22. The Southside City has $95 million of debt recorded in its Schedule of Chang

Question

22. The Southside City has $95 million of debt recorded in its Schedule of Changes in Long-tem Obligations, made up of $60 million of general obligation debt, $2 million of compensated absences payable, $8 million claims and judgments, and $25 million of obligations under capital leases. The State limits the amount of general obligation debt that can be issued by a City to 20% of the assessed value of its taxable property. The assessed value of property in Southside City is $500 million. The legal debt margin for Southside City is a) S 5 million. b) $40 million. c) $ 60 million. d) $100 million.

Explanation / Answer

Assessed value of property = $ 500 million

Limit on the amount of general obligation debt = 20% of assesses value of taxable property

Therefore,

Total general obligation debt that the City can raise = $500 million x 20% = $100 million

Current general obligation debt = $60 million

Thus,

Legal debt margin for the City = $100 million - $60 million = $40 million

The correct answeer is (b).

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