Capital Projects Fund Transactions The voters of the City of Monroe approved the

Question

Capital Projects Fund Transactions
The voters of the City of Monroe approved the issuance of tax-supported bonds in the face amount of $4,000,000 for the construction and equipping of a new City Jail. Architects were to be retained, and construction was to be completed by outside contractors. In addition to the bond proceeds, a $1,000,000 grant was expected from the state government.

Required:
a. Open a general journal for the City Jail Annex Construction Fund. Record the following

transactions and post to the general ledger. Control accounts are not necessary.
(1) On January 1, 2014, the total face amount of bonds bearing an interest rate of 8 percent was sold at a $120,000 premium. The bonds are to mature in blocks of

$200,000 each year over a 20-year period commencing January 1, 2015. Interest payment dates are July 1 and January 1. The first interest payment will be July 1, 2014. The premium was transferred to the City Jail Debt Service Fund for the future payment of principal on the bonds.

(2) The receivable from the state government was recorded.
(3) Legal and engineering fees early in the project were paid in the amount of

$77,000. This amount had not been encumbered.
(4) Architects were engaged at a fee of $176,000.
(5) Preliminary plans were approved, and the architects were paid 20 percent of the

fee.
(6) The complete plans and specifications were received from the architects and

approved. A liability in the amount of $105,600 (60% of the contract) to the

architects was approved and paid.
(7) Bids were received and opened in public session. After considerable discussion

in City Council, the low bid from Hardhat Construction Company in the

amount of $4,300,000 was accepted, and a contract was signed.
(8) The contractor required partial payment of $1,500,000. Payment was approved

and vouchered with the exception of a 5 percent retainage.
(9) Cash in the full amount of the grant was received from the state government. (10) Furniture and equipment for the annex were ordered at a total cost of $450,000. (11) Payment was made to the contractor for the amount vouchered (see 8 above). (12) The contractor completed construction and requested payment of the balance

due on the contract. After inspection of the work, the amount, including the past

retainage, was vouchered and paid.
(13)The furniture and equipment were received at a total actual installed cost of

$439,300. Invoices were approved for payment.
(14) The remaining 20% of the architects’ fees was approved for payment. (15) The City Jail Construction Fund paid all outstanding accounts payables ($

474,500) on December 31, 2014.
(16) The remaining cash was transferred to the City Jail Debt Service Fund.

6

b. Post the entries to the City Jail Construction Fund general ledger.

c. Prepare and post an entry closing all nominal accounts to Fund Balance.

Explanation / Answer

The journal entries are as follows:

___________

Part B) and Part C cannot be answered as these are related to another question (6).

Account Titles Debits Credits 1 Cash (4,000,000 + 120,000) $4,120,000 Bonds Proceeds $4,000,000 Bonds Premium $120,000 Transfers Out (Transfer to Debt Service Fund) $120,000 Cash $120,000 2 Due from State Government $1,000,000 Revenues Intergovernmental $1,000,000 3 Capital Expenditures $77,000 Cash $77,000 4 Capital Expenditures $176,000 Accounts Payable $176,000 5 Accounts Payable (176,000*20%) $35,200 Cash $35,200 6 Accounts Payable $105,600 Cash $105,600 7 Encumbrances $4,300,000 Reserves for Encumbrances $4,300,000 Reserves for Encumbrances $1,500,000 Encumbrances $1,500,000 8 Capital Expenditure $1,500,000 Contracts Payable Retained Percentage (1,500,000*5%) $75,000 Accounts Payable (1,500,000 – 75,000) $1,425,000 9 Cash $1,000,000 Due from State Government $1,000,000 10 Encumbrances $450,000 Reserves for Encumbrances $450,000 11 Accounts Payable $1,425,000 Cash $1,425,000 12 Reserves for Encumbrances $2,800,000 Capital Expenditure $2,800,000 Contracts Payable Retained Percentage $75,000 Encumbrances $2,800,000 Cash $2,875,000 13 Reserves for Encumbrances $450,000 Capital Expenditure $439,300 Encumbrances $450,000 Accounts Payable $439,300 14 No Entry (as only approval was given) 15 Accounts Payable $474,500 Cash $474,500 16 Transfers Out (Transfer to Debt Service Fund) $8,820 To Cash $8,820

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