Special Assessment Project

After discussions with property owners residing on Bruce and Garrison Streets, the city council of Hobson City, Alabama authorized installation of street lights to better protect area citizens. Suppose total cost of the project is $3,300,000. Hobson Citys general fund will contribute $300,000 and 10-year term bonds will be issued to fund construction of the project. Hobson City can issue bonds paying 3 percent annually at par. The property owners will pay the city 10 equal annual installments, calculated as a 10-year annuity whose present value is the bond principal. Because each annual assessment exceeds the interest due on the bonds, the excess is invested at 3 percent to retire the principal.

Required

a. Calculate the amount of the total annual assessment needed to pay the annual interest for ten years and retire the bonds.

$Answer

b. Assume the government is liable for the bonds. Prepare the fund journal entries and identify the funds affected when the bonds are issued, the assessments are levied, the first assessment is collected, and the first interest payment is made.

Capital projects fund

Description		Debit	Credit
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record bond issuance.

Debt service fund

Description		Debit	Credit
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record levy of special assessments.
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record collection of current assessments.
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record interest payment
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record investment of excess assessment amount.

c. Repeat b. assuming the government has no liability for the bonds, and assessments collected, invested, and disbursed for interest payments, are reported in a custodial fund.

Capital projects fund

Description		Debit	Credit
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record bond issuance.

Custodial fund

Description		Debit	Credit
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record levy of special assessments.
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record collection of current assessments.
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record interest payment
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
AnswerAdditionsAssessments receivableBond proceedsCashDeductionsExpenditures-interestInvestmentsRevenue from assessments		Answer	Answer
To record investment of excess assessment amount.