EX.6-4

Capital projects funds account for construction expenditures, not for the assets that are being constructed. The Wickliffe City Council authorizes the restoration of the city library. The project is to be funded by

the issuance of bonds, a reimbursement grant from the state, and property taxes.

1.Prepare journal entries in the capital projects fund to reflect the following events and transactions: a. The city approves (and gives accounting recognition to) the project?s budget of $9,027,000, of which $6,000,000 is to be funded by general obligation bonds, $2,500,000 from the state, and the remaining $527,000 from the general fund. The city estimates that construction costs will be

$8,907,000 and bond issue costs $120,000. b. The city issues 9 percent, 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. c. The city transfers the net premium of $5,000 to its debt service fund. d. It receives the anticipated $2,500,000 from the state and transfers $527,000 from the general fund. e. It signs an agreement with a contractor for $8,890,000. f.It pays the contractor $8,890,000 upon completion of the project. g. It transfers the remaining cash to the debt service fund.

2.Prepare appropriate closing entries.

(Granof 268-269)

Granof, Michael H., Saleha Khumawala, Thad Calabrese, Daniel Smith. Government and Not-for-Profit Accounting: Concepts and Practices, 7th Edition. Wiley, 12/2015. VitalBook file.

P.6-2 Page 272 see the attachment.

P. 6-5

The construction and financing phase of a special assessment project is accounted for in a capital projects fund, and the debt service phase is accounted for in a debt service fund (see the next problem).

Upon annexing a recently developed subdivision, a government undertakes to extend sewer lines to the area. The estimated cost is $10.0 million. The project is to be funded with $8.5 million in special assessment bonds and a $1.0 million reimbursement grant from the state.

The balance is to be paid by the government out of its general fund. Property owners are to be assessed an amount sufficient to pay both principal and interest on the debt.

During the year, the government engaged in the following transactions, all of which would be recorded in a capital projects fund.

1.It recorded the capital projects fund budget. It estimated that it would earn $0.20 million in interest on the temporary investment of bond proceeds, an amount that will reduce the required transfer from the general fund. It estimated that bond issue costs would be $0.18 million.

2.It issued $8.5 million in bonds at a premium of $0.30 million and incurred $0.18 million in issue costs. The premium, net of issue costs, is to be transferred to a newly established debt service fund.

3.It received the $1.0 million grant from the state, recognizing it as a liability until it incurred at least $1.0 million in construction costs.

4.It invested $7.62 million in short?term (less than one year) securities.

5.It issued purchase orders and signed construction contracts for $9.2 million.

6.It sold $5.0 million of its investments for $5.14 million, the excess of selling price over cost represent- ing interest earned. By year?end the investments still on hand had increased in value by $0.06 million, an amount also attributable to interest earned.

7.It received invoices totaling $5.7 million. As permitted by its agreement with its prime contractor, it retained (and recorded as a payable) $0.4 million pending satisfactory completion of the project. It paid the balance of $5.3 million.

8.It transferred $0.12 million to the debt service fund.

9.It updated its accounts, but did not close them because the project is not completed and its budget is for the entire project, not for a single period. a. Prepare appropriate journal entries for the capital projects fund. b. Prepare a statement of revenues, expenditures, and changes in fund balance in which you compare

actual and budgeted amounts. c. Prepare a year?end (December 31) balance sheet. d. Does your balance sheet report the construction in process? If not, where might the construction in

process be recorded?

(Granof 275)

Granof, Michael H., Saleha Khumawala, Thad Calabrese, Daniel Smith. Government and Not-for-Profit Accounting: Concepts and Practices, 7th Edition. Wiley, 12/2015. VitalBook file.