When Spruce City receives goods at a cost of $9,700 that were encumbered in the prior year for $10,000, which of the following entries are required (assume that encumbrances lapse at year end)?
A)Debit Expenditures $9,700; credit Accounts payable $9,700; no entry for Encumbrances.
B)Debit Expenditures $9,700 and Reserve for encumbrances $10,000; credit Accounts payable $9,700 and Encumbrances $10,000.
C)Debit Expenditures $10,000 and Reserve for encumbrances $10,000; credit Accounts payable $10,000 and Encumbrances $10,000.
D)Debit Reserve for encumbrances $10,000; credit Encumbrances $10,000; no entry for Expenditures.

Question

Quizplus · Accepted Answer

When goods are received that were previously encumbered, the expenditure is recorded at the actual cost of the goods, and the encumbrance is cleared. The reserve for encumbrances is also adjusted to reflect the actual cost of the goods.

When Spruce City Receives Goods at a Cost of $9,700