1 A On January 1, 2010, approval was obtained to begin construction of a new city hall. As a result of this approval, $2.800.000 in 5-year serial bonds,which a face interest rate of 7%, were sold at 104 (an effective rate of 6%). Principal and interest payments are made semiannually beginning July 1, 2010.The premium is to be used for debt payments for principal and interest January 1, 2010 12 CPF 13 GT 15 Hint: face value of the bond is received by Capital Project Fund. CPF is a governmental fund, use modified accrual basis. Modified accural basis does not 16 recognize log term debt, it is treated as Other financing sources 17 DSF Hint: Debt Service Fund is a governmental fund as well, use modified accrual basis The premium (bond is sold at 104, meaning 104% of face value, thus 4% premium) is received by DSF. Premium is a liability, meaning the total borrowing is 2.8m*104% not 2.8m. Modified accrual basis does not recognize long term liability, thus it isHint: governmental wide level use accrual basis, the treatment is the same as a 20 treated as other financial sources for proft business, recognize bond payable and premium as usual On January 3, 2010, a $2,800,000 contract with GoodBuild Construction was signed for the construction January 3, 2010 24 25 CPF 26 GT 28 29 Hint: contract is signed, modified accrual basis ask to recognized preliminary 30 expenditure (encumbrance) and preliminary payable (encumbrance outstanding) record. No financial resources changed hand 31 32 Hint: accrual basis accounting does not recognize a contract in accounting On June 30, 2010, a bill for $1,400,000 was received from GoodBuild as a result of one-half of the work on the construction being completed June 30, 2010 34 35 CPF GT 37 Hint: actual expenditure is determined, need to reverse the preliminaries 38 (encumbrance and encumbrance outstanding) recognized in 3 Hint: no preliminaries are recorded under accrual basis in 3, no reversal needed SheetSheet2 Sheet3