Reference no: EM132019791
Problem - New Durham Township assessed property owners $2,000,000 to construct sidewalks. The assessments were payable over a period of ten years in annual installments of $246,580, an amount that re?ects interest at a rate of 4 percent.
To fund the improvements the city issued $2,000,000 of ten-year, 4 percent bonds. The bonds were sold to yield interest of 3.8 percent (1.9 percent per period) and were thereby sold at a premium of $33,020 (i.e., at a total of $2,033,020). The township transferred the premium to an appropriate fund. Interest on the bonds is payable semiannually (i.e., $40,000 each six months).
In as much as the amounts to be received from the property owners are not coincident with the required payments to bondholders, the township will invest all available cash, and any assets that remain after the bonds have been repaid will be transferred to the general fund.
In the same year that the township assessed the property owners and issued the notes, it constructed the sidewalks at a cost of $2,000,000. During that year it made one payment of interest on the bonds and collected one installment from the property owners. It invested $239,600 in U.S. Treasury notes-the difference of $206,580 between the assessments received and the interest paid, plus the $33,020 bond premium. It earned $6,000 (cash) interest on these securities.
Assume that the township recognized one full year's interest on the assessments receivable and that it recorded
1. Prepare summary journal entries in all appropriate funds.
2. Prepare alternative journal entries to reflect how the transactions would be recorded in the township's government-wide statements.
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