Question

On July 1, 2019, the first day of its 2020 fiscal year, the Town of Bear Creek issued at par $2,400,000 of 10 percent term bonds to renovate a historic wing of its main administrative building. The bonds mature in five years on July 1, 2024. Interest is payable semiannually on January 1 and July 1. As illustrated in the table below, a sinking fund is to be established with equal semiannual additions made on June 30 and December 31. Cash for the sinking fund additions and the semiannual interest payments will be transferred from the General Fund shortly before the due dates. Investment earnings are added to the investment principal.

Fiscal Year 2020 Period Expected Earnings $ 2021 Hemtion 2022 Required Addition $190,811 190,811 190,811 190,811 190,811 190,811 190,811 190,811 190,811 190,811 9,541 19,558 30,077 41,121 52,718 64,894 77,679 91,104 105,199 Ending Balance 190,811 391,163 601,532 822,419 1,054,351 1, 297,880 1,553,585 1,822,075 2,103,990 2,400,000 2023 2024

Required

1. a-1. Prepare journal entries in the debt service fund for the following: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

a-2. Prepare the closing entries. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

Answer 1

Computation of Net Proceeds :
Cash Received	$                                    1,78,900.00
Less : Recourse Liability	$                                       (3,390.00)
Net Proceeds	$                                     1,75,510.00
Computation of Gain or Loss :
Carrying Value	$                                    2,42,700.00
Net Proceeds	$                                     1,75,510.00
Loss on sale of receivables	$                                       67,190.00
Journal Entry :
Accounts title and explaination	Debit	Credit
Cash	$                                    1,78,900.00
Loss on sale of receivables	$                                       67,190.00
Recourse Liability		$                   3,390.00
Account Receivable		$              2,42,700.00
(To Record loss on sale of receivables in books of pharoah inc.)