The following transactions relate to the City of Middleton, which has a fiscal year end of December 31. The city adopts budgets for the General Fund and the debt service fund. NOTE: for simplicity, and contrary to GASB standards, assume straight-line amortization for this problem.
The City of Middleton sells a $2,000,000, 3%, 16-year general obligation bond issue on January 2, 2016 at par. The bond pays interest semi-annually on July 1 and January 2, with the first principal payment scheduled for January 2, 2017. A city hall annex must be constructed with the bond proceeds. The bond premium must be used to pay interest on the debt.
Budgets are adjusted to account for the sale of the bond. The debt service fund budget should be adjusted to accommodate the new debt issues. If the debt service fund does not have sufficient resources to pay expenditures, the needed funds will be provided by the General Fund.
On February 1, 2016, $1,000,000 of the cash from the sale of the bonds is invested for one year at a rate of 1.26%. Earnings on the investment are available for construction of the city hall annex.
July 1, 2016 the first interest payment is due.
December 31, 2016 adjusting entries are prepared.
Required
For the five related transactions provided, prepare all necessary journal entries for the affected funds and at the governmental activities level. Clearly indicate the fund journal or the government-wide journal in which the entry is being recorded.