Question

Voters in Lincoln School District approved the construction of a new high school and approved an $8 million bond issue with a stated rate of interest of 6% to fund the construction. Bids were received and the low bid was $8 million. When the bonds were issued, they sold for face value less bond underwriting fees of $.5 million. The School Board voted to fund the balance of the construction by a transfer from the general fund.
The entry in the capital projects fund to record the receipt of the bond proceeds would be:__________
a) Debit Cash $7.5 million; Credit Bonds payable $7.5.
b) Debit Cash $7.5 million; Credit Other financing sources $7.5.
c) Debit Cash $7.5 million and Expenditures $.5 million; Credit Bonds payable $8 million.
d) Debit Cash $7.5 million and Expenditures $.5 million; Credit Other financing sources $8.

Answer 1

Answer:

d) Debit Cash $7.5 million and Expenditures $.5 million; Credit Other financing sources $8.

Explanation:

The Cash proceed from the bond is recorded as the net of face value of the bond and the underwriting fees.

The underwriting fees is the expenditure for the Lincoln School District ad it is debited to record the expense.,

As the bond issued is a liability for Lincoln School District and payable at the date of maturity. the interest is also paid on this amount on stated rate of 6%. The Bond Payable account is credited to record the liability.