Reference no: EM131824239

Question 1 - Governments may report substantially different amounts of interest on their government-wide and fund financial statements.

Charter City issued $100 million of 6%, 20-year general obligation bonds on January 1, 2012. The bonds were sold to yield 6.2% and hence were issued at a discount of $2.27 million (i.e., at a price of $97.73 million). Interest on the bonds is payable on July 1 and January 1 of each year. On July 1, 2012, and January 1, 201 3, the city made its required interest payments of $3 million each.

1. How much interest expenditure should the city report in its debt service fund statement for its fiscal year ending December 31, 2012? During 2012 the city did not transfer resources to the debt service fund for the interest payment that was due January 1, 2013.

2. How much interest expense should the city report on its government-wide statements for be helpful to prepare appropriate journal entries.)

3. On January 1, 2032 the city repaid the bonds. How should the repayment be reflected on the city's (1) fund statements and (2) government- wide statements?

Question 2 - In anticipation of issuing of long-term bonds, a state issues $200 million of 60-day BANs to finance highway construction. It expects to roll over the BANs into long-term bonds within 60 days. Its fiscal year ends on May 31.

1. Prepare the appropriate journal entry in a governmental fund (such as a capital projects fund) to record the issuance of the $200 million, 60-day BANs on May 1, 2013.

2. Prepare the appropriate journal entry, if required, to record the conversion of the BANs to long-term bonds on June 18, 2013.

3. Prepare the appropriate journal entry, if required, to adjust the accounts as of year-end May 31, 2013, assuming that the state was unable to convert the BANs to long-term bonds.

4. Comment on how the BANs are reported on the government-wide statements as of May 3 1, 2013, assuming first that they were converted and second that they were not converted.