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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2003 <br />Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />N. COMPENSATED ABSENCES <br />It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay <br />benefits. All vacation pay and the portion of sick pay allowable as severance pay is accrued as incurred <br />in the government -wide and proprietary fund financial statements. The current portion is calculated <br />based on historical trends. <br />O. LONG -TERM OBLIGATIONS <br />In the entity-wide financial statements, long -term debt and other long -term obligations are reported as <br />liabilities in the applicable governmental activities. Bond premiums and discounts are deferred and <br />amortized over the life of the bonds using the straight -line method. Bond issue costs, if material, are <br />reported as prepaid items and amortized over the term of the related debt using the straight -line <br />method. <br />In the governmental fund financial statements, bond premiums and discounts, as well as bond issue <br />costs are recognized during the current period. The face amount of the debt issue is reported as on other <br />financing source. Premiums received on debt issuances are reported as other financing sources while <br />discounts are reported as other financing uses. Issue costs are reported as debt service expenditures. <br />P. FUND EQUITY <br />In the governmental fund financial statements, reservations of fund balance represent those portions of <br />fund equity not appropriable for expenditure or legally segregated for a specific future use. Designated <br />fund balances represent tentative plans for future use of financial resources. <br />Q. INTERFUND TRANSACTIONS <br />Quasi - extemal transactions are accounted for as revenues, expenditures or expenses. Transactions that <br />constitute reimbursements to a fund for expenditures /expenses initially made from it that are properly <br />applicable to another fund, are recorded as expenditures /expenses in the reimbursing fund and as <br />reductions of expenditures or expenses in the fund that is reimbursed. <br />All other interfund transactions, except quasi - external transactions and reimbursements, are reported as <br />transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity <br />transfers. All other interfund transfers are reported as operating transfers. <br />All Interfund transactions are eliminated except for activity between governmental activities and <br />business -type activities for presentation in the entity-wide statements of net assets and statements of <br />activities. <br />39 <br />