Journal entries and financial statements—Capital Projects Fund
The following transactions occurred during 2021:
1. The City of Watersville approved the construction of an enclosed concert arena for a total cost of $75,000,000 in order to attract professional events. On the same day, a contract with a 6 percent retainage clause was signed with V.P. Construction Company for the arena. The arena will be financed by a $75,000,000 general obligation bond issue. Investment revenue of $4,000,000 was also included in the budget. {Assume that the budget is recorded in the accounts and encumbrance accounting is used.)
2. Watersville received $76,000,000 from the sale of bonds, which included a premium of $1,000,000 over the $75,000,000 face value. The $1,000,000 premium was transferred immediately to the appropriate Debt Service Fund.
3. The city invested $74,900,000 in securities.
4. The contract signed with V.P. stipulated that the contract price included the architect fees. The architects were paid their fee of $25,000 by Watersville.
(Assume that a vouchers payable account was not used.)
5. The contractor submitted a progress billing of $3,000,000; the billing (less a 6 percent retainage) was approved.
6. Investments that cost $3,000,000 were redeemed for $3,000,000 plus $50,000 interest.
7. V. P. was paid the amount due in transaction 5 less the retainage.
8. Interest income totaling $3,700,000 was received on the investments.
9. V. P. submitted another progress billing of $8,000,000. The billing, less the retainage, was approved.
10. Investments originally costing $7,800,000 were redeemed to make the payment to V.P. Cash proceeds of $8,100,000 were received.
11. The contractor was paid the amount due in transaction 9 less the retainage.
12. Interest income of $60,000 was accrued.
13. Interest income of $10,000 was received in cash.
Use the preceding information to do the following:
a. Prepare the journal entries necessary to record these transactions in the Capital Projects Fund. Assume that the city operates on a calendar year.
b. Prepare a trial balance for the Capital Projects Fund as of December 31, 2021, before closing.
c. Prepare any necessary closing entries. The debt covenant for the general obligation bonds states that the bond proceeds and any earnings from investing the proceeds must be used for the construction of the arena. If any unused bond proceeds or related investment earnings remain at completion of the project, they will be transferred to the Debt Service Fund.
d. Prepare a statement of revenues, expenditures, and changes in fund balance for 2021 and a balance sheet as of December 31, 2021.
e. Prepare the journal entries necessary to record the remainder of the budget and to reestablish the budgetary accounts for encumbrances on January 1, 2022. Assume that investment revenue expected to be earned in 2022 is $2,000,000.
Extracted text: Note: Use a negative sign to indicate Excess of expenditures over revenues and Transfer out to Debt Service fund. (d) City of Watersville Capital Projects Fund Concert Arena Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Year ended December 31, 2021 Revenues: Interest 0 x Total revenues 0 x Expenditures: Architect fees Construction costs Total expenditures Excess of expenditures over revenues Other financing sources (uses): Other financing sources-long-term debt issued Other financing sources-bond issue premium Transfer out to Debt Service Fund Total other financing sources 0 x Net change in fund balance Fund balance at beginning of year Fund balance at end of year 0 x
Extracted text: City of Watersville Capital Projects Fund Concert Arena Fund Balance Sheet December 31, 2021 Assets: Cash Investments Interest receivable Total assets 0 x Liabilities and Fund Balance Liabilities: Retainage payable Total liabilities 0 x Fund balance: Restricted for construction Total liabilities and fund balance $ 0 x Account Debit Credit To reestablish encumbrances To reestablish remaining budget O O > > > > >