Chapter 5, Problem 26EP

This year Riverside began work on an outdoor amphitheater and concession stand at the city’s park. It is to be financed by a $3,500,000 bond issue and supplemented by a $500,000 General Fund transfer. The following transactions occurred during the current year:

1. 1. The General Fund transferred $500,000 to the Park Building Capital Projects Fund.
2. 2. A contract was signed with Restin Construction Company for the major part of the project on a bid of $2,700,000.
3. 3. Preliminary planning and engineering costs of $69,000 were vouchered for the Great Pacific Engineering Company. (This cost had not been encumbered.)
4. 4. A payable was recorded for an $18,500 billing from the Water and Sewer enterprise fund for the cost of extending water pipes to the new concession stand.
5. 5. An invoice in the amount of $1,000,000 was received from Restin for progress to date on the project.
6. 6. The $3,500,000 bonds were issued at par.
7. 7. The amount billed by the contractor (see Transaction 5) less 5 percent retainage was paid.
8. 8. Temporary investments were purchased at a cost of $1,800,000.
9. 9. Closing entries were prepared as of year-end. Assume that $2,500,000 of the encumbrances outstanding will be paid from the bond proceeds and are therefore considered restricted resources. The remaining fund balance is assigned.

Required

1. a.      Prepare journal entries to record the preceding information in the general ledger accounts for the Park Building Capital Projects Fund. (You may ignore the entries that also would be required in the governmental activities general journal at the government-wide level.)
2. b.      Prepare a balance sheet for the Park Building Capital Projects Fund as of year-end.
3. c.       Prepare a statement of revenues, expenditures, and changes in fund balances fertile period.

To determine

Journalize the entries for the given information under general fund and governmental activities.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit: A debit is an accounting term that refers to the left side of an account. The term debit is be denoted by (Dr). The recording amount on the left side of the account is known as debiting.

Credit: A credit is an accounting term that refers to the right side of an account. The term credit is denoted as (Cr). The recording amount on the right side of the account is known as crediting.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all the increase in the assets, the expenses and the dividends, all the decrease in liabilities, revenues and the stockholders’ equities.
• Credit, all the increase in the liabilities, the revenues, and the stockholders’ equities, and all decreases in the assets, and the expenses.

Pass the journal entries for the given transactions:

Date	Description	Debit	Credit
1	Cash	$500,000
	Other Financing sources - Interfund Transfers In		$500,000
	(To record the bonds issued)
2	Encumbrances	$2,700,000
	Encumbrances Outstanding		$21,000,000
	(To record the project contract)
3	Construction Expenditures	$69,000
	Vouchers Payable		$69,000
	(To record the construction expenses)
4	Construction Expenditures	$18,500
	Due to Other Funds		$18,500
	(To record the construction expenses)
5	Encumbrances Outstanding	$1,000,000
	Construction Expenditures	$1,000,000
	Encumbrances		$1,000,000
	Contract Payable		$1,000,000
	(To record the receipt of contract invoice)
6	Cash	$3,500,000
	Other Financing sources - Proceeds of Bonds		$3,500,000
	(To record the issue of bonds)
7	Contract Payable	$1,000,000
	Contract Payable - Retained Percentage		$50,000
	Cash		$950,000
	(To record the payment of initial invoice)
	Governmental Activities:
	Cash	$500,000
	Program Revenue — Economic Development — Capital Grants And Contributions		$500,000
	(To record the receipt of federal grant)
8	Investment	$1,800,000
	Cash		$1,800,000
	(To record the purchase of investments)
9	Other Financing sources - Proceeds of Interfund Transfers In	$500,000
	Other Financing sources - Proceeds of Bonds	$3,500,000
	Construction Expenditures		$2,500,000
	Fund Balance - Restricted		$412,500
	Fund Balance - Restricted		$1,087,500
	(To record the closing entry)

Table (1)

Prepare the general ledger for the given journal entries (optional):

Cash
(1)	$500,000	(5)	$950,000
(7)	$3,500,000	(10)	$1,800,000
Bal.	$1,250,000
Investments
(8)	$1,800,000
Bal.	$1,800,000
Vouchers Payable
		(3)	$69,000
		Bal.	$69,000
Contract Payable
(7)	$1,000,000	(5)	$1,000,000
		Bal.	$0
Contract Payable - Retained Percentage
		(7)	$50,000
		Bal.	$50,000
Due to Other Funds
		(4)	$18,500
		Bal.	$18,500
Fund Balance - Restricted
		(9)	$2,500,000
		Bal.	$2,500,000
Fund Balance - Assigned
		(9)	$412,500
		Bal.	$412,500
Other Financing Sources—Interfund Transfers In
(9)	$500,000	(1)	$500,000
		Bal.	$0
Other Financing Sources—Proceeds of Bonds
(9)	$3,500,000	(6)	$3,500,000
		Bal.	$0
Encumbrances
(2)	$2,700,000	(5)	$1,000,000
Bal.	$1,700,000
Encumbrances Outstanding
(5)	$1,000,000	(2)	$2,700,000
		Bal.	$1,700,000
Construction Expenditures
(3)	$69,000	(9)	$1,087,500
(4)	$18,500
(5)	$1,000,000
		Bal.	$0

Table (2)

To determine

Prepare the Park Building Capital Projects Fund Balance sheet for County R.

Explanation of Solution

Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the Balance sheet for County R.

County R
Park Building Capital Projects Fund
Balance sheet
As of year, end
Particulars	Amount ($)
Assets
Cash	$ 1,250,000
Investment	$ 1,800,000
Total assets	$ 3,050,000
Liabilities and Fund Balances
Liabilities
Vouchers payable	$ 69,000
Due to Other funds	$ 18,500
Contracts payable - Retained Percentage	$ 50,000
Total liabilities	$ 137,500
Fund Balances
Fund Balances - Restricted	$ 2,500,000
Fund Balances - Assigned	$ 412,500
Total liabilities and Fund Balances	$ 3,050,000

Table (3)

To determine

Draft the statement of revenues, expenditures, and changes in fund balances for the year end.

Explanation of Solution

Statement of Revenues, Expenditures and Changes in the fund balances: Statement of Revenues, Expenditures and Changes in the fund balances provides the overview of all the transactions carried out by the government in a consolidated format. It provides all the balances and the final balance of the funds available.

Prepare the Statement of Revenues, Expenditures and Changes in the fund balances.

County R
Park Building Capital Projects Fund
Statement of Revenues, Expenditures and Changes in the fund balances
For the year End
Particulars	Amount ($)
Expenditures:
Construction Expenditures	$ 1,087,500
Excess of Expenditures Over Revenues
Other Financing Sources (Uses):
Proceeds of Interfund Transfers In	$ 500,000
Proceeds of Bonds	$ 3,500,000
Excess Of Revenues And Other Financing Sources And Uses Over Expenditures	$ 2,912,500
Fund Balances, Beginning	$ 0
Fund Balances, Ending	$ 2,912,500

Table (4)