AFA 615 Midterm Reviewer

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Toronto Metropolitan University *

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615

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Accounting

Date

Jun 21, 2024

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Serial Bond Debt Service Fund Journal Entries and Financial Statements. As of December 31, 2016, Sandy Beach had $9,500,000 in 4.5 percent serial bonds outstanding. Cash of $509,000 is the debt service fund’s only asset as of December 31, 2016, and there are no liabilities. The serial bonds pay interest semiannually on January 1 and July 1, with $500,000 in bonds being retired on each interest payment date. Resources for payment of interest are transferred from the General Fund, and the debt service fund levies property taxes in an amount sufficient to cover principal payments. Required: a. Prepare debt service fund and government-wide entries in general journal form to reflect, as necessary, the following information and transactions for FY 2017. (1) The operating budget for FY 2017 consists of estimated revenues of $1,020,000 and estimated other financing sources equal to the amount of interest to be paid in FY 2017. Appropriations must be provided for interest payments and bond redemptions on January 1 and July 1. Serial Bond Debt Service Fund: Estimated Revenues $1,020,000 Estimated Other Financing Sources $416,250* Appropriations $1,426,250 * Budgetary Fund Balance $20,000 Interfund transfers in for interest = 9,500,000*0.045/2+9000000*0.045/2 Payments on Jan 1 and July 1 = $500,000 + $500,000+ 9,500,000*0.045/2+9000000*0.045/2 Governmental Activities: No entry (2) Cash was received from the General Fund and checks were written and mailed for the January 1 principal and interest payments. Serial Bond Debt Service Fund: Cash 213,750 Other Financing Sources – Interfund Transfers In 213,750 Expenditures – Bond Interest 213,750 Expenditures – Bond Principal 500,000 Cash 713,750 Governmental Activities: Bonds Payable 500,000

Expenses-Interest on Long-term debt 213,750 Cash 713,750 (3) Property taxes in the amount of $1,020,000 were levied (no estimate for uncollectible accounts has been made). Serial Bond Debt Service Fund: Taxes Receivable – Current $1,020,000 Revenues $1,020,000 Governmental Activities: Taxes Receivable – Current $1,020,000 General Revenues – Property Taxes $1,020,000 (4) Property taxes in the amount of $1,019,000 were collected. Serial Bond Debt Service Fund and Governmental Activities: Cash $1,019,000 Taxes Receivable – Current $1,019,000 (5) Cash was received from the General Fund and checks were written and mailed for the July 1 principal and interest payments. Serial Bond Debt Service Fund : Cash $ 202,500 Other Financing Sources – Interfund Transfers In $202,500 *9000000*0.045/2 = $202,500 Expenditures – Bond Principal $500,000 Expenditures – Bond Interest $202,5000 Cash $702,500 Governmental Activities Bonds Payable $500,000 Expenses – Interest on Long-term debt $202,500 Cash $702,500 (6) Adjusting entries were made and uncollected taxes receivable were reclassified as delinquent. At the fund level, entries were also made to close budgetary and operating statement accounts. (Ignore closing entries in the government activities journal.) Serial Bond Debt Service Fund Taxes Receivable – Delinquent 1000 Taxes Receivable – Current 1000

Appropriations $1,426,250 * Budgetary Fund Balance $20,000 Estimated Revenues $1,020,000 Estimated Other Financing Sources $416,250* Revenues $1020000 Other Financing Sources – Interfund Transfer In 416250 Expenditures – Bond Interest 416250 Expenditure – Bond Principal 1000000 Fund Balance – Restricted 20000 Governmental Activities: Expenses – Interest on Long term debt 191,250 Interest Payable 191,250 b. Prepare a statement of revenues, expenditures, and changes in fund balances for the debt service fund for the year ended December 31, 2017. Sandy Beach Debt Service Fund Statement of Revenues, Expenditures and Changes in Fund Balance For the year ended December 31, 2017 Revenues: Property Taxes $1,020,000 Expenditures Bond Interest 416,250 Bond Principal 1,000,000 Total Expenditures 1,416,250 Excess of Revenues Over (under) Expenditures 396,250 Other Financing Sources (Uses): Interfund Transfers In 416,250 Increase in Fund Balance 20,000 Fund Balance, January 1, 2017 509,000 Fund Balance, December 31 2017 529,000 c. Prepare a balance sheet for the debt service fund as of December 31, 2017.

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Sandy Beach Debt Service Fund Balance Sheet December 31,2017 Assets Cash 528,000 Taxes Receivable - Delinquent 1000 Total Assets $ 529,000 Fund Balances: Fund Balance – Restricted for Debt Service $ 529,000 Term Bond Debt Service Fund Transactions . On July 1, 2016, the first day of its 2017 fiscal year, the City of Nevin issued at par $2,000,000 of 6 percent term bonds to construct a new city office building. The bonds mature in five years on July 1, 2021. Interest is payable semiannually on January 1 and July 1. A sinking fund is to be established with equal semiannual additions made on June 30 and December 31, with the first addition to be made on December 31, 2016. Cash for the sinking fund additions and the semiannual interest payments will be transferred from the General Fund shortly before the due dates. City officials assume a yield on sinking fund investments of 6 percent per annum, compounded semiannually. Investment earnings are added to the investment principal. Required a. Prepare a schedule in good form showing the required additions to the sinking fund, the expected semiannual earnings, and the end-of-period balance in the sinking fund for each of the 10 semiannual periods. ( Note: The future amount of an ordinary annuity of $1 for 10 periods at 3 percent per period is $11.4638793.) b. Create a term bond debt service fund and prepare journal entries in the debt service fund for the following: (1) Record a budget for the fiscal year ended June 30, 2017. Include an accrual for all interfund transfers to be received from the General Fund during the year. An appropriation should be provided only for the interest payment due on January 1, 2017. Debt Service Fund: Estimated Revenues 5234 Estimated Other Financing Sources – Interfund Transfers In 468922 *

Appropriations 60000 Budgetary fund Balance 414156 Governmental Activities: No Entry (2) On December 28, 2016, the General Fund transferred $234,461 to the debt service fund. The addition to the sinking fund was immediately invested in 6 percent certificates of deposit. Debt Service Fund: Cash 234, 461 Other Financing Sources- Interfund Transfers In 234,461 Investments 174 461 Cash 174 461 Governmental Activities: Investments 174 461 Cash 174 461 (3) On December 28, 2016, the city issued checks to bondholders for the interest payment due on January 1, 2017. Debt Service Fund: Expenditures – Bond Interest 60000 Cash 60000 Government Activities: Expenses – Interest on Long term debt 60000 Cash 60000 (4) On June 27, 2017, the General Fund transferred $234,461 to the debt service fund. The addition for the sinking fund was invested immediately in 6 percent certificates of deposit. Debt Service Fund: Cash 234, 461 Other Financing Sources- Interfund Transfers In 234,461 Investments 174 461 Cash 174 461 Governmental Activities: Investments 174 461 Cash 174 461 (5) Actual interest earned on sinking fund investments at year-end (June 30, 2017) was the same as the amount budgeted (see a ). This interest adds to the sinking fund balance. Debt Service Fund: Investments 5234 Revenues -Investment Earnings 5234 Governmental Activities: Investments 5234 General Revenues – Investment Earnings – Restricted for Debt Service 5234

(6) All appropriate closing entries were made at June 30, 2017, for the debt service fund. Appropriations 60000 Budgetary fund Balance 414156 Estimated Revenues 5234 Estimated Other Financing Sources 468922 * Other Financing Sources – Interfund Transfers In 468922 Revenues 5234 Expenditures 60000 Fund Balance- Restricted 414156

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