Question

In: Accounting

The City of Little River had the following transactions related to the construction of a new...

The City of Little River had the following transactions related to the construction of a new courthouse:

  1. January 2, 2017: 20-year, 6%, general-obligation serial bonds with a face value of $2,000,000 are issued at 101. Interest payments are made on January 1 and July 1 of each year. The premium was transferred into the debt-service fund. The general fund will fully fund each payment as it becomes due.
  2. March 1, 2017: Land is purchased for a new park at a cost of $200,000.
  3. March 1, 2017: A contract is signed for landscaping and construction of various structures in the park in the amount of $1,800,000.
  4. June 15, 2017: $110,000 is transferred from the general fund for the July 1 payment due on the courthouse-fund serial bonds.
  5. July 1, 2017: Interest ($60,000) and principal ($50,000) are paid on the courthouse-fund serial bonds.
  6. December 1, 2017: The city receives an invoice for progress completed to date on the courthouse construction project in the amount of $385,000.
  7. December 27, 2017: $58,500 is transferred from the general fund for the January 1, 2018 interest payment due on the courthouse-fund serial bonds.
  8. Interest is accrued as of December 31, 2017, following the exception permitted by the GASB.

Prepare the journal entries required in both the capital-projects fund and the debt-service fund using the template provided in this module.

Solutions

Expert Solution

Journal Entries
Heading Date Particulars Account Type Debit Amount ($) Credit Amount ($)
Answer of Point a. January 2, 2017 Bank Account A/c Current Assets            2,020,000.00
     To 6% General Obligation serial Bond A/c Long term Liability           2,000,000.00
     To Premium on issue of Bond A/c Capital Account                 20,000.00
Narration : (Being Serial Bond has been issued @ permium of $ 1 and money has been received on Bank )
January 2, 2017 Premium on issue of Bond A/c Capital Account                  20,000.00
       To Debt Service Fund A/c Capital Account                 20,000.00
Narration : (Being Premium amount has been transferred to Debt Service Account)
Answer of Point b. March 1, 2017 Land A/c Fixed Assets                200,000.00
       To Bank Account A/c Current Assets                 20,000.00
Narration : (Being Land for new park had been purchased)
Answer of Point c. For point C "A contract has been signed for landscaping and Construction of various Structure in the park in the amount of $ 1,800,000" -for this no journal entries require to pass because here obligation are taken by both the parties to perform some work, no transaction has been recorded due to which there is a no need to pass the journal entries.
Answer of Point d. June 15, 2017 Bank Account A/c Current Assets                110,000.00
     To General Fund account A/c Assets Account               110,000.00
Narration : (Being Fund receive from General Fund for payment of due amount on Bond)
Answer of Point e. June 30, 2017 Interest A/c Expense Account                  60,000.00
    To Interest Payable A/c Current Liabilities                 60,000.00
Narration : (Being Interest has been Accrued on 6% General Obligation Bond)
July 1, 2017 Interest Payable A/c Current Liabilities                  60,000.00
6% General Obligation serial Bond A/c Long term Liability Account                  50,000.00
       To Bank A/c Current Assets               110,000.00
Narration : (Being Interest due on 1st July and repayment of 500 nos bond has been made from bank)
Answer of Point f. December 1, 2017 Fixed Assets A/c Fixed Assets                385,000.00
    To Sundry Payable Current Liabilities               385,000.00
Narration : (Being invoice has been receive and booked for progress of construction of Various Structure)
Answer of Point g. December 27, 2017 Bank Account A/c Current Assets                  58,500.00
     To General Fund account A/c Assets Account                 58,500.00
Narration : (Being Fund receive from General Fund for payment of Interest on Bond)
Answer of Point h. December 31, 2017 Interest A/c Expense Account                  58,500.00
    To Interest Payable A/c Current Liabilities                 58,500.00
Narration : (Being Interest has been Accrued on 6% General Obligation Bond)

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