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City of Houghton and tax-supported term bonds

On July 15, 2005, the city of Houghton issued tax-supported term bonds having a face value of $10,000,000 and maturing in 20 years. The bonds are dated July 15, 2005, and pay interest of 6 percent semiannually on January 15 and July 15 of each year. The bonds were sold at a price of 102 and were intended to finance construction of a new city jail. The premium on the sale of the bonds was recorded directly in the debt service fund and was immediately invested for eventual retirement of the debt.

For the fiscal year ending June 30, 2006, the City Council approved a budget for the newly established Term Bond Debt Service Fund in the amount of $444,500, which includes $432,500 that will be transferred from the General Fund as follows: (1) $300,000 on January 14, 2006 for the January 15, 2006 interest payment due and (2) $132,500 on June 30, 2006 for investment in the debt service fund for the retirement to principal, and $12,000 of estimated revenue for interest on investment of premium.

Required:
Make all journal entries, including the budget entry and closing entry, required in the Term Bond Debt Service Fund for the fiscal year ending June 30, 2006. Investment revenue during the year was $11,800, all of which added to the investment balance.

Solution Preview

(1)
Estimated Revenues 12,000
Estimated Other Financing SourcesPremium on Bonds 200,000
Estimated Other Financing SourcesInterfund Transfer In 432,500
Appropriations 300,000
Fund Balance 344,500
To record budget for year ending June 30, 2006.
(2)
Cash 200,000
Other Financing SourcesPremium on Bonds 200,000
To record premium of 2% on bonds sold.
(3)
Investments 200,000
Cash 200,000
To ...

Solution Summary

Solution provides journal entries for the City of Houghton and their tax-supported term bonds.

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