(a) What journal entries should the county make in July 2018 to record the in-substance defeasance of the 1998 debt in its debt service fund? (b) What debt should be reported in the county’s government-wide financial statements at July 2018? (c) What journal entry should be made in the county’s debt service fund in December 2018 to record the purchase of the old debt at the call date? (d) How should the “loss” on the refunding be recognized in the government-wide financial statements? Why did the GASB choose this method of recognition?
Raygun County had outstanding $35 million in Series 1998 general obligation bonds on June 30, 2018. The bonds were issued at an interest rate of 10 percent with interest payable on June 30 and December 31. In July 2018, interest rates declined substantially, and the county issued refunding bonds in the amount of $35 million at 5 percent. The proceeds of the refunding bonds were placed in escrow along with $2,800,000 held in the county’s debt service fund as a sinking fund for the 1998 debt. The proceeds of the refunding bonds and the sinking fund amount would be used in December 2018 (the call date) to purchase the 1998 debt at a 3 percent call premium, totaling $1,050,000, plus accrued interest of $1,750,000. The County had $250,000 of unamortized debt issue costs on the 1998 bonds, which it reported in its government-wide financial statements. This amount combined with the call premium resulted in a $3,050,000 “loss” on the refunding.
(a) What journal entries should the county make in July 2018 to record the in-substance defeasance of the 1998 debt in its debt service fund?
(b) What debt should be reported in the county’s government-wide financial statements at July 2018?
(c) What
(d) How should the “loss” on the refunding be recognized in the government-wide financial statements? Why did the GASB choose this method of recognition?
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