Term Bond Liabilities. Following are transaction data for a term bonds issue for the City of Nevin. Prepare all necessary entries for these transactions in the city’s hinds, and governmental activities journal at the government-wide level. Round all amounts to the nearest whole dollar.
a. On July 1, 2010, the first day of its 2011 fiscal year, the City of Nevin issued at par $2,000,000 of 6 percent term bonds to construct a new city office building. The bonds mature in five years on July 1, 2015. Interest is payable semiannually on January 1 and July 1. A sinking fund is to be established with equal semiannual additions made on June 30 and December 31, with the first addition to be made on December 31, 2010. Cash for the sinking hind additions and the semiannual interest payments will be transferred from the General Fund shortly before the due dates. Assume a yield on sinking fund investments of 6 percent per annum, compounded semiannually. Investment earnings are added to the investment principal. Based on this information:
(1) Prepare a schedule in good form showing the required additions to the sinking fund, the expected semiannual earnings, and the end-of-period balance in the sinking fund for each of the 10 semiannual periods. (Note: The future amount of an ordinary annuity of $1 for 10 periods at 3 per cent per period is $11.4638793.)
(2) Record the issuance of the bonds.
(3) Create a term bond debt service fund and record its budget for the fiscal year ended June 30, 2011. Assume the budget has already been recorded for the General Fund. An appropriation should be provided only for the interest payment due on January 1, 2011. Also record an accrual for all interfund transfers to be received from the General Fund during the year.
b. On December 28, 2010, the General Fund transferred $234,461 to the debt service fund. The addition to the sinking fund was immediately invested in 6 percent certificates of deposit.
c. On December 28, 2010, the city issued checks to bondholders for the interest payment due on January 1, 2011.
d. On June 27, 2011, the General Fund transferred $234,461 to the debt service fund. The addition for the sinking fund was invested immediately in 6 percent certificates of deposit.
e. Actual interest earned on sinking fund investments at year-end (June 30, 2011) was the same as the amount budgeted [see a(1) and a(3)]. This interest adds to the sinking fund balance.
f. All appropriate closing entries were made at June 30, 2011 for the debt ser vice fund.