In: Accounting
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.
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.