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
- 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.
- 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.
- 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.
- The nominal accounts were closed.
Required
- Prepare entries for the debt service fund for 20X2.
- Prepare a
balance sheet for the debt service fund of December 31, 20X2. - Prepare a statement of revenues, expenditures, and changes in fund balance for the debt service fund for 20X2.
a
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) |
b
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 |
c
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 |
Want to see more full solutions like this?
Chapter 18 Solutions
ADV.FIN.ACCT. CONNECT+PROCTORIO PLUS
Additional Business Textbook Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
Fundamentals of Cost Accounting
Horngren's Accounting (11th Edition)
Intermediate Accounting
Introduction To Managerial Accounting
- Scenario and General Fund budgetary journal entries The scenario: Croton City maintains four governmental-type funds: a General Fund, a Library Special Revenue Fund, a Capital Projects Fund, and a Debt Service Fund. Croton City started its calendar year 2019 with the following General Fund balances (all numbers are in thousands of dollars). Debits Credits Cash $1,800 Property taxes receivable 800 Salaries payable $700 Deferred property tax revenues 300 Unassigned fund balance - 1,600 Totals $2,600 $2,600 Croton has adopted the following budgetary and accounting policies: Encumbrance accounting is used only for the acquisition of supplies and for the award of contracts for construction and construction-related activities. Open encumbrances lapse at the end of the year, but are considered in developing the next year's budget. Because final income tax returns are not required to be filed until April 15 of the year following the end of a calendar…arrow_forward6. Franklin County issued $4,300,000, 3 percent serial bonds, paying interest on January 1 and July 1. The bonds were sold on June 1 for 102. The county is required to use all accrued interest and premiums to service the debt. Any additional resources needed to service the debt are to come from the General Fund. The county's fiscal year-end is December 31. Required Prepare in general journal form the budgetary entry the debt service fund would make to account for this serial bond issue. What, if any, adjustment would need to be made to the General Fund budget to account for this serial bond issue? Medium Answer Answer any TWO questions (2x 5 marks = 10 marks) Section B -arrow_forwardthe Shannon Township Debt Service Fund accumulates resources to pay its $2 million general obligation debt. The debt is payable in equal annual installments of principal over 10 years with 5% interest on the unpaid principal. Prepare journal entries to record the following transactions in the Debt Service Fund. 1. The Township levies a special property tax amounting to $500,000 to pay debt service on its long-term general obligation debt. 2. All the property taxes levied for debt service purposes are collected. 3. The Township invests $150,000 in a six-month certificate of deposit. 4. Debt service (interest of $100,000 and principal of $200,000) becomes due to bondholders. 5. The certificate of deposit in c. matures and the Township receives a total of $153,000, which includes $3,000 of interest.arrow_forward
- Instructions:Prepare the journal entries for the capital projects fund and debt service fund. The capital projects fund records encumbrances.(Hint: Create two separate ledgers and clearly label them to keep the debt service journal entries separate from the capital project journal entries.) The Town of Balloons had the following transactions related to construction of a new library: 1/2/2020: A 20-year 4% general obligation bond with a face value of $6,000,000 was issued with a premium of $60,000. 1/2/2020: The premium was transferred to the debt service fund. 3/1/2020: A contract for construction was signed in the amount of $5,400,000 6/15/2020: Cash of $210,000 was transferred from the general fund to the debt service fund 7/1/2020: Interest of $120,000 and principal of $150,000 are paid on the library bonds. 12/1/2020: Received an invoice for construction completed to date in the amount of $4,700,000 12/15/2020: Paid the construction invoice, less 5% retention to assure any…arrow_forwardPrepare journal entries for a local government to record the following transactions, first for fund financial statements and then for government-wide financial statements.a. The government sells $900,000 in bonds at face value to finance construction of a warehouse.b. A $1.1 million contract is signed for construction of the warehouse. The commitment is required, if allowed.c. A $130,000 transfer of unrestricted funds was made for the eventual payment of the debt in (a).d. Equipment for the fire department is received with a cost of $12,000. When it was ordered, an anticipated cost of $11,800 had been recorded.e. Supplies to be used in the schools are bought for $2,000 cash. The consumption method is used.f. A state grant of $90,000 is awarded to supplement police salaries. The money will be paid to reimburse the government after the supplement payments have been made to the police officers.g. Property tax assessments are mailed to citizens of the government. The total assessment is…arrow_forwardPrepare journal entries in general journal format to record the following transactions for the City of Dallas General Fund (subsidiary detail may be omitted) 1. The budget prepared for the fiscal year included total estimated revenues of $4,693,000, appropriations of $4,686,000 and estimated other financing uses of $225,000. 2. Purchase orders in the amount of $451,000 were mailed to vendors. 3. The current year’s tax levy of $4,005,000 was recorded; uncollectible taxes were estimated to be 2% of the tax levy. 4. Collections of delinquent taxes from prior years’ levies totaled $82,700; collections of the current year’s levy totaled $3,524,900. 5. Invoices were received and approved for payment for items ordered in documents recorded as encumbrances in transaction (#2) of this problem. The estimated liability for the related items was $351,200. Actual invoices were $353,500. 6. Revenue other than taxes collected during the year consisted of licenses and permits, $177,600;…arrow_forward
- Journal entries regarding a bond issue and accounting for a premiumArchambault Township authorized a bond issue for a parking garage with an estimated cost of $4,000,000.The garage would be financed through a $2,500,000 bond issue and a $1,500,000 contribution from the General Fund.The General Fund made its contribution, and the bonds were sold for $2,700,000, which included a $200,000 premium over the face amount of the bonds.Prepare journal entries to record (1) the budget for the parking garage, (2) the payment and receipt of the General Fund’s contribution, and (3) the issuance of the bonds, assuming the premium remained in the Capital Projects Fund.arrow_forwardJournal entries for a series of transactionsPrepare journal entries in the General Fund for each of the following events relating to the City of Bar Harbor (all amounts in $1,000s). a. The citizens approve the following budget for the year: ESTIMATED REVENUES $78,924 ESTIMATED OTHER FINANCING SOURCES 2,000 APPROPRIATIONS (77,273) BUDGETARY FUND BALANCE $3,651 General Journal Description Debit Credit ESTIMATED OTHER FINANCING SOURCES APPROPRIATIONS b. The City records the following revenues (on account) and other financing sources (paid in cash) during the year: 1. Revenues-real estate and personal property taxes $68,650 2. Revenues-intergovernmental 12,685 3. Other financing sources-bond proceeds 2,400 Description Debit Credit 1. 2. 3. c. The City issues purchase invoices totaling $78,508…arrow_forwardConstruction and debt transactions can affect more than one fund. During 2021 Luling Township engaged in the following transactions related to modernizing the bridge over the Luling River. The township accounts for long-term construction projects in a capital projects fund.• On July 1 it issued 10-year, 4 percent bonds with a face value of $1 million. The bonds were sold for $1,016,510, an amount that provides an annual yield of 3.8 percent (semiannual rate of 1.9 percent). The city incurred $10,000 in issue costs.• On August 1, it was awarded a state reimbursement grant of $800,000. During the year it incurred allowable costs of $600,000. Of these it paid $500,000 in cash to various contractors. It received $450,000 from the state, expecting to receive, early in 2022, the $150,000 difference between allowable costs incurred and cash received. Moreover, it expects to receive the balance of the grant later in 2022. • It invested the bond proceeds in short-term federal securities. During…arrow_forward
- Journal entries for General Fund financial transactions for Croton City Help me with Journal entry 10, 11,12. please At year-end, the uncollected property taxes were declared delinquent. The existing allowance for uncollectible taxes is reclassified to delinquent. Croton’s director of finance estimated that $500 of the uncollected taxes would be collected in January and February 2020 and $400 would be collected during the rest of 2020. In January 2020, the state advised Croton that the state held $500 in personal income taxes on the city’s behalf and that it would send the taxes to Croton by February 10. It also told Croton that it was likely that, by April 30, Croton would receive an additional $200 of taxes with final returns, but that tax refunds would probably be $300. (Remember that “available” for income taxes is defined as taxes expected to be collected within 120 days after the end of the calendar year.) Police officers who retired at the end of 2019 will be paid $10 for…arrow_forwardFor the fiscal year 20X7 budget, the Town of Purplesburg anticipates the following inflows in its General Fund budget Property taxes, licenses, and fees $7,000,000 Proceeds of borrowings 3,000,000 Transfers from discontinued funds 2,000,000 In the budgetary entry, what amount should the town record for Estimated Revenues? a. $7,000,000 b. $10,000,000 c. $12,000,000 d. $3,000,000arrow_forwardPrepare journal entries for a local government to record the following transactions, first for fund financial statements and then for government-wide financial statements. The government sells $900,000 in bonds at face value to finance construction of a warehouse. A $1.1 million contract is signed for construction of the warehouse. The commitment is required, if allowed. A $130,000 transfer of unrestricted funds was made for the eventual payment of the debt in (a). Equipment for the fire department is received with a cost of $12,000. When it was ordered, an anticipated cost of $11,800 had been recorded. Supplies to be used in the schools are bought for $2,000 cash. The consumption method is used. A state grant of $90,000 is awarded to supplement police salaries. The money will be paid to reimburse the government after the supplement payments have been made to the police officers. Property tax assessments are mailed to citizens of the government. The total assessment is $600,000,…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education