Question

Prepare entries to record the following transactions related to the acquisition of capital assets by a city.

Remark: The city does not use encumbrance accounting.

              Identify the fund(s) used.

            a.    The city issues general obligation bonds in the amount of $900,000, receiving cash for the full face amount of the bonds. The cash will be used to buy capital assets.

            b.   The city buys a prefabricated building for $750,000, using part of the bond proceeds. The building is delivered and the invoice for the building is approved.

            c.    The invoice approved in b. is paid.

            d.   The General Fund transfers cash of $55,000 to another fund in anticipation of the payment of the first instalment of interest ($30,000) and principal ($25,000) on the debt.

            e.    The first instalment of debt service on bonds issued in a. becomes due and payable.

            f.    Debt service on the bonds issued in a. is paid.

Answer 1

Answer

Journal Entries:

	Particulars	Dr	Cr
A	Cash	900000
	Other financing source – long-term debt issued		900000
B	Expenditures - building	750000
	Vouchers payable		750000
C	Vouchers payable	750000
	Cash		750000
D	Transfer out to Debt Service Fund	55000
	Cash		55000
	Cash	55000
	Transfer in from General Fund		55000
E	Expenditures - bond principal	25000
	Expenditures - interest	30000
	Matured bonds payable		25000
	Matured interest payable		30000
F	Matured bonds payable	25000
	Matured interest payable	30000
	Cash		55000