Augur City received voter approval to issue $12 million of 5% bonds to construct
ID: 2561419 • Letter: A
Question
Augur City received voter approval to issue $12 million of 5% bonds to construct a city office building. The estimated total cost of construction is $18 million. The city hopes to raise the balance needed through private donations. The city has a June 30 fiscal year-end. REQUIRED: Assume that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements. Prepare journal entries to record the following transactions. Indicate in which fund the entry should be made.
(a) On July 1 the city issued $12 million of 5% serial bonds at face to fund construction of the new office building. The bonds pay interest on January 1 and July 1. The first principal payments are due five years hence.
(b) On July 15 the city signed a $18 million contract with a local construction company for construction of the buildings.
(c) On September 1 a local benefactor donated $6 million cash for the office building.
(d) On October 1, the contractor requested a progress payment of $3 million for the earthwork and foundation work on the new building. The city paid the contractor.
(e) On January 1, the city transferred from the general fund the amount necessary to make the first interest payment. The city made the first interest payment on the bonds.
(f) On June 1 the contractor requested and received a progress payment of $12 million.
Explanation / Answer
Journal Entries in the books of Augur City
a) Cash - Debit $12,000,000
To Issue of 5% Bonds - Credit $12,000,000
(to record of issue of 5% bond on July 1)
Interest paid on 5% Bond - Debit $60,000
To General Fund - Credit $60,000
(to record interest paid on 5% bond on July 1)
b) This transaction is an agreement between Augur City and local construction company, there were no cash transaction involved hence No Journal entries
c) Cash - Debit $6,000,000
To Donation Received - Credit $6,000,000
(to record of Donation received from local benefactor for the office building on September 1)
General Fund - Debit $18,000,000
To Cash - Credit $18,000,000
(to record of cash transferred to corpus fund for construction of office building)
d) Contractor -Debit $3,000,000
To General Fund - Credit $3,000,000
(to record payment of $3,000,000 made to contractor on October 1)
e) Interest paid on 5% Bond - Debit $60,000
To General Fund - Credit $60,000
(to record interest paid on 5% bond on January 1)
f) Contractor -Debit $12,000,000
To General Fund - Credit $12,000,000
(to record payment of $3,000,000 made to contractor on June 1)
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