Assume that $100,000 of 12 percent serial bonds have been issued, $20,000 maturing at the end of each year for five years, and that the general fund serves as the tax collection agency for the debt service fund

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To pay both principal and interest, the following debt service requirements are established prior to issue:
Bonds Outstanding                Bonds
Beginning       Interest         Principal Outstanding
Year    of Year          Requirement Requirement         End of Year
1 $100,000 $12,000             $20,000                   $80,000
2 80,000    9,600               20,000 60,000
3    60,000    7,200              20,000    40,000
4                             40,000               4,800    20,000                     20,000
5 20,000 2,400    20,000    0

Step 1: In the general fund:
Cash    $32,000
Due to debt service fund                                                  $32,000
To record collection of tax that is due to debt service fund
Step 2: In the debt service fund:
Required taxation $32,000
Appropriation, principal, bonds $20,000
Appropriation, interest, bonds                                                             12,000

To record budget for debt service
Due from general fund    32,000
Revenue from taxes                                                                                32,000
To record assessment and levy of tax by the general fund
Cash    32,000
Due from general fund    32,000
To record collection from general fund
Expenditures, interest, bonds    12,000
Cash                                                                                                           12,000
To record payment of interest on bonds
Expenditures, principal, bonds 20,000
Matured bonds payable                                                                        20,000
To record expenditure to assume liability for matured bonds payable
Matured bonds payable                                                            20,000
Cash 20,000
To record retirement of serial bonds from debt service fund

Step 3: Closing entries:
Revenue from taxes                                                                 $32,000
Appropriation, principal, bonds                                             20,000
Appropriation, interest, bonds, 12,000
Required taxation    $32,000
Expenditures, interest, bonds                                                              12,000
Expenditures, principal, bonds 20,000
To close budgetary and actual revenue and expenditure accounts

Question 14.10: Assume that $100,000 of 12 percent serial bonds have been is...

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