Question

Pacific Independent School District issued $100 million of general obligation bonds to finance the construction of new schools. The bonds were issued at a premium of $0.6 million. Prepare the capital projects fund journal entries to record the issue of the bonds and the transfer of the premium to an appropriate fund. Suppose, instead, that the bonds were issued at a discount of $0.6 million but that the project will still cost $100 million. Prepare the appropriate entries. Contrast the entries in this part with those in part 1. Indicate the options available to the school district, and state how they would affect the entries required of the district. Suppose that the government chose to finance the balance of the project with general revenues. Prepare the appropriate capital projects fund entry.

Answer 1

1. Dr Cash$100,600,000

Cr Bond proceeds (Face value amount )$100,000,000

Cr Bond proceeds (Bond premium amount )$600,000

Dr Nonreciprocal transfer of bond premium to debt service fund $600,000

Cr Due to debt service fund/Cash $600,000

2a. In a situation where bonds are been issued out at a discount the debt services will have unavailable resources to send to the capital project fund.

2b. Both Bonds premiums as well as discount will tend to be an issue reason been that the uncertainly of the amount of cash that are in excess will have to be disposed off as well as the ways of compensating for cash deficiency

3. Dr Due from the general fund $600,000

Cr Other financing use- nonreciprocal Transfer from the general fund $600,000

Step-by-step explanation:

1.Preparation of the capital projects fund journal entries

Dr Cash$100,600,000

($100,000,000+$600,000)

Cr Bond proceeds (Face value amount)$100,000,000

Cr Bond proceeds (Bond premium amount)$600,000

(To record issuance of bonds sold at a premium)

Dr Nonreciprocal transfer of bond premium to debt service fund $600,000

Cr Due to debt service fund/Cash $600,000

(To record the premium payable to the debt service fund)

2. Preparation of the Journal entries.

suppose the bonds were issued at a discount of $0.6 million in which the project will still cost $100 million.

Dr Cash $994,000,000

($100,000,000-$600,000)

Cr Other financing sources-bond proceeds(Bond discount)$600,000

Dr Other financing sources-bond proceeds(Face value)$100,000,000

(To record the issue of bonds at a discount)

2a. When Contrasting the Journal entries in this part with those in part 1 this means that in a situation where bonds are been issued out at discount the debt services will have unavailable resources to send to the capital project fund.

2b. The options that are available to the school district and how they would affect the entrees required of the district is that both Bonds premiums as well as discount will tend to be an issue reason been that the uncertainly of the amount of cash that are in excess will have to be disposed off as well as the the ways of compensating for cash deficiency

c. Preparation of the appropriate capital projects fund Jounal entry

Dr Due from the general fund$600,000

Cr Other financing use- nonreciprocal Transfer from the general fund $600,000