaults.
4. Ten years ago, the city issued, at par, $15 million in 6 percent, 20-year GO bonds. After the bonds have been outstanding for six years from the date of issue, they are redeemable at the option of the bondholders. The bonds are rated AAA and are fully insured by a highly reputable bond insurance company. Interest rates on comparable bonds are currently 5 percent.
5. A school district, the boundaries of which are the same as the city, has outstanding $120 million of GO bonds. The school district, which is governed by an independently elected board, is not a component unit of the city.
However, both derive their revenues mainly from taxes on the same property and the city serves as the district's property tax collection agent.

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  • CreatedAugust 13, 2014
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