The Wickliffe City Council authorizes the restoration of the city library. The project is to be funded by the issuance of bonds, a reimbursement grant from the state, and property taxes.
1. Prepare journal entries in the capital projects fund to reflect the following events and transactions:
a. The city approves (and gives accounting recognition to) the project’s budget of $9,027,000, of which $6,000,000 is to be funded by general obligation bonds, $2,500,000 from the state, and the remaining $527,000 from the general fund. The city estimates that construction costs will be $8,907,000 and bond issue costs $120,000.
b. 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.
c. The city transfers the net premium of $5,000 to its debt service fund.
d. It receives the anticipated $2,500,000 from the state and transfers $527,000 from the general fund.
e. It signs an agreement with a contractor for $8,890,000.
f. It pays the contractor $8,890,000 upon completion of the project.
g. It transfers the remaining cash to the debt service fund.
2. Prepare appropriate closing entries.