Chapter 6 Transactions Affecting General Long-Term Liabilities and Debt Service

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, 2013, one issue of tax-supported serial bonds was outstanding.

The post-closing trial balance of the debt service fund as of December 31, 2013, is shown below. The issue of tax-supported serial bonds outstanding on December 31, 2013, amounted to $12,000,000. Bonds of this issue in the amount of $600,000 mature on January 1 of each year. This bond issue bears interest at the annual rate of 6 percent, payable on January 1 and July 1 of each year. The cash balance of the debt service fund on December 31, 2013, is restricted for the repayment of tax- supported bond principal and interest payments, such as the principal maturing on January 1, 2014, and bond interest due in 2014.

Required:

Record the following accounts and balances in the debt service fund general journal, selecting 2013 from the [Year] menu and using para. 6-a for the [Transaction Description]. When completed select [Post Entries] to post the entries in the general ledgers. (Note: These opening balances were previously recorded in the governmental activities general journal in Chapter 2 of this project.)

CITY OF BINGHAM

Debt Service Fund

Trial Balance

As of December 31, 2013

Debits Credits

Cash $ 980,000

Taxes ReceivableDelinquent 84,000

Estimated Uncollectible Delinquent $ 56,000

Taxes

Interest and Penalties Receivable 7,600

on Taxes

Estimated Uncollectible Interest 760

and Penalties

Fund BalanceRestricted 1,014,840

Totals $1,071,600 $1,071,600

Additional Information:

On January 1, 2014, the City of Bingham sold a 12-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 at 101. The issue bears interest at the annual rate of 3 percent, payable on January 1 and July 1 of each year; bonds in the amount of $250,000 will mature on January 1, 2015, and every six months thereafter until maturity. The premium on these bonds will be amortized using the effective interest rate method. Cash for the payment of interest in 2014 will be provided by the General Fund (see Chapter 4).

Please remember that before closing the City of Bingham, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved.

Required:

b. Prepare general journal entries, as necessary to record the following transactions in the debt service fund general journal and, if applicable, in the governmental activities general journal. Use account titles listed in the drop down Account #-Account Description menu for each of these accounting entities. Be sure to select 2014 from the [Year] menu of the [Journal] view. Enter the appropriate paragraph number shown below in bold-face font in the [Transaction Description] box.

1. [Para. 6-b-1] From the data given about the bond issue already outstanding on January 1, 2014, 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, 2014. The budget provides for estimated revenues of $1,600,000 from property taxes, $7,000 of interest and penalties on taxes, and $17,000 of earnings on investments. It also provides for estimated other financing sources for premiums on bonds of $60,000 and interfund transfers in from the General Fund of $90,000. Appropriations of $1,392,000 were provided for the payment of bond principal of $600,000 maturing on January 1, 2014 and $792,000 for bond interest payments due on January 1, 2014, and July 1, 2014 (.03 X $12,000,000 + .03 X $11,400,000 + .015 X $6,000,000). This is your budget entry for 2014.

2. [Para. 6-b-2] Taxes were levied by the debt service fund in the amount of $1,620,000. Of this amount, $20,000 was expected to be uncollectible. Refer back to page 121 in Chapter 4.

3. [Para. 6-b-3] Cash in the amount of the $60,000 premium on the bonds sold on January 1, 2014 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 $60,000. The credits for this entry in the governmental activities general journal were made as part of the requirements for Chapter 5.

4. [Para. 6-b-4] Temporary investments were purchased in the amount of $50,000.

5. [Para. 6-b-5] Checks were written and mailed to bondholders for bonds maturing on January 1, 2014, and to pay all bond interest due that day. In the governmental activities general journal, debit Accrued Interest Payable as these amounts were expensed on December 31, 2013, the end of the preceding fiscal year. Refer back to the data provided in Entry #1 this will help with the amount to record as principal and interest.

6. [Para. 6-b-6] Current taxes receivable were collected in the amount of $1,030,000. Also, delinquent taxes receivable were collected in the amount of $8,000, along with Interest and Penalties Receivable on Taxes of $700.

7. [Para. 6-b-7] Temporary investments were purchased in the amount of $900,000.

8. [Para. 6-b-8] Interest on temporary investments was received in cash in the amount of $7,000.

9. [Para. 6-b-9] Temporary investments amounting to $400,000 were sold at par.

10. [Para. 6-b-10] On July 1, the debt service fund received $90,000 from the General Fund for interest payment on the 3% serial bonds. Checks were written and mailed to bondholders for all of the interest payments due July 1, 2014. At the government-wide level, $1,827 was debited for amortization of the premium on bonds sold for the 3% serial bonds. See the power point presentation for examples of entries.

11. [Para. 6-b-11] Current taxes of $520,000, delinquent taxes of $9,000, and interest and penalties on taxes of $815 were collected.

12. [Para. 6-b-12] The uncollected balance of current taxes receivable and the related estimated uncollectible account were reclassified as delinquent. Interest and penalties of $1,200 were accrued, of which $120 was estimated to be uncollectible.

13. [Para. 6-b-13] Cash to close the City Hall Annex Construction Fund was received in the amount of $90,750. (See Chapter 5, Para. 5-a-18). The city council authorized a budget amendment for this unexpected transfer.

14. [Para. 6-b-14] At December 31, 2014, interest on temporary investments was accrued in the amount of $8,000. Record in the debt service fund and the governmental activities journal. Remember this is a receivable.

15. [Para. 6-b-15] At December 31, 2014, accrued interest expense on the two outstanding bond issues was recorded in the governmental activities general journal. Amortization of the premium on the 3% bonds sold was also recorded in the amount of $1,854. See page 225, and the power point presentation for examples of the amortization.

16. Verify the accuracy of journal entries, including dates and paragraph numbers, and, if you have not already done so, post all entries to the general ledger of both the debt service fund and governmental activities by clicking on [Post Entries]. Make the entries needed to close the budgetary and operating statement accounts at the end of fiscal year 2014. Make this entry only in the journal for the debt service fund. Since the resources of the debt service fund are restricted for principal and interest payments, the nominal accounts should be closed to Fund BalanceRestricted. Be sure for each account being closed that the check mark for [Closing Entry] is on and that Closing Entry appears in the [Transaction Description] box. (Note: Closing entries for governmental activities at the government-wide level will be made in Chapter 9 of this cumulative problem.)

Go to [Reports] and print or save the pre-closing and post-closing trial balances for the debt service fund as of December 31, 2014. Retain in your cumulative folder until directed by your instructor to turn it in, unless your instructor specifies submission of computer files via e-mail.

Export the post-closing trial balance for year 2014 to an Excel or other worksheet to prepare a balance sheet for the debt service fund as of December 31, 2014. See Illustration 6-8 on page 231. You will have only one column, not three.

Export a pre-closing trial balance for year 2014 to an Excel or other worksheet to prepare a statement of revenues, expenditures, and changes in fund balance for the debt service fund for the year ended December 31, 2014. See Illustration 6-7 on page 231. You will have only one column, not three.

Use the same trial balance exported in item e above to prepare a statement of revenues, expenditures, and changes in fund balancebudget and actual for the debt service fund for the year ended December 31, 2014. See Illustration 6-9 on page 232. You will only have the Serial Bond columns, not the Term Bonds. You will also have your original budge, final budget, and then your actual over/under budget.