Chapter 6, Problem 19EP

Budgeted and Actual Debt Service Transactions. (LO6-2, LO6-5) The City of Amarillo is authorized to issue $8,000,000, 3 percent regular serial bonds in 2020 for the construction of a new exit off the interstate highway within city limits. The bonds mature in equal annual amounts beginning on January 1, 2021, for 10 years and pay interest on January 1 and July 1. The city is required to use all accrued interest and premiums to service the debt. The funds to pay the interest will be transferred from the General Fund. The county’s fiscal year-end is December 31.

Required

1. a.      Prepare the budgetary entries for 2020 assuming that the bonds were scheduled to be issued on January 2. Assume that the January 1, 2021, principal and interest payments will be included in the 2021 budget.
2. b.      The bonds were sold on February 1, 2020, at 101. Prepare the journal entries needed to record the issuance of the bonds, including the entries required in the debt service fund and any entries required in the governmental activities general ledger at the government-wide level.
3. c.       Prepare the entry required to reflect the transfer of funds from the General Fund to the debt service fund. (You may ignore the entry in the General Fund.)
4. d.      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.
5. e.       What, if any, adjustments would need to be made to the debt service fund or the governmental activities general ledger at the government-wide level during the fiscal year?