seriously, be nice to answer the queation. i just have few times to post questio
ID: 2497987 • Letter: S
Question
seriously, be nice to answer the queation. i just have few times to post questions.
Hi senior auditor,
I am currently downtown, at the San Diego County accounting office, conducting fieldwork for the government’s annual audit. While reviewing the Government-Wide 6/30/2015 Statement of Net Position, I noticed the government’s Net Position decreased drastically during the current year. Unable to pinpoint the direct source of this unexpected decline, I asked the County Administrator for an explanation. The County Administrator said “the decrease was caused by the long-term liability issued during the current year”. I believe the County Administrator’s explanation may be inaccurate….
When long-term debt is issued, what is the appropriate journal entry?
When long-term debt is issued, how does this affect the Statement of Net Position?
The County Administrator provided the Bond Indenture and all corresponding Bond Issuance documentation. The documentation clearly supports the existence of a new long-term liability. The Bond was issued at the beginning of the current year, on July 1, 2014. Could this new debt be triggering other new transactions?
Assuming there are other new transactions, what are the corresponding journal entries?
How do these corresponding journal entries affect the Statement of Net Position?
Do you think the new debt and other new transactions is the primary source of the decline? Why or why not?
Explanation / Answer
When long-term debt is issued, what is the appropriate journal entry?
Ans
Bank----Dr xxxxx
Long term loans xxxxxx
When long-term debt is issued, how does this affect the Statement of Net Position?
Ans: Net position may effect to the extent of interest portion on long term loan
Eg: if loan is taken for $100,000 with interest rate of 10%. affect on net position on account of long term loan is $10,000 per year
The County Administrator provided the Bond Indenture and all corresponding Bond Issuance documentation. The documentation clearly supports the existence of a new long-term liability. The Bond was issued at the beginning of the current year, on July 1, 2014. Could this new debt be triggering other new transactions?
Ans : yes, it's leads to make other trnasaction like interest expenses accounting and payments accounting etc..
Assuming there are other new transactions, what are the corresponding journal entries?
Interest expenses----Dr xxxxx
To Interest payable account xxxxxx
Interest payable account ----Dr xxxxx
To Bank xxxxxx
How do these corresponding journal entries affect the Statement of Net Position?
Ans: Net position may effect to the extent of interest portion on long term loan
Eg: if loan is taken for $100,000 with interest rate of 10%. affect on net position on account of long term loan is $10,000 per year
Do you think the new debt and other new transactions is the primary source of the decline? Why or why not?
Ans: No, Longterm debt issue can only influence Net postiona and decline in Primary source is not becuse of debt it might be other issue
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