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37.          (Journal entries for a major construction project)

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

          a.     The state records its capital budget. It appropriates $10 million for highway construction, which will be financed entirely with the issuance of bonds.
          b.     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.
          c.     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 construction contract provides for 10% retainage pending completion of the project.
          d.     The construction contractor submits an invoice for $1,500,000. The invoice is approved and a voucher is prepared, less the 10% retainage.
          e.     The construction supervisor submits an invoice for $100,000, and a voucher is prepared.
          f.     Both of the invoices in transactions d. and e. are paid.
          g.     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.
          h.     The debt service on the 20-year bonds becomes due and payable.
          i.     The debt service is paid.

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