Chapter 18, Problem 18.7E

Debt Service Fund Entries and Statements
The City of Waterman established a debt service fund to account for the financial resources used to service the bonds issued to finance the ramp (see Exercise 18—6). The 10 percent, $150,000 bond issue was sold at 104.0 on January 1, 20X2. It is a 10-year serial bond issue. The resources to pay the interest and annual principal will be from a property tax levy.

Additional Information

1. The operating budget for 20X2 included estimated revenue of $35,000. Budgeted appropriations included $15,000 for principal, $15,000 for interest, and $4,000 for other items. The budget also included an estimated transfer in of $5,000 from the capital projects fund.
2. The property tax levy was for $40,000 and an allowance for uncollectibles of $4,000 was established. Collections totaled $35,000. The remaining taxes were reclassified as delinquent and the allowance was reduced to $1,000. The bond premium was received from the capital projects fund.
3. The current portion of the serial bonds and the interest due this year were recorded and paid. Other expenses charged to the debt service fund totaled $1,700, of which $1,200 was paid.
4. The nominal accounts were closed.

Required

1. Prepare entries for the debt service fund for 20X2.
2. Prepare a balance sheet for the debt service fund of December 31, 20X2.
3. Prepare a statement of revenues, expenditures, and changes in fund balance for the debt service fund for 20X2.

To determine

Debt service funds: Debt service funds are a fund created for the accumulation of resources for the payment of long-term debt and interest. The accounting treatment and financial reporting of this fund are the same as that of general funds. The modified accrual basis of accounting is used to recognize debt service funds, and only the part of long-term debt payable in the current year is recorded as a debt service fund.

The entries for debt service fund for 20X2.

Explanation of Solution

Particulars	Debit $	Credit $
1. Estimated revenues control	35,000
Estimated other financing sources − transfer in	5,000
Appropriations control		34,000
Budgetary fund balance		6,000
(Budgetary appropriation’s and estimations recorded)
2. Property tax revenue	40,000
Allowance for uncollectible		4,000
Revenue − Property tax		36,000
(Tax levy recorded)
Cash	35,000
Property taxes receivable		35,000
(Tax collection recorded)
Property taxes receivable − Delinquent	5,000
Allowance for uncollectible	4,000
Property taxes receivable		5,000
Allowance for uncollectible − Delinquent		1,000
Revenue − Property tax		3,000
(Reverse estimate of uncollectible and reclassify remaining receivables)
Cash	6,000
Other financing sources − transfer in from capital projects fund		6,000
(Received bond premium)
3. Expenditures	30,000
Matured bonds payable		15,000
Matured interest payable		15,000
(Record matured principle and interest)
Matured bonds payable	15,000
Matured interest payable	15,000
Cash		30,000
(Paid matured principles and interest)
Vouchers payable	1,200
Cash		1,200
(Paid approved vouchers)
4. Cash	5,500
Other financing sources − transfer in from capital projects fund		5,500
(Record transfer of unspent funds in capital projects fund to debt service fund)
5. Appropriations control	34,000
Budgetary fund balance	6,000
Estimated revenues control		35,000
Estimated other financing source − transfer in		5,000
(Closure of budgetary accounts)
Revenue − Property tax	39,000
Other financing sources − transfer in from capital project fund	11,500
Fund balance − reserved for debt service		18,800
Expenditures		31,700
(Closure of nominal accounts)

  $\begin{array}{c}\text{Matured bonds payable}=\$150,000\times \frac{1}{10}\\ =\$15,000\end{array}$

  $\begin{array}{c}\text{Matured interest payable}=\$150,000\times 0.10\\ =\$15,000\end{array}$

To determine

Debt service funds: Debt service funds are a fund created for the accumulation of resources for the payment of long-term debt and interest. The accounting treatment and financial reporting of this fund are the same as that of general funds. The modified accrual basis of accounting is used to recognize debt service funds, and only the part of long-term debt payable in the current year is recorded as a debt service fund.

The preparation of balance sheet for the debt service fund as of December 31, 20X2.

Answer to Problem 18.7E

Balance sheet total $19,300

Explanation of Solution

CW

Debt Service Fund Balance Sheet

December 31, 20X2

	$
Assets:
Cash	15,300
Property tax receivables	4,000
Total Assets	19,300
Liabilities:
Vouchers payable	500
Fund balance:
Reserved for debt service	18,800
Total Liabilities and Fund Balance	19,300

To determine

Debt service funds: Debt service funds are a fund created for the accumulation of resources for the payment of long-term debt and interest. The accounting treatment and financial reporting of this fund are the same as that of general funds. The modified accrual basis of accounting is used to recognize debt service funds, and only the part of long-term debt payable in the current year is recorded as a debt service fund.

The preparation of statement of revenues, expenditures and changes in fund balance for the debt service fund for 20X2

Answer to Problem 18.7E

Excess of revenue over expenditure $7,300

Fund balance as per statement of change in fund balance $18,800

Explanation of Solution

CW

Debt Service Fund

Statement of Revenues, Expenditures

And Changes in Fund Balance

December 31, 20X2

	$	$
Revenues:
Property taxed		39,000
Expenditures:
Principal retirement	15,000
Interest	15,000
Miscellaneous	1,700
Total expenditures		31,700
Excess of revenue over expenditures		7,300
Other financing sources (Uses):
Transfers in from capital projects funds		11,500
Net changes in fund balance		18,800
Fund balance January 1, 20X2		0
Fund balance December 31, 20X2		18,800