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 bond financing, 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 five years. 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.

6. [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] 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 files submitted electronically, in which case you will need to save a .pdf version of your trial balance.]