Utilizing the comprehensive annual financial report (CAFR) obtained for Exercise 1–17, follow the instructions below.
a. General Long-Term Liabilities.
(1) Disclosure of Long-Term Debt. Does the report contain evidence that the government has general long-term liabilities? If so, does the report include a list of outstanding tax-supported debt issues; lease obligations; claims, judgments, and compensated absence payments to be made in future years; and unfunded pension obligations?
Has the government issued any special assessment debt? If the government is obligated in some manner, is the debt reported as a liability in the government-wide statement of net position? If the government has issued special assessment debt for which it is not obligated in any manner, do the notes discuss this debt?
Refer to the enterprise funds statement of net position as well as note disclosures for long-term liabilities. Are any enterprise debt issues backed by the full faith and credit of the general government? If so, how are the primary liability and the contingent liability disclosed?
(2) Changes in Long-Term Liabilities. How are changes in long-term liabilities during the year disclosed? Is there a disclosure schedule for long term liabilities similar to Illustration 6–1? If any new debt was issued by a governmental fund, are the proceeds of the debt issuance reported in the governmental fund financial statements as an “other financing source”?
Are interest payments and principal payments due in future years disclosed? If so, does the report relate these future payments with resources to be made available under existing debt service laws and covenants?
(3) Debt Limitations. Does the report contain information as to legal debt limit and legal debt margin? If so, is the information contained in the report explained in enough detail, so that an intelligent reader (you) can understand how the limit is set, what debt is subject to it, and how much debt the government might legally issue in the year following the date of the report?
(4) Overlapping Debt. Does the report disclose direct debt and overlapping debt of the reporting entity? Is debt of component units reported as “direct” debt of the reporting entity or as “overlapping debt”?
b. Debt Service Funds.
(1) Debt Service Function. How is the debt service function for tax supported debt handled—by the General Fund, by a special revenue fund, or by one or more debt service funds? If there is more than one debt service fund, what kinds of bond issues or other debt instruments are serviced by each fund? Is debt service for bonds to be retired from enterprise revenues reported by enterprise funds?
(2) Investment Activity. Does the CAFR contain a schedule or list of investments of debt service funds? Does the report disclose increases or decreases in the fair value of investments realized during the year? Does the report disclose net earnings on investments during the year? What percentage of revenue of each debt service fund is derived from earnings on investments? What percentage of the revenue of each debt service fund is derived from taxes levied directly for the debt service fund? What percentage is derived from transfers from other funds? List any other sources of debt service revenue and other financing sources, and indicate the relative importance of each source.
(3) Lease Payments. If general capital assets are being acquired under lease agreements, are periodic lease payments accounted for as expenditures of a debt service fund (or by another governmental fund)? If so, does the report disclose the portion of lease payments considered as interest and the portion considered as payment on the principal?