Reference no: EM13508523

Upon annexing a recently developed subdivision, a government undertakes to extend sewer lines to the area. The estimated cost is $10 million. The project is to be funded with $8.5 million in special assessment bonds and a $1 million reimbursement grant from the state. The balance is to be paid by the government out of its general fund. Property owners are to be assessed an amount sufficient to pay both principal and interest on the debt. During the year, the government engaged in the following transactions, all of which would be recorded in a capital projects fund.

1. It recorded the capital projects fund budget. It estimated that it would earn $0.20 million in interest on the temporary investment of bond proceeds, an amount that will reduce the required transfer from the general fund. It estimated that bond issue costs would be $0.18 million.
2. It issued $8.5 million in bonds at a premium of $0.30 millions and incurred $0.18 million in issue costs. The premium, net of issue costs, is to be transferred to a newly established debt service fund.
3. It received the $1.0 million grant from the state, recognizing it as a liability until it incurred at least $1.0 million in construction costs.
4. It invested $7.62 millijon in short term (less that one year) securities.
5. It issued purchase orders and signed construction contracts for $9.2 million.
6. It sold $5 million of its investments for $5.14 million, the excess of selling price over cost representing interest earned. By year end the investmenst still on hand had increased in value by $0.60 million, an amount also attributable to interest earned.
7. It received invoices totaling $5.7 million. As permitted by its agreement with its prime contractor, it retained $0.4 million pending satisfactory completion of the project. It paid the balance of $5.3 million.
8. It transferred $0.12 million to the debt service fund.
9. It updated its accounts, but did not close them because the project is not completed and its budget is for the entire project, not for a single period.

a. Prepare appropriate journal entries for the capital projects fund.
b. Prepare a statement of revenues, expenditures, and changes in net fund balance in which you compare actual and budgeted amounts.
c. Prepare year end (dec 31) balance sheet.
d. Does your balance sheet report the construction in process? If not, where might the construction in process be recorded?