Journals of a govern-mental fund

5–4. How does one determine whether a particular lease is a capital lease or an operating lease? What entries are required in the general journals of a govern-mental fund and governmental activities at the government-wide level to record a capital lease at its inception?

5–7. If a capital project is incomplete at the end of a fiscal year, what happens to Encumbrances and all operating statement accounts at year-end?

5–23 Multiple-Project Fund Transactions. During FY 2017, the voters of Surprise County approved construction of a $21 million police facility and an $11 million fire station to accommodate the county’s population growth. The construction will be financed by tax-supported bonds in the amount of $30 million, a $1million economic stimulus grants, and a portion of future use tax revenues. During 2017, the following events and transactions occurred.

  1. Issued $100,000 of 6 percent bond anticipation notes to cover preliminary
    planning and engineering expenses.
  2. Incurred architecture and engineering costs in the amount of $60,000. They
    were split evenly between the two projects.
  3. Entered into a construction contract for $32 million—$21 million was for
    the police facility and $11 million was related to the fire station.
  4. Issued the $30 million, 20-year 5% bonds at 101. (The premium should be
    recorded in a debt service fund. You do not need to record this entry.)
  5. Paid off the bond anticipation notes that had been outstanding 180 days.
    (Interest is an expenditure of the capital projects fund.)
  6. An invoice for $16 million was received from the contractor for a portion of
    police facility construction ($10 million) and fire station construction ($6
  7. Half of the grant funds were received in cash. The remainder is anticipated
    in 2018; however, the grantor notified the county that there is no guarantee
    that the federal government will appropriate the 2018 portion.
  8. The initial construction invoice, less 5% retainage, was paid.
  9. The fire station was completed, and a final invoice for the remaining $5million was received. All fire station construction charges incurred can be capitalized as buildings.
  10. Following inspection, the fire station invoices were paid in full.
  11. At year-end, the contractor billed the county an additional $7.5 million for the police facility; however, the police facility was incomplete.
  12. Temporary accounts were closed at year-end. Assume that the fund balances
    are all restricted.
    a. Prepare journal entries to record the preceding information in a single Surprise County Construction Fund and the governmental activities general journal at the government-wide level.
    b. Prepare a Surprise County Construction Fund balance sheet for the year ended December 31, 2017.
    c. Prepare a Construction Fund statement of revenues, expenditures, and changes in fund balances for the year ended December 31, 2017.
    d. How would these capital expenditures for the police facility and fire station appear on the Surprise County’s government-wide statements of net position and activities?

Sample Solution