Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–20
Chapter 6, Exercise 6-19 (Cont’d)
Debits Credits
8. Capital Projects Fund:
CASH 150,000
NOTES PAYABLE 150,000
9. Capital Projects Fund:
CASH 500,000
OTHER FINANCING SOURCES—PROCEEDS
OF BOND ANTICIPATION NOTES 500,000
Governmental Activities:
CASH 500,000
BOND ANTICIPATION NOTES PAYABLE 500,000
6-20. Debits Credits
a. Debt Service Fund:
ESTIMATED OTHER FINANCING SOURCES—
TRANSFER IN 120,000
APPROPRIATIONS ($8,000,000 × .03 × ½) 120,000
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–21
Ch. 6, Solutions, Exercise 6-20 (Cont’d)
Debits Credits
b. Debt Service Fund:
CASH 100,000
OTHER FINANCING SOURCES—PREMIUM
ON BONDS ($8,000,000 × .01) 80,000
REVENUES ($8,000,000 x .03 x 1/12) 20,000
Governmental Activities:
c. Calculation of Interfund Transfer to Debt Service Fund:
Amount of appropriation required for the interest
payment due on July 1 $120,000
Less: Premium (80,000)
Accrued interest on bonds (Jan 1-Feb1) (20,000)
$ 20,000
Debt Service Fund:
d. Debt Service Fund:
EXPENDITURES—BOND INTEREST 120,000
CASH 120,000
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
Ch. 6, Solutions, Exercise 6-20, d. (Cont’d)
Debits Credits
Governmental Activities:
ACCRUED INTEREST PAYABLE 20,000
PREMIUM ON BONDS PAYABLE
($80,000/20 interest periods) 4,000
INTEREST EXPENSE 96,000
CASH 120,000
f. Since the first principal and a semiannual interest payment are due to be paid on
January 1, the City of Amarillo may budget for the payments in its 2023 budget to
ensure that the funds are available on January 1, 2024. In part a, this would require
General Problem Information: Budgeted and actual debt service transactions
Learning Objective: 6-2
Learning Objective: 6-5
Topic: Various chapter topics
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–23
6-21. a. KENDALL COUNTY
Debits Credits
General Fund:
EXPENDITURES 437,020
Debt Service Fund:
EXPENDITURES—PRINCIPAL OF LEASE
OBLIGATION 150,000
CASH 150,000
Governmental Activities:
Note: The asset is recorded at the lesser of the present value of the lease obligation
or the fair value of the computer equipment, $437,020.
b. Debt Service Fund:
EXPENDITURES⎯INTEREST ON LEASE
Governmental Activities:
EXPENSES—INTEREST ON LEASES 8,611
LEASE OBLIGATIONS PAYABLE 141,389
CASH 150,000
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–24
Ch. 6, Solutions, Exercise 6-21, b. (Cont’d)
Calculation:
Interest Payment
Unpaid
Payment Amount of on Unpaid on
Lease
Number Payment Balance at 3% Principal
Obligation
$437,020
c. The asset and long-term liability would be reflected only on the government-wide
statement of net position. At the end of the first year, the liability would be reported
in the amount of $287,020.
General Problem Information: Lease accounting
Learning Objective: 6-5
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–25
6-22. CITY OF APPLETON
STATEMENT OF LEGAL DEBT MARGIN
DECEMBER 31
ASSESSED VALUE OF PROPERTY $240,000,000
RATE OF DEBT LIMITATION 6%
AMOUNT OF DEBT LIMITATION 14,400,000
OUTSTANDING LONG–TERM INDEBTEDNESS
SUBJECT TO DEBT LIMIT:
CONVENTION CENTER BONDS $ 3,600,000
LESS DEDUCTIONS:
AMOUNT ACCUMULATED FOR DEBT
RETIREMENT 1,800,000
NET DEBT SUBJECT TO LIMITATION 7,400,000
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
Ch. 6, Solutions, Exercise 6-22 (Cont’d)
CITY OF APPLETON
SCHEDULE OF DIRECT AND OVERLAPPING DEBT
DECEMBER 31
Governmental Unit
General
Obligation
Bonds
Estimated
Percentage
Applicable
Estimated
Share of
Overlapping
Debt
Clyde County School District
$ 15,000,000
25%
$ 3,750,000
Clyde County Health Services
8,000,000
25%
2,000,000
Regional Library
2,400,000
33.33%
800,000
Subtotal, Overlapping Debt
6,550,000
City Direct Debt
$ 9,200,000
$ 9,200,000
Total Direct and Overlapping Debt
$ 15,750,000
Note: The city also has $6,600,000 ($2,700,000 + $1,900,000 + $2,000,000) of self-supporting
revenue bonds outstanding, which are backed by the full faith and credit of the city, should
enterprise revenues be insufficient to make debt service payments.
General Problem Information: Legal debt margin, direct and overlapping debt
Learning Objective: 6-2
Topic: General Long-Term Liabilities
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
6–27
6-23. GRANT COUNTY
Debits Credits
a. Debt Service Fund:
ESTIMATED OTHER FINANCING SOURCES 7,125,000
ESTIMATED REVENUES 1,607,500
b. $207,500
c. No. The only interest and principal expenditures recorded relate to bonds. If
lease payments had been made, interest and principal expenditures would be
recorded related to the lease.
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–28
Ch. 6, Solutions, Exercise 6-23 (Cont’d)
e.
GRANT COUNTY
DEBT SERVICE FUND
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30
REVENUES:
SALES TAXES $1,582,000
INVESTMENT EARNINGS 11,500
BOND PRINCIPAL 1,000,000
TOTAL EXPENDITURES 1,525,000
EXCESS OF REVENUES UNDER EXPENDITURES 68,500
OTHER FINANCING SOURCES (USES):
INTERFUND TRANSFERS IN 145,000
PROCEEDS OF REFUNDING BONDS 7,000,000
PAYMENT TO ESCROW AGENT (7,000,000)
General Problem Information: Debt Service Fund Trial balance
Learning Objective: 6-5
Topic: Various sections from chapter
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–29
6-24. a. SANDY BEACH
Debits Credits
1. Serial Bond Debt Service Fund:
ESTIMATED OTHER FINANCING SOURCES 277,500
ESTIMATED REVENUE 1,020,000
Governmental Activities:
No entries required
2. Serial Bond Debt Service Fund:
CASH 142,500
OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN 142,500
Governmental Activities:
INTEREST PAYABLE 142,500
BONDS PAYABLE 500,000
CASH 642,500
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–30
Ch. 6, Solutions, Exercise 6-24 (Cont’d)
Debits Credits
3. Serial Bond Debt Service Fund:
TAXES RECEIVABLE—CURRENT 1,020,000
REVENUES 1,020,000
Governmental Activities:
TAXES RECEIVABLE—CURRENT 1,020,000
GENERAL REVENUES—PROPERTY TAXES 1,020,000
4. Serial Bond Debt Service Fund & Governmental Activities:
5. Serial Bond Debt Service Fund:
CASH 135,000
OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN 135,000
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–31
Ch. 6, Solutions, Exercise 6-24 (Cont’d)
Debits Credits
6. Serial Bond Debt Service Fund:
BUDGETARY FUND BALANCE 20,000
APPROPRIATIONS 1,277,500
ESTIMATED OTHER FINANCING SOURCES 277,500
ESTIMATED REVENUE 1,020,000
UNAVAILABLE REVENUES 1,000
OTHER FINANCING SOURCES—INTERFUND
TRANSFERS IN 277,500
REVENUES 1,019,000
EXPENDITURES—BOND INTEREST 277,500
EXPENDITURES—BOND PRINCIPAL 1,000,000
FUND BALANCE—RESTRICTED 19,000
Governmental Activities:
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–32
Ch. 6, Solutions, Exercise 6-24 (Cont’d)
b.
SANDY BEACH
DEBT SERVICE FUND
STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCE
FOR THE YEAR ENDED DECEMBER 31, 2023
REVENUES:
PROPERTY TAXES $1,019,000
TOTAL EXPENDITURES 1,277,500
EXCESS OF EXPENDITURES OVER REVENUES 258,500
OTHER FINANCING SOURCES (USES):
INTERFUND TRANSFERS IN 277,500
c. SANDY BEACH
DEBT SERVICE FUND
BALANCE SHEET
DECEMBER 31, 2023
ASSETS:
CASH $ 528,000
TAXES RECEIVABLE—DELINQUENT 1,000
TOTAL ASSETS $ 529,000
DEFERRED INFLOWS OF RESOURCES:
UNAVAILABLE REVENUES 1,000
FUND BALANCES:
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–33
Ch. 6, Solutions, Exercise 6-24 (Cont’d)
General Problem Information: Serial bond debt service fund transactions and
statements
Learning Objective: 6-2
Learning Objective: 6-5
6-25. TOWN OF BEAR CREEK DEBT SERVICE FUND
Debits Credits
a. ESTIMATED OTHER FINANCING SOURCES 422,328
ESTIMATED REVENUES 1,912
APPROPRIATIONS 20,000
BUDGETARY FUND BALANCE 404,240
(Estimated Other Financing Sources consists of two times the sinking fund additions
($191,164) and the transfer in of two interest payments ($40,000); one interest
payment is required in FY2023 and the other will take place just after year-end and is
noted as being funded prior to the due date.)
b. CASH 211,164
INVESTMENTS 191,164
CASH 191,164
c. EXPENDITURES—INTEREST 20,000
CASH 20,000
d. CASH 211,164
e. INVESTMENTS 1,912
REVENUES—INVESTMENT EARNINGS 1,912
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–34
Ch. 6, Solutions, Exercise 6-25 (Cont’d) Debits Credits
f. APPROPRIATIONS 20,000
BUDGETARY FUND BALANCE 404,240
ESTIMATED OTHER FINANCING SOURCES 422,328
ESTIMATED REVENUES 1,912
OTHER FINANCING SOUCES—INTERFUND
TRANSFERS IN 422,328
General Problem Information: Term bond debt service fund transactions
Learning Objective: 6-5
Topic: Debt Service Accounting for Term Bonds
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Hard
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–35
6-26. JOURNAL ENTRIES
DEBT SERVICE FUND
CAPITAL PROJECTS FUND
GOVERNMENTAL ACTIVITIES
(a)
Est. Revenues
350,000
(a)
NO ENTRY
(a)
NO ENTRY
Appropriations
62,500
Budgetary Fund
Balance
287,500
(b)
NO ENTRY
(b)
Cash
(b)
(c)
NO ENTRY
(c)
Constr. Expenditures
200,000
(c)
CWIP**
200,000
Cash
200,000
Cash
200,000
(d)
NO ENTRY
(d)
Encumbrances
4,500,000
(d)
NO ENTRY
Encumbrances OS+
4,500,000
(e)
Cash
50,000
(e)
Cash
(e)
Cash
on Bonds
of Bonds
Payable
50,000
Bonds Payable
Est. OFS—Premium
on Bonds
Budgetary Fund
50,000
(f)
NO ENTRY
(f)
Constr. Expenditures
50,000
(f)
CWIP
50,000
Cash
50,000
Cash
50,000
(g)
Expenditures—
Interest
62,500
(g)
NO ENTRY
(g)
Premium on Bonds
Payable (50,000/40)
1,250
Cash
62,500
Expenses—Interest
61,250
Cash
62,500
Note: *OFS = Other Financing Sources. ** CWIP = Construction Work in Progress. + OS = Outstanding
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–36
Ch. 6, Solutions, Exercise 6-26 (Cont’d)
DEBT SERVICE FUND
CAPITAL PROJECTS FUND
GOVERNMENTAL ACTIVITIES
(h)
Cash
350,000
(h)
NO ENTRY
(h)
Cash
350,000
Revenues
350,000
Gen. Rev.— Taxes
350,000
(i)
NO ENTRY
(i)
Encumbrances OS
2,500,000
(i)
CWIP
2,500,000
Constr. Expenditures
2,500,000
Contracts Payable
2,500,000
Encumbrances
2,500,000
Contracts Payable
2,500,000
(j)
NO ENTRY
(j)
Contracts Payable
2,500,000
(j)
Contracts Payable
2,500,000
CP—Retained %
Cash
2,375,000
Cash
2,375,000
(k)
NO ENTRY
(k)
Cash
(k)
Cash
Grant/Contrib.
(l)
Appropriations
62,500
(l)
Revenues
1,500,000
(l)
NOT REQUIRED
FOR PROBLEM
Budgetary Fund
Balance
Transfers In
Fund Balance—
Restricted
OFS—Interfund
Revenues
350,000
Fund Balance—
Assigned
1,000,000
OFS—Premium
on Bonds
50,000
Expenditures—
62,500
Fund Balance—
Restricted
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
6–37
Ch. 6, Solutions, Exercise 6-26 (Cont’d)
DEBT SERVICE FUND
CAPITAL PROJECTS FUND
GOVERNMENTAL ACTIVITIES
(m)
Est. Revenues
300,000
(m)
NO ENTRY
(m)
NO ENTRY
Budgetary Fund
Balance
68,750
Appropriations&
368,750
(o)
NO ENTRY
(o)
Encumbrances OS
2,000,000
(o)
CWIP
2,000,000
Constr. Expenditures
2,000,000
Contracts Payable
2,000,000
Contracts Payable
2,000,000
(p)
NO ENTRY
(p)
Constr. Expenditures
130,000
(p)
CWIP***
130,000
Cash
130,000
Cash
130,000
(q)
NO ENTRY
(q)
Contacts Payable
2,000,000
(q)
Contacts Payable
2,000,000
CP—Retained %
125,000
CP—Retained %
125,000
Cash
2,125,000
Cash
2,125,000
Cash
312,500
Bonds Payable
250,000
Cash
312,500
&The appropriation includes a principal payment of $250,000, a semi-annual interest payment of $62,500 ($2,500,000 × .05 × 1/2) and a semi-annual interest payment of $56,250
([$2,500,000 − 250,000] × .05 × 1/2).
Chapter 06 – Accounting for General Long–term Liabilities and Debt Service
Ch. 6, Solutions, Exercise 6-26 (Cont’d)
DEBT SERVICE FUND
CAPITAL PROJECTS FUND
GOVERNMENTAL ACTIVITIES
(s)
Cash
120,000
(s)
Fund Balance—
Restricted
1,250,000
(s)
Buildings
4,750,000
OFS—Interfund
Transfers In
120,000
Fund Balance—
Assigned
880,000
Improvements Other
than Buildings
130,000
Construction
Est. OFS—Interfund
Transfers In
120,000
Budgetary Fund
Balance
120,000
Transfers Out
CWIP
4,880,000
Fund Balance—
Assigned
120,000
OFU—Interfund
Transfers Out
120,000
Note: The resources provided to the Capital Projects Fund include restricted and assigned amounts. The bond proceeds and grant funds are restricted, while the interfund transfer was
assigned for the historical renovation. It is assumed restricted funds are spent first, when available, explaining why restricted fund balance was used first.
General Problem Information: Comprehensive capital assets/serial bond problem
Learning Objective: 6-2
Learning Objective: 6-5
Topic: Debt Service Funds