Budgetary journal entries for a capital project

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Question: (Budgetary journal entries for a capital project and the related bond issue) Watson Township plans to build an auditorium. The plans were drawn for $100,000 by an architect who will complete the plans and bill the city after the bonds are issued. The township accepted a bid from Forrester Contractors for $8,000,000 for the entire project, which should take 2 years to build. It will not be started until October 1, 2012, so the projected completion date is September 30, 2014. The township's accounting supervisor plans to establish a Debt Service Fund to accumulate resources for repaying the bonds that will be issued to finance the project. These bonds will be serviced from property tax revenues and are expected to be issued at a face amount of $8,000,000. During 2012, $100,000 of investment revenue earned on the bond proceeds is expected to be available for construction purposes. The bonds will pay interest on April 1 and October 1 of each year, beginning in 2013. Prepare the journal entries needed to record the budget and the encumbrance in the appropriate funds for calendar year 2012, based on the preceding budgetary information.

Reference no: EM131704972

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