a. The City of Bingham utilizes a single debt service fund to account for the service of all issues of tax-supported and special assessment long-term debt. As of December 31, 2019, one issue of tax-supported serial bonds was outstanding. The issue of tax-supported serial bonds outstanding on December 31, 2019, amounted to $9,300,000. Bonds of this issue in the amount of $300,000 mature on January 1 of each year. This bond issue bears interest at the annual rate of 3 percent, payable on January 1 of each year. The cash balance of the debt service fund on December 31, 2019 is restricted for the repayment of tax-supported bond principal and interest payments, such as the principal maturing on January 1, 2020, and bond interest due in 2020.

Additional Information:

On January 1, 2020, the City of Bingham sold a 15-year issue of tax-supported serial bonds to finance the construction and equipping of an annex to City Hall. As described in Chapter 5 of this cumulative problem, the total amount of bonds issued on that date was $6,000,000, sold with a $100,000 premium (yielding an effective interest rate of 1.5%). The issue bears interest at the stated annual rate of 2 percent, payable on January 1 and July 1 of each year; bonds in the amount of $200,000 will mature every six months until maturity. The premium on these bonds will be amortized using the effective interest rate method.

[Para. 6-b-1] From the data given about the bond issue already outstanding on January 1, 2020, and the City Hall Annex Construction Fund bond issue sold on that date, record the adoption of the legal budget for the fiscal year ended December 31, 2020. The budget provides for estimated revenues of $1,250,000 from property taxes, $1,500 of interest and penalties on taxes, and $4,800 of earnings on investments. It also provides for estimated other financing sources for premiums on bonds of $100,000 and interfund transfers in from the General Fund of $90,000. Appropriations of $839,000 for the payment of bond principal and interest calculated as follows:

3% serial bonds issued at par:

January 1 annual principal payment $300,000

January 1 annual interest payment $279,000 ($9.3 million * 3%)

2% serial bonds issued at a premium:

July 1 semi-annual principal payment $200,000

July 1 semi-annual interest payment $ 60,000 ($6.0 million * 1%)

Total Payments for 2020 $839,000

[Para. 6-b-2] Property taxes were levied by the debt service fund in the amount of $1,300,000. Of this amount, $50,000 was expected to be uncollectible

[Para. 6-b-3] Cash in the amount of the $100,000 premium on the bonds sold on January 1, 2020 was received and recorded in the debt service fund. The premium will be amortized in governmental activities at the government-wide level but not in the debt service fund. In the debt service fund journal entry, you should credit Other Financing SourcesPremium on Bonds for the entire $100,000. The credits for this entry in the governmental activities general journal were made as part of the requirements for Chapter 5. (See Chapter 5, Para 5-a-1.)

[Para. 6-b-4] Checks were written and mailed to bondholders for bonds maturing on January 1, 2020 ($300,000), and to pay all bond interest due that day ($279,000). These payments, totaling $579,000, are related to the 3% serial bonds. In the governmental activities general journal, debit Accrued Interest Payable and Current Portion of Long-Term Debt for these amounts (interest was charged to expense in the prior fiscal year). 4 5. .

[Para. 6-b-5] Current taxes receivable were collected in the amount of $1,220,000. ALSO, delinquent taxes receivable were collected in the amount of $30,000, along with Interest and Penalties Receivable on Taxes of $6,000. 6. [Para. 6-b-6] Investments were purchased in the amount of $975,000.

[Para. 6-b-7] Interest on investments was received in cash in the amount of $4,950.

[Para. 6-b-8] On July 1, the debt service fund received $90,000 from the General Fund. (See Chapter 4, Para. 4-a-16.)

[Para. 6-b-9] Checks totaling $260,000 were written and mailed to bondholders for all of the payments due July 1, 2020 (these payments are related to the 2% serial bonds). The principal payment is $200,000, and the interest payment is $60,000 ($6 million x 1%). At the government-wide level, the premium is amortized using the effective rate interest method. The effective interest rate is 1.5%. [REMINDER! Interest expense = book value of debt (bond payable + premium) * effective interest rate (1.5%). The difference between the cash payment and interest expense = premium amortization.]

10. [Para. 6-b-10] The uncollected balance of current taxes receivable and the related estimated uncollectible account were reclassified as delinquent. ADDITIONALLY, revenue from interest and penalties of $2,000 was accrued, of which $750 was estimated to be uncollectible.

11. [Para. 6-b-11] At December 31, 2020, accrued interest expense on the two outstanding bond issues was recorded in the governmental activities general journal. Record interest payable on the 3% serial bonds for 12 months ($9,000,000 * 3% = $270,000), and on the 2% serial bonds for 6 months ($5,800,000 * 1% = $58,000). Interest expense at the effective interest rate of 1.5% is $44,143 for the period from July 1 to December 31, 2020. To recap - Interest payable in cash on January 1, 2021 is $58,000 + $270,000 = $328,000. Interest expense is $44,143 + $270,000 = $314,143. [Another reminder: Difference between cash payment and interest expense = premium amortization.]