Question

On January 1, 2019, the Town of Floyd issued $ 8,000,000 of 4% tax supported bonds. The bonds are dated January 1, 2019 with interest payment dates of June December 31, 2019. The bonds were sold at a $78,000 premium that was transferred to the Debt Service Fund from the capital projects fund to be used to fund the first payment. Cash sufficient to cover interest and principal payments for the year less the premium is transferred from the General Fund on June 1st.

Required: Record any and all entries to be made by the Debt Service Fund for the bond issued for the year 2019 (including closing entries)

Note - This is the question exactly as asked, if there is a portion of it that cannot be answered due to lack of information I would appreciate the question being answered as thoroughly as possible, with an "X" or something in place of omitted information

Answer 1

Hi,

I have solved this question by preparing required journal entries, the securities premium then transfer to the debt service fund and used to record expenses of interest paid on bond.

			Answer
			Journal Entry
	Date	Particulars			Debit	Credit
	Jan 1, 2019	Bank Account		Dr.	8,078,000
		To 4% Bonds Account			8,000,000
		To Securities Premium Account		78,000
		( Being Bond issued at Premium )
	Jan 1, 2019	Securities Premium Account	Dr.	78,000
		To Debt Service Fund			78,000
			( Being fund transfer )
	June 30, 2019	Interest on Bond		Dr.	160,000
		To Bank Account				160,000
		( Being Interest on Bond paid for 6 Months)
		( 8,000,000 x 4% x 6/12 Months)
	Dec 31, 2019	Interest on Bond		Dr.	160,000
		To Bank Account				160,000
		( Being Interest on Bond paid for 6 Months)
		( 8,000,000 x 4% x 6/12 Months)
	Dec 31, 2019	Debt Service Fund		Dr.	78,000
		Profit and Loss Account	Dr.	242,000
		To Interest on Bond				320,000
		( Being Interest Paid on Bond charged to
		Profit and loss account and debt services
		fund account)