Question

McGaha VIllage operates a sanitation department as part of its general government activities. McGaha Village will acquire new sanitation trucks that will be financed through the issuance of general obligation bonds. McGaha Village uses a Capital Projects Fund and a Debt Service Fund to account for the transactions. Make journal entries to record the following transactions and events and indicate the appropriate fund in which the transactions are recorded.

1. April1. McGaha Village issues bonds for their face amount of $300,000

2. April1. McGaha Village acquires sanitation trucks at a total cost of $300,000 for cash. The trucks have an estimated useful life of 10 years.

3. October 1. McGaha Village records the fund liability and pays the first installment of principal ($15,000) and interest ($7,500) on the long term debt.

Answer 1

1. Bond issuance at their face amount

Cash a/c ... Dr $300,000

To Bond payable $300,000

(being bonds issued at face value)

2. Purchase of sanitation trucks

Truck A/c .... Dr $300,000

To Cash $300,000

(Being sanitation truck purchased)

October 1 - Recording fund liability (interest and principal)

Bond payable A/c... Dr $22,500

To Debt Service fund $22,500

(being fund liability recorded)

Payment of principal and interest

Interest expense A/c ...Dr $ 7500

Bond payable A/c ... Dr $ 15,000

To Cash $ 22,500