Question

Debt Service Fund Transactions

Listed below are selected transactions from a Loudon County Debt Service Fund (all amounts are in thousands of dollars).

1.            The remaining funds of a Capital Projects Fund, $1,500, were transferred to the Debt Service Fund to be used in the repayment of debt and interest on that debt that was issued to finance and expansion of the county courthouse.

2.            The county General Fund transferred $8,600 to the Debt Service Fund to provide financing for principal, interest, and fiscal agent fees for debt service transactions during the year. $6,000 of the transfer from the General Fund and all of the transfer from the CPF were invested.

3.            The semi-annual payment of interest on bonds issued several years ago by a Capital Projects Fund came due and was paid. The outstanding principal of these 20-year, 4%, and term bonds is $3,000. The unamortized discount on these bonds is $100. The bonds were issued 15 years ago on this date. The payment includes fiscal agent fees of $10.

4.            The county has agreed to set up a small water treatment facility for the remote District 7, now that the local water supply has been polluted by a hog farm upstream. The cost of the facility, $2,500, is to be financed over 5 years by special assessments on the homeowners in that district, although the debt is guaranteed by the county. The assessment principal is paid annually, although the interest (4%) is paid semi-annually. The first interest payment is due in 6 months, with the first principal payment due in one year (60 days after year end). The water treatment facility will be operated as a general government activity.

5.            The annual payment of serial bonds issued 10 years ago by the county came due. The amount owed is $1,250 in principal, $20 interest, and $5 in fiscal agent fees. The amount due was paid.

6.            The county received interest on its investments, $85. In addition, investments that originally cost $4,000 were sold for $3,975. (See entry #2)

7.            Another term bond issued 20 years ago by the county came due and was paid. The face amount and rate was $3,200 and 3%, respectively, and pays interest semi-annually. The fiscal agent fees were $60.

8.            The semi-annual payment for interest on the outstanding special assessment bonds was paid when due. Also, $300 of assessments receivable has been collected for the principal payment due next year.

9.            The regular semi-annual interest payment on the term bonds came due and was paid. (See entry #3)

10.         A serial bond issued in the current year has its first annual payment of principal and interest due on the third day of the next fiscal year. As is required by the debt covenant and following the general procedures for all debt issues of the county, $1,200 ($1,000 for principal, $180 for interest, and $20 for fiscal agent fees) has been transferred from the General Fund to the Debt Service Fund to make this payment.

Requirements:

Record the above transactions in the Debt Service Fund.

Indicate the effects of each transaction on the accounting equation of the Debt Service Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.

Answer 1

Journal entries:-

1. Debit: Cash $1500

Credit: Transfer from Capital Projects Fund $1500

2. Debit: Cash $8600

Credit: Transfer from General Fund $8600

Debit: Investments(6000+1500) $7500

Credit: Cash $7500

3. Debit: Debt service - Interest $60(3000*4%/2)

Debit: Debt service - Fiscal Agent Fees $10

Debit: Unamortised Dicount $20

Credit: Matured interest payable $60

Credit: Matured agent fees payable $10

Credit: Discount payable $20

Payment of interest & agent fees

Debit: Matured interest payable $60
Debit: Matured agent fees payable $10
Debit: Discount payable $20

Credit: Cash $90

4. Debit: Assessments receivable - Deferred $2500

Credit: Deferred revenue assessments $2500

5. Debit: Debt service - Principal $1250

Debit: Debt service - Interest $20
Debit: Debt service - Fiscal Agent Fees $5

Credit: Matured Principal payable $1250   
Credit:   Matured interest payable $20
Credit:    Matured agent fees payable $5

Payment

  

Debit: Matured principal payable $1250
Debit: Matured interest payable $20
Debit: Matured fiscal agent fees payable $5

Credit: Cash $1275

6. Debit: Cash $85

Credit: Investment income $85

Debit: Cash $3975

Debit: Loss on sale of investment $25

Credit: Investments $4000

7. Debit: Debt service - Principal $3200

Debit: Debt service - Interest $48(3200*3%/2)
Debit: Debt service - Fiscal Agent Fees $60

Credit: Matured Principal payable $3200   
Credit:   Matured interest payable $48
Credit:    Matured agent fees payable $60

Payment

  

Debit: Matured principal payable $3200
Debit: Matured interest payable $48
Debit: Matured fiscal agent fees payable $60

Credit: Cash $3308

8. Debit: Debt service - Interest $50(2500*4%/2)   

Credit: Cash $50

Collection:

  Debit: Cash $300

Credit: Assessment receivable $300

9. Debit: Debt service - interest payable $60

Credit: Matured interest payable $60

Payment

Debit: Matured interest payable $60

Credit: Cash $60

10. Debit: Transfer from General Fund $1200

Credit: Appropriation- Bond principal $1000

Credit: Appropriation - interest $180

Credit: Appropriation - Fiscal agent fees $20

Debit: Cash $1200

Credit: Transfer from General Fund $1200