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erm Bond Debt Service Fund Transactions. (LO6-5) On July 1, 2019, the first day of its 2020 fiscal year, the Town of Bear Creek issued at par $2,000,000 of 6 percent term bonds to renovate a historic wing of its main administrative building. The bonds mature in five years on July 1, 2024. Interest is payable semiannually on January 1 and July 1.

As illustrated in the table below, a sinking fund is to be established with equal semiannual additions made on June 30 and December 31. Cash for the sinking fund additions and the semiannual interest payments will be transferred from the General Fund shortly before the due dates. Investment earnings are added to the investment principal.

Fiscal Year	Period	Required Addition	Expected Earnings	Ending Balance
2020	1	$174,461	$ 0	$ 174,461
	2	174,461	5,234	354,156
2021	3	174,461	10,625	539,242
	4	174,461	16,177	729,880
2022	5	174,461	21,896	926,237
	6	174,461	27,787	1,128,485
2023	7	174,461	33,855	1,336,801
	8	174,461	40,104	1,551,366
2024	9	174,461	46,541	1,772,368
	10	174,461	53,171	2,000,000

Required

Create a term bond debt service fund for the town and prepare journal entries in the debt service fund for the following:

On July 1, 2019, record the budget for the fiscal year ended June 30, 2020. Include all interfund transfers to be received from the General Fund during the year. An appropriation should be provided only for the interest payment due on January 1, 2020.

On December 28, 2019, the General Fund transferred $234,461 to the debt service fund. The addition to the sinking fund was immediately invested in 6 percent certificates of deposit.Page 257

On December 28, 2019, the city issued checks to bondholders for the interest payment due on January 1, 2020.

On June 27, 2020, the General Fund transferred $234,461 to the debt service fund. The addition for the sinking fund was invested immediately in 6 percent certificates of deposit.

Actual interest earned on sinking fund investments at year-end (June 30, 2020) was the same as the amount budgeted in the table. This interest adds to the sinking fund balance.

All appropriate closing entries were made at June 30, 2020, for the debt service fund.

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