In anticipation of issuing of long-term bonds, a state issues on May 1, 20Xl, $200 million of 60-day BANs to finance highway construction. It expects to roll over the BANs into long-term bonds within 60 days. Its fiscal year ends on May 31. The state issues its financial statements approximately four months after the end of its fiscal year.
1 . Prepare the appropriate journal entry in a governmental fund (such as a capital projects fund) to record the issuance of the $200 million, 60-day BANs on May 1, 20Xl.
2. Prepare the a ppropriate journal entry, if required , to record the conversion of the BANs to long-term bonds on June 18, 20Xl.
3. Prepare the appropriate journal entry, if req uired, to adjust the accounts as of year-end May 31, 20Xl, assuming that the state was unable to convert the BANs to long-term bonds by the time it issued its financial statements.
4. Comment on how the BANs wou ld be reported on the government-wide statements as of May 31 , 20Xl, assuming, first, that they were converted and, second, that they were not converted.