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?The following transactions occurred during 2012: 1. The City of Watersville approved the construction of an enclosed concert arena for a total cost of $75,000,000
?The following transactions occurred during 2012: |
1. The City of Watersville approved the construction of an enclosed concert arena for a total cost of |
$75,000,000 in order to attract professional events. On the same day, a contract with a 6 percent |
retainage clause was signed with V.P. Construction Company for the arena. ?The arena will be |
financed by a $75,000,000 general obligation bond issue. Investment revenue of $4,000,000 was |
also included in the budget. (Assume that the budget is recorded in the accounts and encum- |
brance accounting is used.) |
2. Watersville received $76,000,000 from the sale of bonds, which included a premium of |
$1,000,000 over the $75,000,000 face value. ?The $1,000,000 premium was transferred |
immediately to the appropriate Debt Service Fund. |
3. ?The city invested $74,900,000 in securities. |
4. ?The contract signed with V.P. stipulated that the contract price included the architect fees. ?The |
architects were paid their fee of $25,000 by Watersville. (Assume that a vouchers payable |
account was not used.) |
5. ?The contractor submitted a progress billing of $3,000,000; the billing (less a 6 percent retain- |
age) was approved. |
6. Investments that cost $3,000,000 were redeemed for $3,000,000 plus $50,000 interest. |
7. V. P. was paid the amount due in transaction 5. |
8. Income totaling $3,700,000 was received on the investments. |
9. V. P. submitted another progress billing of $8,000,000. ?The billing, less the retainage, was approved. |
10. Investments originally costing $7,800,000 were redeemed to make the payment to V.P. Cash |
proceeds of $8,100,000 were received. |
11. ?The contractor was paid the amount due in transaction 9. |
12. Investment income of $60,000 was accrued. |
13. Investment income of $10,000 was received in cash. |
Use the preceding information to do the following: |
a. Prepare the journal entries necessary to record these transactions in the Capital Projects Fund. |
Assume that the city operates on a calendar year. |
b. Prepare a trial balance for the Capital Projects Fund as of December 31, 2012, before closing. |
c. Prepare any necessary closing entries. ?he debt covenant for the general obligation bonds |
states that the bond proceeds and any earnings from investing the proceeds must be used for |
the construction of the arena. If any unused bond proceeds or related investment earnings |
remain at completion of the project, they will be transferred to the Debt Service Fund. |
d. Prepare a statement of revenues, expenditures, and changes in fund balance for 2012 and a bal- |
ance sheet as of December 31, 2012. |
e. Prepare the journal entries necessary to record the remainder of the budget and to reestablish |
the budgetary accounts for encumbrances on January 1, 2013. Assume that investment revenue |
expected to be earned in 2013 is $2,000,000. |
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