Girves Development Corporation has agreed to construct

a plant in #2368
Girves Development Corporation has agreed to construct a plant in

Girves Development Corporation has agreed to construct a plant in a new industrial park. To
finance the construction, the county government issued $5,000,000 of 10-year, 4.75% revenue
bonds for $5,125,000 on January 1, 2020. Girves will pay the interest and principal on the
bonds.

When the bonds are repaid, Girves will receive title to the plant. In the interim, Girves will pay
property taxes as if it owned the plant. This financing arrangement is attractive to Girves, as
state and local government bonds are exempt from federal income taxation and thus carry a
lower interest rate. The bonds are attractive to investors, as both Girves and the county are
issuers. The bonds pay interest semiannually on June 30 and December 31.

Required:

1. Prepare an amortization table through December 31, 2021, for these revenue bonds
assuming straight-line amortization.

2. Discuss whether or not Girves should record the plant as an asset after it is constructed.

3. Discuss whether or not Girves should record the liability for these revenue bonds.

Girves Development Corporation has agreed to construct a plant in

ANSWER
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