Accounting Case – Elm Street Project

| September 29, 2018

1. [Para. 5-b-1] In early 2014, design plans and specifications for the first project, the “Elm Street Project,” were submitted by a construction engineering firm. The firm billed the Street Improvement Fund for $40,000.Required: Record this billing and the related Vouchers Payable liability in the Street Improvement Fund and governmental activities journals. (Note: this transaction was not encumbered.)2. [Para. 5-b-2] On April 15, 2014, construction bids were opened and analyzed. A bid of $2,000,000 was accepted, and the contract was awarded for the Elm Street Project. The contract provided for a retained percentage of 4 percent from each progress payment, and from the final payment, until final inspection and acceptance by the city’s public works inspectors.Required: Record the signing of the contract in the Street Improvement Fund general journal. This transaction has no effect at the government-wide level.3. [Para. 5-b-3] Vouchers payable (see Transaction 1) were paid on April 20, 2014.Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.4. [Para. 5-b-4] On May 6, 2014, 4% deferred serial bonds with a face value of $2,000,000 were sold for a total amount of $2,068,000, of which $28,000 was for accrued interest from the January 1, 2014, date of the bonds and $40,000 was a premium on the bonds sold. Cash in the amount of the accrued interest and premium was deposited directly in the Street Improvement Bond Debt Service Fund. Cash in the amount of $2,000,000 was deposited and recorded in the Street Improvement Fund.Required: Record these transactions in the Street Improvement Fund and governmental activities journals. (Hint: In addition to recording the liability for bonds payable in the governmental activities journal, you should record the premium on the bonds payable [credit Premium on 4% Deferred Serial Bonds] and accrued interest on bonds sold [we recommend that you credit Expense—Interest on Long-term Debt] in the governmental activities general journal for the $28,000 of accrued interest.) For now you should ignore the entries in the Street Improvement Bond Debt Service Fund to record the accrued interest and premium. Those entries will be made in Chapter 6 of this cumulative problem.5. [Para. 5-b-5] In July 2014, the contractor for the Elm Street Project reported that the project was one-half completed and requested a progress payment of $1,000,000.Required: Record the liability for the progress billing.6. [Para. 5-b-6] The billing for the partially completed Elm Street Project (see Transaction 5) was paid in late July, less the contractual retention of 4 percent.Required: Record this transaction in both the Street Improvement Fund and governmental activities general journals.7. [Para. 5-b-7] In late November 2014 the Elm Street Project was completed and the contractor for the project requested a final payment of $980,000. This amount was recorded as a liability.Required: Record the liability for the final billing in both the Street Improvement Fund and governmental activities journals.8. [Para. 5-b-8] Payment was made for the final billing on the Elm Street Project, less the retained percentage, on December 1, 2014.Required: Record this transaction in both the Street Improvement Fund and governmental activities journals.9. [Para. 5-b-9] Upon final inspection of the Elm Street Project, the city inspector determined that all work conformed to specifications. Retained percentages (Transactions 6 and 8) were paid to the contractor.Required: Record this transaction in both the Street Improvement Fund and governmental activities journals. Total construction expenditures for the Elm Street Project should be capitalized in the Infrastructure account in governmental activities.10. [Para. 5-b-10] During the year sales taxes were collected in the amount of $410,000.Required: Make the summary journal entries in both the Street Improvement Fund and governmental activities journals to record the collection of sales taxes.

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