Question: In August 2014 voters of Balcones a medium sized city approved

In August 2014, voters of Balcones, a medium-sized city, approved a $15 million general obligation bond issue to finance the construction of recreational facilities. In order to begin construction immediately, without waiting to complete the lengthy process of issuing long-term bonds, the city issued $4 million in bond anticipation notes (BANs). The notes matured in March 2015, but the city had the right to prepay them any time prior to maturity.
On February 15, 2015, the city issued $15 million of 6 percent, 20-year GO bonds. Upon receiving the proceeds it repaid the BANs, along with $80,000 in interest.
1. Prepare a journal entry to indicate how the city should report the BANs in its December 31, 2014, fund financial statements, assuming that it issued the statements after February 15, 2015.
2. Suppose that the city did not refinance the BANs prior to the date the financial statements were issued. What other evidence must the city present to justify reporting the BANs as long-term obligations? Prepare a journal entry to indicate how the city should report the BANs if it is unable to provide this evidence.
3. Assume, also, that the city experienced a cash flow shortage in November 2014. Anticipating tax collections in January 2015, it issued $2 million in tax anticipation notes (TANs) due February 2015. In February 2015, instead of repaying the notes, it ‘‘rolled them over’’ for an additional six months. In which fund or account group should the city report the TANs? Explain.
4. Assume further that in July 2014 the city was awarded a $1 million reimbursement grant. It expected to receive thegrantfundsinJanuary2015.Inasmuchasitexpected to incur many of the expenditures covered by the grant in 2014, it issued $1 million in six-month revenue anticipation notes (RANs). As of December 31, the city had not repaid the notes but had secured the written agreement of the lender that they could be extended for an additional six months. How should the city report the RANs on its December 31, 2014, financial statements? Explain.

Sale on SolutionInn
  • CreatedAugust 13, 2014
  • Files Included
Post your question