Debt Service Fund Information

The City of Smithville created a Street Improvement Bond Debt Service Fund to be used to retire the bonds issued for the purposes described in Chapter 5 of this cumulative problem, and to pay the interest on the bonds. The $2,000,000 face value of bonds issued during 2017 are dated January 1, 2017, but were not issued until May 6, 2017. Because bondholders will receive six months of interest on July 1, 2017 in the total amount of $40,000, they were required to pay $28,000 on the date of issue to pay the city for unearned interest from January 1 to May 6.The bonds bear interest of 4 percent per annum. The first interest payment of $40,000 is due July 1, 2017.Subsequent semiannual interest payments will be made January 1 and July 1 of each following year until the maturity of the bond.Bonds in the amount of $500,000 are to mature five years after the date of the bonds (January 1, 2022), and $100,000 is to mature January 1 of each year thereafter until all the bonds have been retired.Thus, these bonds are deferred serial bonds as discussed in Chapter 6 of the textbook.Make entries as instructed in the following paragraphs. As the bond issue was not made until May 2017, the city will not levy debt service property taxes until next year.

Bond covenants related to this bond issue require the city to levy property taxes sufficient to make principal and interest payments until the bonds have been retired.The city council has approved a resolution to enable the property tax levy, beginning in fiscal year 2018.

Prepare general journal entries, as necessary to record the transactions described below in the Street Improvement Bond Debt Service Fund general journal and, if applicable, in other other funds and in the governmental activities general journal.

1-a In early May 2017, an amendment to the annual budget for 2017 was approved by the city council for inflows and outflows in the Street Improvement Bond Debt Service Fund related to the bond issue.The debt service fund budget amendment provides for estimated other financing sources of $42,000 for the premium on bonds sold and estimated revenues of $28,000 for accrued interest on bonds sold; and appropriations in the amount of the one interest payment of $40,000 to be made during 2017. (The payment that is due on July 1, 2017.)

Required:Record the amended budget for the Street Improvement Bond Debt Service Fund for year 2017.Budgetary entries have no effect on the government-wide accounting records.Please use the journal terms listed in the attachment.

1-b On May 6, 2017, the premium and accrued interest on bonds sold were received by the Street Improvement Bond Debt Service Fund. (See Transaction 3 in the Capital Projects Fund.)

Required: Record this transaction in the Street Improvement Debt Service Fund.No entry is required at this time in the governmental activities general journal. Please use the journal terms listed in the attachment.

Debt Service Fund Cash Fund balance Revenue - accrued interest Other financing sources- bond premium Expenditures- bond interest