Question

Hatcher Village, which operates on the calendar year, issued a 5-year, 8%, $100,000 note to the Bank of Hatcher on January 5, 20X4. The proceeds of the note were recorded in Capital Projects Fund. Interest and one-tenth (1/10) of the principal are due semiannually, on January 5 and July 5, beginning July 5, 20X4. A DSF has been established to service this debt; financing will come from General Fund transfers and a small debt service tax approved several years ago. The net assets of the fund at year end are not restricted or committed.

a. Prepare the general journal entries (budgetary and actual) needed to record the following transactions and events.

b. Prepare a balance sheet at December 31, 20X4, and a Statement of Revenues, Expenditures, and Changes in Fund Balance for the year then ended for the DSF.

Answer 1

ANSWER:

Journal Entries:-

Date: 5th January

1.) Bank A/c    Dr. $1,00,000

            To 8% Note(Debt)/Capital Project Fund A/c $1,00,000

Date: 5th July

2.) Interest A/c            Dr. $ 4,000 (1,00,000*8%*6/12)

     8% Note(Debt) A/c   Dr. $10,000 (1,00,000*10%)

              To Bank A/c                     $ 14,,000

3.) Statement of Profit & Loss A/c Dr. $4,000

               To interest A/c       $4,000

Date: 31st December

4.) Interest A/c      Dr. $ 3,889 (1,00,000*8%*175/360)

              To Interest Payable A/c      $ 3,889

5.) Statement of Profit & Loss A/c Dr. $ 3,889

               To interest A/c   $ 3,889

Statement of Revenue A/c:-

Interest Expense During the Year = $ 7,889 (4,000+3,889)

Balance Sheet Position:-

8% Note (Debt) = $ 90,000 (1,00,000-10,000)

Interest Payable = $3,889

Bank Balance = $ 86,000 (1,00,000-14,000)