The Wickliffe City Council authorizes the restoration of the city library. The p

Question

The Wickliffe City Council authorizes the restoration of the city library. The project is to be funded by the issuance of bonds, a reimbursement grant from the state, and property taxes.
1. Prepare journal entries in the capital projects fund to reflect the following events and transactions:

a. The city approves (and gives accounting recognition to) the projects budget of $9,027,000, of which $6,000,000 is to be funded by general obligation bonds, $2,500,000 from the state, and the remaining $527,000 from the general fund. The city estimates that construction costs will be $8,907,000 and bond issue costs $120,000.

b. The city issues 9 percent, 15-year bonds that have a face value of $6,000,000. The bonds are sold for $6,120,000, an amount reflecting a price of $102. The city incurs $115,000 in issue costs; hence, the net proceeds are $6,005,000.

c. The city transfers the net premium of $5,000 to its debt service fund.

d. It receives the anticipated $2,500,000 from the state and transfers $527,000 from the general fund.

e. It signs an agreement with a contractor for $8,890,000.

f. It pays the contractor $8,890,000 upon completion of the project.

g. It transfers the remaining cash to the debt service fund.

2. Prepare appropriate closing entries.

Explanation / Answer

a Estimiated Bonds proceeds A/c Dr 6000000 Estimated grand revenue A/c Dr 2500000 Estimated transfer from general Funds A/c Dr 527000                   To Construction cost 8907000               To Bond issue cost 120000 ( Being recording of budgets ) b Cash A/c Dr 6005000 Bonds issue cost A/c Dr 115000                 To Bond processing cost 600000                  To Bond Premium 120000 ( Being issue of bonds accounted ) c Debit srvice fund A/C Dr 5000                  To Cash A/c 5000 ( Being accountind fore premium bonds ) d State Grant 3027000 Other financial sources 2500000                  To transfer to general funds 527000 ( Being accounting for non reciprocal transfer Funds ) e Encrubence A/c Dr 8890000                  To Reserve for encumbrance 8890000 ( Being accounting for construction contract ) f Construction Expenses A/c Dr 8890000                   TO Cash 8890000 ( Being payment accounted )

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