Question - On April 1, 2011, deferred serial bonds in the amount of $1,500,000 were sold at $1,548,750, $18,750 of which was for interest (5%) accrued from the date of the bonds (January 1, 2011) to the date of the sale. Cash in the amount of the premium and accrued interest was deposited directly in the Street Improvement Bond Debt Service Fund. Cash in the amount of $1,500,000 was recorded in the Street Improvement Fund, of which $600,000 was invested immediately in certificates of deposit maturing on September 30 and earning 4% per annum.
Required: Prepare the journal entries to record these transactions in the Street Improvement Fund and governmental activities journals. (Hint: In addition to recording the liability for bonds payable in the governmental activities journal, you should record the premium on the bonds payable [credit Premium on 5% Deferred Serial Bonds] and accrued interest on bonds sold [we recommend that you credit Expense-Interest on Long-term Debt] in the governmental activities general journal for the $18,750 of accrued interest.)