Question

In: Accounting

The following transactions relate to the City of Middleton, which has a fiscal year end of...

The following transactions relate to the City of Middleton, which has a fiscal year end of December 31. The city adopts budgets for the General Fund and the debt service fund. NOTE: for simplicity, and contrary to GASB standards, assume straight-line amortization for this problem.

1.

The City of Middleton sells a $2,000,000, 3%, 16-year general obligation bond issue on January 2, 2016 at par. The bond pays interest semi-annually on July 1 and January 2, with the first principal payment scheduled for January 2, 2017. A city hall annex must be constructed with the bond proceeds. The bond premium must be used to pay interest on the debt.

2.

Budgets are adjusted to account for the sale of the bond. The debt service fund budget should be adjusted to accommodate the new debt issues. If the debt service fund does not have sufficient resources to pay expenditures, the needed funds will be provided by the General Fund.

3.

On February 1, 2016, $1,000,000 of the cash from the sale of the bonds is invested for one year at a rate of 1.26%. Earnings on the investment are available for construction of the city hall annex.

4. July 1, 2016 the first interest payment is due.
5.

December 31, 2016 adjusting entries are prepared.

For the five related transactions provided, prepare journal entries for the affected funds and at the governmental activities level. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1. Record the issue of 3 percent bonds in the Capital Projects fund

2. Record the issue of 3 percent bonds in the Governmental Activities fund.

3.Record the adjusted to account for the sale of the bond in the Debt Service fund.

4.Record the adjusted to account for the sale of the bond in the Governmental fund.

5.Record the investment of the bond proceeds in Capital Projects fund.

6.Record the investment of the bond proceeds in Governmental Activities fund.

7.Record the interest payment due in the General Fund.

8.Record the interest payment due in the Debt Service Fund.

9.Record the expenditures interest in the Debt service Fund.

10.Record the interest payment due in the Governmental activities Fund.

11.Record the adjustment entries in the Capital Projects fund.

12.Record the adjustment entries in the Governmental Activities fund.

13.Record the Interest on Long-term debt in the Governmental Activities fund.

Solutions

Expert Solution

Answer -

1.

--Capital projects fund journal

Dr. Cash $2,000,000

Cr. Other Financing Source—Proceeds of Bonds $2,000,000

2

Governmental activities journal

Dr. Cash $2,000,000

Cr. Bonds Payable $2,000,000

3.

--Debt service fund journal

Dr. Estimated Other Financing Sources—Inter fund Transfers In $ 30,000

Cr. Appropriations $ 30,000

4)

General Fund journal

Dr. Budgetary Fund Balance $ 30,000

Cr. Estimated Other Financing Uses—Inter fund Transfers Out $ 30,000

5.

--Capital projects fund journal

Dr. Investments $1,000,000

Cr. Cash $1,000,000

6)

Governmental activities journal

Dr. Investments $1,000,000

Cr. Cash $1,000,000

7.

--General Fund journal

Dr. Other Financing Uses—Inter fund Transfer out $ 30,000

Cr. Cash $ 30,000

8)

Debt service fund journal

a) Dr. Cash $ 30,000

    Cr. Other Financing Sources—Inter fund Transfer In $ 30,000

9)

Expenditures interest in the Debt service Fund

Dr. Expenditures—Interest $ 30,000

    Cr. Cash $ 30,000

10)

Interest payment due in Governmental activities journal

Dr. Expenses—Interest on Long-term Debt $ 30,000

Cr. Cash $ 30,000

11)

Adjustment entries in the Capital projects fund

Dr. Interest Receivable $ 11,555

Cr. Revenues—(optional to put source, Interest) $ 11,555

12)

Adjustment entries in the Governmental activities journal

   a) Dr. Interest Receivable $ 11,555

       Cr. General Revenues—Investment Earnings—(optional to indicate restriction,      Restricted for Capital Projects) $ 11,555

13)

Interest on Long-term debt in the Governmental Activities fund journal

Dr. Expenses—Interest on Long-term Debt $ 30,000

Cr. Interest Payable $ 30,000

Note that there is no accrual of interest expenditure since the expenditure is not legally due until after the first of the year.


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