Assume that Stafford Township decided to construct a bridge

Assume that Stafford Township decided to construct a bridge in 2018 that is expected to cost $3,000,000. The bridge construction and related costs are to be financed as follows;

Federal Grant                                   $1,200,000

Bond Issue Proceeds                        1,500,000

Transfer from the General Fund      300,000

                                                              $3,000,000

The Federal Grant is for 40% of the qualifying project expenditures with a maximum grant limit of $1,200,000. It is an expenditure driven grant. Any excess unearned grant cash received will be refunded to the federal government at the completion of the project. Stafford Township applies encumbrances to control expenditures.

The bridge is to be constructed by Ace Construction Company. The Stafford Township government workforce will perform all earthmoving & landscaping work. The estimated cost of the bridge is as follows:

Bridge Structure

            Ace Construction Company                                 $2,400,000

Earthmoving & landscaping

Stafford Township                                                  600,000

3,000,000

Please fill in Jounral entry:

1	Budgetary Entry - Revenues
	Account		Debit		Credit
	Estimated Revenues - Federal Grant		1,200,000
	Estimated Other Financing Sources - Bond		1,500,000
	Estimated Other Financing Sources - Transfer		300,000
	Appropriations - Bridge Structure				3,000,000
2	Budgetary Entry - Expenditures
	Account		Debit		Credit
3	Ace Construction Company signs a contract and begins work on the bridge
	Account		Debit		Credit
4	The General Fund transfers $300,000 to the Capital Project Fund as seed money to start operations
	Account		Debit		Credit
5	Egg Harbor Township issues bonds at a premium at $1,500,000. Bond Issue Costs paid to the
	underwriter (Morgan Stanley) was $5,000
	Account		Debit		Credit
6	Egg Harbor Township transferred the Excess of the Bond Premium over issue costs to the
	Debt Service Fund
	Account		Debit		Credit
7	Egg Harbor Township incurred Earthmoving Expenses of $400,000 in 2018
	Account		Debit		Credit
8	Egg Harbor Township paid actual Earthmoving Expenses of $400,000 in 2018
	Account		Debit		Credit
9	Egg Harbor Township paid Ace Construction Company $1,200,000 in 2018
	Account		Debit		Credit
10	Egg harbor Township sends a list of expenditures incurred in 2018 to the Federal Government
	for Reimbursement. The reimbursement was subject to the qualifying expenditure percentage.
	Account		Debit		Credit
11	Egg Harbor Township invests $500,000 in a U.S. Treasury Note at 5% maturing 10 years
12	The U.S. Treasury Note\'s accrued interest and increase in appreciated value at year\'s end is $12,500

Solution

Journal Entries in books of Stafford Township for year 2018:

No.

Account

Debit ($)

Credit ($)

2

Appropriations – Bridge Structure

3,000,000

Estimated Expenditure – Bridge Structure

2,400,000

Estimated Expenditure – Earthmoving and Landscaping

600,000

3

Bridge Structure Expenses

2,400,000

Accounts Payable (Ace Construction Company)

2,400,000

4

Bank balance

300,000

Capital Project Fund

300,000

5 (a)

Bank balance

1,500,000

Bonds

1,000,000

Bonds Premium (Note 1)

500,000

5 (b)

Underwriting Commission

5,000

Accounts Payable (Morgan Stanley)

5,000

6

Bonds Premium

500,000

Underwriting Commission

5,000

Debt Security Fund

495,000

7

Earthmoving and Landscaping Expenses

400,000

Accounts Payable

400,000

8

Accounts Payable

400,000

Bank balance

400,000

9

Accounts Payable (Ace Construction Company)

1,200,000

Accounts Payable

1,200,000

10

Federal Government

1,120,000

Bridge Structure Expenses

960,000

Earthmoving and Landscaping Expenses

160,000

11

U. S. Treasury Note

500,000

Bank balance

500,000

12 (a)

Accrued Interest

25,000

Interest Income

25,000

12 (b)

U. S. Treasury Note

12,500

Mark to Market (MTM) Gain

12,500

Note 1: In absence of any details, it is assumed that bonds are issued at 50% premium. So face value of bonds is $1,000,000 and bonds premium is $500,000.

No.	Account	Debit ($)	Credit ($)
2	Appropriations – Bridge Structure	3,000,000
	Estimated Expenditure – Bridge Structure		2,400,000
	Estimated Expenditure – Earthmoving and Landscaping		600,000
3	Bridge Structure Expenses	2,400,000
	Accounts Payable (Ace Construction Company)		2,400,000
4	Bank balance	300,000
	Capital Project Fund		300,000
5 (a)	Bank balance	1,500,000
	Bonds		1,000,000
	Bonds Premium (Note 1)		500,000
5 (b)	Underwriting Commission	5,000
	Accounts Payable (Morgan Stanley)		5,000
6	Bonds Premium	500,000
	Underwriting Commission		5,000
	Debt Security Fund		495,000
7	Earthmoving and Landscaping Expenses	400,000
	Accounts Payable		400,000
8	Accounts Payable	400,000
	Bank balance		400,000
9	Accounts Payable (Ace Construction Company)	1,200,000
	Accounts Payable		1,200,000
10	Federal Government	1,120,000
	Bridge Structure Expenses		960,000
	Earthmoving and Landscaping Expenses		160,000
11	U. S. Treasury Note	500,000
	Bank balance		500,000
12 (a)	Accrued Interest	25,000
	Interest Income		25,000
12 (b)	U. S. Treasury Note	12,500
	Mark to Market (MTM) Gain		12,500