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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. 2. Prepare appropriate closing entries.

are being constructed. y. The project

ruction costs

The ones highlighted in blue will not change color

1 Journal entries (a) Cash Bond issue costs Other financing sourcesbond proceeds (face value) Other financing sourcesbond premium To record issuance of bonds (b) Other financing usesNonreciprocal transfer-out to debt service fund Cash To record the transfer of the bond premium, net of issue costs, to the debt service fund (c) Cash State grant (revenue) Other financing sourcesNonreciprocal transfer-in from general fund To record the state grant and the nonreciprocal transfer-in from the general fund (d) Encumbrances Reserve for encumbrances To record the construction contract (e) Construction expenditures Cash To record payment to the contractor Reserve for encumbrances Encumbrances To cancel the encumbrance
The ones outlined in blue will not change colors.

(f) Other financing usesNonreciprocal transfer-out to debt service fund Cash To record the transfer of remaining cash to the debt service fund

2 Closing entries Fund balance Construction expenditures Bond issue costs Nonreciprocal transfer-out to debt service fund To close expenditures and transfers-out State grant Nonreciprocal transfer-in from general fund Other financing sourcesbond proceeds (face value) Other financing sourcesbond premium Fund balance To close revenues, transfers-in, and bond proceeds
$2,500,000 $527,000 $6,000,000 $120,000

he general fund

s-out
$2,500,000 $527,000 $6,000,000 $120,000 $9,147,000