6-3

Capital projects funds account for construction expenditures, not for the assets that are being constructed. The Wickliffe City Council approves a budget of $9,027,000 to restore the city library. The project is to be funded by the issuance of $6 million of general obligation bonds, a $2.5 million state grant, and $527,000 from general fund property taxes. The city estimates that construction costs will be $8,907,000 and bond issue costs $120,000.

1. Prepare journal entries in the capital projects fund to reflect the following events and

transactions.

a. The city issues 9%, 15-year bonds that have a face value of $6,000,000. The bonds are

sold for $6,120,000, an amount reflecting a price of $102. The city incurs $115,000 in

issue costs; hence, the net proceeds are $6,005,000.

b. The city transfers the net premium of $5,000 to its debt service fund.

c. It receives the anticipated $2,500,000 from the state, and it transfers in $527,000 from

the general fund.

d. It signs an agreement with a contractor for $8,890,000.

e. It pays the contractor $8,890,000 upon completion of the project.

f. It transfers the remaining cash to the debt service fund.

2. Prepare appropriate closing entries.