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 two 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 b below, 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. Among other accounts, the following account titles should appear in the [Accounts] view:

Cash
Taxes Receivable-Sales
Vouchers Payable
Contracts Payable
Contracts Payable-Retained Percentage
Fund Balance-Restricted
Encumbrances Outstanding-Elm Street Project
Revenues
Other Financing Sources-Proceeds of Bonds
Construction Expenditures-Elm Street Project
Encumbrances-Elm 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 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 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.

3. [Para. 5-b-3] Vouchers payable (see Transaction 1) were paid on April 20, 2014.

Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.

4. [Para. 5-b-4] 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.
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 Expense-Interest 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.

5. [Para. 5-b-5] 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.

Required: Record the liability for the progress billing.

6. [Para. 5-b-6] The billing for the partially completed Elm Street Project (see Transaction 5) 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.

7. [Para. 5-b-7] 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.

Required: Record the liability for the final billing in both the Street Improvement Fund and governmental activities journals.

8. [Para. 5-b-8] Payment was made for the final billing on the Elm Street Project, less the retained percentage, on December 1, 2014.

Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.

9. [Para. 5-b-9] Upon final inspection of the Elm Street Project, the city inspector determined that all work conformed to specifications. Retained percentages (Transactions 6 and 8) were paid to the contractor.

Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. Total construction expenditures for the Elm Street Project should be capitalized in the Infrastructure account in governmental activities.

10. [Para. 5-b-10] During the year sales taxes were collected in the amount of $410,000.

Required: Make the summary journal entries in both the Street Improvement Fund and governmental activities journals to record the collection of sales taxes.

11. 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 2014 and post them to the fund's 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. Cash remaining in the Street Improvement Fund at year-end is not transferred to the debt service fund since other street improvement projects will be undertaken during the next two years. 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 2014 to an Excel worksheet and use Excel to prepare a balance sheet for the Street Improvement Fund as of December 31, 2014. (See Illustration 4-3 in the textbook for an example of an appropriate format of a governmental fund balance sheet.) In addition, save and print the post-closing trial balance from the [Reports] drop-down menu.

d. Export the pre-closing trial balance for year 2014 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, 2014. (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.) Save and print the pre-closing trial balance from the [Reports] drop-down 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 computer files submitted via e-mail.]