In 2016 Jerry City annexes a recently developed subdivision and commits to extend sewer lines to the area. The estimated cost is $10.0 million. The project is to be funded with $8.5 million in special assessment bonds and a $1.0 million reimbursement grant from the state.
1. Jerry City issued $8.5 million in bonds at a premium of $0.30 million and incurred $0.18 million in issue costs. The journal entry is prepared to record the issuance of the bonds; a second journal entry is prepared to record obligation to debt service fund for bond premium, net of issue costs.
2. Jerry City received the $1.0 million grant from the state, recognizing it as a liability until Jerry City incurred at least $1.0 million in construction costs. Note: Jerry City incurs the construction costs later in the year, before year end.
3. Jerry City invested $7.62 million in short‐term (the investment will be held less than one year) securities.
4. Jerry City issued purchase orders and signed construction contracts for $9.2 million. There are encumbrances examples in a previous chapter.
5. Jerry City sold $5.0 million of its investments for $5.14 million; the excess of selling price over cost represents interest earned.
6. Jerry City received invoices from its prime contractor totaling $5.7 million. As permitted by its agreement with its prime contractor, Jerry City retained (and recorded as a payable) $0.4 million due to contractor (retainage payable) pending satisfactory completion of the project. Jerry City paid the balance of $5.3 million.
7. Jerry City transferred $0.12 million to the debt service fund. This closes the Due to Debt Service Fund that was recorded in journal entry #1.
8. Jerry City had the following year end accruals:
a. By year‐end the investments still on hand had increased in value by $0.06 million, an amount also attributable to interest earned. Jerry city can accrue investment interest revenue
b. Jerry City incurred $1 million in expenditures in construction costs that was a requirement of being able to recognize revenue from the $1.0 million state grant. Jerry City can now recognize the state grant revenue for $1.0 million.
a. A statement of revenues, expenditures, and changes in fund balance for the capital projects fund?
b. A year‐end (December 31) balance sheet for the capital projects fund?