Ch07p

Topics: Liability, Generally Accepted Accounting Principles, Asset Pages: 9 (1798 words) Published: July 24, 2015
Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman) Problems – Chapter 7
Problem 1 – Bond Anticipation Notes
Green Mountain County had the following transactions related to the issuance of its bond anticipation notes. All amounts are in thousands of dollars. Transactions:
1. The county issued $5,000 of 6-month, 6% bond anticipation notes (BANs) on March 1, 20X5. The proceeds will be used to begin construction of a major courthouse addition and improvement.
2. Prepare any entries required at December 31, 20X5, the fiscal year end. 3. The county issued $9,000 of courthouse bonds at par on August 15, 20X5. The bond issuance costs were $100.
4. The BANs were repaid on the due date, September 30, 20X5. Requirements:
A. (1) Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes do not qualify for long-term debt treatment. If no entry is required, state “No entry required” and explain why. (2) Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box. B. (1) Prepare the journal entries required in a Capital Projects Fund to record these transactions, assuming the bond anticipation notes qualify for long-term debt treatment. If no entry is required, state “No entry required” and explain why. (2) Indicate the effects of each transaction on the accounting equation of the Capital Projects Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the appropriate box.

1
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Answers:
#

Accounts
A (1) BANs treated as short-term debt

Debit

1 Cash
BANs Payable

Credit

5,000
5,000

2 Expenditures – Debt Service – Interest (5,000 x 6% x 4/12) Interest Payable

100
100

3 Cash
Expenditures – Debt Service – Bond Issue Costs
OFS – Bond Principal

8,900
100

4 BANs Payable
Expenditures – Debt Service – Interest (5,000 x 6% x 2/12) Interest Payable
Cash

5,000
50
100

9,000

5,150

A (2) Effects of journal entries
Trans
#
1
2
3
4

Assets
5,000
NE
8,900
(5,150)

Liabilities
5,000
100
NE
(5,100)

Fund
Balance
NE
(100)
8,900
(50)

GCA
NE
NE
NE
NE

2
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GLTL
NE
NE
9,000
NE

Net
Position
NE
NE
(9,000)
NE

#

Accounts
B (1) BANs treated as long-term debt

Debit

1 Cash
OFS – BAN Principal

Credit

5,000
5,000

2 No entry required. No interest accrued on long-term debt.
3 Cash
Expenditures – Debt Service – Bond Issue Costs
OFS – Bond Principal

8,900
100

4 OFU – Repayment of BANs
Expenditures – Debt Service – Interest (5,000 x 6% x 6/12) Cash

5,000
150

9,000

5,150

B (2) Effects of journal entries
Trans
#
1
2
3
4

Assets
5,000
NE
8,900
(5,150)

Liabilities
NE
NE
NE
NE

Fund
Balance
5,000
NE
8,900
(5,150)

GCA
NE
NE
NE
NE

3
Copyright © 2013 Pearson Education, Inc.

GLTL
5,000
NE
9,000
(5,000)

Net
Position
(5,000)
NE
(9,000)
5,000

Problem 2 – Bond Issue Issues
There are 4 separate scenarios for bond issuances below. For each scenario, prepare the journal entry or entries for the transaction for the Capital Projects Fund and indicate the effects of each scenario on the Capital Projects Fund balance sheet equation and the General Capital Assets and General Long-Term Liabilities accounts.

Scenarios:
A.
B.
C.
D.

$3,000 in 6%, 15-year serial bonds are issued at par in a private placement. $4,000 in 5%, 20-year serial bonds are issued at par. Bond issue costs were $100. $5,000 in 4%, 25-year serial bonds are issued at 104. Bond issue costs were $150. $6,000 in 4%, 30-year bonds were issued at 97. Bond issue costs were $200.

Answers:...
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