Government accounting

Anonymous
timer Asked: Aug 23rd, 2013
account_balance_wallet $5

Question Description

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

costs.

c. Itinvested$7.62millioninshort-term(lessthan

one-year) securities.

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

$5.3 million.

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


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School: Purdue University

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Anonymous
Excellent job

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