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Journal Entries for the Louisville City Bus System

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Enterprise funds face unique problems in accounting for restricted assets. Prepare appropriate journal entries for the following transactions that the Louisville City bus system has engaged in:

1. It issued $10,000,000 in 8 percent revenue bonds. It used the proceeds to acquire new buses. The bonds were issued at par.

2. Consistent with a bond covenant, the system set aside 1 percent of the bonds' gross proceeds for repair contingencies. Correspondingly, it designated an equal dollar amount of net assets as restricted to repairs.

3. The bus system accrued nine months' interest ($600,000) at year-end.

4. The bus system incurred $50,000 of repair costs, paying for them with the cash set aside for repair contingencies.

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Solution Summary

This response provides guidelines on preparing journal entries based on transactions enacted by the Louisville City bus system.

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1. It issued $10,000,000 in 8 percent revenue bonds. It used the proceeds to acquire new buses. The bonds were issued at par.

Cash 10,000,000
Bonds Payable 10,000,000

2. ...

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