Marloweville, with 20,000 residents is deciding how to finance the construction
ID: 2804021 • Letter: M
Question
Marloweville, with 20,000 residents is deciding how to finance the construction of a new municipal stadium that will enhance both recreation and tourism in the area, The construction cost of the stadium is $10,000,000. By law all proceeds from debt issuance are places in Marloweville's captial projects fund, and all capital expendictures are made using this fund.
1 Show how Marloweville would recordd the transactions if it were to issue a 10,000,000 bond and then use the proceeds to construct the stadium
2 Show how Marloweville would recrod the transaction if it were to finance 50% of the construction with a municipal bond and 50% thru a transfer from economic development fund (a government fund)
3 If at the end of the fiscal year, marloweville makes a loan repayment of 250,000 plus a 50,000 intrest payment the total expenditure for the transaction will equal
a 0
b 250,000
c 50,000
d 300,000
Explanation / Answer
Question 1
For Bond Issue
Bank A/c Dr $10000000
To Bonds A/c $10000000
(Being Bonds has been issued)
For Construction
Municipal Stadium A/c Dr $10000000
To Bank A/c $10000000
(Being Contruction of Municipal Stadium has been done)
Question 2
If 50% of the Construction cost has been made from a Economic development fund
Bank A/c Dr $5000000
To Municiapal Bond $5000000
(Being Municipal bond has been issued for 50% of the cost)
Bank A/c Dr $5000000
To Deferred Government Grant A/c $5000000
(Being amount has been transferred from Economic Development fund and treated as Deferred Government grant)
Municipal Stadium A/c Dr $10000000
To Bank A/c $10000000
(Being Construction of Municipal Stadium has been done)
Question 3
Loan repayment is $250000 and Interest Payment of $50000
The total Expenditure is $50000 and hence Option c is correct
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