Question: The revenue and expenditure statement that follows is from an

The revenue and expenditure statement that follows is from an annual report of the City of Fort Worth, Texas. It was accompanied by the notes that follow.
Defeasance of Prior Debt
During the year, the city issued $194,520 of general obligation bonds. The proceeds were used to refund debt obligations with a face value of $181,985. A portion of the proceeds from the issuance of the bonds was placed in an irrevocable escrow account and invested in U.S. obligations that, together with interest earned thereon, would provide an amount to call the bonds on the appropriate call dates. The advance refunding resulted in an economic gain of $4,816.
The City of Fort Worth frequently issues bonds for capital construction projects. These bonds are subject to the arbitrage regulations. On September 30, the liability for rebate of arbitrage was $560 for general obligation bonds and $51 for enterprise bonds. These amounts are included in the ‘‘Payable to Federal Government’’ category of the debt service and enterprise funds.
1. Based on your knowledge of debt service funds, what is the most likely source of ‘‘revenue from use of money and property’’?
2. Explain in your own words the significance of “proceeds from refunding bonds’’ and ‘‘payment to refunded bond escrow account.’’ (Do not attempt to reconcile the amounts in the statement with those in the footnotes; a portion of the bonds refunded was accounted for in a proprietary fund.)
3. The note pertaining to the bond defeasance also indicates that the refunding resulted in an accounting loss of $536, which was reported in the water and sewer fund—an enterprise fund. How is it possible that the city had an economic gain but an accounting loss? Why is a loss reported in an enterprise fund but not this type of debt service fund?
4. What is the most likely source of the nonreciprocal transfer-in? What was its purpose?
5. What is the most likely reason that the city had an obligation to the federal government for arbitrage? Is the liability necessarily an indication of poormanagement?

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