Question

The Village of Green Bay received a gift of $3,000,000 from a local resident on April 1, 2017 and signed an agreement that the funds would be invested permanently and that the income would be used to maintain the city cemetery. The following transactions took place during the year ended December 31, 2017.

A.The gift was recorded on April 1.

B.On April 1, 2017, XYZ Company bonds were purchased in the amount of $3,000,000, at par. The bonds carry an annual interest rate of 5 percent, payable semiannually on October 1 and April 1.

C.On October 1, the semiannual interest was received.

D.From October 1 through December 1, payments were made totaling $20,800 to a lawn service.

E.On December 31, an accrual was made for interest.

F.Also, on December 31, a reading of the financial press indicated that XYZ bonds had a fair value of $3,003,500, exclusive of accrued interest.

G. The books were closed.

Required:

Record the transactions on the books of the Cemetery Perpetual Care Fund using the template provided in this module.

Answer 1

In the books of CEMETARY PERPETUAL CARE FUND

Journal entries for the year ended 31^st December

S.No	Particulars	Debit	Credit
A	Recording the Gift received      Bank or Cash      Income (Gift)	$3,000,000	$3,000,000
B	Investment in XYZ Bonds      Investment (XYZ bonds)      Bank or Cash	$3,000,000	$3,000,000
C	Receipt of Semi-annual interest (Oct 1st)     Bank or Cash     Income (Interest on Bonds) (Since annual interest rate is 5%, semi annual interest is $3,000,000*5%*6/12 months)	$75,000	$75,000
D	Payment made for Lawn Services     Expenditure (Lawn Services)     Bank or Cash	$20,800	$20,800
E	Recognition of Accrual Interest      Accrued interest receivable      Income (Interest on Bonds) (Since the annual interest rate is 5%, the interest accrued from October to December is $3,000,000*5%*3/12months)	$37,500	$37,500
F	Increase in Fair Value of investment     Investment (XYZ bonds)     Income (increase in Fair Value of Investment)	$3,500	$3,500
G	Closing Value of Fund Income (Gift)     Income (Interest)     Income (Increase in Fair Value)     Expenditure (Lawn Services)     Fund Value (for other purposes)	$3,000,000 $112,500 $3,500	$20,800 $3,095,200