Assume that Stafford Township decided to construct a bridge in 2018 that is expe
ID: 2399852 • Letter: A
Question
Assume that Stafford Township decided to construct a bridge in 2018 that is expected to cost $3,000,000. The bridge construction and related costs are to be financed as follows;
Federal Grant $1,200,000
Bond Issue Proceeds 1,500,000
Transfer from the General Fund 300,000
$3,000,000
The Federal Grant is for 40% of the qualifying project expenditures with a maximum grant limit of $1,200,000. It is an expenditure driven grant. Any excess unearned grant cash received will be refunded to the federal government at the completion of the project. Stafford Township applies encumbrances to control expenditures.
The bridge is to be constructed by Ace Construction Company. The Stafford Township government workforce will perform all earthmoving & landscaping work. The estimated cost of the bridge is as follows:
Bridge Structure
Ace Construction Company $2,400,000
Earthmoving & landscaping
Stafford Township 600,000
3,000,000
Please fill in Jounral entry:
1 Budgetary Entry - Revenues Account Debit Credit Estimated Revenues - Federal Grant 1,200,000 Estimated Other Financing Sources - Bond 1,500,000 Estimated Other Financing Sources - Transfer 300,000 Appropriations - Bridge Structure 3,000,000 2 Budgetary Entry - Expenditures Account Debit Credit 3 Ace Construction Company signs a contract and begins work on the bridge Account Debit Credit 4 The General Fund transfers $300,000 to the Capital Project Fund as seed money to start operations Account Debit Credit 5 Egg Harbor Township issues bonds at a premium at $1,500,000. Bond Issue Costs paid to the underwriter (Morgan Stanley) was $5,000 Account Debit Credit 6 Egg Harbor Township transferred the Excess of the Bond Premium over issue costs to the Debt Service Fund Account Debit Credit 7 Egg Harbor Township incurred Earthmoving Expenses of $400,000 in 2018 Account Debit Credit 8 Egg Harbor Township paid actual Earthmoving Expenses of $400,000 in 2018 Account Debit Credit 9 Egg Harbor Township paid Ace Construction Company $1,200,000 in 2018 Account Debit Credit 10 Egg harbor Township sends a list of expenditures incurred in 2018 to the Federal Government for Reimbursement. The reimbursement was subject to the qualifying expenditure percentage. Account Debit Credit 11 Egg Harbor Township invests $500,000 in a U.S. Treasury Note at 5% maturing 10 years 12 The U.S. Treasury Note's accrued interest and increase in appreciated value at year's end is $12,500Explanation / Answer
Journal Entries in books of Stafford Township for year 2018:
No.
Account
Debit ($)
Credit ($)
2
Appropriations – Bridge Structure
3,000,000
Estimated Expenditure – Bridge Structure
2,400,000
Estimated Expenditure – Earthmoving and Landscaping
600,000
3
Bridge Structure Expenses
2,400,000
Accounts Payable (Ace Construction Company)
2,400,000
4
Bank balance
300,000
Capital Project Fund
300,000
5 (a)
Bank balance
1,500,000
Bonds
1,000,000
Bonds Premium (Note 1)
500,000
5 (b)
Underwriting Commission
5,000
Accounts Payable (Morgan Stanley)
5,000
6
Bonds Premium
500,000
Underwriting Commission
5,000
Debt Security Fund
495,000
7
Earthmoving and Landscaping Expenses
400,000
Accounts Payable
400,000
8
Accounts Payable
400,000
Bank balance
400,000
9
Accounts Payable (Ace Construction Company)
1,200,000
Accounts Payable
1,200,000
10
Federal Government
1,120,000
Bridge Structure Expenses
960,000
Earthmoving and Landscaping Expenses
160,000
11
U. S. Treasury Note
500,000
Bank balance
500,000
12 (a)
Accrued Interest
25,000
Interest Income
25,000
12 (b)
U. S. Treasury Note
12,500
Mark to Market (MTM) Gain
12,500
Note 1: In absence of any details, it is assumed that bonds are issued at 50% premium. So face value of bonds is $1,000,000 and bonds premium is $500,000.
No.
Account
Debit ($)
Credit ($)
2
Appropriations – Bridge Structure
3,000,000
Estimated Expenditure – Bridge Structure
2,400,000
Estimated Expenditure – Earthmoving and Landscaping
600,000
3
Bridge Structure Expenses
2,400,000
Accounts Payable (Ace Construction Company)
2,400,000
4
Bank balance
300,000
Capital Project Fund
300,000
5 (a)
Bank balance
1,500,000
Bonds
1,000,000
Bonds Premium (Note 1)
500,000
5 (b)
Underwriting Commission
5,000
Accounts Payable (Morgan Stanley)
5,000
6
Bonds Premium
500,000
Underwriting Commission
5,000
Debt Security Fund
495,000
7
Earthmoving and Landscaping Expenses
400,000
Accounts Payable
400,000
8
Accounts Payable
400,000
Bank balance
400,000
9
Accounts Payable (Ace Construction Company)
1,200,000
Accounts Payable
1,200,000
10
Federal Government
1,120,000
Bridge Structure Expenses
960,000
Earthmoving and Landscaping Expenses
160,000
11
U. S. Treasury Note
500,000
Bank balance
500,000
12 (a)
Accrued Interest
25,000
Interest Income
25,000
12 (b)
U. S. Treasury Note
12,500
Mark to Market (MTM) Gain
12,500
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