40.(Journal entries to record a capital lease transaction)
A town enters into a lease-purchase agreement with Trucks, Inc. to acquire four garbage trucks. The agreement provides that the town pay $100,000 at the end of each year for four years. Upon full payment, the trucks become town property. The agreement is based on an interest rate of 7%. (The present value of an annuity of $1 for 4 periods at 7% is 3.3872.) The lease agreement is accounted for in the General Fund.
Required:
Prepare journal entries for the General Fund to record (a) the lease agreement and the lease payment (b) at the end of the first year and (c) at the end of the second year.
41.(Journal entries for a major construction project)
Prepare journal entries to record the following transactions of a state, identifying the funds affected by each transaction. Record journal entries for all funds affected. The state prepares a budget for the Capital Projects Fund and uses encumbrance accounting in that fund.
a. The state records its capital budget. It appropriates $10 million for highway construction, which will be financed entirely with the issuance of bonds.
b. The state sells 20-year 6% bonds having a face value of $10 million. The bonds are sold at a discount, so the state realizes a total of $9,900,000. Equal installments of principal will be paid every six months, together with interest on the unpaid balance.
c. The state awards two contracts, one for highway construction ($6,500,000) and one for construction supervision ($350,000). Both contracts provide for progress payments. The highway construction contract provides for 10% retainage pending completion of the project. There is no retainage on the construction supervision contract.
d. The construction contractor submits an invoice for $1,500,000. The invoice is approved and a voucher is prepared, less the 10% retainage.
e. The construction supervisor submits an invoice for $100,000, and a voucher is prepared.
f. Both of the invoices in transactions d. and e. are paid.
g. The state transfers $800,000 from the General Fund to the Debt Service Fund in anticipation of the payment of debt service on the bonds.
h. The first semi-annual debt service on the 20-year bonds becomes due and payable (see transaction b).
i. The debt service is paid.