On 1/1/2019, the city of San Francisco issued at par $2,000,000 of 4% term bonds to renovate the Golden Gate Bridge. The bonds mature in five years on 1/1/2024 with semiannual interest payments on 6/30 and 12/31. A debt service fund is created to manage the payment of principals and interests of this bond.

As illustrated below, a sinking fund is to be established with equal semiannual additions made on 6/30 and 12/31. General fund transfers to the debt service fund the cash for sinking fund additions and semiannual interest payments a few days before the due dates.

 

Year   Period      Required Additions

2019        1         $174,461

               2        $174,461

2020        3          $174,461

               4          $174,461

2021        5          $174,461

               6           $174,461

2022        7           $174,461

               8            $174,461

2023        9            $174,461

              10          $174,461

 

Prepare journal entries for the following transactions for the debt service fund. Show your calculations.

1. Record the budget for the year 2019.

2. Record the transfer of cash from the general fund to the debt service fund in the amount of the required addition and interest payment due on 6/30/2019.

3. Record the interest payment on 6/30/2019.

4. Record the transfer of cash from the general fund to the debt service fund in the amount of the required addition and interest payment due on 12/31/2019.

5. The interest rate on the sinking fund investment is 5%. The earnings are compounded and added to the investment principal. Record the investment earnings earned by 12/31/2019.

6. Record the closing of necessary entries at the end of 2019.