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In: Accounting

P. 6-8 Governments may report substantially different amounts of interest on their government-wide and fund financial...

P. 6-8 Governments may report substantially different amounts of interest on their government-wide and fund financial statements.

Charter City issued $100 million of 6 percent, 20‐year general obligation bonds on January 1, 2017. The bonds were sold to yield 6.2 percent and hence were issued at a discount of $2.27 million (i.e., at a price of $97.73 million). Interest on the bonds is payable on July 1 and January 1 of each year. On July 1, 2017, and January 1, 2018, the city made its required interest payments of $3 million each.
1. How much interest expenditures should the city report in its debt service fund statement for its fiscal year ending December 31, 2017? During 2017, the city did not transfer resources to the debt service fund for the interest payment due on January 1, 2018.

2. How much interest expense should the city report on its government‐wide statements for the year ending December 31, 2017? (It might be helpful to prepare appropriate journal entries.)

3. On January 1, 2037, the city repaid the bonds. How would the repayment be reflected on the city’s
(1) fund statements and (2) government‐wide statements?

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