Please explain the steps The Louisville City bus system engaged in the following
ID: 2571711 • Letter: P
Question
Please explain the steps
The Louisville City bus system engaged in the following transactions:
1. It issued $10,000,000 in 8 percent revenue bonds. It used the proceeds to acquire new buses. The bonds
were issued at par.
2.Consistent with a bond covenant, the system set aside 1 percent of the bonds’ gross proceeds for repair contingencies.
Correspondingly, it designated an equal dollar amount of net position as restricted to repairs.
3.The bus system accrued nine months’ interest ($600,000) at year-end.
4.The bus system incurred $50,000 of repair costs, paying for them with the cash set aside for repair
contingencies.
Q: What is the total Asset at the end of the year?
Explanation / Answer
1. Cash and Bond payable will increase by $10,000,000 as bonds are issued at par.
2. Repair Contingencies will increase by $10,000,000*1% = $100,000 and cash will reduce by $100,000.
3. Interest expense will increase by $600,000 and as the interest is accrued so Interest payable will increase by $600,000.
4. Repair cost will increase by $50,000 and repair contingencies will reduce by 50,000
Total Asset at the end of the year is $10,000,000-100,000+100,000-50,000= $9,950,000