To encourage a private health care company to construct a nursing home, a city agrees to issue

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To encourage a private health care company to construct a nursing home, a city agrees to issue tax exempt bonds for the benefit of the company. The bonds will fund the construction of the facility. The city will hold title to the home for a period of 30 years, during which the city will lease the home to the company. The annual lease payments will be exactly equal to the required debt service on the bonds. At the conclusion of the lease, ownership of the facility will revert to the company. While the bonds are backed entirely by the lease payments-and thus the company, not the city, has primary responsibility for the debt service the city has nevertheless guaranteed payment of debt service should the company fail to make its required lease payments. In your opinion, can the city account for the bonds as a conduit obligation, and thereby avoid reporting them as their own liability, despite its having guaranteed the debt.

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Government And Not For Profit Accounting Concepts And Practices

ISBN: 9781119803898

9th Edition

Authors: Michael H. Granof, Saleha B. Khumawala, Thad D. Calabrese

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