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Answers:
Requirement #1
# Accounts Debit Credit
Situation A
Requirement #2
Situation A
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
Situation B
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
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Problem 2 – Advance Refunding
The City of Armona has decided to refinance $8,000 par value of general government, general
obligation bonds outstanding. The bonds had a related unamortized bond premium of $200. The
city issues $6,000 of refunding bonds and transfers $2,700 from the General Fund to the Debt
Service Fund. The city paid $8,700 from the Debt Service Fund into an irrevocable trust to cover
future payments on the original bonds. All amounts are in thousands of dollars.
Requirements:
1. Record the above transactions in the Debt Service Fund assuming the refinancing meets
the conditions for treatment as a defeasance in substance.
2. Record the above transactions in the Debt Service Fund assuming the refinancing does
not meet the conditions for treatment as a defeasance in substance.
3. For both requirements (1) and (2), indicate the effects of each transaction on the
accounting equation of the Debt Service Fund and on the General Capital Assets and
General Long-Term Liabilities accounts. If an element is not affected, put “NE” in the
appropriate box.
Answers:
# Accounts Debit Credit
Requirement 1
1 Cash 6,000
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Requirement 3
Refunding
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
Investment (non-Refunding)
Trans
# Assets Liabilities
Fund
Balance GCA GLTL
Net
Position
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Problem 3 – Debt Service Fund Transactions
Listed below are selected transactions from a Loudon County Debt Service Fund (all amounts
are in thousands of dollars).
1. The remaining funds of a Capital Projects Fund, $1,500, were transferred to the Debt
Service Fund to be used in the repayment of debt and interest on that debt that was issued
to finance and expansion of the county courthouse.
2. The county General Fund transferred $8,600 to the Debt Service Fund to provide
financing for principal, interest, and fiscal agent fees for debt service transactions during
the year. $6,000 of the transfer from the General Fund and all of the transfer from the
CPF was invested.
3. The semi-annual payment of interest on bonds issued several years ago by a Capital
Projects Fund came due and was paid. The outstanding principal of these 20-year, 4%
face rate, term bonds is $3,000. The unamortized discount on these bonds is $100. The
bonds were issued 15 years ago on this date. The payment includes fiscal agent fees of
$10.
4. The county has agreed to set up a small water treatment facility for the remote District 7,
now that the local water supply has been polluted by a hog farm upstream. The cost of
the facility, $2,500, is to be financed over 5 years by special assessments on the
homeowners in that district, although the debt is guaranteed by the county. The
assessment principal is paid annually, although the interest (4%) is paid semi-annually.
The first interest payment is due in 6 months, with the first principal payment due in one
year (60 days after year-end).
5. The annual payment of serial bonds issued 10 years ago by the county came due. The
amount owed is $1,250 in principal, $20 interest, and $5 in fiscal agent fees. The amount
due was paid.
6. The county received interest on its investments, $85. In addition, investments that
originally cost $4,000 were sold for $3,975. (See entry #2)
7. Another term bond issued 20 years ago by the county came due and was paid. The face
amount and rate was $3,200 and 3%, respectively, and pays interest semi-annually. The
fiscal agent fees were $60.
8. The semi-annual payment for interest on the outstanding special assessment bonds was
paid when due. Also, $300 has been collected for the principal payment due next year.
9. The regular semi-annual interest payment on the term bonds came due and was paid. (See
entry #3)
10. A serial bond issued in the current year has its first annual payment of principal and
interest due on the third day of the next fiscal year. As is required by the debt covenant
and following the general procedures for all debt issues of the county, $1,200 ($1,000 for
principal, $180 for interest, and $20 for fiscal agent fees) has been transferred from the
General Fund to the Debt Service Fund to make this payment.
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Requirements:
1. Record the above transactions in the Debt Service Fund.
2. Indicate the effects of each transaction on the accounting equation of the Debt Service
Fund and on the General Capital Assets and General Long-Term Liabilities accounts. If
an element is not affected, put “NE” in the appropriate box.
Answers:
Requirement #1
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# Accounts Debit Credit
1 Cash 1,500
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Requirement #2
Trans
# Assets Liabilities
Deferred
Inflows
Fund
Balance GCA GLTL
Net
Position
Governmental and Nonprofit Accounting: Theory and Practice, 10e (Freeman)
Problems – Chapter 9
Problem 1 – Comprehensive Interfund Transactions
9Prepare the general journal entries to properly record each of the following transactions and
events in the appropriate general ledger accounts of the appropriate funds for the year ended
June 30, 2011. The City of Middlesettlements uses a series of each type of nominal account
(e.g., Revenues–Property Taxes, Revenues–Other, Expenditures–Operations, Expenditures–
Capital Outlay, Expenditures–Debt Service–Interest, OFS–Bond Principal, OFU–Transfer to GF,
etc.), except for budgetary entries where no additional detail is required. The General Capital
Assets and General Long-term Liability accounts are updated whenever a relevant transaction
occurs.
ADDITIONAL INFORMATION:
■ The fiscal year for the City is July 1 to June 30.
■ All premiums on bonds payable, net of bond issue costs, are transferred to the DSF that
will be used to service the debt. The amounts transferred are used for future bond interest
payments.
■ When bonds are issued at a discount or bond issue costs are incurred, a special transfer is
made from the GF to the fund issuing the bonds to reimburse it for the discount and issue
costs. This transfer is over and above any previously authorized transfers from the GF to
that fund.
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■ The City uses the consumption method / periodic inventory system to account for
supplies.
The City is constructing a new municipal building. Capital Projects Fund #1 will be used to
account for this construction. The expected cost of and the sources of proportional financing for
the municipal building are:
Bond issue (authorized July 1, 2010, 6%, 30-year serial bonds)...................... $3,000
State grant (expenditure driven)........................................................................ 1,500
Transfer from the General Fund........................................................................ 500
Total sources and cost of building.............................................................. $5,000
All amounts are in thousands of dollars.
Transactions:
1. A computer has been leased for the City for its accounting and payroll operations. The
lease has a fair market value (and a net present value) of $2,000. The lease will be
serviced through the General Fund.
2. A contract for the construction of the new municipal building was accepted by Swann &
Hall (S&H) Construction Company for $4,500. The required transfer from the General
Fund to the Capital Projects Fund was made.
3. $400 in 6-month, 4%, bond anticipation notes (BANs) were issued to finance
expenditures in advance of the bond issue. The BANs are to be repaid from the proceeds
of the previously authorized bond issue—as required by the debt covenant—by CPF #1.
4. The City accounts for its supplies in the General Fund. The City started the year with
$100 in its supply account and purchased $200 in supplies to augment its inventory.
5. The first capital lease payment on the computer, $150 (including $100 in interest), was
paid. (See entry 1)
6. 5 acres of land were purchased for $200 for the new municipal building. This purchase
had not been previously encumbered, but it is included in the budget for the project.
7. The bonds authorized on July 1, 2010, were issued at 102 on October 1, 20X1. Bond
issue costs were $20. The bonds pay interest on March 31 and September 30. Principal
payments occur evenly over the life of the bonds each year (1/30 each September 30).
DSF #1 was established to service this debt. (See entries 3 & 8)
8. The BANs were paid when due. (See entries 3 and 7)
9. The City issued $125 in supplies to its departments.
10. Expenditures totaling $2,500 were made for the construction project. These expenditures
had originally been encumbered for $2,600. The amount was vouchered for payment to
S&H Construction net of a 10% retainage. (See entry 2)
11. Sufficient funds were transferred from the General Fund to the DSF #1 to finance one
year's principal retirement, interest, and fiscal agent fees ($10) for the municipal building
bonds. (See entries 7 and 13)
12. The City issued another $100 in supplies to its departments.
13. DSF #13 made the required March 31 bond payments. (See entries 7 and 11)
14. At year-end an inventory of supplies revealed that $80 were on hand. The appropriate
adjustments were made. (
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Requirement: Prepare the general journal entries for the City of Middlesettlements, using
standard fund-type terminology, identifying the fund or list for which the entry
is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF,
CPF, DSF, GCA, GLTL, OFS, OFU). If no entry is required, write “No Entry
Required” and briefly explain why. Do not include formal entry explanations or
dates, but include any important assumptions made and all calculations. If an
amount is not given in the exam, you must show your work to demonstrate how
you determined the amount.
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Answers:
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