Question

The City of Bloomington establishes a Debt Service Fund to accumulate resources to service its 2018 general obligation bonds. Voters approve an additional property tax that can only be used to pay the debt service on the bonds. The city finances the remainder of the debt service through a transfer of general fund resources. Prepare journal entries to record the following transactions for the city’s Debt Service Fund during calendar year 2019. No budgetary entries should be recorded.

1. For 2019, the property tax levy for debt service is $1,000,000 with $4,000 expected to be uncollectible.
2. Property taxes of $950,000 are collected prior to the first interest payment being due on the bonds.
3. Finance director, Yulianti Abbas, invests $750,000 in a short-term investment.
4. The investment matures with interest earnings of $4,000.
5. The city transfers $50,000 from the General Fund to the Debt Service Fund.
6. The city makes its first interest payment on the bonds in the amount of $1 million.
7. The city pays the bill of $4,000 from its fiscal agent for servicing the debt.

Ref	Description	Debit	Credit
1		1,000,000	0
		0	4,000
	Revenue - Property Taxes	0	996,000
2		950,000	0
		0	950,000
3		750,000	0
		0	750,000
4		754,000	0
	Investments	0	750,000
		0	4,000
5		50,000	0
		0	50,000
6		1,000,000	0
		0	1,000,000
	To record matured interest.	-	-
		1,000,000	0
		0	1,000,000
	To record the payment of cash to the fiscal agent.	-	-
7		4,000	0
		0	4,000

The drop down menu options are:

Allowance for uncollectible property taxes
Cash
Expenditures - fiscal agent fees
Expenditures - interest
Investments
Mature interest payable
Property taxes receivable
Revenue - interest
Transfer in from General Fund

Answer 1

Journal entries to be recorded for the city’s Debt Service Fund during calendar year 2019 are given below -

Date	Journal entry	Dr.	Cr.
1	Taxes Receivable A/c	$       1,000,000
	To Allowances for uncollectible taxes A/c		$              4,000
	To revenue - property taxes A/c		$          996,000
	(Being tax levied)
2	Cash A/c	$          950,000
	To Taxes Receivable A/c		$          950,000
	(Being tax collected)
3	Investment A/c	$          750,000
	To cash A/c		$          750,000
	(Being investments recorded)
4	Cash A/c	$          754,000
	To investments A/c		$          750,000
	To revenue - interest A/c		$              4,000
	(Being investments realised with interest income)
5	Cash A/c	$            50,000
	To General Fund A/c		$            50,000
	(Being funds transferred)
6	Expenditures - Interest A/c	$       1,000,000
	To Matured interest payable A/c		$       1,000,000
	(Being interest payable on bonds recorded)
7	Matured interest payable A/c	$       1,000,000
	To Cash A/c		$       1,000,000
	(Being interest on bonds paid)
8	Expenditures - Fiscal Agent fees A/c	$              4,000
	To Cash A/c		$              4,000
	(Being fees of Fiscal Agent paid)