To record the accrual of expenditures/expenses for goods and services from a vendor invoice. Refer to Subsection 85.70.20.c.

To record payment of a short-term liability.

To record unavailable revenue. For example, taxes due are accrued but will not be collected within the next 12 months.  Refer to Subsection 85.70.50. May be used only in governmental fund type accounts.

To record unavailable revenue. For example, under a sales tax deferral program, taxes are accrued but will not be collected within the next 12 months.  Refer to Subsection 85.70.40. May be used only in governmental fund type accounts.

To record unearned revenue. For example, cash received from students for tuition and fees paid in advance of providing services. Refer to Subsection 85.70.45.

The following example is used to illustrate entries for recording the issuance and servicing of fund bond debt in a non-appropriated proprietary account. Generally, these bonds are revenue bonds. Refer to Subsection 85.72.20.c.

An agency issues revenue bonds with:

• Par amount of $5,000,
• Original issue discount (OID) of $200,
• Underwriter’s discount (UD) of $60, and
• Costs of issuance (COI) of $20. 

Details of the bond debt service are:

• 1st year $500 principal, $300 interest, and
• 2nd year $600 principal.

Note: Original issue discount (OID) results when the par of the bond exceeds its purchase price. Original issue premium (OIP) results when the par of the bond is less than the purchase price. If deemed material, OID and OIP are deferred (using GL Codes 1910 “Unamortized Discount on Bonds Sold,” and 5910 “Unamortized Premiums on Bonds Sold” respectively) and amortized over the life of the bonds using GL Code 6512 “Amortization Expense” Subobject WB “Amortization.”  Issuance costs, including underwriters’ discounts, are recorded as expenses using GL Code 6510 “Cash Expenditures/Expenses” and appropriate object codes such as C or E or Subobject PC “Other Debt Costs.”  If the OIP or OID is deemed immaterial, it should be recorded in the same manner as the other issuance costs. Refer to Subsection 85.72.20.c.

Note: If this were a budgeted proprietary account, bond proceeds would be recorded as revenue by a credit to GL Code 3210 “Cash Revenues,” Revenue Source Code 0860 “Bonds Issued,” and then adjusted for GAAP reporting purposes through GL Code 3225 “Revenue Adjustments/Eliminations (GAAP),” Revenue Source Code 0860 to GL Code 5162 “Revenue Bonds Payable .” Likewise, payments on bond principal would be initially recorded as expenditure by a debit to GL Code 6510 Subobject PA “Principal,” and then adjusted for GAAP reporting purposes through GL Code 6525 “Expense Adjustments/Eliminations (GAAP),” Subobject PA to GL Code 5162.

• Par amount of $5,000,
• Original issue premium (OIP) of $200,
• Underwriter’s discount (UD) of $60, and
• Costs of issuance (COI) of $20. 

Details of the bond debt service are:

• 1st year $500 principal, $300 interest, and
• 2nd year $600 principal.

Note: Discounts that are related to underwriters’ fees are handled consistent with other issue costs. Original issue discount (OID) results when the par of the bond exceeds its purchase price. Original issue premium (OIP) results when the par of the bond is less than the purchase price. Costs of issuance (COI) are generally included in the proceeds and paid separately.  Refer to Subsection 85.72.20.c.

For purposes of this example, proceeds of the debt issue will be used to build a facility to house a general governmental agency.  The COI for general obligation bond debt sold by the Office of the State Treasurer (OST) are always included in the proceeds and paid separately by OST.

To record the issuance of the bonds and payment of the costs of issuance.

Office of the State Treasurer:

To record a debt service transfer from an operating (reimbursing) account, through the General Fund, and then to a debt service fund type account for a reimbursable bond.

Office of the State Treasurer (Agency 010):

The following example is used to illustrate the lease purchase entries for capital leases in a governmental fund type account. Refer to Subsection 85.72.30.

An agency operating from the General Fund (governmental fund type account) entered into an agreement to lease a copying machine with a fair value of $15,000 for 60 months at the rate of $300 per month. The current interest rate is 12 percent and the present value of the minimum lease payments is $13,621 (annuity due). Since the value of the asset meets the state's capitalization threshold, this lease-purchase meets the state's criteria for a capital lease (refer to Subsection 30.20.30 for further information on capitalization criteria for capital leases). The amount to be capitalized is $13,621, which is the lesser of the fair value and net present value. Therefore, the entries to be recorded for a capital lease are as follows:

Note: Contact the Office of the State Treasurer for the current rate of interest, for computing present value. Capital leases are computed as annuities due because the payments are made at the first of the month; other capital purchases may be computed as ordinary annuities.

To record the first periodic payment of lease-purchase liability.

Note: No interest is accrued because the first lease payment is made at the beginning of the first month of the lease.

To reclassify as short term that portion of the liability due within the next fiscal year. At fiscal year-end, the amount in GL Code 5172, should be the same as the next year’s principal payment on the agency’s lease agreement amortization schedule.

The following example is used to illustrate the lease purchase entries for capital leases in proprietary and trust fund type accounts. Refer to Subsection 85.72.30.

An agency operating from a proprietary fund type account entered into an agreement to lease a copying machine with a fair value of $15,000 for 60 months at the rate of $300 per month. The current interest rate is 12 percent and the present value of the minimum lease payments is $13,621 (annuity due). Since the value of the asset meets the state's capitalization threshold, this lease-purchase meets the state's criteria for a capital lease. Refer to Subsection 30.20.30 for further information on capitalization criteria for capital leases. The amount to be capitalized is $13,621, which is the lesser of the fair value and net present value. Therefore, the entries to be recorded in the proprietary fund for the capital lease are as follows:

Any annuity is a series of equal payments made at regular intervals of time.  The time intervals between payments are called payment periods.  An annuity is a compound interest situation with periodic payments.  When the payments are made at the end of the payment periods, the annuity is called an ordinary annuity.  When the payments are made at the beginning of the payment periods, the annuity is called an annuity due.

Computation of present value may be achieved by use of the following formulas:

Where:

Pv = present value factor
i = interest rate
n = number of periods

Ordinary Annuity/Present Value Formula - A loan is a prime example of this annuity situation in which a sum of money is to be repaid with interest by certain payments for a fixed number of periods. The present value of the loan can be computed by multiplying the periodic loan payments by the present value factor. The present value factor is calculated by using the following formula:

Annuity Due/Present Value Formula - Rent or lease situations are common examples of this type of annuity. The present value of the rent or lease can be computed by multiplying the periodic rent/lease payments by the present value factor. The present value factor is calculated by using the following formula:

GOVERNMENTAL FUND TYPE ACCOUNTS (AGENCY ENTRIES)

The following example is used to illustrate entries for equipment certificates of participation (COP) in a governmental fund type account. Refer to Subsection 85.72.40.c.

An agency operating in a governmental fund type account purchases a piece of equipment for $10,000, and finances it with a COP. 

Details of the COP issue are:

• Par amount of $10,115,
• Original issue premium (OIP) of $10,
• Underwriter’s discount (UD) of $50, and
• Costs of issuance (COI) of $75.

Details of the COP debt service are:

• 1st year $2,000 principal, $600 interest, and
• 2nd year $2,200 principal.

Note: The actual par value of the COP is slightly higher than the proceeds required by the agency to cover issue costs, such as costs of issuance (COI) and the original issue discount (OID) and underwriter’s discount (UD).  The OID, results when the par of the COP is more than the purchase price.  Original issue premium (OIP) results when the par of the COP is less than the purchase price. Discounts that are related to underwriters’ fees are handled consistent with other issue costs. COI are generally included in the proceeds and paid separately by OST. OST provides agencies with a statement detailing this information. The agency is to include the financing costs as part of the cost of the asset that is capitalized and depreciated.

To record the COP liability, original issue discount, underwriter’s discount, and the expense of the costs of issuance (paid by OST).  When the COP is sold by OST, it becomes an obligation of the agency even if the cash proceeds have not yet been received by the agency.  The time period between the COP sale date and closing date is generally two weeks or less.

*If OST pays the vendor directly for the equipment, then the agency would not record the cash receipt or the cash disbursement entries (since there is no reimbursement to the agency). However, the agency would still record the capital acquisition in GL 6514 Subobject JC with the credit offset in GL Code 1354 "Due from Other Agency - OST."

Note: If a COP has been authorized and equipment costs are incurred in one fiscal year but the COP is not issued until the subsequent year, agencies should debit a receivable, such as GL Code 1352 “Due from Other Governments,” and credit expenditures to GL Code 6510 in the year the equipment costs are initially incurred. When the COP is issued in the subsequent year, the agency should credit the GL Code 1352 and debit cash when the COP proceeds are received, along with a debit to GL Code 6514 Subobject JC with the offsetting credit to GL Code 3221 Revenue Source Code 0807.

To record the first year COP debt service payment (principal and interest).

PROPRIETARY FUND TYPE ACCOUNTS (AGENCY ENTRIES)

The following example is used to illustrate entries for equipment certificates of participation (COP) in a budgeted proprietary fund type account.  Refer to Subsection 85.72.40.c.

An agency operating in a proprietary fund type account purchases a piece of equipment for $10,000, and finances it with a COP.

• Par amount of $10,115,
• Original issue premium (OIP) of $10,
• Underwriter’s discount (UD) of $50, and
• Costs of issuance (COI) of $75.

Details of the COP debt service are:

• 1st year $2,000 principal, $600 interest, and
• 2nd year $2,200 principal.

Note: The actual par value of the COP is slightly higher than the proceeds required by the agency to cover issue costs, such as costs of issuance (COI) and original issue discount (OID).   OID results when the par of the COP is more than the purchase price. Original issue premium (OIP) results when the par of the COP is less than the purchase price. Discounts that are related to underwriters’ fees are handled consistent with other issue costs. COI are generally included in the proceeds and paid separately by OST. OST provides agencies with a statement detailing this information. The agency is to include the financing costs as part of the cost of the asset that is capitalized and depreciated.

In proprietary fund type accounts COP issue costs, such as COI and UD are expensed using GL Code 6510 “Cash Expenditures/Expenses” Subobject PC “Other Debt Costs.” 

If the OID or OIP is deemed material, it should be deferred using GL Code 1911 “Unamortized Discounts on Certificates of Participation” or GL Code 5920 “Unamortized Premiums on Certificates of Participation” respectively.  The amount deferred  should be amortized over the life of the COP using GL 6512 “Amortization Expense” Subobject WB “Amortization.”  If the OIP or OID is deemed immaterial, it should be recorded in the same manner as the other issuance costs.

All of these entries are made in the agency’s Operating Account:

At fiscal year-end for reporting purposes, to reclassify as short-term that portion of principal due within the next fiscal year.  At fiscal year-end, the amount in GL Code 5173 should agree with the next year’s principal payment on the agency’s COP amortization schedule.

Using the same example as in Subsection 85.85.45 above, an agency purchases a piece of equipment for $10,000, and finances it with a COP. 

• Par amount of $10,115,
• Original issue premium (OIP) of $10,
• Underwriter’s discount (UD) of $50, and
• Costs of issuance (COI) of $75.

Details of the COP issue are:

• 1st year $2,000 principal, $600 interest, and
• 2nd year $2,200 principal.

Note: The actual par value of the COP is slightly higher than the proceeds required by the agency to cover issue costs, such as the original issue discount (OID), the underwriter's discount (UD), and costs of issuance (COI).  The COI is included in the proceeds but not the OID or the UD. 

To record the closing of the COP sale with the underwriter.

To distribute the COP proceeds to the state agency and pay the costs of issuance.

To record the receipt of the first debt service payment from an agency. 

Note: OST temporarily invests the payments received from agencies for 30 days until the debt service payment is due to the fiscal agent. This activity is recorded by transferring In-Process (71XX) in and out of the Local Government Investment Pool (1206).

To record payment to the fiscal agent.

The following example is used to illustrate entries for real estate certificates of participation (COP) in a governmental fund type account.  Refer to Subsection 85.72.40.d. 

An agency operating in a governmental fund type account obtains proper legislative approval for construction of a new state office building and applies to the Office of the State Treasurer (OST) for COP financing.  OST sells a COP.  Proceeds of the COP are used to pay for construction costs and interest incurred during the construction period.

Details of the COP issue are:

• Par amount of $73.6 million,
• Original issue premium (OIP) of $.7 million,
• Underwriter’s discount (UD) of $.2 million,
• Costs of issuance (COI) of $.1 million,
• COP proceeds for construction $60 million,
• COP proceeds for interest costs $14 million, and
• Net COP proceeds held by OST for the agency $74 million ($60 million for construction costs and $14 million for construction period interest).

Note: Original issue discount (OID) results when the par of the COP is more than the purchase price. An OIP results when the par of the COP is less than the purchase price.  Discounts that are related to underwriters’ fees are handled consistent with other issue costs. COI are generally included in the proceeds and paid separately. OST receives cash proceeds for the COI, but not for the UD and the OID. 

Details of the first year:

• $10 million is expended on construction,
• Debt service is $4 million, interest only, and
• Unspent construction funds earn $.8 million in interest revenue.

Unspent proceeds are held by OST and invested in the Local Government Investment Pool (LGIP) or with a trustee.

Note: Construction period interest is not capitalized in governmental fund type accounts.

To record the liability for the real estate COP, and the original issue premium, underwriter’s discount, and the expense of the costs of issuance (paid by OST).  When the COP is sold by OST, it becomes an obligation (liability) of the agency, even if the cash proceeds have not yet been received by the agency.  The time period between the COP sale date and the closing date is generally two weeks or less.

Note: Because interest only is due during the construction period, the entire obligation is initially coded long-term.

To record construction expenditures and reimbursement from OST.

Note: If a COP has been authorized and construction project costs are incurred in one fiscal year but the COP is not issued until the subsequent year, agencies should debit a receivable, such as GL Code 1352 Due from Other Governments, and credit expenditures to GL Code 6510 in the year the project costs are initially incurred.  When the COP is issued in the subsequent year, the agency should credit the GL Code 1352 and establish the GL Code 1354 from the OST.

To record first year interest-only debt service payment.  This payment is made by OST from the COP proceeds held by OST to cover interest expense during the construction period. 

To recognize interest earned on unspent COP proceeds held by OST and reported to the agency monthly.

To record an adjusting entry for construction in progress.  At a minimum, this entry should be made at fiscal year-end. Construction in progress is equal to the sum of construction expenditures ($10 million) and COI and UD($.3 million) less OIP ($.7 million).

At fiscal year-end for reporting purposes, to reclassify as short-term that portion of principal due within the next fiscal year.  At fiscal year-end (based on the assumptions in 85.85.50.a.(7)), the amount in GL Code 5173 Certificates of Participation Payable should agree with the next year’s principal payment on the agency’s COP amortization schedule.

In a subsequent period, assume that a debt service payment is scheduled:

• Principal $2 million,
• Interest expense $3.5 million, and
• Total COP debt service payment $5.5 million.

Payment components:

• $2 million is paid by OST from the remaining COP proceeds held by OST to cover interest incurred during the construction period,
• $1.1 million is paid by OST from interest earned on COP proceeds held by OST during the construction period,
• $2.4 million is paid in cash by the agency to OST, and
• OST makes the full COP debt service payment of $5.5 million to the fiscal agent.

Refer to Subsection 85.85.50.c.(6).

The following example is used to illustrate entries for real estate certificates of participation (COP) in a budgeted proprietary fund type account. Refer to Subsection 85.72.40.c.

An agency operating in a budgeted proprietary fund type account obtains proper legislative approval for construction of a new state office building and applies to the Office of the State Treasurer (OST) for COP financing.  OST sells a COP.  Proceeds of the COP are used for to pay for construction costs and interest incurred during the construction period.

Details of the issue are:

• Par amount of $73.6 million,
• Original issue premium (OIP) of $.7 million,
• Underwriter’s discount (UD) of $.2 million,
• Costs of issuance (COI) of $.1 million,
• COP proceeds for construction $60 million,
• COP proceeds for interest costs $14 million, and
• Net COP proceeds held by OST for the agency $74 million ($60 million for construction costs and $14 million for construction period interest).

Note: Original issue discount (OID) results when the par of the COP is more than the purchase price. An OIP results when the par of the COP is less than the purchase price.  Discounts that are related to underwriters’ fees are handled consistent with other issue costs. COI are generally included in the proceeds and paid separately. OST receives cash proceeds for the COI, but not for the UD and the OID. 

Details of the first year:

• $10 million is expended on construction,
• Debt service is $4 million, interest only, and
• Unspent COP proceeds earn $.8 million in interest revenue.

This example assumes that net construction period interest is material and is therefore capitalized, and that the OIP is immaterial, and therefore expensed. UD and COI are always expensed as issuance costs.  (If the OIP had been deemed material, it would be deferred in GL Code 5920 “Unamortized Premiums on Certificates of Participation” and amortized over the life of the COP using GL 6512 “Amortization Expense” Subobject WB “Amortization”). 

Unspent proceeds are held by OST and invested in the Local Government Investment Pool (LGIP) or with a trustee.

Note: Construction period interest is not capitalized in internal service funds.

To record the liability for the real estate COP, and the original issue premium, underwriter’s discount, and the expense of the costs of issuance (paid by OST).  When the COP is sold by OST, it becomes an obligation (liability) of the agency, even if the cash proceeds have not yet been received by the agency.  The time period between the COP sale date and the closing date is generally two weeks or less.

To record construction expenditures, reimbursement by OST, and elimination of budgeted expenditures.

To record interest earned on unspent COP proceeds held by OST and reported to the agency monthly.

Once the COP proceeds held by OST to cover interest expense during the construction period are expended, the interest payments will be paid by the agency to OST. 

Additionally, once construction is completed the interest payment is no longer capitalized. The interest payment is charged to interest expense in GL Code 6510 Cash Expenditures, Subobject PE - Interest COP Lease-Purchase Agreements.  Refer to Subsection 85.85.50.b(5).

At fiscal year-end for reporting purposes, to reclassify as short-term that portion of principal due within the next fiscal year.  At fiscal year-end (based on the assumptions in 85.85.50.b.(6)), the amount in GL Code 5173 should agree with the next year’s principal payment on the agency’s COP amortization schedule.

In a subsequent period, assume that a debt service payment is scheduled:

• Principal $2 million,
• Interest expense $3.5 million, and
• Total COP debt service payment $5.5 million.

Payment components:

• $2 million is paid by OST from the remaining COP proceeds held by OST to cover interest incurred during the construction period,
• $1.1 million is paid by OST from interest earned on the COP proceeds held by OST during the construction period,
• $2.4 million is paid in cash by the agency to OST,
• OST makes the full COP debt service payment of $5.5 million to the fiscal agent.

Refer to Subsection 85.85.50.c.(6).

Using the same example as in Subsection 85.85.50 a and b above, an agency obtains proper legislative approval for the construction of a new state office building and applies to the Office of the State Treasurer (OST) for COP financing.  OST sells a COP.  Proceeds of the COP are used to pay for construction costs and interest incurred during the construction period.

Details of the issue are:

• Par amount of $73.6 million,
• Original issue premium (OIP) of $.7 million,
• Underwriter’s discount (UD) of $.2 million,
• Costs of issuance (COI) of $.1 million,
• COP proceeds for construction $60 million, and
• COP proceeds for interest costs $14 million.

Note: Original issue discount (OID) results when the par of the COP is more than the purchase price.  OIP results when the par of the COP is less than the purchase price.  Discounts that are related to underwriters’ fees are handled consistent with other issue costs. COI are generally included in the proceeds and paid separately. OST receives cash proceeds for the COI, but not for the UD and the OID. 

Details of the first year:

• $10 million is expended on construction,
• Debt service is $4 million, interest expense only, and
• Unspent COP proceeds earn $.8 million in interest revenue.

The entries for OST are as follows:

All entries are made to Account 739 (Certificates of Participation and Other Financing Account - State):

To record the closing of the COP sale with the underwriter, and investment of the proceeds in the LGIP.  OST receives cash for the construction proceeds, the interest expense due during construction, and the costs of issuance.

To record debt service in a subsequent period. OST receives a cash payment from an agency of $2.4 million and uses the remaining COP proceeds held to cover interest expense during the construction period of $2 million and the accumulated interest earned on the COP proceeds held on deposit of $1.1 to pay the total debt service of $5.5 million. 

The following example is used to illustrate entries for an advance refunding of a real estate certificate of participation (COP) in a governmental fund type account. Refer to Section 85.72.40.f.

Details of the old (refunded) COP are:

• Principal balance $250,000, and
• Interest due $1,400

Details of the new (refunding) COP are:

• Principal balance $239,000,
• Original issue premium (OIP) $15,000,
• Underwriter’s discount (UD) $1,600,
• Costs of issuance (COI) $1,000, and
• Total reacquisition price $251,400 ($239,000 + 15,000 – 1,600 – 1,000).

The following example is used to illustrate entries for an advance refunding of a real estate certificate of participation (COP) in a proprietary fund type account.  Refer to Section 85.72.40.f.

Details of the old (refunded) COP issue are:

• Principal balance $251,000 (5 years remaining),

Details of the new (refunding) COP are:

• Principal balance $250,000 (10 years),
• Original issue premium (OIP) $10,000 (assume material),
• Underwriter’s discount (UD) $2,600,
• Costs of issuance (COI) $2,400, and
• Total reacquisition price $255,000 ($250,000 +10,000 -2,600 – 2,400)

To record vendor payment advance transactions. Refer to Subsection 85.74.10.

Initial Advance

To record entries related to payments on public works contracts including retained percentages. Refer to Subsection 85.74.20.

Payment to Contractor

Retained in State Account

To record the amount retained by the state, in a treasury/treasury trust or local account, from a progress billing.

Payment of Amounts Retained in State Account

To record the payment of amounts retained by the state in a treasury/treasury trust or local account.

Retained in Escrow or Interest Bearing Account

To record the amount of retained percentages placed in escrow or in an interest bearing account from a progress billing.

Payment of Amounts Retained in Escrow or an Interest Bearing Account

To record the payment of amounts retained in escrow or in an interest bearing account.

This illustrative entry of a claims liability displays the accrual of a dispute with the federal government over questioned program costs when it is probable that the state will be required to refund federal revenue.  Refer to Subsection 85.74.40.