Falmouth City owns and operates a mini-bus system which it accounts for in an en

Question

Falmouth City owns and operates a mini-bus system which it accounts for in an enterprise fund. Prepare journal entries to record the following transactions, which occurred in a recent year.

a) The mini-bus system issued $5 million of 8 percent revenue bonds at par and used the proceeds to acquire new mini-buses.

b) As required by the bond covenant, the system set aside 1 percent of the gross bond proceeds for repair contingencies. Correspondingly, the system designated an equal dollar amount of net position as restricted for repairs.

c) The system accrued 6 months interest on the revenue bonds at year-end.

d) The system incurred $30,000 of repair costs and paid for them with cash set aside for repair contingencies.

Explanation / Answer

a) Cash a/c Dr $5000000

8% Bonds payable $5000000

b) Restricted Fund (Repair) a/c Dr $50000

Cash $50000

(being cash kept in restricted fund for repair)

c) Interest Expenses a/c Dr $200000

Interest Payable $200000

(beinh half yearly interest accured)

d) Repair expenses a/c Dr $30000

Restricted Fund(Repair) a/c $30000

(Being cash paid for repair expenses from restricted fund a/c)

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