Question

The village of Briarcliff operates on a calendar-year basis. Because of cash flow imbalances in the General Fund, the village needs to borrow cash during the year. Also, at various times during the year, the village has idle cash to invest. Prepare journal entries to record the following transactions:

1. 1. The village borrows $1,500,000 on a tax anticipation note (TAN) on February 1, 2020 at an interest rate of 1.2 percent. One-half of the borrowing is payable with interest on July 31, 2020; the other half is payable with interest on January 31, 2021.
2. 2. The village repays $750,000 of the TAN with interest on July 31, 2020.
3. 3. On September 1, 2020, the village invests idle cash of $400,000 in a three-month CD paying 1.5 percent per annum.
4. 4. The investment made on September 1, 2020 (item c, above) matures on November 30, 2020. The village receives the cash, including interest
5. 5. The village prepares financial statements as of December 31, 2020 and accrues the interest payable on the TAN (see item a., above).

Answer 1

The Journal entries are as follows:

1. On 01.02.2020:

a. Bank A/c ......Dr. 1500000

To Tax anticipation note A/c. 1500000

2 on 31.07.2020:

a. Interest A/c ......Dr. 9000

To Interest outstanding A/c. 9000

b. tax anticipation note a/c ..........Dr. 750000

Interest outstanding a/c ..........Dr. 9000

To Bank A/c 759000

3.On 01.09.2020:  

a. 1.5% Cash deposit .....Dr. 400000

To Bank a/c 400000

4. On November 30'2020:

a. Interest accrued and due.............Dr. 1500

To interest income a/c 1500

b. Bank a/c ............Dr. 401500

to interest accrued and due. 1500

to 1.5% Cash deposit a/c 400000

5. on 31.12.2020;

a. Interest a/c ...........Dr. 7500

   To Interest o/s a/c 7500

Note: All values are in US $.