Question

A government defeased in-substance $10 million of old Enterprise Fund bonds by paying $12 million into a qualifying trust for that purpose. The refunded bonds had an unamortized premium of $200,000 and a prepaid bond insurance balance of $50,000. No borrowed resources were used to accomplish the defeasance. What amount of deferred interest expense adjustment should the government report

Answer 1

If  government defeased in-substance $10 million of old Enterprise Fund bonds by paying $12 million into a qualifying trust for that purpose and the refunded bonds had an unamortized premium of $200,000. The amount of deferred interest expense adjustment should the government report is: $1,850,000.

Deferred interest expenses

Using this formula to determine the deferred interest expenses

Deferred interest expenses=Amount paid into qualifying trust- Old Enterprise Fund bonds-unamortized premium +insurance balance

Where:

Amount paid into qualifying trust=$12 million

Old Enterprise Fund bonds=$10 million

Unamortized premium=$200,000

Insurance balance=$50,000

Let plug in the formula

Deferred interest expenses=$12 million-$10 million-$200,000+$50,000

Deferred interest expenses=$1,850,000

Therefore If  government defeased in-substance $10 million of old Enterprise Fund bonds by paying $12 million into a qualifying trust for that purpose and the refunded bonds had an unamortized premium of $200,000. The amount of deferred interest expense adjustment should the government report is: $1,850,000.

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