Capital projects funds account for construction expenditures, not for the assets that are being constructed. The Wickliffe City Council approves a budget of $9,027,000 to restore the city library. The project is to be funded by the issuance of $6 million of general obligation bonds, a $2.5 million state grant, and $527,000 from general fund property taxes. The city estimates that construction costs will be $8,907,000 and bond issue costs $120,000.
1. Prepare journal entries in the capital projects fund to reflect the following events and transactions.
a. The city issues 9 percent, 15-year bonds that have a face value of $6,000,000. The bonds are sold for $6,120,000, an amount reflecting a price of $102. The city incurs $115,000 in issue costs; hence, the net proceeds are $6,005,000.
b. The city transfers the net premium of $5,000 to its debt service fund.
c. It receives the anticipated $2,500,000 from the state and it transfers in $527,000 from the general fund.
d. It signs an agreement with a contractor for $8,890,000.
e. It pays the contractor $8,890,000 upon completion of the project.
f. It transfers the remaining cash to the debt service fund.
See attached file for full problem description.
2. Prepare appropriate closing entries.
This solution prepares journal entries that contain events and transactions for activities a-f and also contains appropriate closing entries in an Excel file.