Journal entries

The City of Oconee plans to develop a golf course during 2022 and account for it as a Golf Enterprise Fund. The course will be built on land purchased from a private party (cost of $500,000). The planned costs for the new course and their financing are as follows:

Spending

Land, purchase from private party 500,000

Installation of sprinklers, sod, landscaping, and fencing (expected life 10 years) 1,000,000

Construction of clubhouse (expected life 30 years) 3,000,000

Total Costs 4,500,000

Capital Financing

Contribution from the General Fund 1,500,000

Term revenue Bonds at 8% per annum, interest payable semiannual 3,000,000

Total Capital financing 4,500,000

The City plans to sell the bonds on February 1, 2021. Because the bonds are a term issue, bond principal matures in full on February 1, 2031. Interest is payable each August 1 and February 1, beginning February 1, 2022. Oconee has a calendar fiscal year.

Palmer Design and Construction, Inc. has been awarded the contract to develop the golf course. Construction will commence on 9/15/21 and be completed no later than March 31, so it can open for business during April. The contract stipulates that progress billings from Palmer will be paid within 30 days or receipt, with 5% retainage held pending completion and acceptance of the project. The city engineer will inspect the contractors work and approve the progress payments.

Accounting for the golf course will be done by the citys existing accounting department (a General Fund department), which will bill the golf course for services rendered at the end of the year. To help the golf course get on its feet financially, no interfund payables will be settled in cash during 2021-2022.

Prepare journal entries (not the closing ones) to record the following transactions for the year ended June 30, 2022 in the Golf Course Enterprise Fund. The corresponding entries that would be made in other funds are not required.

1) July 5, 2021: Oconee formally establishes the GEF; the first transaction was the receipt in cash of the capital contribution from the General Fund.

2) July 24: The City acquired the adjacent parcel of land from the private owner for the planned $500,000.

3) August 1: The revenue bonds were sold at par ($3,000,000).

4) August 15: Development of the golf course itself and construction of the clubhouse commenced.

5) September 31: Palmer submitted the progress billing of $1,800,000. The billing was approved and set up as a construction contracts payable after deducting the 5% retainage. (Because of the short duration of the construction period, no construction in progress accounts will be used.) $400,000 of the amount billed represents the cost of the sod, sprinklers, landscaping, and fencing (which the city classifies as improvements other than buildings). The balance applies to the cost of the clubhouse (buildings).

6) October 25: The contracts payable due Palmer was paid.

7) December 30: The second progress billing from Palmer was, 1,500,000 was approved and set up as a construction payable after deducting the 5% retainage. $600,000 applies to sod, sprinklers, landscaping, and fencing (completed), with the remainder to the clubhouse.

8) Interest was accrued on the revenue bonds.

9) January 28: The construction contracts payable due Palmer was paid.

10) February 1: The first debt payment on the revenue bonds was made.

11) March 24: Palmers third and final payable progress billing, $700,000 (all of which represents clubhouse construction costs), was approved and set up as a construction contracts payable after deducting the 5% retainage.

12) March 30: The construction contracts currently due Palmer was paid.

13) April 1: The new Golf Course was formally accepted by the City (without need for touch-up work), and all remaining amounts were paid to Palmer.

14) April 2: Inventory in the of $12,000 was acquired for the pro shop; the purchase created an accounts payable.

15) April 4: The course opened for busines. Greens fees (charges for services) aggregated $209,000 for April. Pro shop sales (all cash) amounted to $5,000.

16) April 30: Expenses for April were as follows. (Charge all expenses to Operating expensescost of sales).

a) Maintenance and pro shop labor (paid in cash) 48.000

b) Maintenance supplies from the Parks Departmenta Special Revenue Fund

(invoice received but not paid) 4,000

c) Water, supplied by the Oconee water utilityan Enterprise Fund

(invoice received but not paid) 80,000

d) Cost of merchandise sold by the pro shop 2,200

17) June 30: Greens fee revenues for the second half of the year 2021 totaled $370,000, pro shop sales for the same period were $21,200.

18) August 1: The second debt payment on the revenue bonds was made.

19) Dec. 31: Second half 2022 were as follows:

a) Maintenance and pro shop labor (paid in cash) 70.000

b) Maintenance supplies from the Parks Departmenta Special Revenue Fund

(invoice received but not paid) 4,000

c) Water, supplied by the Oconee water utilityan Enterprise Fund

(invoice received but not paid) 80,000

d) Cost of merchandise inventory sold by the pro shop 2,900

e) Accounting and administrative services provided by the accounting

DepartmentGeneral Fund (invoice received but not paid) 9,000

20) December 31: Interest was accrued on the revenue bonds.

21) December 31: the GEF recorded depreciation for 2021 on the building and improvements. (9 months).