PROBLEM 7

These transactions relate to a government operated bus service (The Bus), which provides transportation services to residents of the County. The Bus is accounted for as a County Enterprise Fund. Make journal entries to account for the following 202X transactions in the Enterprise Fund.

1. On April 1, 202X, The Bus borrows $8,000,000 by issuing 20-year revenue bonds. Bond principal is to be paid back in 40 equal semi-annual installments, starting October 1, 202X, together with interest of 3% a year on the unpaid principal.

2. On July 1, The Bus pays cash for 20 buses costing $225,000 each. The Bus also pays cash for a building costing 750,000 to house its repair activity.

3. On July 1, The Bus invests $500,000 of unused cash in a Certificate of Deposit (CD).

4. The Bus pays cash of $90,000 to acquire an inventory of repair parts.

5. The Bus collects bus fares of $300,000, which it deposits in the bank.

6. The Bus sends an invoice for $15,000 to a customer for rendered services.

7. The Bus pays salaries of $125,000 to its bus operators, mechanics, and administrative staff.
8. The CD (transaction 3.) matures and The Bus receives a check for $510,000.
9. On October 1, 20XX, The Bus pays the first installment of principal and interest on the revenue bonds in transaction 1.

To prepare financial statements at December 31, 20XX, The Bus makes adjusting journal entries for the following items:

10. To record six months' depreciation on the buses and building bought in transaction 2. Estimated lives are: buses - 10 years; building - 30 years.

11. To record consumption of repair parts. A year-end physical inventory shows repair parts on hand amounting to $5,500. (See transaction 4.)

12. To accrue for unpaid salaries of $18,000.

13. To accrue interest on the revenue bonds outstanding at December 31, 20XX. (See transactions 1. and 9.)