the construction

P. 6-5 P. 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 gov- ernment 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 mil- lion reimbursement grant from the state. TH fo $8 ex OV pe 273 The balance is to be paid by the government out of its gen eral fund. Property owners are to be assessed an amount suf- ficient 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, as required in the enabling documents, in a capital projects fund. 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. Problems 1. 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 trans- ferred to a newly established debt service fund. 2. It received the $1.0 million grant from the state, recog- nizing it as a liability until it incurred at least $1.0 mil- lion in construction costs. 3. It invested $7.62 million in short-term (less than one year) securities. 4. It issued purchase orders and signed construction contracts for $9.2 million. 5. It sold $5.0 million of its investments for $5.14 mil- lion, the excess of selling price over cost representing 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. 6. 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 sat- isfactory completion of the project. It paid the balance of $5.3 million. It transferred $0.12 million to the debt service fund. 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. 7. 8