Use the Following to Answer the Next Four Questions

question 105

Multiple Choice

Use the following to answer the next four questions:
On April 1, 2014, the City of Southern Ponds issued $4,000,000 in 4% general obligation, tax supported bonds at 101 for the purpose of constructing a new police station. The premium was transferred to a debt service fund. A total of $3,990,000 was used to construct the police station, which was completed before December 31, 2014, the end of the fiscal year. The remaining funds were transferred to the debt service fund. The bonds were dated April 1, 2014, and paid interest on October 1 and April 1. The first of 20 equal annual principal payments of $200,000 is due April 1, 2015.
-What amount would be reported as debt service expenditures for 2015?

• A) $356,000.
• B) $352,000.
• C) $354,000.
• D) $360,000.

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Definitions:

EBIT

EBIT stands for earnings before interest and taxes, and it's a measure of a firm's profit that includes all expenses except interest and income tax expenses.

Operating Leverage (DOL)

A measure of how revenue growth translates into growth in operating income, indicating the fixed versus variable costs of a business.

Variable Cost

A cost that changes in proportion with the level of output or activity.

Fixed Costs

Business expenses that remain unchanged regardless of the level of production or sales activities, such as rent, salaries, and insurance.