[Anonymous]

I was hoping someone could explain this to me. It’s from the Becker practice test:

Lemonville Township issued $75,000 of bond anticipation notes at face amount in the current fiscal period. The proceeds were recorded in the capital projects fund. These notes are due within one year. Lemonville intends to repay the bond anticipation notes with a bond issue. Lemonville has taken legal steps to refinance the notes on a long-term basis. Under these circumstances, what account should be credited in the capital projects fund?

a. Revenues control

b. Other financing sources

c. Bond anticipation notes payable

d. Tax anticipation notes payable

Answer: B.

The Becker book says: “Short-term borrowing might be necessary to start a project…often these borrowings are bond anticipated notes issued with the expectation they will be repaid upon issuance of permanent long term financing. The debt will be displayed on the B/S as follows:

Dr Cash

Cr Short-term note payable”

Can someone explain to me why in this case they credit ‘other financing sources’ instead?

Thanks!

[jeremyrichman]

The proceeds from bond issues are considered “other financing sources.” That's all I really know… I'm pretty sure the question is asking about the bond issue, not the bond anticipation notes.

FAR: 8/29/12 88
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BEC: 10/23/12 90
REG: 11/21/12

[moey]

Capital Projects fund is a Governmental Fund, which uses Current Financial Resources Measurement Focus (or whatever it's called). It's hard for me to explain.. It's kind of just a concept that I (and seems like jeremyrichman too) just memorized. But just those type of non-revenue receipts are “other financing sources.”

I don't think governmental funds even have payables?

FAR - 90
REG - 75
AUD
BEC

[Whatdidyou]

Not sure (we're really all learning together!). Here is how I view it.

Original JE:

dr. Cash

cr. Short-term N/P

Now you refinanced the note into a long-term bond. Usually you'd dr. N/P and cr. B/P or something like that. But since it is a gov't fund, there is no such thing as LT debt – instead it is called other financing sources. So here is the entry:

dr. Short term N/P

cr. Other financing sources

or something like that.

REG - Passed!!
BEC - Passed
FAR - Passed
AUD - Passed

Study Materials: Becker basic course

[surfer4life949]

I think the Becker explanation is referring to the Government Wide B/S, and not the Fund B/S equivalent (Statement of revenues, expenses, and changes in fund balance I believe).

The govt. wide F/S use the accrual basis, so in that sense a note payable would be debited.

For the fund B/S (which is what they are referring to in the question I believe), it would be

DR Cash

CR Other financing sources

Hope this helps

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[Whatdidyou]

You CAN recognize short-term liabilities in gov't fund financials.

I think I did miss a JE in my previous post.

After surfur4life's entry, there would be another entry that would be: dr. N/P cr. Cash – as the cash from the “other financing sources” is being used to pay off the note payable.

REG - Passed!!
BEC - Passed
FAR - Passed
AUD - Passed

Study Materials: Becker basic course

[unsure97]

Answer c & d – Notes payable is LT debt. Capital projects fund (govtal funds) don't have LT debt, so it's “other financing sources”. Q is asking what you credit in “capital projects fund” (Dr. Cash, Cr. Other financing sources)

[Whatdidyou]

The question read, “These notes are due within one year.” That is a short term liability, which if I'm not incorrect, is allowed. Unless I'm missing something?

But yes, I agree the credit that they are asking for is other financing sources.

REG - Passed!!
BEC - Passed
FAR - Passed
AUD - Passed

Study Materials: Becker basic course

[moey]

@Whatdid you – but I thought you were right that it's refinanced to LT, so they would have DR the Short Term and now must figure out what to do now that's a LT liability. But since it's LT it's can't be recognized as that, instead just “Other Financing Sources”

But I'm confused cus aren't debt pay offs in the Debt Service fund anyways? Not any other fund?

FAR - 90
REG - 75
AUD
BEC

[Anonymous]

I found this other question that might help explain it:

Grove Township issued $50,000 of bond anticipation notes at face amount in Year 1 and placed the proceeds into its capital projects fund. All legal steps were taken to refinance the notes, but Grove was unable to consummate refinancing. In the capital projects fund, what account should be credited to record the $50,000 proceeds?

a. Other financing sources control.

b. Revenues control.

c. Deferred revenues.

d. Bond anticipation notes payable.

Explanation

Choice “d” is correct. Bond anticipation notes are current liabilities. The $50,000 proceeds of bond anticipation notes, when received in the capital projects fund, should be credited to bond anticipation notes payable when the notes could not be refinanced.

It looks like if you are able to replace it with long term financing then yes, you would use other financing sources, but if not, then you just record it as bond anticipation notes payable because then it is purely short term.

[Author]

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