PROBLEM 5

The Town Debt Service Fund accumulates resources to pay its $3 million general obligation debt. The debt is payable in equal annual installments of principal over 20 years with 5% interest on the unpaid principal. Prepare journal entries to record the following transactions in the Debt Service Fund.

1. The Town levies a special property tax amounting to $550,000 to pay debt service on its long-term general obligation debt. The tax must be accounted for in the Debt Service Fund.
2. All the property taxes levied for debt service purposes are collected.
3. The Town invests $250,000 in a six-month certificate of deposit.
4. Debt service (interest of $150,000 and principal of $150,000) becomes due and payable.
5. The debt service liabilities from 4. are paid.
6. The certificate of deposit in 3. matures and the Town receives a total of $261,000.