Question

The citizens living on Carmelo Avenue agreed to a capital improvement special assessment to replace sidewalks on both sides of the avenue. The city will oversee the construction, issue special assessments debt to pay for it, and bill (assess) homeowners for their portion of the cost. The estimated cost of the project is $4.0 million. The city itself will be responsible for any defaults on the part of the homeowners. Because the city uses a separate capital projects fund for its projects, it does not integrate budgetary accounts. However, it does use encumbrance accounting. REQUIRED: Provide journal entries for the city's fund and discussion as follows: Be sure to indicate in which fund the entry should be recorded:

1. The city puts the project out for his and accepts the lowest competitive bid of $3.7 million.

2. The contractor does the work and bills the city for $3.9 million -- $0.2 million over the contracted amount. The city council approves the overage. The city lends resources from its general fund to pay the bill, pending issuance of special assessment debt.

3. The city issues $4.0 million in 10-year special assessment debt. The city receives $3.9 million, an amount that is net of debt issue costs of $0.1 million.

4. The capital projects fund repays the city's general fund.

Answer 1

The relevant journal entries (the funds to which the journal entries are required to be posted are marked in bold) are prepared as below:

Event	Account Titles	Debit	Credit
a)	CAPITAL PROJECTS FUND
	Encumbrances	$3.7 million
	Reserve for encumbrances		$3.7 million
b)	GENERAL FUND
	Due from Capital Projects Fund	$3.9 million
	Cash		$3.9 million
	CAPITAL PROJECTS FUND
	Cash	$3.9 million
	Due to General Fund		$3.9 million
	Expenditures	$3.9 million
	Reserve for encumbrances	$3.7 million
	Cash		$3.9 million
	Encumbrances		$3.7 million
c)	CAPITAL PROJECTS FUND
	Cash	$3.9 million
	Debt Issue Costs (Expenditure)	$.1 million
	Other Financing Sources - Debt Proceeds		$4 million
d)	CAPITAL PROJECTS FUND
	Due to General Fund	$3.9 million
	Cash		$3.9 million
	GENERAL FUND
	Cash	$3.9 million
	Due from Capital Projects Fund		$3.9 million