Reference no: EM132921380

Question - Prepare journal entries in the Capital Projects Fund to record the following transactions related to the construction of a building by the Village of Navajo Falls. (Note that only Capital Projects Fund journal entries are required.) The Village adopts a formal budget and uses encumbrance accounting.

a. The Village Council adopts a capital budget at the beginning of the year. To finance construction of the building, the Village will transfer $3 million from its General Fund and apply for a state grant of $1 million. It appropriates $4 million for construction.

b. The General Fund transfers $3 million to the Capital Projects Fund for the new project.

c. The state approves Navajo Falls's application for a $1 million construction grant and simultaneously sends a check to the Village. The grant is expenditure driven and thus requires that Navajo Falls incur qualifying expenditures.

d. Navajo Falls awards a construction contract in the amount of $3.4 million.

e. The contractor sends a progress billing to Navajo Falls in the amount of $1.6 million. The bill is approved by the Village's engineers and a voucher is prepared, less a 10% retainage pending completion of the building and final approval by the Village. Navajo Falls considers 25 percent of the billing to be the state's share of the cost.

f. The voucher in e., above, is paid.

g. The contractor encounters construction problems due to unforeseen soil conditions. As a result, Navajo Falls authorizes a change order increasing the cost of the construction contract by $200,000.

h. The contractor completes construction, and sends Navajo Falls an invoice for the remaining $2 million. The Village's engineers inspect the building and accept the work. The invoice is approved and paid, together with the amount retained on the progress billing in e., above. Navajo Falls considers $600,000 of the billing to be the state's share of the cost.