Recording Capital Projects Fund Transactions In Erikus Count

Recording Capital Projects Fund Transactions In Erikus County The Pa

Recording Capital Projects Fund Transactions . In Erikus County, the Parks and Recreation Department constructed a library in one of the county’s high growth areas. The construction was funded by a number of sources. Below is selected information related to the funding and closing of the Library Capital Project Fund. All activity related to the library construction occurred within the 2011 fiscal year.

1. The county issued $6,000,000, 4 percent bonds, with interest payable semiannually on June 30 and December 31. The bonds sold for 101 on July 30, 2010. Proceeds from the bonds were to be used for construction of the library, with all interest and premiums received to be used to service the debt issue.

2. A $650,000 federal grant was received to help finance construction of the library.

3. The Library Special Revenue Fund transferred $250,000 for use in construction of the library.

4. A construction contract was awarded in the amount of $6,800,000.

5. The library was completed on June 1, 2011, four months ahead of schedule. Total construction expenditures for the library amounted to $6,890,000. When the project was completed, the cost of the library was allocated as follows: $200,000 to land, $6,295,000 to building, and the remainder to equipment.

6. The capital projects fund was closed. It was determined that remaining funds were related to the bond issue, and thus they were appropriately transferred to the debt service fund.

Paper For Above instruction

The accounting for governmental capital projects involves meticulous recording of transactions that encompass bond issuance, grant receipts, interfund transfers, construction expenditures, and final asset capitalization. This paper details the necessary journal entries in the capital projects fund and the governmental activities general journal at the government-wide level pertaining to the library construction project in Erikus County for the fiscal year 2011.

Introduction

Governmental capital projects are typically financed through bond issues, grants, and interfund transfers dedicated to specific capital assets. Accurate recording of these activities ensures transparency and proper financial reporting. The Erikus County case provides a comprehensive example of the accounting procedures associated with a capital projects fund, involving multiple funding sources, project expenditures, and eventual asset capitalization and fund closing.

Bond Issuance and Premium Recognition

The county issued bonds totaling $6,000,000 at a premium, as they sold for 101% of face value. The bond issuance entry on July 30, 2010, records cash received, bonds payable, and premium on bonds payable:

Journal Entry:

  • Debit Cash: $6,060,000 (=$6,000,000 × 1.01)
  • Credit Bonds Payable: $6,000,000
  • Credit Premium on Bonds Payable: $60,000

This entry reflects the receipt of issuance proceeds ($6,060,000), with the premium debited to premium account, which will amortize over the bond's life.

Interest Payment and Premium Amortization

Semiannual interest payments include amortization of the bond premium. Assuming straight-line amortization over the 10-year life, the interest expense per period is calculated, but for simplicity, an amortization entry would debit interest expense and credit cash and premium on bonds payable accordingly at each interest date.

Receipt of Federal Grant and Interfund Transfer

The federal grant of $650,000 is recognized as revenue once received:

Journal Entry:

  • Debit Cash: $650,000
  • Credit Revenue - Federal Grants: $650,000

The transfer of $250,000 from the Library Special Revenue Fund to the Capital Projects Fund is an internal transfer, recorded as follows in the capital projects fund:

Journal Entry:

  • Debit Due from Other Funds / Interfund Receivable: $250,000
  • Credit Cash: $250,000

Construction Contract and Expenditures

The awarded construction contract amounts to $6,800,000, reflecting commitment and progress in the project. Actual expenditures during construction totaled $6,890,000, which includes land, building, and equipment costs, allocated as specified.

The entries recording construction costs in the capital projects fund include:

At the time of expenditures:

  • Debit Construction Expenditures: $6,890,000
  • Credit Cash / Accounts Payable: $6,890,000

Upon project completion on June 1, 2011, the capitalizable costs are transferred from expenditures to capital assets.

Capital Asset Recording

The total cost of the library asset includes land, building, and equipment, totaling $6,695,000. The journal entry at the government-wide level to record the library as an asset involves debiting capital assets and crediting construction expenditures:

  • Debit Land: $200,000
  • Debit Building: $6,295,000
  • Debit Equipment: $200,000 (remainder)
  • Credit Construction Expenditures: $6,695,000

Project Closure and Transfer to Debt Service Fund

At year-end, remaining funds in the capital projects fund, related to bond proceeds, are transferred to the debt service fund. The journal entry in the capital projects fund is:

  • Debit Cash / Interfund Transfer Out: Remaining balance
  • Credit Due to Debt Service Fund: same amount

This transfer ensures proper segregation of debt service activities from capital project expenditures, complying with governmental accounting standards.

Conclusion

The accounting for the Erikus County library project demonstrates the comprehensive process of recording bond issuance, grant income, interfund transfers, construction expenditures, asset capitalization, and fund closing. Accurate and timely journal entries ensure transparency, accountability, and compliance with governmental accounting standards, facilitating effective financial management and reporting.

References

  • Governmental Accounting Standards Board (GASB). (2020). Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments.
  • Wilson, R. (2010). Accounting for Governmental and Nonprofit Entities (15th ed.). McGraw-Hill Learning Solutions.
  • Government Finance Officers Association. (2019). GAAFR: Governmental Accounting, Auditing, and Financial Reporting.
  • Financial Accounting Standards Board (FASB). (2017). Accounting Standards Codification (ASC) Topic 958: Not-for-Profit Entities.
  • U.S. Government Publishing Office. (2021). Codification of Governmental Accounting Standards.
  • Harper, S. (2018). Governmental and Nonprofit Accounting. Wiley.
  • Ferguson, M. (2019). Governmental Accounting Made Easy. AccountingTools.
  • Special Report: Accounting for Capital Projects. (2020). Journal of Government Financial Management.
  • Governmental Accounting Standards Board. (2018). Financial Reporting Entity Model.
  • National Council on Governmental Accounting. (2022). Best Practices in Governmental Financial Reporting.

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