Question

The City of Mountain View had the following transactions during the year, none of which have been recorded yet. Some of the transactions affect governmental activities.

1. Mountain View issued $6 million worth of serial bonds at 98 plus accrued interest in the amount of $50,000. The premium and accrued interest were recorded in the Debt Service Fund. Accrued interest on bond sold must be used for interest payments.
2. The city's General Fund collected and transferred $650,000 in tax collections to the Debt Service Fund. $450,000 of this amount was used to retire outstanding serial bonds and the remainder was used to make interest payments on outstanding serial bonds.

Prepare in general journal form the necessary entries in the governmental activities and appropriate fund journals for each transaction.

Answer 1

Part 1

1	Capital Projects Fund:	Cash	6000000
		Other Financing Sources—Proceeds of Bonds		6000000
	Debt Service Fund:	Other Financing Uses—Discount on Bonds Payable (6,000,000 X 0.02)	120000
		Revenues		50000
		Cash		70000
	Governmental Activities:	Cash	5930000
		Discount on Bonds Payable	120000
		Bonds Payable		6000000
		Interest payable		50000

Part 2

1	General Fund:	Cash	650000
		Revenues		650000
		Other Financing Uses—Interfund Transfers Out	650000
		Cash		650000
	Debt Service Fund:	Cash	650000
		Other Financing Sources—Interfund Transfer In		650000
		Expenditures - Principal	450000
		Expenditures – Interest	200000
		Cash		650000
	Governmental Activities:	Cash	650000
		General Revenue - Taxes		650000
		Expenses – Interest on Long-Term Debt	200000
		Bonds Payable	450000
		Cash		650000