Question

Scenario A: Budgeted and Actual Debt Service Transactions

Rainbow City is authorized to issue $10,000,000 4% regular serial bonds in 20x0 for the construction of a new police station. The bonds mature in equal annual amounts beginning on January 1, 20X1, for 10 years and pay interest on January 1 and July 1. The funds to pay the interest will be transferred from the General Fund. The city’s fiscal year is December 31.

Required:

• Prepare the budgetary entries for 20X0 assuming that the bonds were scheduled to be issued on January 2. Assume that the January 1, 20X1 principal and interest payments will be included in the 20X1 budget.
• The bonds were sold on February 1, 20X0 at 101. Prepare the journal entries needed to record issuance of the bonds, including entries required in the Debt Service Fund and any entries required in the government activities general ledger at the government-wide level.
• Prepare the entry required to reflect the transfer of funds from the General Fund to the Debt Service Fund.
• Prepare the journal entries needed to record the first interest payment made on July 1, including the entries required in the Debt Service Fund and any entries required in the Governmental Activities general ledger at the government-wide level. Assume that the straight-line method is used for premium amortization.

Answer 1