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hanhan2008
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Posted: 04 May 2010 at 12:40 \| IP Logged

Hi all,

I got this question from AICPA released question 2008, but selected a wrong answer. I think I here got confused about a very basic concept... can anyone help? Thanks!

A state had general obligation bonds outstanding that required payment of interest on July 1 and January 1 of each year. State law allowed for the general fund to make debt payments without the use of a fiscal agent. The fiscal year ended June 30. Which of the following accounts would have decreased when the state paid the interest due on July 1?

a. Interest expenditures.

b. Interest payable.

c. Interest expense.

d. Fund balance.

Choice "d" is correct. I selected " b" instead.

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CharliePetApple
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Posted: 05 May 2010 at 01:30 \| IP Logged

I believe it is "d" since general fund like any governmental fund uses modified accrual method, not the full accrual method used by proprietary funds or businesses.

According to this method you don't accrue the interest, but expense it when money transfer out of the fund is made. Usually interest and debt is transferred to Debt fund which takes care of all interest and debt payments

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caixinran
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Posted: 05 May 2010 at 18:53 \| IP Logged

D is the correct answer.

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hanhan2008
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Posted: 07 May 2010 at 09:49 \| IP Logged

[Thank you! So there is never Accounts Payable using modified accural method? I need to go back to check the book later...

QUOTE=CharliePetApple]

I believe it is "d" since general fund like any governmental fund uses modified accrual method, not the full accrual method used by proprietary funds or businesses.

[/QUOTE]

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hanhan2008
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Posted: 08 May 2010 at 19:12 \| IP Logged

Confirmed from the book. There is no accrual of interest expenditures or int. payable. JE to record pmt of int.:
DR Expenditures $$$
CR Cash(matured int. payable) $$$

So the fund balance would be decreased.

Thank you all!

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