When a city issues bonds at par to fund a capital improvement, how much interest expense should be reported for the year ended December 31, 20X1?

When a city issues bonds at par to fund a capital improvement, the interest expense to be reported is based on the stated interest rate of the bonds and the amount of the bonds issued. In this scenario, if the city issued bonds at par and there is a stated interest rate of 7.5% on a principal amount of $1 million, the calculation of interest expense for the year would be straightforward.

To determine the interest expense, you multiply the principal amount of the bonds by the interest rate. Using a bond principal of $1 million and an interest rate of 7.5%, the annual interest expense would be calculated as follows:

Interest Expense = Principal Amount x Interest Rate Interest Expense = $1,000,000 x 0.075 = $75,000

Therefore, the city would report an interest expense of $75,000 for the year ended December 31, 20X1. This aligns with the accounting principles for governmental entities, where any required payments of interest for the period must be recognized as an expense in that period.