Mike Village sold $1,000,000 of general obligation bonds on October 1, 2018, maturing at the rate of $100,000 every 6 months sta

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Mike Village sold $1,000,000 of general obligation bonds on October 1, 2018, maturing at the rate of $100,000 every 6 months sta

rting April 1, 2019, and paying interest at the rate of 4 percent per annum on the unpaid balance. Compute (a) the interest expenditure Mike will report in its governmental fund statement of revenues, expenditures, and changes in fund balances for the calendar years ended December 31, 2018 and December 31, 2019 and (b) the interest expense Mike will report in its government-wide statement of activities for the same calendar years. Also, (c) prepare journal entries needed to adjust Mike’s 2019 fund financial statements so government-wide statements can be prepared.

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Free_Kalibri [3.4K] · Answer 1 · 2026-03-28T16:19:11+03:00

An accrued expense is one that has been incurred and recorded in the financial statements for the accounting period, but payment has yet to be made. A stub period refers to the timeframe where the interest due on bonds deviates from the established interest cycle. In reflecting on Part A, since no interest matured in 2018, no expense appears in the fund statement. For the year ending December 31, 2019, we determine the interest by summing the due amounts on the principal of $1,000,000 at 4% for six months and $900,000 at the same rate for six months, leading to a total interest expense of $38,000. Therefore, the report for that year will reflect $38,000 in interest expenditure. In Part B, it entails calculating interest expenditure for the government-wide statement across fiscal years 2018 and 2019. For 2018, we find that the interest on the $1,000,000 principal at 4% over three months equals $10,000, whereas for 2019, we calculate a combined total of $36,000 by evaluating different principal amounts at corresponding intervals. Lastly, Part C involves preparing the necessary journal entries to adjust fund financial statements and move forward with the government-wide statements.