41.(Journal entries for a major construction project)

Prepare journal entries to record the following transactions of a state, identifying the funds affected by each transaction. Record journal entries for all funds affected.  The state prepares a budget for the Capital Projects Fund and uses encumbrance accounting in that fund.             

a.The state records its capital budget. It appropriates $10 million for highway construction, which will be financed entirely with the issuance of bonds.

b.The state sells 20-year 6% bonds having a face value of $10 million. The bonds are sold at a discount, so the state realizes a total of $9,900,000. Equal installments of principal will be paid every six months, together with interest on the unpaid balance.

c.The state awards two contracts, one for highway construction ($6,500,000) and one for construction supervision ($350,000). Both contracts provide for progress payments. The highway construction contract provides for 10% retainage pending completion of the project.  There is no retainage on the construction supervision contract. 

d.The construction contractor submits an invoice for $1,500,000. The invoice is approved and a voucher is prepared, less the 10% retainage.

e.The construction supervisor submits an invoice for $100,000, and a voucher is prepared.

f.Both of the invoices in transactions d. and e. are paid.

g.The state transfers $800,000 from the General Fund to the Debt Service Fund in anticipation of the payment of debt service on the bonds.

h.The first semi-annual debt service on the 20-year bonds becomes due and payable (see transaction b).

i.The debt service is paid.

42.(Preparing entries to close a Capital Projects Fund) [see p. 195… uses “close” not “abolish”]

You are the Finance Director of the Town of Blue Mountain.  Presented below is the trial balance for a Capital Projects Fund of the Town at October 31, 2013.  The Town Engineer has advised you that the project accounted for within this fund, a new system of bicycle trails, is complete and formal acceptance by the Town is pending.  The Town Council has directed you to abolish this fund and transfer any remaining net assets to the Town’s Debt Service Fund.  Prepare the entries necessary to settle the remaining liabilities of the fund, close the accounts, and transfer the remaining net assets to the Debt Service Fund.

.

Town of Blue Mountain

Capital Projects Fund

Preclosing Trial Balance

October 31, 2013

Debits

Credits

Cash

$  70,160

Vouchers payable

$ 24,450

Retainage percentage

42,750

Restricted fund balance

117,285

Revenues – interest

50,175

Expenditures – capital outlay

    197,000

Transfer in from General Fund

  32,500

$ 267,160

$ 267,160



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