Chapter 8 Recording Transactions Affecting a Fiduciary FundAn Investment Trust Fund

The city council of the City of Bingham decided in late 2017 to create an investment pool that would put the citys investments under professional management. The pool will be accounted for as an investment trust fund. The name of the fund, when it is established in early 2018, will be the Investment Pool Fund. The initial participants in the Investment Pool Fund will be the citys debt service fund and the BinghamConsolidated School District (CSD). The pool will be accounted for in accordance with GASB standards applicable to fiduciary funds; therefore, the citys debt service fund assets managed by the investment pool will not be reported in the Investment Pool Fund financial statements. Unless there is a request for a withdrawal, investment earnings and changes in the fair value of investments are distributed to participants only at year-end. During the year, investment earnings are added to an Undistributed Earnings on Pooled Investments account and changes in fair value are added to or subtracted from an Undistributed Change in Fair Value of Investments Account.

a.Record the following transactions that occurred during 2018 in the Investment Pool Fund. Do not forget to click on [Year] to change the date to 2018.

Before closing the City of Bingham, click on [File], and [Save/Save As] to save your work.If you close the file by clicking on the [X] box you will be asked if you want to save your changes before closing.

1.[Para. 8-a-1] On March 1, 2018, the Investment Pool Fund was formally established with the receipt of $220,000 in cash from the citys own debt service fund, plus receipt from the Bingham CSD of cash bonds having a market value of $622,000 on this date. The bonds purchased by the Bingham CSD had a book value of $620,000 on March 1, 2018. The bonds receive semi-annual interest of 3 percent per annum, on July 1 and January 1 each year. The CSDs equity is to also be credited for $3,100, which represents the two months of interest receivable on the bonds for January and February 2018.

2.[Para. 8-a-2] The Investment Pool Fund manager purchased 4.5 percent bonds on March 1 in the amount of $200,000. Because the bonds pay interest semi-annually on January 1 and July 1, $1,500 in accrued interest was also paid. (Note: Interest Receivable on Investments should be debited for the accrued interest.)

3.[Para. 8-a-3] On March 1, the Investment Pool Fund manager also purchased a 9-month certificate of deposit (CD) for $10,000. The interest rate on the CD is 2 percent per annum.

4.[Para. 8-a-4] On July 1, interest on both bonds in the amount of $13,800 ($9,300 and $4,500) was received in cash. (Note: Adjust for accrued interest.)

5.[Para. 8-a-5] On November 30, the 9-month CD matured and interest was received.

6.[Para. 8-a-6] On December 31, interest was accrued on bond investments.

7.[Para. 8-a-7]. On December 31, the fair value of investments in bonds was $826,000. (Note: Credit Undistributed Change in Fair Value of Investments for the increase in fair value.)

8.[Para. 8-a-8]. On December 31, the proportionate equities of the citys debt service fund and the Bingham CSD were calculated and investment earnings and changes in fair value of investments were distributed accordingly. In the journal entries round all calculations to the nearest whole dollar. (Note: You should complete 8-c below prior to making this journal entry.)

9.[Para. 8-a-9]. Subsequent to the distribution of earnings and changes in fair value, the Bingham CSD withdrew $200,000 to meet certain obligations coming due. To provide the cash needed for the withdrawal, the Investment Pool Fund manager sold the4.5 percent bonds on December 31 for $200,000, plus interest of $4,500, receiving in total $204,500 from the sale. (Note: Adjust Interest Receivable on Investments for the interest received.)

b.Post the journal entries for all the preceding transactions then prepare entries to close the temporary accounts. Be sure and click on the check mark for [Closing Entries] and check that Closing Entry appears in the [Transaction Description] box for each account closed.

c.Prepare a schedule in good form showing the proportionate equities of each of the Investment Pool Funds two participants before the Bingham CSDs $200,000 withdrawal on December 31, 2018. Round calculations to the nearest full percent.

d.Prepare a schedule in good form showing the proportionate equities of each of the Investment Pool Funds two participants after the Bingham CSDs $200,000 withdrawal on December 31, 2018. Round calculationsto the nearest full percent.

e.Export the post-closing trial balance and prepare a statement of fiduciary net position for the Investment Pool Fund as of December 31, 2018. (Note: To avoid a rounding error use a spreadsheet to calculate the proportionate share of each asset held by the CSD: Asset account*[CSD total equities after withdrawal/Total equities.] Follow the format of Illustration 8-6.)

f.Export the pre-closing trial balance for this fund and prepare a statement of changes in net position for the Investment Pool Fund for the year ended December 31, 2018. (Note: Follow the format of Illustration 8-7.) Print and retain all the documents generated in paragraphs c. through f. in your cumulative folder, unless your instructor requests electronic submission of your documents.