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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2005 <br />Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />M. 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 <br />incurred in the government -wide and proprietary fund financial statements. The current portion is <br />calculated based on historical trends. <br />N. LONG -TERM OBLIGATIONS <br />In the entity -wide financial statements, long -term debt and other long -term obligations are reported <br />as liabilities in the applicable governmental activities. Bond premiums and discounts are deferred <br />and amortized over the life of the bonds using the straight -line method. Bond issue costs, if <br />material, are reported as prepaid items and amortized over the term of the related debt using the <br />straight -line 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 <br />other financing source. Premiums received on debt issuances are reported as other financing <br />sources while discounts are reported as other financing uses. Issue costs are reported as debt <br />service expenditures. <br />O. FUND EQUITY <br />In the governmental fund financial statements, reservations of fund balance represent those <br />portions of fund equity not appropriable for expenditure or legally restricted by outside parties for <br />use for a specific purpose. Designated fund balances represent tentative plans for future use of <br />fmancial resources that are subject to change. <br />P. INTERFUND TRANSACTIONS <br />Interfund services provided and used are accounted for as revenues, expenditures or expenses. <br />Transactions that constitute reimbursements to a fund for expenditures /expenses initially made <br />from it that are properly applicable to another fund, are recorded as expenditures /expenses in the <br />reimbursing fund and as reductions of expenditures or expenses in the fund that is reimbursed. All <br />other interfund transactions are reported as 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 <br />of activities. <br />40 <br />