The following was taken from the statistical section of the

The following was taken from the statistical section of the City of Wyoming, Michigan's annual
report (see also Problem 8-7).Computation of Legal Debt Margin for General Obligation Bonds
as of June 30Assessed value, estimate.................................$1,934,971,000Debt limit-10
percent of assessed value..................193,497,110Debt applicable to limit:City direct
debt................................................103,352,972Less: revenue
bonds..........................................(86,999,142)Total net debt applicable to limits.........................$
16,353,830Legal debt margin..........................................$ 177,143,280Assume that in its fiscal
year ending June 30, the city issued an additional (net of repayments) $30 million in general
obligation bonds and $6 million in revenue bonds. Moreover, owing to both a recession and a
change in valuing property, the assessed value of its property decreased by 5 percent.1. What
is the maximum the city could issue in general obligation bonds as of June 30? What would the
city's net debt be?2. Suppose the city:a. Signed a five-year agreement with a waste disposal
firm. The firm agreed to provide services to the city for $50,000 per year. The city could not
cancel the contract unless the firm failed to deliver the specified services.b. Signed a five-year
lease to acquire equipment. The useful life of the equipment was also five years. Annual
payments were $50,000, and the city had the option to purchase the equipment at the end of its
useful life for $1. The lease agreement was based on an interest rate of 8 percent and
contained a "non-appropriation clause," which local courts recognized as being decisive with
respect to whether the debt was subject to the legal debt margin.How would each be reflected
in the city's government-wide statement of net position? If you were writing the legislation
establishing debt limits, would you make either leases or service contracts subject to the
limits?3. As indicated in the schedule, and as is typical of most debt limitations, the debt margin
does not apply to revenue bonds. What do you think is the reason for this exemption? What
argument could you make that revenue bonds should not be exempt?View Solution: The
following was taken from the statistical section of the
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