76) For each of the following definitions, select the key term from the list that relate to general
capital assets and capital projects.
A. Bond anticipation notes
B. Infrastructure assets
C. Service Concession Arrangements
D. General capital assets
E. Capital projects funds
F. Asset impairment
G. Intangible assets
H. Depreciation
________ 1. Assets that lack physical substance and are nonfinancial in nature
________ 2. Short-term interest-bearing instruments issued by a government with a plan to replace
with longer-term debt
________ 3. Roads, bridges, curbs and gutters, streets, sidewalks, and drainage systems installed
for the common good
________ 4. Capital assets of a government that are not recorded in a proprietary or fiduciary fund
________ 5. Significant, unexpected decline in the service utility of a capital asset
77) If a city’s General Fund acquires a new copier under a lease agreement:
1) The cost of the copier should be recorded in the ________ general journal(s).
2) The “cost” of the copier is computed as ________.
3) A governmental fund should record the cost of the copier as an Expenditure, offset by a credit to
________.
4) The liability for the lease should be recorded in the ________ general journal(s).
5) The liability should be computed as ________.
Answer:
78) What is the difference between using the modified approach to accounting for infrastructure
assets and depreciating infrastructure assets?
79) Under the modified approach, what happens if infrastructure assets are not maintained at or
above the established condition level?
80) If bonds are sold at a premium to finance a capital project, what important question arises
concerning the premium? Discuss the proper accounting for a bond premium in the capital projects
fund, the debt service fund, and the government-wide statements assuming that the premium must
be reserved for debt service.
81) Which expenditures of a capital projects fund should be capitalized to Construction Work in
Progress? Is Construction Work in Progress included in the chart of accounts of a capital projects
fund? If not, where would it be found?
82) The City of McNeely sold bonds in the amount of $25,000,000 to finance the construction of a
public health center. The bonds are serial bonds and were sold at par on January 1, the first day of
a fiscal year. Shortly thereafter a construction contract in the amount of $22,000,000 was signed
and the contractor commenced work. By year-end the contractor had been paid in full for all
billings to date amounting to $12,000,000.
Prepare, in general journal form, all journal entries that should have been made during the fiscal
year ended December 31 to record the preceding information in the capital projects fund. (No
closing entry is required).
83) Prepare journal entries for the following related transactions in the fund and activity journals
affected: (If no entry is required for a transaction/event, select “No Journal Entry Required”
in the first account field.)
1. A capital projects fund issued $5,000,000, 4 percent bonds for $5,050,000 to finance
improvements of a park. Premiums received are to be used to service the debt issue.
2. The Parks and Recreation Special Revenue Fund transferred $250,000 for use in construction.
3. A construction contract was awarded in the amount of $5,200,000.
4. A bill was received from the contractor for $2,600,000.
5. The contractor’s bill is paid, and 5% retainage is withheld.
6. The park renovations were completed and the final bill of $2,600,000 was received. The
contractor’s bill and retainages are approved for payment in full. Total construction expenditures
were allocated as follows: $5,000,000 to building, and the remainder to equipment.
7. The capital projects fund temporary accounts were closed, and the capital projects fund was
closed by transferring remaining funds to the debt service fund for use in debt repayment.
36
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2.
Capital Projects Fund:
CASH
250,000
OTHER FINANCING SOURCES–
INTERFUND TRANSFERS IN
250,000
Special Revenue Fund:
OTHER FINANCING USES–
INTERFUND TRANSFERS IN
250,000
CASH
250,000
3.
Capital Projects Fund:
ENCUMBRANCES
5,200,000
ENCUMBRANCES OUTSTANDING
5,200,000
4.
Capital Projects Fund:
CONSTRUCTION EXPENDITURES
2,600,000
CONTRACTS PAYABLE
2,600,000
ENCUMBRANCES OUTSTANDING
2,600,000
ENCUMBRANCES
2,600,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS
2,600,000
CONTRACTS PAYABLE
2,600,000
5.
Capital Projects Fund and Governmental
Activities:
CONTRACTS PAYABLE
2,600,000
CONTRACTS PAYABLE–RETAINED
PERCENTAGE
130,000
CASH
2,470,000
37
6.
Capital Projects Fund:
CONSTRUCTION EXPENDITURES
2,600,000
CONTRACTS PAYABLE
2,600,000
ENCUMBRANCES OUTSTANDING
2,600,000
ENCUMBRANCES
2,600,000
CONTRACTS PAYABLE
2,600,000
CONTRACTS PAYABLE–RETAINED
PERCENTAGE
130,000
CASH
2,730,000
Governmental Activities:
CONSTRUCTION WORK IN PROGRESS
2,600,000
CONTRACTS PAYABLE
2,600,000
CONTRACTS PAYABLE
2,600,000
CONTRACTS PAYABLE–RETAINED
PERCENTAGE
130,000
CASH
2,730,000
PARK BUILDING
5,000,000
EQUIPMENT
200,000
CONSTRUCTION WORK IN
PROGRESS
5,200,000
38
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7.
Capital Projects Fund:
To close nominal accounts:
OTHER FINANCING SOURCES–
PROCEEDS OF BONDS
5,000,000
OTHER FINANCING SOURCES–
INTERFUND TRANSFERS IN
250,000
CONSTRUCTION EXPENDITURES
5,200,000
FUND BALANCE–RESTRICTED OR
ASSIGNED
50,000
To close the fund:
OTHER FINANCING USES–
INTERFUND TRANSFERS OUT
50,000
CASH
50,000
FUND BALANCE–RESTRICTED OR
ASSIGNED
50,000
OTHER FINANCING USES–
INTERFUND TRANSFERS OUT
50,000
Debt Service Fund:
CASH
50,000
OTHER FINANCING SOURCES–
INTERFUND TRANSFERS IN
50,000
Difficulty: 3 Hard
Topic: Capital Projects Funds
Learning Objective: 05-04 Prepare journal entries for a typical capital project, both at the fund
level and within the governmental activities category at the government-wide level.
Bloom’s: Understand
AACSB: Knowledge Application
AICPA: FN Reporting