Question

Journal entries and financial statements for an Enterprise Fund

The City of Whitt Falls plans to develop a golf course during 2018 and account for it as the Golf Enterprise Fund (GEF). The course will be built on a parcel of land to be purchased from a private party. The planned out-of-pocket costs for the new course and their financing are as follows:

Spending
Acquisition of land from private party	$ 500,000
Installation of sod, sprinklers, landscaping, and fencing	1,000,000
Construction of clubhouse	3,000,000
Total spending	$4,500,000

Capital Financing
Contribution from the General Fund	$1,500,000
Term revenue bonds at 8 percent per annum, interest payable semiannually	3,000,000
Total capital financing	$4,500,000

The City plans to sell the bonds on February 1, 2018. Because the bonds are a term issue, bond principal matures in full on February 1, 2028. Interest is payable each August 1 and February 1, beginning August 1, 2018. The bond covenant requires that assets equal to one-tenth of the bond principal be transferred to a restricted account within the GEF on December 31 of each year. Whitt observes a calendar fiscal year.

Simmons Design and Construction, Inc. (Simmons) has been awarded the contract to develop the golf course. Construction will commence February 15, 2018, and be completed no later than May 31, so it can open for business during June. The contract stipulates that progress billings from Simmons will be paid within 30 days of receipt, with 5 percent retainage held pending completion and acceptance of the project. The city engineer will inspect the contractor’s work and approve progress payments.

Accounting for the GEF will be done by the city’s existing accounting department (a General Fund department), which will bill the GEF for services rendered at the end of the year. To help the GEF get on its feet financially, no interfund payables will be settled in cash during 2018.

Prepare (a) journal entries (including closing entries) to record the following events and transactions for the year ended December 31, 2018, in the GEF. The corresponding entries that would be made in other funds are not required. In addition, prepare (b) the statement of net position and (c) the statement of revenues, expenses, and changes in net position for the GEF as of and for the fiscal year ending December 31, 2018.

1. January 3, 2018: Whitt Falls formally established the GEF; the fund’s first transaction was the receipt, in cash, of the capital contribution from the General Fund.

2. January 24: The city acquired the adjacent parcel of land from the private owner for the planned $500,000.

3. February 1: The revenue bonds were sold at par ($3,000,000).

4. February 15: Development of the golf course itself and construction of the clubhouse commenced.

5. March 31: Simmons submitted the first progress billing of $1,800,000. The billing was approved and set up as a construction contracts payable after deducting the 5 percent retainage. (Because of the short duration of the construction period, no construction in progress accounts will be used.) $400,000 of the amount billed represents the cost of sod, sprinklers, landscaping, and fencing (which the city classifies as “improvements other than buildings”). The balance applies to the cost of the clubhouse (“buildings”).

6. April 25: The construction contracts payable currently due Simmons was paid.

7. April 30: The second progress billing from Simmons, $1,500,000, was approved and set up as a construction contracts payable after deducting the 5 percent retainage; $600,000 applies to sod, sprinklers, landscaping, and fencing (which is now fully installed), with the remainder to the clubhouse building.

8. May 19: The construction contracts payable currently due Simmons was paid.

9. May 23: Simmons’ third and final progress billing, $700,000 (all of which represents clubhouse construction costs), was approved and set up as a construction contracts payable after deducting the 5 percent retainage.

10. May 30: The construction contracts payable currently due Simmons was paid.

11. June 1: The new golf course was formally accepted by the City (without need for “touch-up” work), and all remaining amounts due to Simmons were paid.

12. June 1: The City acquired golf course maintenance equipment by entering into a 4-year financing lease. The first lease payment of $50,000 was paid on June 2 when the equipment was delivered. The remaining lease payments of $50,000 each will occur on the first, second, and third anniversary of the first payment. Assume that the interest rate on the lease is 4 percent.

13. June 2: Inventory in the amount of $12,000 was acquired for the pro shop; the purchase created an accounts payable.

14. June 4: The course opened for business. Greens fees (charges for services) aggregated $209,000 for June. Pro shop sales (all for cash) amounted to $5,000.

15. June 30: Expenses for June were as follows. (Charge all expenses to “Operating expenses—cost of sales.”)

Maintenance and pro shop labor (paid in cash)	$48,000
Maintenance supplies, from the Parks Department—a Special Revenue Fund
(invoice received, but not paid)	4,000
Water, supplied by the Whitt Falls water utility—an Enterprise Fund
(invoice received, but not paid)	80,000
Cost of merchandise sold by the pro shop	2,200

16. August 1: The first debt service payment on the revenue bonds was made.

17. December 31: Greens fee revenues for the second half of 2018 totaled $370,000; pro shop sales for the same period were $21,200.

18. December 31: Second-half 2018 expenses were as follows:

Maintenance and pro shop labor (paid in cash)	$70,000
Maintenance supplies, from the Parks Department—a Special Revenue Fund
(invoice received, but not paid)	4,000
Water, supplied by the Whitt Falls water utility—an Enterprise Fund
(invoice received, but not paid)	80,000
Cost of merchandise sold by the pro shop	2,900
Accounting and administrative services provided by the accounting
department—General Fund (invoice received, but not paid)	9,000
Total expenses	$165,900

19. December 31: Interest was accrued on the revenue bonds.

20. December 31: The GEF recorded depreciation for 2018 as follows:

Building:	$35,000
Improvements	25,000

21. December 31: The GEF recorded amortization on the intangible asset lease of $23,594.

22. December 31: The restricted asset account—Cash restricted for bond principal retirement—was established in accordance with the requirements of the bond covenant.

Notes: 1. If no entry is required for a transaction, select "No entry" as your answers and leave the Debit and Credit answers blank (zero).
2. Round answers to the nearest whole number, when applicable.

Ref.	Description	Debit	Credit
1		Answer	Answer
		Answer	Answer
2		Answer	Answer
		Answer	Answer
3		Answer	Answer
		Answer	Answer
4		Answer	Answer
		Answer	Answer
5	Improvements other than buildings	Answer	Answer
		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
6		Answer	Answer
		Answer	Answer
7	Improvements other than buildings	Answer	Answer
		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
8		Answer	Answer
		Answer	Answer
9		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
10		Answer	Answer
		Answer	Answer
11		Answer	Answer
		Answer	Answer
12		Answer	Answer
		Answer	Answer
		Answer	Answer
		Answer	Answer
13		Answer	Answer
		Answer	Answer
14		Answer	Answer
		Answer	Answer
	Operating revenues—sales	Answer	Answer
15		Answer	Answer
		Answer	Answer
	Due to Parks Special Revenue Fund	Answer	Answer
	Due to Water Utilities Enterprise Fund	Answer	Answer
	Inventory	Answer	Answer
16		Answer	Answer
		Answer	Answer
17		Answer	Answer
		Answer	Answer
	Operating revenues—sales	Answer	Answer
18	Operating expenses—cost of sales and services	Answer	Answer
		Answer	Answer
		Answer	Answer
	Due to Parks Special Revenue Fund	Answer	Answer
	Due to Water Utilities Enterprise Fund	Answer	Answer
	Inventory	Answer	Answer
	Due to General Fund	Answer	Answer
19		Answer	Answer
		Answer	Answer
20		Answer	Answer
		Answer	Answer
	Accumulated depreciation—improvements other than buildings	Answer	Answer
21		Answer	Answer
		Answer	Answer
22		Answer	Answer
		Answer	Answer
Closing entry:
		Answer	Answer
	Operating revenues–charges for services	Answer	Answer
	Operating revenues–pro shop sales	Answer	Answer
	Operating expenses–costs of sales and services	Answer	Answer
	Operating expenses–administration	Answer	Answer
	Operating expenses–depreciation	Answer	Answer
	Operating expenses—lease amortization	Answer	Answer
	Nonoperating expenses–interest	Answer	Answer
		Answer	Answer

Answer 1

Sr No       Debit   Credit
1   Receipt, in cash, of the capital contribution from the General Fund.      
   Cash A/c   $1,500,000.00   
   General Fund       $1,500,000.00
          
2   Acquisitions of Land Parcel      
   Land A/c   $500,000.00   
   Cash A/c       $500,000.00
          
3   Sale of Revenus Bonds      
   Cash A/C    $3,000,000.00   
   Loan-Revenue Bonds       $3,000,000.00
          
4   Commencement of Development   No Entry  
           No Entry
          
5   On submission and approval of progress billing      
   Building-Clubs house A/c   $1,400,000.00   
   Improvements other than Buildings A/c   $400,000.00   
   Retention Money payable A/c       $90,000.00
   Simmons Design and Constructions, Inc A/c       $1,710,000.00
          
6   The construction contracts due now paid      
   Simmons Design and Constructions, Inc A/c   $1,710,000.00   
   Cash A/c       $1,710,000.00
          
7   On submission and approval of 2nd progress billing      
   Building-Clubs house A/c   $900,000.00   
   Improvements other than Buildings A/c   $600,000.00   
   Retention Money payable A/c       $75,000.00
   Simmons Design and Constructions, Inc A/c       $1,425,000.00
          
8   The construction contracts due now paid      
   Simmons Design and Constructions, Inc A/c   $1,425,000.00   
   Cash A/c       $1,425,000.00
          
9   On submission and approval of 3rd progress billing      
   Building-Clubs house A/c   $700,000.00   
   Retention Money payable A/c       $35,000.00
   Simmons Design and Constructions, Inc A/c       $665,000.00
          
10   The construction contracts due now paid      
   Simmons Design and Constructions, Inc A/c   $665,000.00   
   Cash A/c       $665,000.00
          
11   All remaining amounts due to Simmons were paid.      
   Retention Money payable A/c   $200,000.00   
   Simmons Design and Constructions, Inc A/c       $200,000.00
   Simmons Design and Constructions, Inc A/c   $200,000.00   
   Cash A/c       $200,000.00
          
12   Equipment on Finance Lease:      
   Intangible Asset A/c (Equipment on Lease)   $220,816.00   
   Finance Lease Liability       $220,816.00
          
13   Acquisition of Inventory      
   Inventory A/c   $12,000.00   
   Accounts Payable A/c       $12,000.00
          
14   Income Accounted-1st Half      
   Cash A/c   $214,000.00   
   Greens Fees Income A/c       $209,000.00
   Pro Shop Sales A/c       $5,000.00
          
15   Expenses accounted-1st Half      
   Operating expenses—cost of sales   $134,200.00   
   Cash A/c       $48,000.00
   Due to Parks Special Revenue Fund A/c       $4,000.00
   Due to Water Utilities Enterprise Fund       $80,000.00
   Inventory A/c       $2,200.00
          
16   The first debt service payment on the revenue bonds      
   Interest Expenses A/c   $120,000.00   
   Cash A/c       $120,000.00
          
17   Income Accounted-1st Half      
   Cash A/c   $391,200.00   
   Greens Fees Income A/c       $370,000.00
   Pro Shop Sales A/c       $21,200.00
          
18   Expenses accounted-1st Half      
   Operating expenses—cost of sales   165900  
   Cash A/c       70000
   Due to Parks Special Revenue Fund A/c       4000
   Due to Water Utilities Enterprise Fund       80000
   Inventory A/c       2900
   Due to General Fund A/c       9000
          
19   Interest accrued on Revenue Bonds      
   Interest Expenses A/c   $100,000.00   
   Interest Payable A/c       $100,000.00
          
20   Depreciation      
   Depreciation on Building A/c   $35,000.00   
   Depreciation on Improvemnets A/c   $25,000.00   
   Accumulated depreciation—Buildings A/c       $35,000.00
   Accumulated depreciation—improvements other than buildings A/c       $25,000.00
          
21   Amortization of Intangible Assets      
   Amortization of Intangible Assets A/c   $23,594.00   
   Accumulated Amortization-Intangible Assets       $23,594.00
          
22   Creation of Restricted account   No Entry  
           No Entry
          
23   Closing entry      
   Operating expenses      
   Finance Cost A/C   $2,000.00   
   Lease Liability A/c       $2,000.00
          
   Lease Expenses A/c   $50,000.00   
   Lease Payment A/c       $50,000.00
          
   Lease Liability A/c   $50,000.00   
   Lease Expenses A/c       $50,000.00