Southside City Debt Service Fund: journal entries for transactions

In 1999, the voters of Southside City authorized the construction of a new swimming pool for a total cost of no more that $5 million. The voters also approved the issuance of $5 million of 5% general obligation serial bonds to be repaid by a special property tax. Interest on these bonds is payable annually on June 30. On June 30, 1999, the City sold the bonds at 101 and signed contracts for the construction of the swimming pool. Each June 30, beginning in 2000, $250,000 of the bonds mature. If the property tax is not sufficient to make the necessary principal and interest payments the City is obligated to transfer the necessary monies from the general fund to the debt service fund. The City does not formally incorporate budgetary entries in the debt service fund but it does use encumbrance accounting for control purposes. The City has a June 30 fiscal year end.

REQUIRED: Assuming the City maintains it books and records in a manner that facilitates the preparation of the fund financial statements, prepare journal entries, in the Debt Service Fund, for the following transactions.

(a) The City immediately transferred the premium to the Debt Service Fund. The Debt Service Fund may not use the premium to pay principal or interest until the year 2019.

(b) On June 30, Southside City invests the premium in a 10-year 5% Certificate of Deposit at a local financial institution. The Certificate pays interest annually on June 30. The interest is automatically reinvested in the Certificate.

(c) Property taxes in the amount of $300,000 were collected by June 30, 2000. Another $50,000 is expected to be collected by August 31.

(d) The city transferred, to the debt service fund, the cash necessary to make the June 30, 2000 payments. The checks will be mailed on July 1.

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...vice reserve from the swimming pool construction fund)
$5 million x (101 - 100) = $500,000

b June 30, 1999 Investments $500,000
Cash $500,000
(To record purchase of 1 10-year ...