Question

Chapter 5 Recording Capital Asset Transactions

Street Improvement Capital Projects Fund and Governmental Activities at the Government-wide Level

During late 2016, the voters of the City of Smithville authorized tax-supported bond issues totaling $8,000,000 as partial financing for a series of projects to construct streets, curbs, culverts, and storm sewers in various parts of the city. The estimated total cost of the series of projects, which are expected to extend over the next three years, was $10,200,000. In addition to the bond financing, voters also approved a special ½ cent sales tax to assist in financing the projects. The sales tax begins January 1, 2017 and will continue for five years. The sales tax is projected to generate $500,000 each year.

Required

a. Prepare general journal entries as necessary to record the transactions described below in the Street Improvement Fund general journal and, if applicable, in the governmental activities general journal. Do not record entries at this time in other affected funds; those entries will be made in the later chapters of this cumulative problem that cover the affected funds. Use account titles listed under the drop down [Account (# - Description)] menu. Be sure the year 2017 is selected from the drop-down [Year] menu and the appropriate paragraph number shown in bold-face font below is in the [Transaction Description] box.

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1.[Para. 5-a-1] In early 2017, design plans and specifications for the first project, the Elm Street Project, were submitted by a construction engineering firm. The firm billed the Street Improvement Fund for $125,000.

Required: Record this billing and the related Vouchers Payable liability in the Street Improvement Fund and governmental activities journals. (Note: this transaction was not encumbered.)

2.   [Para. 5-a-2] On April 15, 2017, construction bids were opened and analyzed. A bid of $2,100,000 was accepted, and the contract was awarded for the Elm Street Project. The contract provided for a retained percentage of 5 percent from each progress payment, and from the final payment, until final inspection and acceptance by the city’s public works inspectors.

Required: Record the signing of the contract in the Street Improvement Fund general journal. This transaction has no effect at the government-wide level.

[Para. 5-a-3] On May 6, 2017, 4% deferred serial bonds with a face value of $2,000,000 were sold for a total amount of $2,070,000, of which $28,000 was for accrued interest from the January 1, 2017 date of the bonds and $42,000 was a premium on the bonds sold. Cash in the amount of the accrued interest and premium was deposited directly in the Street Improvement Bond Debt Service Fund. Cash in the amount of $2,000,000 was deposited and recorded in the Street Improvement Fund.

Required: Record this transaction in the Street Improvement Fund and governmental activities journals. (Hint: In addition to recording the liability for bonds payable in the governmental activities journal, you should record the premium on the bonds payable [credit Premium on Deferred Serial Bonds] and accrued interest on bonds sold [we recommend that you credit Expenses—Interest on Long-term Debt] in the governmental activities general journal for the $28,000 of accrued interest.) For now you should not make the entry in the Street Improvement Bond Debt Service Fund to record the accrued interest and premium. That entry will be made in Chapter 6 of this cumulative problem.

4.   [Para. 5-a-4] Vouchers payable (see Transaction 1) were paid on April 20, 2017.

Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.

[Para. 5-a-5] In July 2017, the contractor for the Elm Street Project reported that the project was one-half completed and requested a progress payment of $1,050,000.

Required: Record the liability for the progress billing in both the Street Improvement Fund and governmental activities general journals.

[Para. 5-a-6] The billing for the partially completed Elm Street Project (see Transaction 5) was paid in late July, less the contractual retention of 5 percent.

Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.

7.[Para. 5-a-7] In late November 2017 the Elm Street Project was completed and the contractor for the project requested a final payment of $1,070,000. This amount was recorded as a liability.

Required: Record the liability for the final billing in both the Street Improvement Fund and governmental activities journals.

8.[Para. 5-a-8] During the year sales taxes were collected in the amount of $450,000.

Required: Make the summary journal entries in both the Street Improvement Fund and governmental activities journals to record the collection of sales taxes.

9. [Para. 5-a-9] Payment was made for the final billing on the Elm Street Project, less the retained percentage, on December 1, 2017.

Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.

10.[Para. 5-a-10] Upon final inspection of the Elm Street Project, the city inspector determined that all work conformed to specifications. Retained percentages (Transactions 6 and 8) were paid to the contractor.

Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. Total construction expenditures for the Elm Street Project should be capitalized in the Infrastructure account in governmental activities.

Answer 1