Chapter 5, Problem 22EP

To determine

Journalize the entries for the given information under general fund and governmental activities.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit: A debit is an accounting term that refers to the left side of an account. The term debit is be denoted by (Dr). The recording amount on the left side of the account is known as debiting.

Credit: A credit is an accounting term that refers to the right side of an account. The term credit is denoted as (Cr). The recording amount on the right side of the account is known as crediting.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

• Debit, all the increase in the assets, the expenses and the dividends, all the decrease in liabilities, revenues and the stockholders’ equities.
• Credit, all the increase in the liabilities, the revenues, and the stockholders’ equities, and all decreases in the assets, and the expenses.

Pass the journal entries for the given transactions:

Date	Description	Debit	Credit
1	Capital Project fund:
	Cash	$6,000,000
	Other financing sources - Proceeds of Bond		$6,000,000
	(To record the bonds issued)
	Governmental Activities:
	Cash	$6,080,000
	Bonds Payable		$6,000,000
	Premium on Bonds Payable		$60,000
	Accrued Interest Payable (1)		$20,000
	(To record the bonds issued)
2	Capital Project fund:
	Cash	$650,000
	Revenues		$650,000
	(To record the receipt of federal grant)
	Governmental Activities:
	Cash	$650,000
	Program Revenue—Culture And Recreation—Capital Grants And Contributions		$650,000
	(To record the receipt of federal grant)
3	Capital Project fund:
	Cash	$250,000
	Other financing sources - Interfund Transfers In		$29,000
	(To record the lease of car)
	Governmental Activities:
	No Entry
4	Capital Project fund:
	Encumbrances	$6,800,000
	Encumbrances outstanding		$6,800,000
	(To record the encumbrances)
	Governmental Activities:
	No Entry
5	Capital Project fund:
	Encumbrances	$6,800,000
	Encumbrances outstanding		$6,800,000
	(To record the encumbrances)
	Construction Expenses	$6,890,000
	Cash		$6,890,000
	(To record the construction expenses)
	Governmental Activities:
	Construction work in progress	$6,890,000
	Cash		$6,890,000
	(To record the construction expenses)
	Land	$200,000
	Building	$6,295,000
	Machinery and Equipment	$395,000
	Construction work in progress		$6,890,000
	(To record the cost of building)
6	Capital Project fund:
	To close nominal accounts:
	Other Financing sources - Proceeds of Bonds	$6,000,000
	Other Financing sources - Interfund Transfers In	$250,000
	Revenues	$650,000
	Construction Expenditures		$6,890,000
	Fund Balance - Restricted		$10,000
	(To record the closing entry)
	To close the funds:
	Other Financing sources - Interfund Transfers Out	$10,000
	Cash		$10,000
	(To record the transfer of balance funds)
	Fund Balance - Restricted	$10,000
	Other Financing sources - Interfund Transfers Out		$10,000
	(To record the transfer of balance funds)
	Governmental Activities:
	No Entry

Working Notes (1):

Calculate the accrued interest payable.

$\begin{array}{c}\text{Interest Payable = Principal }\times \text{Rate}\times \text{Time}\\ \text{=}\$6,000,000\times 4\%\times \frac{1}{12}\text{ year}\\ \text{=\$20,000}\end{array}$