Rochester Rapid Transit (RRT), an Enterprise Fund of Orange County, provides bus service for county residents. Because fare revenues are insufficient to cover operating expenses, RRT— as a matter of public policy— receives operating subsidies and capital grants from Orange County, the state, and the federal government. RRT’s financial reporting policies provide for distinguishing operating subsidies from capital grants in its statement of revenues, expenses, and changes in net position; the former are reported as “ non-operating revenues,” while the latter are reported as capital contributions. RRT operates on a calendar year basis. Answer the questions raised regarding each of the following transactions and events that relate to RRT’s calendar year 2013.

1. RRT sold revenue bonds in the amount of $ 2,000,000 on September 1, 2012, maturing in 10 years at the rate of $ 100,000 every 6 months, starting March 1, 2013, with interest at the rate of 4 percent per annum on the unpaid balance. Interest on the bonds had been accrued in RRT’s financial statements for the year ended December 31, 2012. What journal entries are needed to record the debt service payments on March 1, 2013, and September 1, 2013?

2. An RRT bus accidentally sideswiped a parked vehicle in December 2013. The vehicle owner filed a claim against RRT, which does not carry insurance to cover such claims. RRT’s attorneys acknowledge that the RRT bus was at fault. They believe the claim can be settled out of court for about $ 5,000, but the vehicle owner is seeking $ 7,000. The claim had not been settled at the time RRT prepared its 2013 financial statements. How should RRT report this matter in its financial statements?

3. RRT applied for a grant of $ 300,000 from the federal government in 2013. RRT met the eligibility requirements for the grant and received a check for $ 300,000. The grant was to be used solely to acquire buses, but no time requirement was imposed on RRT. As of December 31, 2013, no part of the grant had been spent. What journal entry should RRT make when it receives the cash?

How does the transaction affect financial reporting by RRT?

4. RRT received cash subsidies from Orange County ($500,000) and the state ($ 100,000) to help cover its operating deficits. What journal entries are needed to record each subsidy? How should each subsidy be reported in RRT’s statement of revenues, expenses, and changes in net position?