Accounting: Journal Entries and Financial Statements

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Serial Bond Debt Service Fund Journal Entries and Financial Statements.

As of December 31, 2010, New Town had $9,500,000 in 4.5 percent serial bonds outstanding. Cash of $509,000 is the debt service fund’s only asset as of December 31, 2010, and there are no liabilities. The serial bonds pay interest semiannually on January 1 and July 1, with $500,000 in bonds being retired on each interest payment date. Resources for payment of interest are transferred from the General Fund and the debt service fund levies property taxes in an amount sufficient to cover principal payments. Required

a. Prepare debt service fund and government-wide entries in general journal form to reflect, as necessary, the following information and transactions for FY 2011. (1) The operating budget for FY 2011 consists of estimated revenues of $1,020,000 and estimated other financing sources equal to the amount of interest to be paid in FY 2011. Appropriations must be provided for interest payments and bond redemptions on January 1 and July 1. (2) Cash was received from the General Fund and checks were written and mailed for the January 1 principal and interest payments. (3) Property taxes in the amount of $1,020,000 were levied (no estimate for uncollectible accounts has been made). (4) Property taxes in the amount of $1,019,000 were collected. (5) Cash was received from the General Fund and checks were written and mailed for the July 1 principal and interest payments. (6) Adjusting entries were made and uncollected taxes receivable were reclassified as delinquent. At the hind level, entries were also made to close budgetary and operating statement accounts. (Ignore closing entries in the government activities journal.) b. Prepare a statement of revenues, expenditures, and changes in fund balances for the debt service fund for the year ended December 31, 2011.

c. Prepare a balance sheet for the debt service fund as of December 31, 2011.

SOLUTION

NEW TOWN
DebitsCredits
1.Serial Bond Debt Service Fund:
ESTIMATED OTHER FINANCING SOURCES416,250

ESTIMATED REVENUE1,020,000

APPROPRIATIONS1,416,250
BUDGETARY FUND BALANCE20,000

BUDGET FOR FY2011: INTERFUND TRANSFERS IN FOR INTEREST = $9,500,000 X 0.045 X ½ FOR JANUARY 1 PAYMENT AND $9,000,000 x 0.045 X ½ FOR JULY 1 PAYMENT = $416,250.

Governmental Activities:
No entries required

DebitsCredits
2.Serial Bond Debt Service Fund:
CASH213,750
OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN213,750
EXPENDITURES—BOND INTEREST213,750
EXPENDITURES—BOND PRINCIPAL500,000
CASH713,750

Governmental Activities:
ACCRUED INTEREST PAYABLE213,750
BONDS PAYABLE500,000
CASH713,750

3.Serial Bond Debt Service Fund:
TAXES RECEIVABLE—CURRENT 1,020,000
REVENUES1,020,000
Governmental Activities:
TAXES RECEIVABLE—CURRENT1,020,000
GENERAL REVENUES—PROPERTY TAXES 1,020,000

4.Serial Bond Debt Service Fund/Governmental Activities:
CASH1,019,000
TAXES RECEIVABLE—CURRENT1,019,000

5.Serial Bond Debt Service Fund:
CASH202,500
OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN202,500
DebitsCredits
EXPENDITURES—BOND INTEREST202,500
EXPENDITURES—BOND PRINCIPAL500,000
CASH702,500

Governmental Activities:
EXPENSES—INTEREST ON LONG–TERM DEBT202,500
BONDS PAYABLE500,000
CASH702,500

6.Serial Bond Debt Service Fund:
BUDGETARY FUND BALANCE20,000
APPROPRIATIONS1,416,250
ESTIMATED OTHER FINANCING SOURCES416,250
ESTIMATED REVENUE1,020,000

OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN416,250
REVENUES1,020,000
EXPENDITURES—BOND INTEREST416,250
EXPENDITURES—BOND PRINCIPAL1,000,000
FUND BALANCE20,000

TAXES RECEIVABLE—DELINQUENT1,000
TAXES RECEIVABLE—CURRENT1,000

Governmental Activities:
EXPENSES—INTEREST ON LONG–TERM DEBT191,250
ACCRUED INTEREST PAYABLE191,250
($8,500,000 X 0.045 X ½)
b.
NEW TOWN
DEBT...
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