In the current fiscal year, St. George County issued $3,000,000 in general oblig
ID: 2512445 • Letter: I
Question
In the current fiscal year, St. George County issued $3,000,000 in general obligation term bonds for 102. The county is required to use any accrued interest or premiums for servicing the debt issue. a. How would the bond issue be recorded at the fund and government-wide levels? How would the bond issue be reported in the fund financial statements and the government-wide financial statements? c. What effect, if any, do interest payments have on the carrying value of the bond issue as reported in the financial statements?Explanation / Answer
a) The fund receiving the benefit of the bond issue, such as a capital projects fund -
Debit - Cash Account
Credit - Other Financing Resources - Proceeds of bond.
Premiums and accrued interest must be used to service the debt, the premium on the bond sale would be recorded in the debt service fund as a debit to Cashand a credit to Other Financing Sources—Premium on Bonds. At thegovernment-wide level the debit would be to Cash for the total amount with related credits to Bonds Payable and Premium on Bonds Payable.
b) At the fund level the cash would be reported on the balance sheet and the accounts, Other Financing Sources—Proceeds of Bonds and Other Financing Sources—Premium on Bonds, would be reported on the statement of revenues, expenditures and changes in fund balances.
At the government-wide level in the Governmental Activitiescolumn cash would be reported on the statement of net position as would the bondpayable. The account Bonds Payable would be classified as a long-term and the Premium on Bonds Payable would increase the carrying value of the Bonds Payable.
c) effective interest method be used to amortize the Premium on Bonds Payable. As a result, the amortization of the premium reduces the carrying value of the bond by the amount of premium amortized each interest paymentperiod. At the maturity of the bond the carrying value of the bond will be equal to the face value of bond.