Question

McGaha VIllage operates a sanitation department as part of its general government activities. McGaha Village will acquire new sanitation trucks that will be financed through the issuance of general obligation bonds. McGaha Village uses a Capital Projects Fund and a Debt Service Fund to account for the transactions. Make journal entries to record the following transactions and events and indicate the appropriate fund in which the transactions are recorded.

1. April1. McGaha Village issues bonds for their face amount of $300,000

2. April1. McGaha Village acquires sanitation trucks at a total cost of $300,000 for cash. The trucks have an estimated useful life of 10 years.

3. October 1. McGaha Village records the fund liability and pays the first installment of principal ($15,000) and interest ($7,500) on the long term debt.

Answer 1

To record the transactions and events in the Capital Projects Fund and Debt Service Fund, the journal entries are as follows: 1. Issue bonds in the Debt Service Fund. 2. Acquire sanitation trucks in the Capital Projects Fund. 3. Record liability and make payment for the first installment of principal and interest in the Debt Service Fund.

Step-by-step explanation:

1. April 1. McGaha Village issues bonds for their face amount of $300,000 in the Debt Service Fund:

• Debit: Cash $300,000
• Credit: Bonds Payable $300,000

2. April 1. McGaha Village acquires sanitation trucks for cash at a total cost of $300,000 in the Capital Projects Fund:

• Debit: Sanitation Trucks $300,000
• Credit: Cash $300,000

3. October 1. McGaha Village records the fund liability and pays the first installment of principal ($15,000) and interest ($7,500) on the long-term debt in the Debt Service Fund:

• Debit: Long-Term Debt $22,500
• Credit: Cash $22,500