N.Y. Comp. Codes R. & Regs. tit. 9 § 1643-2.4
Current through Register Vol. 46, No. 25, June 18, 2024
Section 1643-2.4 - Temporary financing: funds borrowed from private investors; initial financing(a) Resolution authorizing the execution of requisition agreements and the issuance of advance loan notes in the aggregate maximum principal amount of the loan contract. This resolution is passed, prior to the initial financing, at the same time as the resolution authorizing the contracting of indebtedness and the issuance of certificates of indebtedness. Passage of this resolution indicates that the local agency anticipates borrowing funds required for the temporary financing of project cost from private investors, rather than from the State. The resolution gives the form of the requisition agreements and advance loan notes but, unlike the resolution authorizing the contracting of indebtedness, does not authorize the officers of the local agency to execute requisition agreements and issue advance loan notes, as required. Each requisition agreement and each issue of advance loan notes must be authorized by separate resolutions of the local agency. Accounting entry: No accounting entry is made to reflect passage of this resolution.
(b) Resolution authorizing the execution of a requisition agreement and the execution and deposit, in escrow, of an advance loan note as security for an issue of temporary loan notes. The passage of this resolution represents the second step in the initial financing, where funds are to be borrowed from private investors. As previously noted, the advance loan note should be authorized in an amount sufficient to pay the principal of and interest on the temporary loan notes for which it is the security. Inasmuch as the advance loan note is executed in advance of the issuance of the temporary loan notes, at which time the actual rate of interest may not yet have been fixed, an estimated rate will be used for the purposes of computing the interest to be included in the principal amount of the advance loan note. For example, assume an advance loan note is being prepared in connection with an issue of $500,000 principal amount of temporary loan notes, which will have a maturity of six months from date of issue. The interest rate on the latter has not yet been fixed by negotiation with the private investors or through competitive bidding. Assume that reference to the financial columns of the newspapers or inquiry addressed to the division establishes the fact that recent issues of short term paper by local agencies have carried interest rates of one per cent per annum. Application of this rate to the temporary loan notes to be issued would give an estimated interest cost of $2,500 which is rounded off to the next higher $1,000 and added to the principal amount of the temporary loan notes to give an advance loan note in the amount of $503,000. Accounting entry: No accounting entry is made to reflect passage of the resolution authorizing the execution of the requisition agreement and the execution and deposit, in escrow, of the advance loan note. The execution and deposit, in escrow, of the advance loan note should be the subject of a balance sheet footnote to the effect that temporary loan notes outstanding in the amount of $______ are secured by a requisition agreement and an advance loan note in the amount $_____, held in escrow by the ________ bank.
(c) Resolution authorizing the execution and issue of temporary loan notes. (1) Passage of this resolution is the third step in the initial financing, where funds are to be borrowed from private investors. Accounting entry: No accounting entry is made to reflect the passage of this resolution.
(2) Depending on the expressed wishes of the private investors, an issue of temporary loan notes may consist of a single note or be broken up into a number of notes. The issue itself is assigned a roman numeral for identification purposes. The individual notes comprising the issue are called series and are assigned arabic numerals. Thus the initial issue of temporary loan notes may consist of three individual notes number I-1, I-2, I-3 and identified as Issue I, Series 1; Issue I, Series 2; Issue I, Series 3, etc.(d) Receipt of proceeds of initial temporary loan note issue. Assuming that the local agency is to borrow $500,000, the accounting entry for the receipt of the proceeds of the initial issue of temporary loan notes is made through the cash receipts register, as follows: Entry (3):
Debit: Account 1111, Development Fund $500,000
Credit: Account 2120, Temporary Loan Notes Payable $500,000
N.Y. Comp. Codes R. & Regs. Tit. 9 § 1643-2.4
Premiums, if any, received on the sale of the notes will be simultaneously credited through the cash receipts register or general journal, as described in section 1644-2.5.