Question

The Village of Hawksbill issued $4,500,000 in 5 percent general obligation, tax-supported bonds on July 1, 2016, at 101. A fiscal agent is not used. Resources for principal and interest payments are to come from the General Fund. Interest payment dates are December 31 and June 30. The first of 20 annual principal payments is to be made June 30, 2017. Hawksbill has a calendar fiscal year.

1. A capital projects fund transferred the premium (in the amount of $52,500) to the debt service fund.
2. On December 31, 2016, funds in the amount of $112,500 were received from the General Fund and the first interest payment was made.
3. The books were closed for 2016.
4. On June 30, 2017, funds in the amount of $285,000 were received from the General Fund, and the second interest payment (112,500) was made along with the first principal payment ($225,000)
5. On December 31, 2017, funds in the amount of $106,875 were received from the General Fund and the third interest payment was made (also in the amount of $106,875).
6. The books were closed for 2017.

Required

a. Prepare journal entries to record the events above in the debt service fund.

b. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the debt service fund for the year ended December 31, 2016.

c. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the debt service fund for the year ended December 31, 2017.

Answer 1

a) Journal Entries

Date	Particular(2016)	Debit ($)	Credit($)
1	No Entry For Bond Sale - recorded in the capital project
	(DR)Cash (CR) Other financing source-transfer in (Capital projects fund transferred the premium to the debt service fund)	52,500	52,500
2	DR)Cash (CR) Other financing source-transfer in ( (Funds received from the General funds)	112,500	112,500
	(DR)Expenditures-interest (CR) Cash (4,500,000*5%*6/12=	112,500	112,500
	(DR)Other financing sources-transfers in 165,000 (CR)Expenditures-interest 112,500 (CR) Fund Balance 52,500
30 June 2017	(DR)Cash (CR)Other financing sources-transfer in	285,000	285,000
	(DR) Expenditure- interest 112,500 (DR)Expenditure- principal 225,000 (CR) Cash 337,500
31 December 2017	(DR) Cash (CR) Other financing sources- transfers in	106,875	106,875
	(DR) Expenditures- interest (CR) Cash	106,875	106,875
	(DR) Other financing sources- transfers in  391,875 (DR)Fund balance 52,500 (CR) Expenditure-interest 219,375 (CR) Expenditure-principal 225,000

N fundCash A/c Dr$50,000To Other Financing Sources-Transfers In A/c$50,0002.Cash A/c Dr$150,000To Other Financing Sources-Transfers In A/c$150,000Expenditures-Interest A/c Dr$150,000To Cash A/c$150,000(First interest payment was made)3.Other Financing Sources-Transfers In A/c Dr$200,000To Expenditures-Interest A/c$150,000To Fund Balance A/c$50,000(Closing entry)20124.Cash A/c Dr$350,000To Other Financing Sources-Transfers In A/c$350,000(Funds received from General fund)Expenditures - Interest A/c Dr$150,000Expenditures - Principal A/c Dr$250,000To Cash A/c$400,000(Second interest payment was made along with principal)5.Cash A/c Dr$142,500To