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

The correct entry involves reversing the original encumbrance by debiting Reserve for Encumbrances and crediting Encumbrances for the full amount of $10,000. Additionally, the actual expenditure is recorded by debiting Expenditures and crediting Accounts Payable for the actual cost of $9,700. This accounts for both the reversal of the encumbrance and the recording of the actual expenditure.

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