acc 410 extra credit mc

.  The City of St. Joe had outstanding $5 million of 6% bonds with a call provision.  Due to changes in the prevailing interest rates, the City issued new bonds at 4.5% and used the proceeds to call the 6% bonds.  This is an example of

       a)   Debt retirement.

b)   Debt refunding.

       c)   In-substance defeasance.

       d)   Economic defeasance.

 

2.  Sue City has outstanding $5 million in general term  bonds used to finance the construction of the new City Library.  Sue City has a June 30 fiscal year-end.  Interest at 6% is payable each January 1 and July 1.  The principal of the bonds is due 10 years in the future.  The City budgeted the July 1, 1999 interest payment in the budget for the fiscal year ended June 30, 1999.  On June 30, cash was transferred from the General Fund to the Debt Service Fund to make the required payment.  The maximum amount of interest payable that may be included on the balance sheet of the debt service fund of Sue City at June 30 would be

       a)   $ -0-
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