Homework answers / question archive / 6-17

6-17

Accounting

Share With

---

6-17.                                     VILLAGE OF CENTERVILLE

17Long-term Liability Transactions. Following are a number of unrelated transactions for the Village of Centerville, some of which affect governmental activities at the government-wide level. None of the transactions has been recorded yet.

1. 1. The General Fund collected and transferred $750,000 in tax collections to the debt service fund; $600,000 of this amount was used to retire outstanding serial bonds and the remainder was used to make the interest payment on the outstanding serial bonds.

                                                                                                                                                                                            

2. A $5,000,000 issue of serial bonds to finance a capital project was sold at 102 plus accrued interest in the amount of $50,000. The accrued interest and the premium were recorded in the debt service fund. Accrued interest on bonds sold must be used for interest payments; the premium is designated by state law for eventual payment of bond principal.

 

 

Ch. 6, Solutions, 6-17 (Cont'd)

3. The debt service fund made a $110,000 capital lease payment, of which $15,809 was interest. Funds used to make the lease payment came from a capital grant received by the special revenue fund.

                                                                                                                                                                               

 

1. 4. Tax-supported serial bonds with a $2,800,000 par value were issued in cash to permit partial refunding of a $3,500,000 par value issue of term bonds. The difference was settled with $700,000 that had been accumulated in prior years in a debt service fund.. Assume that the term bonds had been issued several years earlier at par.

 

5. Four months prior to year-end, 6 percent special assessment bonds totaling $500,000 were issued to fund a streetlight improvement project in a local subdivision. The bonds are secondarily backed by the village. The first $25,000 installment will be due from property owners six months after the initial bond issuance, but no debt payments are due in the first year.

 

6. Marketable equity securities held by the debt service fund increased in value by $10,000 during the year

 

 

 

 

6–18Budgeted and Actual Debt Service Transactions. The City of Amarillo is authorized to issue $8,000,000, 3 percent regular serial bonds in 2017 for the construction of a new exit off the interstate highway within city limits. The bonds mature in equal annual amounts beginning on January 1, 2018, for 10 years and pay interest on January 1 and July 1. The city is required to use all accrued interest and premiums to service the debt. The funds to pay the interest will be transferred from the General Fund. The county's fiscal year-end is December 31.

1. Prepare the budgetary entries for 2017 assuming that the bonds were scheduled to be issued on January 2. Assume that the January 1, 2018, principal and interest payments will be included in the 2018 budget.                       
2. The bonds were sold on February 1, 2017, at 101. Prepare the journal entries needed to record the issuance of the bonds, including the entries required in the debt service fund and any entries required in the governmental activities general ledger at the government-wide level.

 

3. Prepare the entry required to reflect the transfer of funds from the General Fund in the debt service fund. (You may ignore the entry in the General Fund.)

d. Prepare the journal entries needed to record first interest payment made on July 1, including the entries required in the debt service fund and any entries required in the governmental activities general ledger at the government-wide level. Assume that the straight-line method is used for premium amortization

 

5. What, if any, adjustments would need to be made to the debt service fund or the governmental activities general ledger at the government-wide level during the fiscal year?

6–19Capital Lease. In early 2017, McCormick County agreed to acquire a new recreation equipment storage facility under a capital lease agreement. At the inception of the lease, a payment of $750,000 will be made; four additional annual lease payments, each in the amount of $750,000, are to be made at the end of each year, beginning in late 2017. The total amount to be paid under this lease is $3,750,000. The county could borrow this amount for four years at an annual interest rate of 6 percent. Therefore, the present value of the lease at inception, including the initial payment, is $3,348,829. Assume that the fair value of the building at the inception of the lease is $3,600,000.

1. Was this lease properly classified as a capital lease? Explain.

1. Show the entries required to record the inception of the lease in the capital projects fund, the debt service fund, and the governmental activities journ                                                                            Debits                    Credits

 

C. Show the entries required to record the payment at the end of the first year of the lease in both the debt service fund and governmental activities journal.

 

 

d.            Which financial statement(s) prepared at the end of the first year would show both the asset and the liability related to this capital lease? At what amount would the liability be reported?

 

6–20Legal Debt Margin and Direct and Overlapping Debt. In preparation for a proposed bond sale, the city manager of the City of Appleton requested that you prepare a statement of legal debt margin and a schedule of direct and overlapping debt for the city as of December 31, 2016. You ascertain that the following bond issues are outstanding on that date:

Convention center bonds                        $3,600,000

Electric utility bonds                                  2,700,000

General obligation serial bonds              3,100,000

Tax increment bonds                                 2,500,000

Water utility bonds                                    1,900,000

Transit authority bonds                             2,000,000

You obtain other information that includes the following items:

1. 1. Assessed valuation of real and taxable personal property in the city totaled $240,000,000.
   2. The rate of debt limitation applicable to the City of Appleton was 6 percent of total real and taxable personal property valuation.
   3. Electric utility, water utility, and transit authority bonds were all serviced by enterprise revenues. By law, such self-supporting debt is not subject to debt limitation.
   4. The convention center bonds and tax increment bonds are subject to debt limitation.
   5. The amount of assets segregated for debt retirement at December 31, 2016, is $1,800,000.
   6. The city's residents are also taxed by Clyde County for 25 percent of school district and health services debt. The school district has $15,000,000 in outstanding bonds, while health services has $8,000,000 in debt. Finally, one-third of the $2,400,000 of regional library outstanding debt is paid by taxes assessed on Appleton residents.

 

6–22Serial Bond Debt Service Fund Journal Entries and Financial Statements. As of December 31, 2016, Sandy Beach had $9,500,000 in 4.5 percent serial bonds outstanding. Cash of $509,000 is the debt service fund's only asset as of December 31, 2016, and there are no liabilities. The serial bonds pay interest semiannually on January 1 and July 1, with $500,000 in bonds being retired on each interest payment date. Resources for payment of interest are transferred from the General Fund, and the debt service fund levies property taxes in an amount sufficient to cover principal payments.

Required

1. Prepare debt service fund and government-wide entries in general journal form to reflect, as necessary, the following information and transactions for FY 2017.

1. The operating budget for FY 2017 consists of estimated revenues of $1,020,000 and estimated other financing sources equal to the amount of interest to be paid in FY 2017. Appropriations must be provided for interest payments and bond redemptions on January 1 and July 1.

 

2.Cash was received from the General Fund and checks were written and mailed for the January 1 principal and interest payments.

 

3,Property taxes in the amount of $1,020,000 were levied (no estimate for uncollectible accounts has been made).

 

 

4.Property taxes in the amount of $1,019,000 were collected.

 

 

5Cash was received from the General Fund and checks were written and mailed for the July 1 principal and interest payments.

6. Adjusting entries were made and uncollected taxes receivable were reclassified as delinquent. At the fund level, entries were also made to close budgetary and operating statement accounts. (Ignore closing entries in the government activities journal.)