At the time of late 2013, the voters of the City of Smithville validated tax-supported bond issues totalling $10,000,000 as partial financing for the series of projects to construct curbs, streets, storm and culverts sewers in different parts of the city. The approximate total cost of the series of projects, that are expected to extend over the next three years, was $11,200,000. In addition to the bond financing, voters as well approved a special ½ cent sales tax to assist in financing the projects. Sales tax starts January 1, 2014 and will carry on for three years. The sales tax is projected to produced $400,000 each year.
Required
a) Open general journal for the Street Improvement Fund by recording transactions listed under paragraph b below, as needed. Make use of account titles listed under the drop-down [Account (# - Description)] menu. Choose 2014 for each transaction in the [Year] box of the [Journal] view. Enter the paragraph reference, i.e. 5-b-[1, 2, 3, etc], in the [Transaction Description] box. Following account titles must appear in the [Accounts] view:
Cash
Investments
Taxes Receivable—Sales
Interest Receivable on Investments
Vouchers Payable
Judgments Payable
Contracts Payable
Contracts Payable—Retained Percentage
Fund Balance—Restricted
Encumbrances Outstanding—Elm Street Project
Encumbrances Outstanding—Spruce Street Project
Revenues
Other Financing Sources—Proceeds of Bonds
Construction Expenditures—Elm Street Project
Construction Expenditures—Spruce Street Project
Interest Expenditures—Spruce Street Project
Other Financing Uses—Interfund Transfers Out
Encumbrances—Elm Street Project
Encumbrances—Spruce Street Project
b) Record journal entries in the general journal of the Street Improvement Fund, as suitable, for each of the given transactions. Make sure to enter the accurate year and paragraph numbers. Don’t record entries at this time in other affected funds; Although you must, make all essential entries in the governmental activities general journal at government-wide level.
1) [Para. 5-b-1] Early 2014, design plans and specifications for the first project, the “Elm Street Project,” were given by a construction engineering firm. The firm billed the Street Improvement Fund for $40,000.
Required: Record this billing and the associated Vouchers Payable liability in the Street Improvement Fund and governmental activities journals. (Note: this transaction wasn't encumbered.)
2) [Para. 5-b-2] On March 1, 2014, the city signed a $50,000, 90-day tax anticipation note bearing interest of 3% per annum.
Required: Record this transaction in the Street Improvement Fund and governmental activities journals.
3) [Para. 5-b-3] A $290 purchase order for advertisements soliciting bids for the Elm Street Project was issued throughout March 2014. The bill for advertising in the amount of $300 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 suitable.
4) [Para. 5-b-4] Sales tax revenue of $105,000 was received from the state government and recorded for the first quarter of 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
5) [Para. 5-b-5] Vouchers payable accumulated to date were paid on April 10, 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
6) [Para. 5-b-6] On April 15, 2014, construction bids were opened and analyzed. A bid of $2,000,000 was accepted, and the contract was awarded for the Elm Street Project. The contract given for a retained percentage of 4% from each progress payment, and from the final payment, till 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 influence at the government-wide level.
5) [Para. 5-b-7] On May 6, 2014, 4% deferred serial bonds with the face value of $2,000,000 were sold for a total amount of $2,068,000, of which $28,000 was for accrued interest from the January 1, 2014, date of the bonds and $40,000 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. City invested $1,000,000 of the bond proceeds in certificates of deposit maturing in six months and earning 3% per annum.
Required: Record such 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 must record the premium on the bonds payable [credit Premium on 4% 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 must ignore the entries in the Street Improvement Bond Debt Service Fund to record the accrued interest and premium.
8) [Para. 5-b-8] The city repaid the $50,000 tax anticipation note plus interest of $375 ($50,000 X .03 X 90/360) (See transaction 2).
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals. The $375 of interest should be debited to Interest Expenses in the Street Improvement Fund journal and to Expenses—General Government in the governmental activities journal.
9) [Para. 5-b-9] In July 2014, the contractor for the Elm Street Project reported that the project was one-half completed and requested a progress payment of $1,000,000. This amount was paid in late July, less the contractual retention of 4 percent.
Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.
10) [Para. 5-b-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 $30,000 in payment for the engineering services.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. (Note: This transaction wasn't encumbered.)
11) [Para. 5-b-11] During August 2014, the city issued a purchase order in the amount of $350 for advertisements soliciting construction bids for the Spruce Street Project. Later in the month, a bill was received in the amount of $340 for the advertisements and a voucher was approved for payment.
Required: Record such transactions in both the Street Improvement Fund and governmental activities journals, as applicable.
12) [Para. 5-b-12] Two property owners along Elm Street claimed the new sidewalk was constructed further from the street than where they had granted easements. Resurvey confirmed that the sidewalk was constructed in the incorrect place, but the city didn't trust that the property owners were entitled to damages. Property owners sued the city in court and were awarded a total of $9,000, which was recorded as a judgment liability during October 2014. The amount would be borne by the Street Improvement Fund; it would not be recoverable from the contractor.
Required: Record such transaction in both the Street Improvement Fund and governmental activities journals. You must debit Construction Expenditures in the Street Improvement Fund and Construction in Progress at the government-wide level.
13) [Para. 5-b-13] Construction bids for the Spruce Street Project were opened and evaluated. Bid in the amount of $1,500,000 was accepted, and the contract, bearing a 4% retention clause was signed in October 2014.
Required: Record these transaction in the Street Improvement Fund.
14) [Para. 5-b-14] In November 2014, the 3% certificates of deposit matured; the face amount of $1,000,000 plus interest of $15,000 was gathered. The interest is considered revenue of the Street Improvement Fund.
Required: Record these transaction in both the Street Improvement Fund and governmental activities journals.
15) [Para. 5-b-15] All outstanding vouchers were paid. And also, the judgment payable (see Transaction 12) and interest of $90 were paid on the similar date. The interest to be borne by the Street Improvement Fund and is not to be capitalized.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals. The $90 interest must be debited to Interest Expenditures in the Street Improvement Fund journal and to Expenses—General Government in the governmental activities journal.
16) [Para. 5-b-16] In late November 2014 the Elm Street project was finished and the contractor for the project requested a final payment of $980,000. Amount was recorded as a liability. Payment was made, less the retained percentage, on December 1, 2014.
Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.
17) [Para. 5-b-17] Additional sales taxes were collected in the amount of $310,000 before December 1, 2014. $200,000 of this amount was invested in 3% U.S. Treasury notes at par. No interest was accrued on the notes at date of purchase.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals.
18) [Para. 5-b-18] Upon final inspection of the Elm Street Project, the city inspector determined that all the work conformed to specifications. Retained percentages (Transactions 9 and 16) were paid to the contractor.
Required: Record these transaction in both the Street Improvement Fund and governmental activities journals. Total construction costs for the Elm Street Project must be capitalized in the Infrastructure account in governmental activities.
19) [Para. 5-b-19] Based on retail sales estimates from the state Department of Revenue, additional sales taxes were accrued in the amount of $40,000. On December 31, 2014, $500 of interest was accrued on the investment in Treasury notes. Fair market value of the notes was the similar as cost on December 31, 2014.
Required: Record these transactions in both the Street Improvement Fund and governmental activities journals.
20) Validate the correctness of all your previous entries in the Street Improvements 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 2014 and post them to the fund’s general ledger. (Note: You should click on the box for [Closing Entry] to check mark it;“Closing Entry” would appear in the [Transaction Description] box for the account being closed. Make sure the check mark is present for each account being closed.) Click [Post Entries] to post the closing entry. Under present GASB standards encumbrances and encumbrances outstanding are not reported in any financial statements. Therefore, there is no requirement to close these accounts as the Spruce Street Project is still underway at year-end.