Leisure City had sold bonds in the amount of $ 4,000,000 during the latter part of 2012 to improve its water delivery system. As a result, on December 31, 2012, its Capital Projects Fund reported cash of $ 4,000,000 and fund balance (restricted) of $ 4,000,000. Leisure City anticipated completing the project during 2013. It also anticipated receiving a $ 1,000,000 grant from the federal government to aid in the construction project. Leisure City’s Debt Service Fund had neither assets nor liabilities at December 31, 2012. The city adopted a budget for its Capital Projects Fund but not for its Debt Service Fund. It uses encumbrance accounting in the Capital Projects Fund. The Leisure City ordinance provides that all amounts remaining in the Capital Projects Fund on completion of a construction project must be transferred to the Debt Service Fund. The following transactions and events affecting the two funds occurred in 2013:
1. The city council adopted the following budget for the Capital Projects Fund for 2013:
Estimated revenues— federal grant............ $ 1,000,000
Estimated revenues— investment income.......... 20,000
Appropriations— water system upgrade ........... 5,000,000
2. The Capital Projects Fund invested $ 3,000,000 in a 6- month CD bearing interest at the rate of 1 percent per annum.
3. Because of budgetary problems experienced by the federal government, the city received a cash grant in the amount of only $ 600,000. A letter attached to the grant said that no additional grant would be forthcoming; further, the grant stipulated that city resources had to be used before the grant could be used and that, if the city did not spend at least $ 4,600,000 on the project, a proportionate share of the grant must be returned to the federal government.
4. After reviewing construction cost estimates, the city decided to sell additional bonds in the amount of $ 400,000 face value. The city realized cash of $ 425,000 from the sale (which included a $ 25,000 premium), all of which was deposited in the Capital Projects Fund.
5. The city council amended the Capital Projects Fund budget, reducing the estimated revenues from federal grants by $ 400,000 and adding a line item for Estimated other financing sources— bond issue in the amount of $ 400,000.
6. The city entered into two contracts:
(a) One with the Leveille Construction Co. in the amount of $ 4,600,000 for construction services and
(b) The other with Elisa Engineering in the amount of $ 400,000 for construction supervision.
7. The CD in transaction 2 matured. Leisure City received $ 3,015,000 cash, which included interest on the CD.
8. Leveille completed construction work on the water delivery system upgrade and submitted an invoice for $ 4,600,000. Leisure City approved and paid the bill, less 5 percent retainage pending final approval of the work by Elisa Engineering.
9. Elisa Engineering gave final approval to Leveille’s work. As a result, Leisure City paid the retain-age to Leveille. Elisa also submitted an invoice for $ 400,000, which Leisure City approved and paid.
10. Based on the provisions of the federal grant (see transaction 3), Leisure City recognized the entire amount of the grant as revenue.
11. The construction contract having been completed, Leisure City transferred all the resources remaining in the Capital Projects Fund to the Debt Service Fund.
12. The Debt Service Fund recognized the debt service liability for 2013, based on the following debt service requirement:
a. $ 4,000,000 of debt, issued December 1, 2012, and due in equal annual installments of principal over 20 years, starting November 30, 2013, with interest of 5 percent per annum on the unpaid principal
b. $ 400,000 of debt, issued June 1, 2013, and due in equal semiannual installments of principal over 20 years, starting November 30, 2013, with interest of 5 percent per annum on the unpaid principal
13. The Debt Service Fund received $ 440,000 cash from the General Fund to pay debt service (see Chapter 5 , Summary Problem, transaction 18, on page 181).
14. The Debt Service Fund paid the debt service amount due for the year.
Use the preceding information to do the following:
a. Prepare journal entries to record the foregoing transactions and events in the appropriate funds.
b. Prepare preclosing trial balances as of December 31, 2013, for the Capital Projects Fund and the Debt Service Fund.
c. Prepare balance sheets and statements of revenues, expenditures, and changes in fund balances for the Capital Projects Fund and the Debt Service Fund.
d. Prepare a budgetary comparison statement for the Capital Projects Fund.

  • CreatedDecember 30, 2014
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