Q. Please Write Journal Entries for all accounts and do closing entries in both Debt Services Fund and Governmental-Wide Activities version.

Chapter 6 Transactions Affecting General Long-Term Liabilities and Debt Service

a. The City of Bingham utilizes a single debt service fund to account for the service of all issues of tax-supported and special assessment long-term debt. As of December 31, 2013, one issue of tax-supported serial bonds was outstanding.

The issue of tax-supported serial bonds outstanding on December 31, 2013, amounted to $9,300,000. Bonds of this issue in the amount of $300,000 mature on January 1 of each year. This bond issue bears interest at the annual rate of 6 percent, payable on January 1 of each year. The cash balance of the debt service fund on December 31, 2013, is restricted for the repayment of tax-supported bond principal and interest payments, such as the principal maturing on January 1, 2014, and bond interest due in 2014.

Additional Information:

On January 1, 2014, the City of Bingham sold a 12.5-year issue of tax-supported serial bonds to finance the construction and equipping of an annex to City Hall. As described in Chapter 5 of this cumulative problem, the total amount of bonds issued on that date was $6,500,000, sold at 101 (yielding an effective interest rate of 2.8%). The issue bears interest at the annual rate of 3 percent, payable on January 1 and July 1 of each year; bonds in the amount of $500,000 will mature every six months until maturity. The premium on these bonds will be amortized using the effective interest rate method.

Please remember that before closing the City of Bingham, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved.

Required:

b. Prepare general journal entries, as necessary to record the following transactions in the debt service fund general journal and, if applicable, in the governmental activities general journal. Use account titles listed in the drop down Account #-Account Description menu for each of these accounting entities. Be sure to select 2014 from the [Year] menu of the [Journal] view. Enter the appropriate paragraph number shown below in bold-face font in the [Transaction Description] box.

1. [Para. 6-b-1] From the data given about the bond issue already outstanding on January 1, 2014, and the City Hall Annex Construction Fund bond issue sold on that date, record the adoption of the legal budget for the fiscal year ended December 31, 2014. The budget provides for estimated revenues of $1,875,000 from property taxes, $6,000 of interest and penalties on taxes, and $14,000 of earnings on investments. It also provides for estimated other financing sources for premiums on bonds of $65,000 and interfund transfers in from the General Fund of $125,000. Appropriations of $1,455,500 for the payment of bond principal and interest calculated as follows:

6% serial bonds issued at par:

January 1 annual principal payment $300,000

January 1 annual interest payment $558,000 ($9.3 million * 6%)

3% serial bonds issued at a premium:

July 1 semi-annual principal payment $500,000

July 1 semi-annual interest payment $ 97,500 ($6.5 million * 1.5%)

2. [Para. 6-b-2] Property taxes were levied by the debt service fund in the amount of $1,900,000. Of this amount, $25,000 was expected to be uncollectible.

3. [Para. 6-b-3] Cash in the amount of the $65,000 premium on the bonds sold on January 1, 2014 was received and recorded in the debt service fund. The premium will be amortized in governmental activities at the government-wide level but not in the debt service fund. In the debt service fund journal entry, you should credit Other Financing SourcesPremium on Bonds for the entire $65,000. The credits for this entry in the governmental activities general journal were made as part of the requirements for Chapter 5. (See Chapter 5, Para 5-a-1.)

4. [Para. 6-b-4] Checks were written and mailed to bondholders for bonds maturing on January 1, 2014 ($300,000), and to pay all bond interest due that day ($558,000). These payments are related to the 6% serial bonds. In the governmental activities general journal, debit Accrued Interest Payable and Current Portion of Long-Term Debt for these amounts (interest was charged to expense in the prior fiscal year).

5. [Para. 6-b-5] Current taxes receivable were collected in the amount of $1,830,000. Also, delinquent taxes receivable were collected in the amount of $10,000, along with Interest and Penalties Receivable on Taxes of $3,500.

6. [Para. 6-b-6] Temporary investments were purchased in the amount of $2,500,000.

7. [Para. 6-b-7] Interest on temporary investments was received in cash in the amount of $16,250.

8. [Para. 6-b-8] Temporary investments amounting to $600,000 were sold at par.

9. [Para. 6-b-9] On July 1, the debt service fund received $125,000 from the General Fund. (See Chapter 4, Para. 4-a-14.)

10. [Para. 6-b-10] Checks were written and mailed to bondholders for all of the interest payments due July 1, 2014 (these payments are related to the 3% serial bonds). The principal payment is $500,000, and the interest payment is $97,500 ($6.5 million x 1.5%). At the government-wide level, the premium is amortized using the effective rate interest method. The effective interest rate is 2.8%. [REMINDER! Interest expense = book value of debt (bond payable + premium) * effective interest rate (2.8%). The difference between the cash payment and interest expense = premium amortization.]

11. [Para. 6-b-11] The uncollected balance of current taxes receivable and the related estimated uncollectible account were reclassified as delinquent. Revenue from interest and penalties of $9,000 was accrued, of which $1,800 was estimated to be uncollectible.

12. [Para. 6-b-12] Cash to close the City Hall Annex Construction Fund was received in the amount of $95,000. (See Chapter 5, Para. 5-a-16).

13. [Para. 6-b-13] At December 31, 2014, accrued interest expense on the two outstanding bond issues was recorded in the governmental activities general journal. Record interest payable on the 6% serial bonds for 12 months ($9,000,000 * 6% = $540,000), and on the 3% serial bonds for 6 months ($6,000,000 * 1.5% = $90,000). Interest expense at the effective interest rate of 2.8% is $84,832 for the period from July 1 to December 31, 2014.

To recap Interest payable in cash on January 1, 2015 is $90,000 + $540,000 = $630,000. Interest expense is $84,832 + $540,000 = $624,832. [Another reminder: Difference between cash payment and interest expense = premium amortization.]

14. Make the entries needed to close the budgetary and operating statement accounts at the end of fiscal year 2014. Make this entry only in the journal for the debt service fund. Since the resources of the debt service fund are restricted for principal and interest payments, the nominal accounts should be closed to Fund BalanceRestricted. Be sure for each account being closed that the check mark for [Closing Entry] is on and that Closing Entry appears in the [Transaction Description] box. (Note: Closing entries for governmental activities at the government-wide level will be made in Chapter 9 of this cumulative problem.)

c. Review your trial balance for reasonableness. You should have no current receivables, and there should be no allowance that isnt linked to a receivable. You should also have no negative balances. There should be NO temporary accounts on the post-closing trial balance.