The Louisville City bus system engaged in the following transactions:
1. It issued $10,000,000 in 8 percent revenue bonds. It used the proceeds to acquire new buses. The bonds were issued at par.
2. Consistent with a bond covenant, the system set a side1 percent of the bonds' gross proceeds for repair contingencies. Correspondingly, it designated an equal dollar amount of net position as restricted for repairs.
3. The bus system accrued nine months' interest ($600,000) at year-end.
4. The bus system incurred $50,000 of repair costs, paying for them with the cash set aside for repair contingencies.
a. Prepare appropriate journal entries.
b. Comment on how assets set aside for repairs, as required by bond covenants, would be accounted for if the bus system were reported in the government's governmental funds.