Warren County, Ohio maintains the Scheurer-Smith Trust Fund to report restricted private contributions where the earnings are earmarked to provide education to residents of the Mary Haven Center, a county-run residential treatment center for delinquent youth. Suppose that on January l, 2012, the initial bequest was received from a wealthy citizen, consisting of the following:
Cash............................................................................................$ 25,000
Corporate bonds, $500,000 par value, 5 percent coupon paid semiannually,due on December 31 of each year, 6 percent yield to maturity, at current value... 485,000
The cash was immediately invested in certificates of deposit yielding 3 percent, payable semiannually on July 1 and January 1 of each year. The county board also authorized a transfer of $30,000 to support the education fund during 2012. Education-related expenses in 2012 totaled $55,000, of which $50,000 was paid in cash. Assume that increases in the reported value of the investment represent spendable income.
Required
a. Identify the fund type used to report the Scheurer-Smith Trust Fund.
b. Assume income is received as expected. Prepare the fund's 2012 operating statement and December 31, 2012, balance sheet. Assume the fund accrues interest as earned and uses the effective interest method for the bond investment.