Question

A new subdivision was recently built within the city limits of Hattenville, Mississippi. The City Government has taken on the project of building and installing streetlights and benches within the subdivision. The City Government will issue five-year bonds in order to finance the project. According to the city’s laws and homeowner’s agreement, the provision of lighting the sidewalks is the responsibility of the homeowners. An excerpt from the bond agreement is provided below:

The aforementioned bonds are issued and held by the City Government. Provisions for repayment of the bonds will flow from the special assessment (property tax) that is levied against the homeowners. Failure by a home owner to pay the tax will result in the foreclosure of the homeowner’s property. The property will then be resold at public auction, and the proceeds will be used to finance repayment of the bonds. If a property is not sold at auction, City Government is not required to purchase the property. The City Government is not required to use proceeds from other funds to cover delinquencies while the foreclosure process is occurring, but does maintain the power to create a separate fund for the purpose of redeeming the bonds.

Given the facts provided, what type of fund should the City Government use to account for the debt service transactions?

During the construction phase, how should the source of funds be identified within the appropriate fund?

Is the type of assessment being used by the City Government a service-type special assessment or a capital improvement special assessment?

Answer 1

1. The City Government will issue five-year bonds in order to finance the project. City Govt will use collection of property tax which will be collected from homeowners

2. During the construction phase, sources of funds will be sale of bonds which must be accounted under seperate fund for specified Govt project

3. its service type special assessment