Question

Your city has decided to build a new library. The projected cost is $2 million. A bond issue for $1.2 million has been authorized, and the remainder is supposed to come from a contribution of $800,000 from the general fund. The bonds sold for $1.3 million, a premium of $100,000. Create the required journal entries for the following transactions: Identify all of the funds required for these entries.

Answer 1

Issuance of bonds:

Debit: Cash (bond proceeds) $1.3 million

Credit: Bonds Payable $1.2 million

Credit: Premium on Bonds Payable $100,000

Contribution from general fund:

Debit: Cash (general fund contribution) $800,000

Credit: Contributed Capital (general fund contribution) $800,000

Construction of library:

Debit: Construction in Progress $2 million

Credit: Cash (bond proceeds) $1.3 million

Credit: Contributed Capital (general fund contribution) $800,000

In these transactions, the following funds are required:

- Cash (bond proceeds): This represents the cash received from the sale of the bonds.

- Bonds Payable: This represents the debt that the city has taken on through the issuance of the bonds.

- Premium on Bonds Payable: This represents the excess amount that the city received from the sale of the bonds above the face value of the bonds.

- Cash (general fund contribution): This represents the cash that the city is contributing from its general fund towards the construction of the library.

- Contributed Capital (general fund contribution): This represents the capital that the city is contributing from its general fund towards the construction of the library.

- Construction in Progress: This represents the cost of the construction of the library.