Question

a) The City of Chicago sold bonds in the amount of $5,000,000 to finance the construction of a sports center. The bonds are serial bonds and were sold at par on July1, 2002 the first day of a fiscal year. Shortly thereafter a construction contract in the amount of $4,500,000 was assigned and the contractor commenced work. By year-end, the contractor had been paid in full for all billings to date amounting to $2,000,000. Required: Prepare in general journal form all entries that should have been made during the fiscal year ended June 30, 2003 to record the above information in the capital projects fund(including closing entries) b) Compute the legal debt margin for the City of Huston given the following information regarding its bonded debt 1) The legal debt limit is 10 percent of total assessed valuation 2) Bonds outstanding and bonds authorized are: Face Amounts Description Authorized Outstanding General obligation street construction 12,000,000 12,000,000 Special assessment sidewalk construction 2,000,000 2,000,000 General obligation park acquisition 2,000,000 0 Water Utility Fund revenue 5,000,000 5,000,000 Industrial development revenue 6,000,000 6,000,000 Note: The City has no liability for the revenue bonds or the industrial development bonds. 3) Total assessed valuation of property within the City of Huston is $200,000,000.

Answer 1

Journal entries

Bank a/c               Dr.                                                          50,00,000

To Bonds                                                                                             50,00,000

( Being The City of Chicago sold bonds in the amount of $5,000,000 to finance the construction of a sports center)

Genral reserves Dr.                                                         45,00,000

To Building Fund                                                                               45,00,000

(Being construction contract in the amount of $4,500,000 was assigned)

Capital WIP         Dr.                                                          20,00,000

To Contractor                                                                                    20,00,000

Contractor          Dr.                                                          20,00,000

To Bank                                                                                                20,00,000

(Being the contractor had been paid in full for all billings to date amounting to $2,000,000.)

legal debt margin for the City of Huston asfollowing

Total Assesed Value	20,00,00,000.00
Legal Debt Limit@10%	2,00,00,000.00
Debt O/s	(1,60,00,000.00)
Further Debt Allowed	40,00,000.00