I’m trying to learn for my class and I’m stuck. Can you help?
Upon annexing a recently developed sub-
division, a government undertakes to extend
sewer lines to the area. Estimated cost is $10
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.
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 prin-
cipal and interest on the debt. The government
estimated that, during the ﬁrst year of the proj-
ect, it would earn $200,000 in interest on the
temporary investment of bond proceeds, an
amount that would reduce the required transfer
from the general fund. It also estimated that
bond issue costs would be $180,000.
During the year, the government engaged in
the following transactions, all of which should be
recorded in a capital projects fund.
a. It issued $8.5 million in bonds at a premium of
$300,000 and incurred $180,000 in issue costs.
The premium, net of issue costs, is to be trans-
ferred to a newly established debt service fund.
b. It received the $1 million grant from the state,
recognizing it as deferred revenue until it
incurred at least $1 million in construction
d. It issued purchase orders and signed construc-
tion contracts for $9.2 million.
e. 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
investments still on hand had increased in value
by $60,000, an amount that also could be attrib-
uted to interest earned.
f. It received invoices totaling $5.7 million. As
permitted by its agreement with its prime
contractor, it retained (and recorded as a pay-
able) $400,000, pending satisfactory comple-
tion of the project. It paid the balance of
g. It transferred $120,000 to the debt service fund.
h. It updated its accounts but did not close them,
inasmuch as the project is not completed and its
budget is for the entire project, not for a single