Journal entries and financial statements for anEnterprise Fund

The City of Whitt Falls plans to develop a golf course during2018 and account for it as the Golf Enterprise Fund (GEF). Thecourse will be built on a parcel of land to be purchased from aprivate party. The planned out-of-pocket costs for the new courseand their financing are as follows:

Spending
Acquisition of land from private party	$ 500,000
Installation of sod, sprinklers, landscaping, and fencing	1,000,000
Construction of clubhouse	3,000,000
Total spending	$4,500,000

Capital Financing
Contribution from the General Fund	$1,500,000
Term revenue bonds at 8 percent per annum, interest payablesemiannually	3,000,000
Total capital financing	$4,500,000

The City plans to sell the bonds on February 1, 2018. Becausethe bonds are a term issue, bond principal matures in full onFebruary 1, 2028. Interest is payable each August 1 and February 1,beginning August 1, 2018. The bond covenant requires that assetsequal to one-tenth of the bond principal be transferred to arestricted account within the GEF on December 31 of each year.Whitt observes a calendar fiscal year.

Simmons Design and Construction, Inc. (Simmons) has been awardedthe contract to develop the golf course. Construction will commenceFebruary 15, 2018, and be completed no later than May 31, so it canopen for business during June. The contract stipulates thatprogress billings from Simmons will be paid within 30 days ofreceipt, with 5 percent retainage held pending completion andacceptance of the project. The city engineer will inspect thecontractor’s work and approve progress payments.

Accounting for the GEF will be done by the city’s existingaccounting department (a General Fund department), which will billthe GEF for services rendered at the end of the year. To help theGEF get on its feet financially, no interfund payables will besettled in cash during 2018.

Prepare (a) journal entries (including closing entries) torecord the following events and transactions for the year endedDecember 31, 2018, in the GEF. The corresponding entries that wouldbe made in other funds are not required. In addition, prepare (b)the statement of net position and (c) the statement of revenues,expenses, and changes in net position for the GEF as of and for thefiscal year ending December 31, 2018.

1. January 3, 2018: Whitt Falls formally established the GEF;the fund’s first transaction was the receipt, in cash, of thecapital contribution from the General Fund.

2. January 24: The city acquired the adjacent parcel of landfrom the private owner for the planned $500,000.

3. February 1: The revenue bonds were sold at par($3,000,000).

4. February 15: Development of the golf course itself andconstruction of the clubhouse commenced.

5. March 31: Simmons submitted the first progress billing of$1,800,000. The billing was approved and set up as a constructioncontracts payable after deducting the 5 percent retainage. (Becauseof the short duration of the construction period, no constructionin progress accounts will be used.) $400,000 of the amount billedrepresents the cost of sod, sprinklers, landscaping, and fencing(which the city classifies as “improvements other than buildings”).The balance applies to the cost of the clubhouse (“buildings”).

6. April 25: The construction contracts payable currently dueSimmons was paid.

7. April 30: The second progress billing from Simmons,$1,500,000, was approved and set up as a construction contractspayable after deducting the 5 percent retainage; $600,000 appliesto sod, sprinklers, landscaping, and fencing (which is now fullyinstalled), with the remainder to the clubhouse building.

8. May 19: The construction contracts payable currently dueSimmons was paid.

9. May 23: Simmons’ third and final progress billing, $700,000(all of which represents clubhouse construction costs), wasapproved and set up as a construction contracts payable afterdeducting the 5 percent retainage.

10. May 30: The construction contracts payable currently dueSimmons was paid.

11. June 1: The new golf course was formally accepted by theCity (without need for “touch-up” work), and all remaining amountsdue to Simmons were paid.

12. June 1: The City acquired golf course maintenance equipmentby entering into a 4-year financing lease. The first lease paymentof $50,000 was paid on June 2 when the equipment was delivered. Theremaining lease payments of $50,000 each will occur on the first,second, and third anniversary of the first payment. Assume that theinterest rate on the lease is 4 percent.

13. June 2: Inventory in the amount of $12,000 was acquired forthe pro shop; the purchase created an accounts payable.

14. June 4: The course opened for business. Greens fees (chargesfor services) aggregated $209,000 for June. Pro shop sales (all forcash) amounted to $5,000.

15. June 30: Expenses for June were as follows. (Charge allexpenses to “Operating expenses—cost of sales.”)

Maintenance and pro shop labor (paid in cash)	$48,000
Maintenance supplies, from the Parks Department—a SpecialRevenue Fund
(invoice received, but not paid)	4,000
Water, supplied by the Whitt Falls water utility—an EnterpriseFund
(invoice received, but not paid)	80,000
Cost of merchandise sold by the pro shop	2,200

16. August 1: The first debt service payment on the revenuebonds was made.

17. December 31: Greens fee revenues for the second half of 2018totaled $370,000; pro shop sales for the same period were$21,200.

18. December 31: Second-half 2018 expenses were as follows:

Maintenance and pro shop labor (paid in cash)	$70,000
Maintenance supplies, from the Parks Department—a SpecialRevenue Fund
(invoice received, but not paid)	4,000
Water, supplied by the Whitt Falls water utility—an EnterpriseFund
(invoice received, but not paid)	80,000
Cost of merchandise sold by the pro shop	2,900
Accounting and administrative services provided by theaccounting
department—General Fund (invoice received, but not paid)	9,000
Total expenses	$165,900

19. December 31: Interest was accrued on the revenue bonds.

20. December 31: The GEF recorded depreciation for 2018 asfollows:

Building:	$35,000
Improvements	25,000

21. December 31: The GEF recorded amortization on the intangibleasset lease of $23,594.

22. December 31: The restricted asset account—Cash restrictedfor bond principal retirement—was established in accordance withthe requirements of the bond covenant.

Notes: 1. If no entry is required for atransaction, select "No entry" as your answers and leave the Debitand Credit answers blank (zero).
2. Round answers to the nearest whole number, when applicable.

Ref.	Description	Debit	Credit
1		Answer	Answer
		Answer	Answer
2		Answer	Answer
		Answer	Answer
3		Answer	Answer
		Answer	Answer
4		Answer	Answer
		Answer	Answer
5	Improvements other than buildings	Answer	Answer
		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
6		Answer	Answer
		Answer	Answer
7	Improvements other than buildings	Answer	Answer
		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
8		Answer	Answer
		Answer	Answer
9		Answer	Answer
		Answer	Answer
	Retainage payable	Answer	Answer
10		Answer	Answer
		Answer	Answer
11		Answer	Answer
		Answer	Answer
12		Answer	Answer
		Answer	Answer
		Answer	Answer
		Answer	Answer
13		Answer	Answer
		Answer	Answer
14		Answer	Answer
		Answer	Answer
	Operating revenues—sales	Answer	Answer
15		Answer	Answer
		Answer	Answer
	Due to Parks Special Revenue Fund	Answer	Answer
	Due to Water Utilities Enterprise Fund	Answer	Answer
	Inventory	Answer	Answer
16		Answer	Answer
		Answer	Answer
17		Answer	Answer
		Answer	Answer
	Operating revenues—sales	Answer	Answer
18	Operating expenses—cost of sales and services	Answer	Answer
		Answer	Answer
		Answer	Answer
	Due to Parks Special Revenue Fund	Answer	Answer
	Due to Water Utilities Enterprise Fund	Answer	Answer
	Inventory	Answer	Answer
	Due to General Fund	Answer	Answer
19		Answer	Answer
		Answer	Answer
20		Answer	Answer
		Answer	Answer
	Accumulated depreciation—improvements other than buildings	Answer	Answer
21		Answer	Answer
		Answer	Answer
22		Answer	Answer
		Answer	Answer
Closing entry:
		Answer	Answer
	Operating revenues–charges for services	Answer	Answer
	Operating revenues–pro shop sales	Answer	Answer
	Operating expenses–costs of sales and services	Answer	Answer
	Operating expenses–administration	Answer	Answer
	Operating expenses–depreciation	Answer	Answer
	Operating expenses—lease amortization	Answer	Answer
	Nonoperating expenses–interest	Answer	Answer
		Answer	Answer