Chapter 5 Recording Capital Asset Transactions

Subject: Business / Accounting
Question
Chapter 5 Recording Capital Asset Transactions
Street Improvement Capital Projects Fund and Governmental Activities at the
Government-wide Level
During late 2016, the voters of the City of Smithville authorized tax-supported bond issues
totaling $8,000,000 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 $10,200,000. In addition to
the bondfinancing, voters also approved a special ½ cent sales tax to assist in financing the
projects. The sales tax begins January 1,2017 and will continue for fiveyears. The sales tax is
projected to generate $500,000 each year.
Required
a. Prepare general journal entries as necessary to record the transactions described below in the
Street Improvement Fund general journal and, if applicable, in the governmental activities
general journal. 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. Use
account titles listed under the drop down [Account (# – Description)] menu. Be sure the
year 2017 is selected from the drop-down [Year] menu and the appropriate paragraph
number shown in bold-face font below is in the [Transaction Description] box.
Before closing the City of Smithville, click on [File], and [Save/Save As] to save your
work. If you close the file by clicking on the [X] box you will be asked if you want to save
your changes before closing.
1. [Para. 5-a-1] In early 2017, 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 $125,000.
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-a-2] On March 1, 2017, the city signed a $40,000, 90-day tax anticipation note
bearing interest of 2.5 percent per annum.
Required: Record this transaction in the Street Improvement Fund and governmental
activities journals.
3. [Para. 5-a-3] A $335 purchase order for advertisements soliciting bids for the Elm Street
Project was issued during April2017. The bill for advertising in the amount of $330 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-a-4] On April15, 2017, construction bids were opened and analyzed. A bid of
$2,100,000 was accepted, and the contract was awarded for the Elm Street Project. The
contract provided for a retained percentage of 5 percent from each progress payment, and
from the final payment, until final inspection and acceptance by the city’s 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.
5. [Para. 5-a-5] Sales tax revenue of $190,000 was received.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities general journals.
5. [Para. 5-a-6] Vouchers payable accumulated to date were paid in April 20, 2017.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities general journals.
7. [Para. 5-a-7] On May 6, 2017, 4% deferred serial bonds with a face value of $2,000,000
were sold for a total amount of $2,070,000, of which $28,000was for accrued interest
from the January 1, 2017 date of the bonds and $42,000 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.
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 Deferred Serial Bonds] and accrued interest on bonds sold [we
recommend that you credit Expense—Interest on Long-term Debt] in the governmental
activities general journal for the $28,000 of accrued interest.) For now you should not
make 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.
8. [Para. 5-a-8] The city repaid the $40,000 tax anticipation note plus interest of $250
($40,000 X .025 X 90/360)(See transaction 2).
Required: Record this transaction in both the Street Improvement Fund and
governmental activities general journals. The $250 of interest should be debited to
Interest Expenditures in the Street Improvement Fund journal and to Expenses—General
Government in the governmental activities journal. 9. [Para. 5-a-9] In July 2017, the contractor for the Elm Street Project reported that the
project was one-half completed and requested a progress payment of $1,050,000. This
amount was paid in late July, less the contractual retention of 5 percent.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities general journals.
10. [Para. 5-a-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 $90,000 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-a-11] In late November 2017 the Elm Street project was completed and the
contractor for the project requested a final payment of $1,070,000. This amount was
recorded as a liability. Payment was made, less the retained percentage, on December 1,
2017.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities journals.
12. [Para. 5-a-12] Additional sales taxes were collected in the amount of $320,000 on
December 15, 2017.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities journals.
13. [Para. 5-a-13] Outstanding vouchers for engineering services were paid.
Required: Record this transaction in both the Street Improvement Fund and
governmental activities journals.
14. [Para. 5-a-14] The city engineer approved the final construction on the Elm Street
Project, and the city paid the retained percentage (Transactions 9 and 11) 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.
15. Verify the accuracy of all your preceding entries in the Street Improvement 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 2017 and post them to the fund’s general ledger,
Fund Balance—Restricted. (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.
c. Export the post-closing trial balance for year 2017 to an Excel worksheetand use Excel to
prepare a balance sheet for the Street Improvement Fund as of December 31, 2017. (See
Illustration 4-3 in the textbook for an example of an appropriate format of a governmental
fund balance sheet.). In addition, print the post-closing trial balance from the [Reports]
drop-down menu.
d. Export the pre-closing trial balance for year 2017 to an Excel worksheet and use Excel to
prepare a statement of revenues, expenditures, and changes in fund balance for the Street
Improvement Fund for the year ended December 31, 2017. (See Illustration 5-3 in textbook
for an example of the format of a capital projects fund statement of revenues, expenditures
and changes in fund balance.). Print the pre-closing trial balance from the [Reports] dropdown menu.
[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 files submitted electronically, in which case you will need to save a .pdf version of
your trial balance.]

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