Question

On July 1, 2016, the City of Belvedere accepted a gift of cash in the amount of $3,250,000 from a number of individuals and foundations and signed an agreement to establish a private-purpose trust. The $3,250,000 and any additional gifts are to be invested and retained as principal. Income from the trust is to be distributed to community nonprofit groups as directed by a Board consisting of city officials and other community leaders. The agreement provides that any increases in the market value of the principal investments are to be held in trust; if the investments fall below the gift amounts, then earnings are to be withheld until the principal amount is re-established.

On July 1, the original gift of cash was received.

On August 1, $2,195,000 in XYZ Company bonds were purchased at par plus accrued interest ($18,292). The bonds pay an annual rate of 5 percent interest semiannually on April 1 and October 1.

On August 2, $905,000 in ABC Company common stock was purchased. ABC normally declares and pays dividends semiannually, on January 31 and July 31.

On October 1, the first semiannual interest payment ($54,875) was received from XYZ Company. Note that part of this is for accrued interest due at the time of purchase; the remaining part is an addition that may be used for distribution.

On January 31, a cash dividend was received from ABC Company in the amount of $25,000.

On March 1, the ABC stock was sold for $921,000. On the same day, DEF Company stock was purchased for $969,000.

On April 1, the second semiannual interest payment was received from XYZ Company.

During the month of June, distributions were approved by the Board and paid in cash in the amount of $82,900.

Administrative expenses were recorded and paid in the amount of $5,900.

An accrual for interest on the XYZ bonds was made as of June 30, 2017.

As of June 30, 2017, the fair value of the XYZ bonds, exclusive of accrued interest, was determined to be $2,198,000. The fair value of the DEF stock was determined to be $963,000.

Closing entries were prepared.

The above events and transactions occurred during the fiscal year ended June 30, 2017.

Required:
a. Record Journal Entry in the Belvedere Community Trust Fund.
b. Prepare (1) a Statement of Changes in Fiduciary Net Position for the Belvedere Community Trust Fund and (2) a Statement of Fiduciary Net Position.

Answer 1

   Part A: The journal entries would be as follows:

July 1, 2016 Bank A/c Dr. $3,250,000.00

   Gift & Donation A/c Cr. $3,250,000.00

   (Being gifts and donation received)

August 1, 2016    Investment in bonds of XYZ Co. Dr. $ 2,195,000.00

Bank A/c Cr. $ 2,195,000.00

(Being Bonds of XYZ Co. Purchased)

August 2, 2016    Investment in stock of ABC Co. Dr. $ 905,000.00

Bank A/c Cr. $905,000.00

(Being stock of ABC Co. Purchased)

October 1, 2016 Bank A/c Dr. $54,875.00

Interest income on bonds A/c Cr $54,875.00

(Being interest on bonds received)

January 31, 2017 Cash A/c Dr. $25,000.00

Dividend Income A/c Cr. $25,000.00

   (Being dividend on stock received in cash)

March 1, 2017    Bank A/c Dr. $921,000.00

   Investment in stock of ABC co. A/c Cr. $905,000.00

   Profit on sale of Stock A/c Cr. $16,000.00

   (Being stocks of ABC Co. Sold)

March 1, 2017    Investment in stcok of DEF Co. A/c Dr. $969,000.00

   Bank A/c Cr. $969,000.00

   (Being Stocks of DEF Co. Purchased)

April 1, 2017 Bank A/c Dr. $36,583.00

   Interest income on bonds A/c Cr. $36,583.00

   (Being semiannual interest income on bonds)

June 30, 2017    Cash A/c Dr. $57,900.00

   Bank A/c Cr. $57,900.00

   (Being cash withdrawn for distribution)

June 30, 2017    Annual distribution A/c Dr. $82,900.00

   Cash A/c Cr. $82,900.00

   (Being Annual distributions made)

June 30, 2017 Administrative expenses A/c Dr. $5,900.00

Bank A/c Cr. $5,900.00

(Being admin. expenses paid)

June 30, 2017    Accrued Interest on bonds A/c Dr. $36,583.00

   Interest income on bonds A/c Cr. $36,583.00

   (being interest accrued on bonds)

June 30, 2017    Investment in bonds of XYZ Co. A/c Dr. $3,000.00

   Upward valuation of investment A/c Cr. $3,000.00

   (Being Upward valuation of investment in bonds)

June 30, 2017 Gift & Donation A/c Dr. $3,250,000.00

Interest income on bonds A/c Dr. $128,041.00

Dividend income A/c Dr. $25,000.00

Profit On sale of stock A/c Dr. $16,000.00

Upward valuation of investment A/c Dr. $3000.00

Annual Distribution A/c Cr. $82,900.00

Administrative Expenses A/c Cr. $5,900.00

Profit & Loss A/c Cr. $3,333,241.00

(Being Books Closed for year ended June 30, 2017)

Part B: The solution to part b is added as an image below