Question

Lincoln School District transferred U.S. Treasury bonds from investments held in its debt service fund to the Lincoln County Investment Pool. At the date of the transfer, the bonds had a fair market value of $1,040,000, but the carrying value in the School District's debt service fund was $1,000,000. The debt service fund of the School District would record the transfer of these securities to the investment pool with a:

A) Debit to Equity in Pooled Investments for $1,000,000.
B) Credit to Investments—U.S. Treasury Bonds for 1,040,000.
C) Credit to Revenues—Change in Fair Value of Investments for $40,000.
D) Credit to Investments—U.S. Treasury Bonds for $40,000.

Answer 1

The correct accounting entry for the transfer of U.S. Treasury bonds by the Lincoln School District to the Lincoln County Investment Pool is a debit to Equity in Pooled Investments and a credit to Investments—U.S. Treasury Bonds for the bonds' carrying value, which is $1,000,000.

Step-by-step explanation:

The question is related to the concept of accounting and financial reporting in the public sector, specifically dealing with the transfer of investments. When the Lincoln School District transferred U.S. Treasury bonds from the investments held in its debt service fund to the Lincoln County Investment Pool, it would record this transaction by reducing the investment account and recognizing any change in fair value.

The correct entry in the District's books would be a debit to Equity in Pooled Investments for the carrying value, which is the amount of the investment on the District's books, and a credit to Investments—U.S. Treasury Bonds for the same amount, not the fair market value. Any difference between the carrying value and fair market value would typically be recognized elsewhere in the financial statements, not as part of this transfer. Therefore, the correct journal entry would be:

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• 
  

The revenue related to the change in fair value of the investments would not be recognized within this transaction but could be recognized in a different entry depending on applicable accounting standards for government entities.