Accounting for Bond Issues or Accounting for Bond Issues or Debt FinancingDebt Financing

Speaker: Speaker: Linda W. Dufresne, Linda W. Dufresne, CPA, CPA, President, Dufresne & Associates, CPA, PAPresident, Dufresne & Associates, CPA, PA

Course ObjectivesCourse Objectives Life of a bond issue Proper entries to record your governmental fund and

proprietary fund bond transactions Use of accounting funds Recording bond issuance Recording bond proceeds expenditures Year end adjustments

Practice example transaction Disclosures

Financial Statements EMMA

Build America Bonds

Life of a Bond IssueLife of a Bond Issue Pre-issuance

Inducement resolutions Bond documents drafted by bond counsel

Trust indenture/ordinance/resolution – creates trust estate and establishes legal foundation for tax exemption of interest on the bonds

Official statement – Offering document disclosing information required to be disseminated to potential purchasers of the bonds

Loan agreement – Obligation to repay debt created by the bonds Closing documents

Bond documents reviewed and comments provided to bond counsel by Co-bond counsel Issuer counsel Disclosure counsel Trustee counsel Financial advisor Issuer finance personnel and governing body

Award resolution

Life of a Bond IssueLife of a Bond Issue

Pre closing Final corrections made to bond documents All documents executed – be sure you leave the table with

what you need to record the transaction! Resolutions/ordinances Closing memorandum Arbitrage certificate

Closing Bonds delivered Funds disbursed!!

Proper entries to record governmental Proper entries to record governmental fund bond issuance transactionsfund bond issuance transactions Identify transaction elements – refer to

resolutions/ordinances, closing memorandum and/or arbitrage certificate Capital Project Capitalized interest Par value of bonds Original issue discount or premium Underwriter’s discount Bond insurance costs, if any Costs of issuance Funded debt service reserve

Proper entries to record governmental Proper entries to record governmental fund bond issuance transactionsfund bond issuance transactions Potential governmental accounting funds

Capital Projects Fund to expend proceeds Debt Service Fund to record capitalized interest and payment of

principal and interest; fund for reserves Debt Service Fund may be used to account for payment of

issuance costs – includes underwriter’s discount Separate fund to record long-term liability and capitalize

discount/premium & costs Discounts (OID)

Proceeds received are less than face value Record “Other Financing Uses” – do not net against “Other Financing

Sources” Premiums (OIP)

Proceeds received are greater than face value Record separate “Other Financing Sources – Bond Premium” – do not add

to “Other Financing Sources”

When to use General Fund or Establish When to use General Fund or Establish Other Type of Governmental FundOther Type of Governmental Fund Number of Funds Principle

Care should be taken in applying the “number of funds principle” A government should use the LEAST number of individual funds possible

Governmental units should establish and maintain only those funds required by law and sound financial administration

Unnecessary funds result in inflexibility, undue complexity and inefficient financial administration

Distinguish “accounting” from “financial reporting” Accounting system must collect all data needed to ensure and demonstrate

legal compliance Financial reporting is concerned with only those aspects of compliance that

are of importance to users of general purpose external financial reports Not every “fund” used for internal accounting purposes should automatically

be classified as a fund in general purpose external financial reports

When to use General Fund or Establish When to use General Fund or Establish Other Type of Governmental FundOther Type of Governmental Fund Capital Projects Fund

Useful to report major capital acquisition and construction separately from ongoing operations

Avoids distortions in financial resources trend information GAAP provide for use of capital projects funds “to account

for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds)” Decision to establish a capital projects fund does not mean

that ALL capital acquisition and construction MUST be accounted for in that fund

Routine purchase of capitalizable items such as police vehicles typically is reported in the general fund

Use this fund type when financial resources trend data would be distorted if not reported separately from operations

When to use General Fund or Establish When to use General Fund or Establish Other Type of Governmental FundOther Type of Governmental Fund Capital Projects Fund

Especially common for major capital acquisition or construction activities financed through borrowings or contributions

Focus is on construction and acquisition Should NOT be used as a “reserve” to accumulate

resources for future capital improvements Unless a legal requirement exists to use a capital projects

fund, the fund type is permitted rather than required A single capital projects fund may be sufficient for general

purpose external financial reporting provided that proper level of detail is maintained in the government’s accounting system

When to use General Fund or Establish When to use General Fund or Establish Other Type of Governmental FundOther Type of Governmental Fund Debt Service Fund

Normally “permitted” rather than “required” Two specific instances where “required”

Legally mandated If financial resources are being accumulated for principal and

interest payments maturing in future years Generally interpreted to apply ONLY to accumulations of

resources in excess of a full year’s principal and interest payments

Often a Debt Service Fund is used to account for issuance costs

A single debt service fund may be sufficient for general purpose external financial reporting provided that proper level of detail is maintained in the government’s accounting system

PostPost--closing closing –– the REAL fun begins!the REAL fun begins! Record bond issuance entries

Governmental fundsIssuance scenario: City with 9/30 fiscal year issues general

government debt at 4.2% fixed rate on 3/1/2011 with a dated dateof 3/1/2011, first interest and principal payment date 9/1/2011 to build a new City hall as follows: Sources: $10,000,000 face amountUses: $300,000 capitalized interest, $432,000 original issue discount, $200,000 underwriter’s discount, $160,000 costs of issuance, $1,000,000 to be deposited to debt service reserve account, $7,908,000 capital projects fund2011 expenditures: $1,500,000 proceeds spent as of 9/30/2011 on construction; $100,000 principal and $210,000 interest paid on bonds on 9/1/20112011 government-wide expenses: $35,000 accrued interest as of 9/30/2011, $12,000 COI amortization; $14,400 OID amortization

Proper entries to record Proper entries to record governmental governmental fundfund bond issuance transactionsbond issuance transactionsAll cash aspects of issuance transaction are recorded equal to face value of debt

DR CRCash – Capital Projects Fund 7,908,000Cash – Debt Service Fund

Reserve Account 1,000,000Cash – Debt Service Fund

Capitalized Interest Account 300,000Other Financing Uses –Original Issue Discount 432,000

Other Financing Uses – Debt Service Fund - Issuance Costs 360,000

Other Financing Sources –Bond Proceeds 10,000,000

Proper entries to record Proper entries to record governmental fundgovernmental fundbond transactions during the current periodbond transactions during the current period

DR CRRecord monthly bond proceeds expenditures

Expenditures – capital outlay – city hall3/31/2011 100,0004/30/2011 200,0005/31/2011 250,0006/30/2011 275,0007/31/2011 325,0008/31/2011 200,0009/30/2011 150,000

Cash – Capital Projects Fund 1,500,000

Proper entries to record Proper entries to record governmental fundgovernmental fundbond transactions during the current periodbond transactions during the current period

DR CRRecord 9/1/2011 debt principal payment

Cash 100,000Other Financing Sources – transfers in – general fund 100,000

Cash with Fiscal Agent 100,000Cash 100,000

Expenditures - Debt service – principal – generalgovernment debt 100,000

Matured Principal Payable 100,000

Matured Principal Payable 100,000Cash with Fiscal Agent 100,000

Proper entries to record Proper entries to record governmental fundgovernmental fundbond transactions during the current periodbond transactions during the current period

DR CRRecord 9/1/2011 debt interest payment

Cash is on hand in the debt service fund because bond proceeds were deposited into the debt service fund for capitalized interest in the amount of $300,000. No transfer from the General Fund is necessary to make this interest payment. However, once the capitalized interest on

deposit in the debt service fund is exhausted, transfers from the General Fund will be required.

Cash with Fiscal Agent 210,000Cash 210,000

Expenditures - Debt service – interest – generalgovernment debt 210,000

Matured Interest Payable 210,000

Matured Interest Payable 210,000Cash with Fiscal Agent 210,000

GovernmentGovernment--wide wide Conversion EntriesConversion Entries

Data must be converted from the current financial resources measurement focus and the modified accrual basis of accounting to the economic resources measurement focus and the accrual basis of accounting

Once all conversion entries have been made, accounts originally described as “expenditures” will actually represent “expenses”; there is no need to establish separate “expenses” accounts

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entries Government-wide (full accrual) accounting:

Record long-term General Obligation debt Capitalize issuance costs

Deferred Charges (issue costs) Capitalize original issue discount

DR Discount on Bonds Sold (OID) Capitalize original issue premium

CR Premium on Bonds Sold (OIP) Reclassify expenditures for principal payments on debt

DR General Obligation debt Reclassify expenditures for acquisition and construction

DR Construction in Progress Record government-wide expenses

Amortization of discounts/premiums, costs of issuance Accrued interest payable

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entriesACTION NEEDED: The issuance of debt needs to be reflected on the government-wide

statement of net assets rather than in the government-wide statement of activities

DR CRRecord long-term debt

Other financing sources – bond proceeds 10,000,000GENERAL OBLIGATION DEBT 10,000,000

Capitalize issuance costs DR CRDEFERRED CHARGES– ISSUANCE COSTS 360,000

Other financing uses – Debt Service –issuance costs 360,000

Capitalize original issue discount (OID) DR CRDEFERRED CHARGES – OID 432,000

Other Financing Uses –Original Issue Discount 432,000

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entriesACTION NEEDED: Remove debt service principal

payments and treat the amount paid as a reduction of the balance of the related liability.

DR CRConvert debt principal payment to liability reduction

GENERAL OBLIGATION DEBT 100,000Debt service – principal – generalgovernment debt 100,000

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entriesACTION NEEDED: Remove expenditures incurred for the

acquisition or construction of capital assets and report instead a capital asset for the items thus acquired on the statement of net assets.

DR CRConvert capital outlay fromcapital projects fund to capital assets

CONSTRUCTION IN PROGRESS 1,500,000Expenditures - Capital Outlay – City Hall 1,500,000

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entries

ACTION NEEDED: Discounts and deferred charges need to be amortized in the government-wide statement of activities. Assume a 30 year bond, straight line amortization, full amortization in year of

issuance if bonds are outstanding > 6 months, no amortization in year of issuance if < 6 months.

DR CRRecord amortization of issuance costs

Expenditures – general government 12,000DEFERRED CHARGES – ISSUANCE COSTS 12,000

Record amortization of original issue discount (OID) DR CR

Debt Service – Interest 14,400DEFERRED CHARGES – OID 14,400

ACTION NEEDED: Expenses need to be accrued in connection with liabilities incurred during the period, but not normally expected to be liquidated with current available financial resources.

Record accrued interest payable DR CRDebt Service - Interest 35,000

Matured Interest payable 35,000

Early Recognition of Debt Service Expenditures Early Recognition of Debt Service Expenditures in in governmental debt service fundsgovernmental debt service funds Exception to general rule that governmental funds should

NOT report expenditures and liabilities in connection with unmatured long-term debt

Option exists to recognize an expenditure and a liability in a debt service fund in the current period if: Debt service fund resources have been provided during the current

year; and payment of principal and interest due early in the following year

Purpose is to allow governments to avoid inflating fund balance in their debt service funds by allowing them to recognize and expenditure and a liability in the current period to balance the source and asset associated with the transfer of resources to the debt service fund

Early Recognition of Debt Service Expenditures Early Recognition of Debt Service Expenditures in in governmental debt service fundsgovernmental debt service funds Early recognition is only an option – Must be consistently

applied from period to period Applies only to situations where debt service payments

are made from a debt service fund – not all governments use debt service funds, or make debt service from other funds as well

Applies only to nondiscretionary transfer of dedicated resources to a debt service fund resulting from a legal obligation – voluntary transfers do not qualify for the early recognition exception

Applies only to payments due within one month

Proprietary Fund DebtProprietary Fund Debt Must meet two criteria

Direct relationship – Debt must be directly related to a given proprietary fund to be reported as debt of that fund; and

Proprietary fund financing - Debt must be intended to be repaid with resources of a proprietary fund

Debt can be backed by full faith and credit of the general government and still meet the “proprietary fund financing”rule

If only a portion of debt is expected to be repaid from resources of a proprietary fund, then only that portion should be reported as proprietary fund debt

Proprietary FundsProprietary Funds Issuance scenario: City with 9/30 fiscal year issues proprietary

fund (water and sewer system) debt at 5.4% fixed rate on 2/15/2011 with a dated date of 2/1/2011, first interest payment date 8/1/2011, first principal payment date 2/1/2012 for upgrades, expansion, repairs and maintenance to the water and sewer system as follows:

Sources: $5,000,000 principal, $108,000 original issue premium, 14 days purchased accrued interest $10,356Uses: $40,000 underwriter’s discount, $32,000 costs of issuance, $200,000 capitalized interest, $500,000 to be deposited to debt service reserve account2011 expenditures: $1,000,000 proceeds spent as of 9/30/2011 on acquisition and construction; $50,000 principal and $135,000 interest paid on bonds on 8/1/2011, $45,000 accrued interest as of 9/30/2011, $2,400 COI amortization; $3,600 OIP amortization

Proper entries to record Proper entries to record proprietary fundproprietary fundbond issuance transactionsbond issuance transactionsAll cash aspects of issuance transaction are recorded equal to face value of debt

DR CRRestricted Cash (*) 5,046,356Deferred Charges –

Issuance Costs 72,000Unamortized Premium on Bonds 108,000Bonds Payable 5,000,000Purchased Accrued Interest 10,356

(*) Your policies and procedures, or the bond documents, may require more specific identification such as “Restricted Assets –revenue bond construction account, Restricted Assets –revenue bond debt service account”, etc.

Proper entries to record Proper entries to record proprietary fundproprietary fundbond transactions during the current periodbond transactions during the current period

DR CRRecord monthly bond proceeds expenditures

Construction in progress – water and sewer system3/31/2011 100,0004/30/2011 100,0005/31/2011 100,0006/30/2011 100,0007/31/2011 200,0008/31/2011 200,0009/30/2011 200,000

Restricted Cash 1,000,000

Proper entries to record Proper entries to record proprietary fundproprietary fundbond transactions during the current periodbond transactions during the current period

DR CRRecord 8/1/2011 debt interest payment

Cash with Fiscal Agent 135,000Restricted Cash 135,000

Non-operating Expenses - Interest 124,644Purchased Accrued Interest 10,356

Matured Interest Payable 135,000

Matured Interest Payable 135,000Cash with Fiscal Agent 135,000

Year End Adjustments to record Year End Adjustments to record accrualaccrual entriesentriesACTION NEEDED: Discounts and deferred charges need to be amortized. Assume a 30 year bond, straight line

amortization, full amortization in year of issuance if bonds are outstanding > 6 months, no amortization in year of issuance if < 6 months.

DR CRRecord amortization of issuance costs

Non-operating expenses – issuance costs 2,400DEFERRED CHARGES – ISSUANCE COSTS 2,400

Record amortization of original issue discount (OIP) DR CR

Unamortized Premium on Bonds 3,600Non-operating expenses – Interest 3,600

ACTION NEEDED: Expenses need to be accrued in connection with liabilities incurred during the period.

Record accrued interest payable DR CRNon-operating expenses - Interest 45,000

Accrued Interest payable 45,000

Refunding issuesRefunding issues A refunding issue is a transaction in which refunding bonds are issued and

proceeds deposited to an irrevocable escrow A current refunding uses all refunding bond proceeds within ninety days An advance refunding transaction utilizes proceeds beyond ninety days

The irrevocable escrow cash flow will produce the amounts necessary to pay when due the principal, interest and redemption premium, if any, on the refunded bonds

Economic gain/loss is the difference between the present value of the debt service stream on the refunded bonds and the present value of the debt service stream on the refunding bonds

Refundings may be utilized to remove restrictive bond covenants even if there is an economic loss

GAAP require that the notes to the financial statements include: Brief description of refunding transaction Aggregate difference in debt service between the refunded debt and the refunding

debt Economic gain or loss on the transaction Any amounts of debt defeased in substance but still outstanding at the end of the

fiscal year

Advance Refunding issues Advance Refunding issues –– Governmental fundsGovernmental funds Issuance scenario: City with 9/30 fiscal year issues $1,950,000

general government refunding bonds on 9/1/2011 to realize economic gain of $180,000 attributable to significantly lower interest rates currently available for its outstanding $2,000,000 debt as follows:

Sources: $1,950,000 principal, $50,000 on deposit in refunded bonds debt service reserve account, $20,000 excess on deposit inrefunded bonds debt service principal and interest accountUses: $1,933,000 escrow securities purchase, $30,000 underwriter’s discount, $52,000 costs of issuance, $5,000 to purchase surety bond in lieu of cash funding debt service reserve account

Proper entries to record Proper entries to record governmental governmental fundfund refunding bond issuance transactionsrefunding bond issuance transactions

DR CR

Record receipt of bond proceeds net of costs of issuanceCash 1,863,000Expenditures – debt service other –refunding bond issuance costs 87,000

Other Financing Sources –Refunding Bond Proceeds 1,950,000

Record payment to refunded bond escrow agentOther Financing Uses – Paymentto Refunded Bond Escrow Agent 1,863,000

Expenditures – debt service other –advance refunding escrow 70,000

Cash 1,933,000

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entriesACTION NEEDED: The refunding of debt needs to be reflected on the government-wide

statement of net assets rather than in the government-wide statement of activities. Note that refunded debt balance would be included in the prior year ending balance to which the conversion entries are applied.

DR CRRemove refunded long-term debt balance

GENERAL OBLIGATION DEBT 2,000,000Deferral - Refunding (*) 67,000Other Financing Uses – Payment

to Refunded Bond Escrow Agent 1,863,000Expenditures – other – advance

refunding escrow 70,000

(*) The disparity between the net carrying value of the refunded debt and its reacquisition price is treated as a deduction from or an addition to the new debt liability in the GW statement of net assets and subsequently amortized over the life of the refunding or refunded debt, whichever is shorter.

Year End Adjustments to record Year End Adjustments to record governmentgovernment--widewide conversion entriesconversion entries

DR CRRecord long-term debt

Other financing sources –refunding bond proceeds 1,950,000

GENERAL OBLIGATION DEBT 1,950,000

Capitalize issuance costsDEFERRED CHARGES – REFUNDING

BONDS ISSUANCE COSTS 87,000Expenditures – Debt Service other –

refunding bonds issuance costs 87,000

NOTE: THE ISSUE DATE OF THE REFUNDING BONDS WAS 9/1. THERE ARE NO AMORTIZATIONS RECORDED FYE 9/30/2011 IN ACCORDANCE WITH THE CITY’S POLICIES BECAUSE THE BONDS ARE OUTSTANDING LESS THAN 6 MONTHS. AMORTIZATIONS WILL BE REQUIRED FYE 9/30/2012 FOR THE BALANCES RECORDED IN THE FOLLOWING TWO ACCOUNTS: DEFERRAL –REFUNDING AND DEFERRED CHARGES – REFUNDING BOND ISSUANCE COSTS.

Current Refunding issues Current Refunding issues –– Proprietary fundsProprietary funds

Issuance scenario: In order to remove restrictive revenue bond covenants, City with 9/30 fiscal year issues general obligation current refunding bonds expected to be repaid with water and sewer authority’s revenues on 2/1/2011.

Face - $4,250,000 Issuance costs - $50,000Bonds extinguished - $4,290,000Accrued interest extinguished - $224,000Current portion of revenue bonds outstanding that is not part of the refunding

but is paid with restricted assets on hand - $265,000Unamortized issuance costs on refunded debt - $50,000Remaining assets in restricted debt service accounts to be applied to refunding

- $950,000Reacquisition price exceeds net carrying amount of old debt – 471,000Economic gain - $150,000Reduction in future debt service payments - $230,000

Proper entries to record Proper entries to record proprietary fundproprietary fundcurrent refunding bond issuance transactionscurrent refunding bond issuance transactions

DR CR

Record sale of general obligation bonds for current refundingCash 4,200,000Deferred charge – general obligationbond issuance costs 50,000

General Obligation Bonds Payable 4,250,000

Reclassify assets no longer restricted by bond covenantsCash 1,000,000

Restricted assets – revenuebond renewal and replacement account 1,000,000

Proper entries to record Proper entries to record proprietary fundproprietary fundcurrent refunding bond issuance transactionscurrent refunding bond issuance transactions

DR CR

Record extinguishment of revenue bondsRevenue bonds payable –restricted assets 265,000

Accrued interest payable –restricted assets 224,000

Revenue bonds payable 4,290,000Unamortized charge –refunding bonds 471,000

Cash 4,250,000Restricted assets – revenue bonddebt service accounts 950,000

Deferred charge – revenue bond issuance costs 50,000

NOTE THAT TRANSACTIONS OCCURRING FYE 9/30/2011 AND YEAR END ACCRUALS AND AMORTIZATIONS AS PREVIOUSLY DISCUSSED WILL BE APPLICABLE TO THE REFUNDING BONDS.

Practice ExercisePractice Exercise

Financial Statement PresentationFinancial Statement Presentation

GASB 34 Information about long-term liabilities should

include: Beginning and end-of-year balances Increases and decreases (separately presented) The portions of each item that are due within one

year of the statement date

Financial Statement PresentationFinancial Statement Presentation

GASB 38 Debt service requirements to maturity,

separately identifying principal and interest for each of the subsequent five years and in five-year increments thereafter

Interest requirements for variable-rate debt computed using the rate effective at year-end

Terms of interest rate changes for variable-rate debt

Secondary Market Disclosure/EMMASecondary Market Disclosure/EMMA

Securities and Exchange Commission amended rule 15c2-12 Barred broker-dealers from buying municipal securities unless

the issuer has agreed, in writing, to provide ongoing disclosure With certain exceptions the rule requires bond issuers to prepare

and disseminate to Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs") BUT NOW TO EMMA"Annual Financial Information" and notices of material events.

The issuer's written agreement to provide ongoing disclosure may take the form of a covenant in the trust indenture, bond ordinance or bond resolution or there may be a separate written agreement.

Annual Financial Information means financial information or operating data, provided at least annually.

Annual Financial Information is to "mirror" the type of quantitative financial information and operating data contained in the final official statement.

Secondary Market Disclosure/EMMASecondary Market Disclosure/EMMA Securities and Exchange Commission amended rule

15c2-12 At the time bonds are offered, the issuer must outline the type

of Annual Financial Information it will provide annually and theterms of its continuing disclosure agreement.

Must describe (i) the type of information to be provided as part of the Annual Financial Information, (ii) the accounting principles used to prepare the financial statements and the timing of such statements, (iii) the date in each year by which the Annual Financial Information will be provided and to whom, and (iv) who will be providing the information.

Secondary Market Disclosure/EMMASecondary Market Disclosure/EMMA

In addition to Annual Financial Information, eleven "material events" require notice as follows:

1. Principal and interest payment delinquencies;2. Non-payment related defaults;3. Unscheduled draws on debt service reserves;4. Unscheduled draws on credit enhancement;5. Substitution of credit or liquidity providers, or their failure to

perform;6. Adverse tax opinions or events affecting the tax-exempt status

of the security;7. Modifications to rights of security holders;8. Bond calls;9. Defeasances;10. Release, substitution, or sale of property securing repayment

of the securities; and11. Rating changes

Secondary Market Disclosure/EMMASecondary Market Disclosure/EMMA Securities and Exchange Commission amended rule

15c2-12 Issuers with less than an aggregate of $10 million in

outstanding securities are exempt from the Annual Financial Information requirement if they make a "limited undertaking" specifying the type of financial information and operating data they will make available, on a request basis at least annually.

Small issuers must also provide material events disclosure. The $10,000,000 exemption takes into account all types of the issuers' outstanding tax-exempt debt. General obligation bonds, revenue bonds, lease obligations and notes are all aggregated in the $10,000,000 limit.

Primary issues that are exempt from Rule 15c2-12 are also exempt for purposes of secondary market disclosure. In addition, issues which are outstanding 18 months or shorter are exempt from secondary market disclosure.

Secondary Market Disclosure/EMMASecondary Market Disclosure/EMMA Securities and Exchange Commission amended rule 15c2-12 again

Electronic Municipal Market Access system (“EMMA”) has been designated as the central repository for continuing disclosure documents.

Issuers required to provide continuing disclosure documents to EMMA rather than to each Nationally Recognized Municipal Securities Information Repository (“NRMSIR”) or the central repository known as DisclosureUSA.

Small issuers will be required to submit the financial information and data to EMMA (except with respect to issues less than $1,000,000 and certain private placements).

All disclosure documents must be submitted in electronic format (PDF Files).

Beginning January 1, 2010, PDF files submitted to EMMA must be word searchable.

Issuers can submit continuing disclosure documents to EMMA or can do so indirectly through an indenture trustee or a designated agent.

Accounting for Build America Bonds Accounting for Build America Bonds including Recovery Zone Economic including Recovery Zone Economic Development Bonds (Direct Payment)Development Bonds (Direct Payment) Section 1401 of American Recovery and

Reinvestment Act (ARRA) Refundable credit subsidy equal to 45 percent

(35% for Build America Bonds that are NOT RZEDB) of the total coupon interest payable to investors

Report issuance of the bonds on IRS Form 8038-G, Information Return for Tax-Exempt Governmental Obligation

Accounting for Build America Bonds including Accounting for Build America Bonds including Recovery Zone Economic Development Bonds Recovery Zone Economic Development Bonds (Direct Payment)(Direct Payment) 8038-G must be filed at least 30 days before the first Form 8038-

CP is filed to request payment with respect to an interest payment date generally under guidance of bond counsel at time of closing

8038-CP filing procedures to receive subsidies are: Variable rate debt:

quarterly reimbursements must be filed no later than the 45th day after the last interest payment date within the quarterly period for which reimbursement is requested

Fixed rate debt: contemporaneous basis by the 45th day before the applicable interest

payment date of the RZEDB bonds; and not earlier than the 90th day before the applicable interest payment date.

federal government stated that issuers should expect to receive requested payments within 45 days of the date that a processibleForm 8038-CP is filed with the IRS

Accounting for Build America Bonds Accounting for Build America Bonds including Recovery Zone Economic including Recovery Zone Economic Development Bonds (Direct Payment)Development Bonds (Direct Payment) Question regarding reporting of the federal

subsidy - should it be reported as a revenue or a reduction of an expenditure GASB is advising that the federal subsidy be

reported as revenue under GASB 33 guidance for non-exchange transactions

Accounting for Build America Bonds Accounting for Build America Bonds including Recovery Zone Economic including Recovery Zone Economic Development Bonds (Direct Payment)Development Bonds (Direct Payment) Question regarding reporting of the federal

subsidy - should it be reported as a revenue or a reduction of an expenditure GASB is advising that the federal subsidy be

reported as revenue under GASB 33 guidance for non-exchange transactions

Accounting for Build America Bonds including Accounting for Build America Bonds including Recovery Zone Economic Development Bonds Recovery Zone Economic Development Bonds (Direct Payment)(Direct Payment) Interest ReimbursementInterest Reimbursement

Governmental Fund Journal EntriesDebit Credit

1 Bond Interest Expenditure $100,000 Cash $100,000

Record semi-annual interest payment

2 Interest Receivable $ 45,000 Federal Bond Interest Subsidy-revenue $ 45,000 Record Federal Subsidy

3 Cash $ 45,000 Interest Receivable $ 45,000 Record receipt of federal subsidy

Accounting for Build America Bonds including Accounting for Build America Bonds including Recovery Zone Economic Development Bonds Recovery Zone Economic Development Bonds (Direct Payment)(Direct Payment) Interest ReimbursementInterest Reimbursement

Proprietary Funds Economic resources measurement focus basis of

accounting Most governmental units record accrued interest

expense Proportional amount of the subsidy should also be

accrued as a current year receivable

Accounting for Build America Bonds including Accounting for Build America Bonds including Recovery Zone Economic Development Bonds Recovery Zone Economic Development Bonds (Direct Payment)(Direct Payment) Interest ReimbursementInterest Reimbursement

Proprietary Fund Journal EntriesDebit Credit

1 Bond Interest Expenditure $100,000 Cash $100,000

Record semi-annual interest payment during fiscal year

2 Interest Receivable $ 45,000 Federal Bond Interest Subsidy-revenue $ 45,000

Record Federal Subsidy during fiscal year

3 Cash $ 45,000 Interest Receivable $ 45,000

Record receipt of federal subsidy during fiscal year

Accounting for Build America Bonds including Accounting for Build America Bonds including Recovery Zone Economic Development Bonds Recovery Zone Economic Development Bonds (Direct Payment)(Direct Payment) Interest ReimbursementInterest Reimbursement

Proprietary Fund Journal EntriesDebit Credit

4 Interest Receivable $ 14,850 Federal Bond Interest Subsidy $ 14,850

Bond Interest Expense 33,000 Interest Payable 33,000

To Accrue Year-end interest and subsidy

Accounting for Build America Bonds Accounting for Build America Bonds including Recovery Zone Economic including Recovery Zone Economic Development Bonds (Direct Payment)Development Bonds (Direct Payment)GovernmentGovernment--wide Journal Entrieswide Journal Entries If the bonds are accounted for in a governmental fund (as opposed

to an enterprise fund), at year-end the governmental unit will have to make entries to convert the accounting from the current financial resources basis of accounting to the economic resources measurement focus basis of accounting for government-wide statement presentation.

Entries similar to Proprietary Fund journal entry number four above would be used to accrue both subsidy revenue and interest expense.