Question

Assume that the City of Killington decided to construct a Sewer Treatment Plant in 2016 at an expected cost $3,000,000. The Capital Project and related costs are to be financed as follows;

Proceeds from Bond Issue                        $2,000,000

State Grant                                                     820,000

Transfer from the General Fund                    180,000

                                                                   $3,000,000

The State Grant is for 30% of the qualifying project expenditures with a maximum grant limit of $820,000. It is an expenditure driven grant. Any excess unearned grant cash received will be refunded to the State at the conclusion of the project. The City of Killington applies encumbrances to control expenditures.

The Sewer Treatment Plant is to be constructed by Napa Construction Company. The City of Killington’s workforce will perform all excavating work. The estimated cost of the project is as follows:

Sewer Treatment Plant

            Napa Construction Company                         $2,880,000

Earthmoving & landscaping

            City of Killington                                                 120,000

                                                                                      $3,000,000

Chart of Accounts for The City of Killington

Cash

Accounts Receivable – State Grant

Investments – Marketable Securities

Estimated Revenues – State Grant

Estimated Other Financing Sources – Bond Proceeds

Estimated Other Financing Sources – Transfer General Fund

Fund Balance

Appropriations – Napa Construction Company

Appropriations – City of Killington

Encumbrances – Napa Construction Company

Reserve for Encumbrances – Napa Construction Company

Encumbrances – City of Killington

Reserve for Encumbrances – City of Killington

Revenue – State Grant

Revenue – Investment Income

Other Financing Sources – Bond Proceeds

Other Financing Sources – Bond Premium

Other Financing Sources – Transfer General Fund

Other Financing Uses – Transfer to Debt Service Fund

Expenditures – Bond Issue Costs

Expenditures – Construction Costs

Expenditures – Earthmoving

Required:

Year 2016

1)Prepare the 2 Budgetary Journal Entries at the beginning of 2016

2)The City of Killington signs a contract with Napa Construction Company for the full amount estimated and begins work on the bridge. Prepare the Journal Entry.

3)The General Fund transfers (non-reciprocal) $180,000 to the project as seed money to start operations.

4)The City of Killington issues 20 year 4% bonds at a premium at $2,010,000. Bond Issue costs paid to the underwriter (Morgan Stanley) was $3,500. Prepare the Journal Entry

5)The City of Killington transferred (non-reciprocal) the excess of the bond premium over issue costs to the Debt Service Fund. Prepare the Journal Entry

6)The City of Killington incurred and paid Earthmoving expenses of $140,000 in 2016. Prepare all the applicable Journal Entries.

7)The City of Killington paid Napa Construction Company expenses of $1,525,000 in 2016. Prepare all the appropriate Journal Entries

8)The City of Killington remits an invoice to the State government for expenses incurred in 2016. Prepare the Journal Entry

9)The City of Killington invests $250,000 in a 15 year, 3.5 % U.S Treasury Note. Prepare the Journal Entry

10)  The U.S. Treasury Note’s accrued Interest and increase in appreciation in value at year’s end is $4,000. Prepare the Journal Entry