Question

The City of Cowling decides to construct a new library, which it estimates will cost $8.5 million. The City will finance the library with a state construction grant of $3 million; a general obligation bond issuance of $5 million; and a transfer from the General Fund of $500,000. Prepare journal entries to record the following transactions in the Capital Projects Fund. No budgetary entries other than encumbrances should be recorded.

Answer 1

a. Dr Cash 500,000

Cr Transfer in from General Fund 500,000

b. Dr Cash 5,000,000

Cr Other financing source—long-term debt issued 5,000,000

c. Dr Encumbrances—capital project 8,300,000 Cr Budgetary fund balance reserved for encumbrances 8,300,000

d. Dr Cash 3,000,000

Cr Revenues—construction grant 3,000,000

e. Dr Budgetary fund balance reserved for encumbrances 8,300,000

Cr Encumbrances—capital project 8,300,000

Dr Expenditures—construction costs 8,400,000 Cr Retainage payable 840,000

Cr Construction contracts payable 7,560,000

f. Dr Construction contracts payable 7,560,000 Cr Cash 7,560,000

g. Dr Retainage payable 840,000

Cr Cash 840,000

h. Dr Transfer out to Debt Service Fund 100,000

Cr Cash 100,000

Step-by-step explanation:

Preparation of the journal entries to record the Capital Projects Fund

a. Dr Cash 500,000

Cr Transfer in from General Fund 500,000

b. Dr Cash 5,000,000

Cr Other financing source—long-term debt issued 5,000,000

c. Dr Encumbrances—capital project 8,300,000 Cr Budgetary fund balance reserved for encumbrances 8,300,000

d. Dr Cash 3,000,000

Cr Revenues—construction grant 3,000,000

e. Dr Budgetary fund balance reserved for encumbrances 8,300,000

Cr Encumbrances—capital project 8,300,000

Dr Expenditures—construction costs 8,400,000 Cr Retainage payable 840,000

(10%*8,400,000)

Cr Construction contracts payable 7,560,000

(8,400,000-840,000)

f. Dr Construction contracts payable 7,560,000 Cr Cash 7,560,000

(8,400,000-840,000)

g. Dr Retainage payable 840,000

Cr Cash 840,000

(10%*8,400,000)

h. Dr Transfer out to Debt Service Fund 100,000

Cr Cash 100,000