53. Grant City has held investments over a period of time for Grant Township in

Question

53. Grant City has held investments over a period of time for Grant Township in an

investment pool, accounted for as an investment trust fund. The investments carried at fair

value on July 1, 2011 were $500,000 (cost totaled $460,000). On July 1, 2011, the Grant

School District received the proceeds of a general obligation bond sale at par in the amount of

$9,500,000. It is expected that about 20 percent of this amount will need to be disbursed

within the last six months of the current year, about 50 percent during the year after that, and

the remainder in the third year of the project. The interest received on investment of the bond

proceeds belongs to the Grant schools. This money was invested in the Grant Investment

Pool. No other governmental entities have significant amounts of cash or investments as of

July 1, 2011.

Required

1) What percentage interest in the pool is held by the school district and the township?

Explain your answers; show computations in good form.

2) Assuming that the cash received by the pool from Grant schools was invested promptly and

that those investments were managed in the same manner as the township's investments in the

pool, and that the earnings on pooled investments in the six months ended December 31,

2011, were $300,000 (all received in cash; no accrued interest receivable):

(a) Show the entry in the Investment Trust Fund to summarize the collection of interest for the

six-month period.

(b) Show the entry in the Investment Trust Fund to record the liability to the funds for interest

earned on pooled investments.

Explanation / Answer

1. District township Investment pool fair value is 500000 (cost 460000) as on 1 July 2011

District School Investment done by 1 July 2011 : 9500000

Percentage of Interest in the pool is held by School district & School township as on 01 July 2011

9500000 : 500000

Percentage of Interest in the pool is held by School district : 95 %

Percentage of Interest in the pool is held by School Township : 5 %

but as you know that these receipt in disbursed time to time hence percentage of interesst is changes every time summary of these percentage of Interest is as follows :

01 July 2011 : 95 % Percentage of Interest by School district

5 % Percentage of Interest by School Township

31 December 2011 : (9500000 - 20 %) = 7600000 holding by school district

500000 holding by school township hence

7600000 : 500000

93.82 % hold by school district

6.17 % hold by school township

31 December 2012 : (7600000 - 50 %of 9500000) = 2850000 holding by school district

500000 holding by school township hence

2850000 : 500000

85.07 % hold by school district

14.92 % hold by school township

31 December 2013 : (2850000 - 2850000) = Nil holding by school district

500000 holding by school township hence

0 : 500000

Nil hold by school district

100 % hold by school township

2. a) Investment trust fund A/c Dr 300000

Interest Collection A/c Cr 300000

(Being Interest Collected in Investment fund)

since Interest earned during six month ended 31 dec 20111 is relates to District School hence :

b) Interest Collection A/c Dr 300000

District School A/c Cr 300000

(Liability created for district school)

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.