During fiscal year 2022, the voters of the City of Bingham approved the issuance of 2 percent tax-supported serial bonds in the face amount of $2,500,000 to construct a caf in city hall. The bonds are to mature in blocks of $125,000 every six months over a 10-year period commencing in 2024.

The City of Bingham created a 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 $2,500,000 face value of bonds were issued on January 3, 2023 for $2,516,742. The effective interest rate on the bonds is 1.875% percent per annum. The first interest payment of $25,000 is due July 1, 2023. Subsequent semiannual interest payments will be made January 1 and July 1 of each following year until the maturity of the bond. Make entries as instructed in the following paragraphs.

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 2024. Until then transfers will be made from Binghams General Fund.

[Para. 6a-3] On July 1, the debt service fund received $20,000 from the General Fund for interest payment on the 2% serial bonds. Checks were written and mailed to bondholders for the interest payment due July 1, 2023.

Required: Record the transfer in the debt service fund and the interest payment in both the debt service fund and governmental activities journals. At the government-wide level, reduce the premium on bonds payable by $1406, the difference between the stated interest rate (.02 X 6/12 X $2,500,000) and the effective interest rate (.01875 X 6/12 X $2,516,742).