Transactions: The City of Armona has decided to refinance $8,000 of par value, g

Question

Transactions: The City of Armona has decided to refinance $8,000 of par value, general government, general obligation bonds outstanding. The bonds had a related unamortized bond premium of $200. The city issues $6,000 of refunding bonds at par and transfers $2,700 from the General Fund to the Debt Service Fund. The city paid $8,700 from the Debt Service Fund into an irrevocable trust to cover future payments on the original bonds.

Requirement: Prepare the general journal entries using standard fund-type terminology, identifying the fund or nonfund accounts for which the entry is being prepared. Appropriate abbreviations are acceptable (e.g., GF, SRF, CPF, DSF, GCA, GLTL, OFS, or OFU). If no entry is required, write "No Entry Required" and briefly explain why. Do not include formal entry explanations or dates, but include any important assumptions made and all calculations.

Explanation / Answer

Solution:-

1. Assuming the refinancing meets the conditions for treatment as a defeasance in substance:-

Expenditures +– Debt Service +– Payment to Refunding Bond Escrow Agent

2. Assuming the refinancing does not meet the conditions for treatment as a defeasance in substance:-

3. Refunding:-

4. Investment (non-Refunding):-

Please Rate or comment if you have any dobut regarding this solution.

Sr. No. Accounts Debit Credit 1 Cash 6,000 OFS +– Refunding Bond Principal 6,000 2 Cash 2,700 OFS +– Transfer from GF 2,700 3 OFU +– Payment to Refunding Bond Escrow Agent 6,000

Expenditures +– Debt Service +– Payment to Refunding Bond Escrow Agent

2,700 Cash 8,700

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