The Shannon Township Debt Service Fund accumulates resources to pay its $2 milli

Question

The Shannon Township Debt Service Fund accumulates resources to pay its $2 million general obligation debt. The debt is payable in equal annual installments of principal over 10 years with 5% interest on the unpaid principal. Prepare journal entries to record the following transactions in the Debt Service Fund.

            a.    The Township levies a special property tax amounting to $500,000 to pay debt service on its long-term general obligation debt. The tax must be accounted for in the Debt Service Fund.

            b.   All the property taxes levied for debt service purposes are collected.

            c.    The Township invests $150,000 in a six-month certificate of deposit.

            d.   Debt service (interest of $100,000 and principal of $200,000) becomes due and payable.

            e.    The debt service liabilities are paid.

            f.    The certificate of deposit in c. matures and the Township receives a total of $153,000, which includes $3,000 of interest.

Explanation / Answer

particulars Debit Credit a. property taxes receivable 500000         Rrevenue- property taxes 500000 b.Cash 500000       property taxes receivable 500000 c.investments 150000 Cash 150000 d.Expenditures-bonds principal 200000 Expenditures interest 100000      Matured bond interest payable 200000     matured interst payable 100000 e. Matured interest payable 200000 Matured interest payable 100000 Cash 300000 f. Cash 153000        Investments 150000          revenues-interest earned on investments 3000

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