Chapter 5 Recording Capital Asset Transactions
Street Improvement Capital Projects Fund and Governmental Activities at the Government-wide Level
During late 2013, the voters of the City of Smithville authorized tax-supported bond issues totaling $10,000,000 as partial financing for a series of projects to construct streets, curbs, culverts, and storm sewers in various parts of the city. The estimated total cost of the series of projects, which are expected to extend over the next three years, was $11,200,000. In addition to the bond financing, voters also approved a special ½ cent sales tax to assist in financing the projects. The sales tax begins January 1, 2014 and will continue for three years. The sales tax is projected to generate $400,000 each year.
Required
a. Open a general journal for the Street Improvement Fund by recording the transactions listed under paragraph bbelow, as necessary. Use account titles listed under the drop-down [Account (# – Description)]menu. Select 2014 for each transaction in the [Year] box of the [Journal]view. Enter the paragraph reference, i.e. 5-b-[1, 2, 3, etc], in the [Transaction Description] box. The following account titles should appear in the [Accounts] view:
Cash
Investments
Taxes ReceivableSales
Interest Receivable on Investments
Vouchers Payable
Judgments Payable
Contracts Payable
Contracts PayableRetained Percentage
Fund BalanceRestricted
Encumbrances OutstandingElm Street Project
Encumbrances OutstandingSpruce Street Project
Revenues
Other Financing SourcesProceeds of Bonds
Construction ExpendituresElm Street Project
Construction ExpendituresSpruce Street Project
Interest ExpendituresSpruce Street Project
Other Financing UsesInterfund Transfers Out
EncumbrancesElm Street Project
EncumbrancesSpruce Street Project
Please remember that before closing the City of Smithville, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved.
b. Record journal entries in the general journal of the Street Improvement Fund, as appropriate, for each of the following transactions. Remember to enter the correct year and paragraph numbers. Do not record entries at this time in other affected funds; those entries will be made in the later chapters of this cumulative problem that cover the affected funds. You should, however, make all required entries in the governmental activities general journal at the government-wide level.
1. [Para. 5-b-1]In early 2014, design plans and specifications for the first project, the Elm Street Project, were submitted by a construction engineering firm. The firm billed the Street Improvement Fund for $40,000.
Required: Record this billing and the related Vouchers Payable liability in the Street Improvement Fund and governmental activities journals. (Note: this transaction was not encumbered.)
2. [Para. 5-b-2] On March 1, 2014, the city signed a $50,000, 90-day tax anticipation note bearing interest of 3 percent per annum.
Required: Record this transaction in the Street Improvement Fund and governmental activities journals.
3. [Para. 5-b-3]A $290 purchase order for advertisements soliciting bids for the Elm Street Project was issued during March 2014. The bill for advertising in the amount of $300 was received and a voucher for payment was issued.
Required: Record the encumbrance, billing, and the Vouchers Payable liability in the Street Improvement Fund and governmental activities journals, as appropriate.
4. [Para. 5-b-4] Sales tax revenue of $105,000 was received from the state government and recorded for the first quarter of 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
5. [Para. 5-b-5]Vouchers payable accumulated to date were paid on April 10, 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
6. [Para. 5-b-6]On April 15, 2014, construction bids were opened and analyzed. A bid of $2,000,000 was accepted, and the contract was awarded for the Elm Street Project. The contract provided for a retained percentage of 4 percent from each progress payment, and from the final payment, until final inspection and acceptance by the citys public works inspectors.
Required: Record the signing of the contract in the Street Improvement Fund general journal. This transaction has no effect at the government-wide level.
[Para. 5-b-7]On May 6, 2014, 4% deferred serial bonds with a face value of $2,000,000 were sold for a total amount of $2,068,000, of which $28,000 was for accrued interest from the January 1, 2014, date of the bonds and $40,000 was a premium on the bonds sold. Cash in the amount of the accrued interest and premium was deposited directly in the Street Improvement Bond Debt Service Fund. Cash in the amount of $2,000,000 was deposited and recorded in the Street Improvement Fund. The city invested $1,000,000 of the bond proceeds in certificates of deposit maturing in six months and earning 3% per annum.
Required: Record these transactions in the Street Improvement Fund and governmental activities journals. (Hint: In addition to recording the liability for bonds payable in the governmental activities journal, you should record the premium on the bonds payable [credit Premium on 4% Deferred Serial Bonds] and accrued interest on bonds sold [we recommend that you credit ExpenseInterest on Long-term Debt] in the governmental activities general journal for the $28,000 of accrued interest.) For now you should ignore the entries in the Street Improvement Bond Debt Service Fund to record the accrued interest and premium. Those entries will be made in Chapter 6 of this cumulative problem.
[Para. 5-b-8] The city repaid the $50,000 tax anticipation note plus interest of $375 ($50,000 X .03 X 90/360) (See transaction 2).
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals. The $375 of interest should be debited to Interest Expenditures in the Street Improvement Fund journal and to ExpensesGeneral Government in the governmental activities journal.
[Para. 5-b-9]In July 2014, the contractor for the Elm Street Project reported that the project was one-half completed and requested a progress payment of $1,000,000. This amount was paid in late July, less the contractual retention of 4 percent.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
10. [Para. 5-b-10]Construction engineers engaged by the city submitted design plans and specifications for the second street improvement project, the Spruce Street Project. Vouchers were approved in the amount of $30,000 in payment for the engineering services.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. (Note: This transaction was not encumbered.)
11. [Para. 5-b-11] During August 2014, the city issued a purchase order in the amount of $350 for advertisements soliciting construction bids for the Spruce Street Project. Later in the month, a bill was received in the amount of $340 for the advertisements and a voucher was approved for payment.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals, as applicable.
[Para. 5-b-12]Two property owners along Elm Street claimed a new sidewalk was constructed further from the street than where they had granted easements. A resurvey confirmed that the sidewalk was constructed in the wrong place, but the city did not believe that the property owners were entitled todamages. The property owners sued the city in court and were awarded a total of $9,000, which was recorded as a judgment liability during October 2014. The amount will be borne by the Street Improvement Fund; it will not be recoverable from the contractor.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. You should debit Construction Expenditures in the Street Improvement Fund and Construction in Progress at the government-wide level.
13. [Para. 5-b-13]Construction bids for the Spruce Street Project were opened and evaluated. A bid in the amount of $1,500,000 was accepted, and the contract, bearing a 4 percent retention clause was signed in October 2014.
Required: Record this transaction in the Street Improvement Fund.
14. [Para. 5-b-14]In November 2014, the 3% certificates of deposit matured; the face amount of $1,000,000 plus interest of $15,000 was collected. The interest is considered revenue of the Street Improvement Fund.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.
15. [Para. 5-b-15] All outstanding vouchers were paid. In addition, the judgment payable (see Transaction 12) and interest thereon of $90 were paid on the same date. The interest is to be borne by the Street Improvement Fund and is not to be capitalized.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals. The $90 interest should be debited to Interest Expenditures in the Street Improvement Fund journal and to ExpensesGeneral Government in the governmental activities journal.
16. [Para. 5-b-16]In late November 2014 the Elm Street project was completed and the contractor for the project requested a final payment of $980,000. This amount was recorded as a liability. Payment was made, less the retained percentage, on December 1, 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.
17. [Para. 5-b-17]Additional sales taxes were collected in the amount of $310,000 prior to December 1, 2014. $200,000 of this amount was invested in 3% U.S. Treasury notes at par. No interest was accrued on the notes at date of purchase.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals.
18. [Para. 5-b-18]Upon final inspection of the Elm Street Project, the city inspector determined that all work conformed to specifications. Retained percentages (Transactions 9 and 16) were paid to the contractor.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. Total construction costs for the Elm Street Project should be capitalized in the Infrastructure account in governmental activities.
19. [Para. 5-b-19]Based on retail sales estimates from the state Department of Revenue, additional sales taxes were accrued in the amount of $40,000. On December 31, 2014, $500 of interest was accrued on the investment in Treasury notes. Fair market value of these notes was the same as cost on December 31, 2014. Assume that both amounts are scheduled to be received within 60 days.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals.
20. Verify the accuracy of all your preceding entries in the Street Improvements Fund and governmental activities general journals, then click [Post Entries] of each entity to post the entries to the respective general ledgers. For the Street Improvement Fund only, prepare year-end closing entries for 2014 and post them to the funds general ledger. (Note: You must click on the box for [Closing Entry]to check mark it;Closing Entry will appear in the [Transaction Description] box for the account being closed. Be sure the check mark is present for each account being closed.) Click [Post Entries] to post the closing entry. Under current GASB standards encumbrances and encumbrances outstanding are not reported in any financial statements. Consequently, there is no need to close these accounts since the Spruce Street Project is still underway at year-end. Closing entries will be made in the governmental activities general journal in Chapter 9 of this cumulative problem. Ignore those entries for now.
a. Go to [Reports], print the pre-closing trial balance and the post-closing trial balance for year 2014 from the Reports window for retention in your cumulative file until directed by your instructor to submit them, or submit saved versions of these documents by e-mail if directed to do so by your instructor. As of this time, only the budget has been recorded. (Note: To ensure that your saved files are not erased when year-end trial balances or subsidiary ledger account balances are saved in Chapter6, you should add _after Ch5 to your saved file names.
[Note: Retain all required printouts and your financial statements in your cumulative folder until directed by your instructor to submit them, unless your instructor prefers to have computer files submitted via e-mail.]
