The City of Paradise Falls plans to develop a golf course during 2013 and account for it as the Golf Enterprise Fund (GEF). The course will be built on a parcel of land to be purchased from a private party. The planned out- of- pocket costs for the new course and their financing are as follows:
Spending
Acquisition of land from private party........... $ 500,000
Installation of sod, sprinklers, landscaping, and fencing .... 1,000,000
Construction of clubhouse ............... 3,000,000
.......................... $ 4,500,000
Financing
Contribution from the General Fund ............... $ 1,500,000
Term revenue bonds at 8 percent per annum, interest payable semiannually. 3,000,000
.............................. $ 4,500,000
The city plans to sell the bonds on February 1, 2013. Because the bonds are a term issue, bond principal matures in full on February 1, 2023. Interest is payable each August 1 and February 1, beginning August 1, 2013. The 1,beginning August 1,2013. The bond covenant requires that assets equal to one- tenth of the bond principal be transferred to a restricted account within the GEF on December 31 of each year. Paradise Falls observes a calendar fiscal year.
Kowitt Design and Construction, Inc. has been awarded the contract to develop the golf course. Construction will commence February 15, 2013, and be completed no later than May 31, so it can open for business during June.
The contract stipulates that progress billings from Kowitt will be paid within 30 days of receipt, with 5 percent retainage held pending completion and acceptance of the project. The city engineer will inspect the contractor, work and approve progress payments. Accounting for the GEF will be done by the city, existing accounting department (a General Fund department) which will bill the GEF for services rendered at the end of the year. To help the GEF get on its feet financially, no interfund payables will be settled in cash during 2013. Prepare
(a) Journal entries (including closing entries) to record the following events and transactions for the year ended December 31, 2013, in the Golf Enterprise Fund. The corresponding entries that would be made in other funds are not required. In addition, prepare
(b) The state-ment of net position and
(c) The statement of revenues, expenses, and changes in net position for the Golf Enterprise Fund as of and for the fiscal year ending December 31, 2013.
1. January 3, 2013: Paradise Falls formally established the GEF the fund, first transaction was the receipt, in cash, of the capital contribution from the General Fund.
2. January 24: The city acquired the adjacent parcel of land from the private owner for the planned $ 500,000.
3. February 1: The revenue bonds were sold at par ($ 3,000,000).
4. February 15: Development of the golf course itself and construction of the clubhouse commenced.
5. March 31: Kowitt submitted the first progress billing of $ 1,800,000. The billing was approved and vouchered after deducting the 5 percent retainage. (Because of the short duration of the construction period, no construction in progress accounts will be used.) $ 400,000 of the amount billed represents the cost of sod, sprinklers, landscaping, and fencing (which the city classifies as ,improvements other than buildings,). The balance applies to the cost of the clubhouse (,buildings,).
6. April 25: The amount currently due Kowitt was paid.
7. April 30: The second progress billing from Kowitt, $ 1,500,000, was approved and vouchered after deducting the 5 percent retainage; $ 600,000 applies to sod, sprinklers, landscaping, and fencing (which is now fully installed).
8. May 19: The amount currently due Kowitt was paid.
9. May 23: Kowitt third and final progress billing, $ 700,000 (all of which represents clubhouse construction costs), was approved and vouchered after deducting the 5 percent retainage.
10. May 30: The amount currently due Kowitt was paid.
11. June 1: The new golf course was formally accepted by the city (without need for , touch up, work), and all remaining amounts due to Kowitt were vouchered for payment.
12. June 1: Golf course maintenance equipment costing $ 300,000 was acquired by means of a 5 year capital lease. The lease required no down payment. Lease payments are due quarterly, beginning September 1. The amortization table for the lease for the first six payments is as follows:
13. June 2: Inventory in the amount of $ 12,000 was acquired for the pro shop; the purchase was vouchered for payment.
14. June 4: The course opened for business. Greens fees (charges for services) aggregated $ 209,000 for June. Pro shop sales (all for cash) amounted to $ 5,000.
15. June 30: Expenses for June were as follows. (Charge all expenses to ,Operating expenses, cost of sales and services.,)
Maintenance and pro shop labor (paid in cash) ....... 48,000
Maintenance supplies, from the Parks Department, a
Special Revenue Fund (invoice received, but not paid).. 4,000
Water, supplied by the Paradise Falls water utility, an
Enterprise Fund (invoice received, but not paid)...... 80,000
Cost of merchandise sold by the pro shop......... 2,200
16. August 1: The first debt service payment on the revenue bonds was made.
17. September 1: The first payment on the lease was made.
18. December 1: The second payment on the lease was made.
19. December 31: Greens fee revenues for the second half of 2013 totaled $ 370,000; pro shop sales for the same period were $ 21,200.
20. December 31: Second half 2013 expenses were as follows:
Maintenance and pro shop labor (paid in cash)......... $ 70,000
Maintenance supplies, from the Parks Department, a
Special Revenue Fund (invoice received, but not paid) ........ 4,000
Water, supplied by the Paradise Falls water utility, an Enterprise
Fund (invoice received but not paid) )............. 80,000
Cost of merchandise sold by the pro shop........... ... 2,900
Accounting and administrative services provided by the accounting
department, General Fund ( invoice received, but not paid)..... 9,000
Total expenses........................ $ 165,900
21. December 31: Interest was accrued on the revenue bonds and the capital lease liability (make separate entries).
22. December 31: The GEF recorded depreciation for 2013 using the half- year convention. The building, useful life is estimated at 20 years (salvage value, $ 200,000) and will be depreciated straight line. Improvements other than buildings will be depreciated straight line over 10 years, with no salvage value. Equipment will be depreciated straight line over 5 years, with no salvage value.
23. The current portion of the capital lease liability was reclassified to a current liability to aid in balance sheet preparation.
24. December 31: The restricted asset account, Cash restricted for bond principal retirement, was established pursuant to the requirements of the bond covenant.