Chapter 6, Problem 18EP

To determine

Prepare the general journal form to record each transaction that are necessary in the governmental activities and appropriate fund journals.

Explanation of Solution

Government wide financial statements:  This statement provides an aggregated overview of the government net position and their changes in the net position. This statement reports on the government as a whole and assess whether the government has used the resources efficiently and effectively (operational accountability) to meet the operating objectives.

Prepare the general journal form to record each transaction that are necessary in the governmental activities and appropriate fund journals:

Date	Accounts and Explanation	Post ref.	Debit	Credit
1.	General fund:
	Cash		$750,000
	Revenues			$750,000
	(To record the collection of general fund)
	General fund:
	Other financing uses - inter fund Transfer out		$750,000
	Cash			$750,000
	(To record the transfer out of  funds)
	Debt service fund:
	Cash		$750,000
	Other financing sources – inter fund  Transfer in			$750,000
	(To record the transfer – in  of  funds)
	Debt service fund:
	Principal expenditure		$600,000
	Interest expenditure		$150,000
	Cash			$750,000
	(To record the principal and interest expenditure)
	Governmental activities:
	Cash		$750,000
	General revenue –taxes			$750,000
	(To record the collection of taxes)
	Governmental activities:
	Expenses—interest on long–term debt		$150,000
	Bonds payable		$ 600,000
	Cash			$750,000
	(To record the interest and bond payable expense)
2.	Capital project fund:
	Cash		$5,000,000
	Other financing sources – proceeds of  bonds			$5,000,000
	(To record the issuance of serial bonds)
	Debt service fund:
	Cash		$150,000
	Other financing sources – premium on bonds payable (1)			$100,000
	Revenues			$50,000
	(To record the premium and revenue from sale)
	Governmental activities:
	Cash		$5,150,000
	Serial bonds payable			$5,000,000
	Interest payable			$50,000
	Premium on bonds payable			$150,000
	(To record the payables)
3.	Special revenue fund:
	Cash		$110,000
	Revenues			$110,000
	(To record the collection of general fund)
	Special revenue fund:
	Other financing uses - inter fund Transfer out		$110,000
	Cash			$110,000
	(To record the transfer out of  funds)
	Debt service fund:
	Cash		$110,000
	Other financing sources – inter fund  Transfer in			$110,000
	(To record the transfer – in  of  funds)
	Debt service fund:
	Principal expenditure (balancing figure)		$94,191
	Interest expenditure		$15,809
	Cash			$110,000
	(To record the principal and interest expenditure)
	Governmental activities:
	Cash		$110,000
	General government revenues –capital grants and contributions			$110,000
	(To record the revenues of general government)
	Governmental activities:
	Expenses—interest on capital leases		$15,809
	Capital lease obligation payable		$94,191
	Cash			$110,000
	(To record the interest and capital lease expense)
4.	Debt service fund:
	Cash		$3,500,000
	Other financing sources – proceeds of refunding bonds			$3,500,000
	(To record the proceeds of refunding of bonds)
	Debt service fund:
	Other financing uses – payment to refunded bond escrow agent		$3,500,000
	Cash			$3,500,000
	(To record the payment of bonds to escrow agent)
	Governmental activities:
	Cash		$3,500,000
	Serial bonds payable			$3,500,000
	(To record the serial bonds payable)
	Governmental activities:
	Term bonds payable		$3,500,000
	Cash			$3,500,000
	(To record the term bonds payable)
5.	Debt service fund:
	Cash		$500,000
	Other financing sources – proceeds of Special assessment bonds			$500,000
	(To record the proceeds of special assessment bonds)
	Debt service fund:
	Assessments receivable—current		$25,000
	Assessments receivable—unavailable		$475,000
	Revenues			$25,000
	Deferred inflows of resources- Unavailable Revenues			$475,000
	( To record the assessment receivable)
	Governmental activities:
	Cash		$500,000
	Special assessment debt with governmental commitment			$500,000
	(To record the special assessment debt)
	Governmental activities:
	Assessments receivable—current		$25,000
	Assessments receivable—unavailable		$475,000
	General government revenues –capital grants and contributions			$25,000
	Deferred inflows of resources- Unavailable Revenues			$475,000
	( To record the assessment receivables and revenues)
	Governmental activities:
	Interest  expense on special assessment debt		$10,000
	Interest payable (2)			$10,000
	(To record the interest expense on special assessment debt)
6.	Capital project fund:
	Cash		$5,000,000
	Other financing sources – proceeds of  bonds			$5,000,000
	(To record the issuance of  bonds)
	Capital project fund:
	Expenditures		$50,000
	Cash			$50,000
	(To record the bond  issuance costs)
	Governmental activities:
	Cash		$5,000,000
	Bonds payable			$5,000,000
	(To record the issuance of  bonds)
	Governmental activities:
	Bond issuance expenses		$45,000
	Prepaid insurance costs		$5,000
	Bonds payable			$50,000
	(To record the debt issuance expense and prepaid insurance costs)

Table (1)

Working note 1: Compute premium on bonds:

It can be computed by multiplying serial bond payable amount with the rate of premium. The rate of premium is computed by deducting the face value from the selling value. Hence, the rate of premium is 2%$\left(102\%-100\%\right)$. The serial bonds payable amount is $5,000,000.

$\begin{array}{c}\text{Premium on bonds}=\text{Serial bond payable amount}\times \text{Rate of premium}\\ =\$5,000,000\times 2\%\\ =\$100,000\end{array}$

Hence, the premium on bonds amount is $100,000.

Working note 2: Compute the interest expense on special assessment debt:

Given: The rate of interest is 6% and the interest is paid prior to four months. The special assessment bonds are $500,000.

$\begin{array}{c}\begin{array}{l}\text{Interest expense on }\\ \text{special assessment debt}\end{array}\}=\left(\begin{array}{l}\text{Special assessment debt amount}\times \\ \text{Rate of interest}\times \frac{4\text{ months}}{\text{12 months}}\end{array}\right)\\ =\$500,000\times 6\%\times 0.3333\\ =\$30,000\times 0.3333\\ =\$9,999\text{ or \$10,000 (Rounded value)}\end{array}$

Hence, the interest expense on special assessment debt amount is $10,000 for the four months prior to year-end.