Question

Prepare journal entries to record the following transactions of a state, identifying the funds affected by each transaction. Record journal entries for all funds affected. The state prepares a budget for the Capital Projects Fund and uses encumbrance accounting in that fund.                                             

1. The state records its capital budget. It appropriates $10 million for highway construction, which will be financed entirely with the issuance of bonds.
2. The state sells 20-year 6% bonds having a face value of $10 million. The bonds are sold at a discount, so the state realizes a total of $9,900,000. Equal installments of principal will be paid every six months, together with interest on the unpaid balance.
3. The state awards two contracts, one for highway construction ($6,500,000) and one for construction supervision ($350,000). Both contracts provide for progress payments. The highway construction contract provides for 10% retainage pending completion of the project. There is no retainage on the construction supervision contract.
4. The construction contractor submits an invoice for $1,500,000. The invoice is approved and a voucher is prepared, less the 10% retainage.
5. The construction supervisor submits an invoice for $100,000, and a voucher is prepared.
6. Both of the invoices in transactions 4. and 5. are paid.
7. The state transfers $800,000 from the General Fund to the Debt Service Fund in anticipation of the payment of debt service on the bonds.
8. The first semi-annual debt service on the 20-year bonds becomes due and payable (see transaction 2.).
9. The debt service in 8., above, is paid.

Answer 1

Journal entries (Amt in $)

Date	Particulars	Debit	Credit
	For bonds issued at discount: Cash A/c Dr Discount A/c Dr (6%) To Bonds payable	9,400,000 600,000	10,000,000
	Highway Construction a/c dr To Capital Projects fund A/c	6,500,000	6,500,000
	Highway Construction A/c dr To Cash A/c (for retainage)	650,000	650,000
	Construction Supervision A/c dr To Capital Projects fund A/c	350,000	350,000
	Construction contractor a/c dr To cash a/c (10% on 1,500,000 retainage deducted)	1,350,000	1,350,000
	Construction Supervisor a/c dr to cash a/c	100,000	100,000
	Debt service fund a/c dr to general fund a/c	800,000	800,000