The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds to finance the construction of a courthouse annex. A capital projects fund was established for that purpose. The preclosing trial balance of the courthouse annex capital project fund follows:
Trial Balance - December 31, 2012
Debit Credits
Cash $ 1,265,000
Contract payable $ 550,000
Due from state government 200,000
Encumbrances 750,000
Expenditures - capital 1,485,000
Intergovernmental grant 40,000
OFS: premium on bonds 35,000
OFS: proceeds sale of bonds 2,000,000
Budgetary fund balance - 750,000
Reserve for encumbrances Transfer out 35,000
$ 3,735,000 $ 3,375,000
a. Prepare any closing entries necessary at year-end.
b. Prepare a Statement of Revenues, Expenditures, And Changes in Fund Balance for the courthouse annex capital project fund.
c. Prepare a balance sheet for the Courthouse Annex Capital Project Fund, assuming all unexpected resources are restricted to construction of the courthouse annex.
Click here for the solution: The citizen of Spencer County approved the issuance of $2,000,000 in 6 percent general obligation bonds
Showing posts with label obligation. Show all posts
Showing posts with label obligation. Show all posts
Sunday, September 13, 2015
Sunday, September 6, 2015
On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest rates. In the year that it issued the debt, the city engaged in the following transactions involving the debt service fund.
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.
a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?
Click here for the solution: On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds
Wednesday, July 15, 2015
The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding
The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 12 percent, the interest rates on similar issues have declined to 10.5 percent. The bonds were originally issued for 20 years and have 15 years remaining. The new issue would be for 15 years. There is an 8 percent call premium on the old issue. The underwriting cost on the new $20,000 issue is $570,000, and the underwriting cost on the old issue was $400,000. The company is in a 35 percent bracket, and it will use a 7 percent discount rate (rounded after tax cost of debt) to analyze the refunding decision. Should the old issue be refunded with new debt?
Click here for the solution: The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding
Click here for the solution: The Bowman Corporation has a $20 million bond obligation outstanding, which it is considering refunding
Subscribe to:
Posts (Atom)