A state government begins a project to build administrative facilities, funded by a bond issue. A capital projects fund is set up to account for the construction activities, and an encumbrance is appropriately recognized in the capital projects fund for the full amount of the construction contracts, which is $10 million. At the end of the first year, only $2 million has been billed by contractors and recorded as expenditures. At the beginning of the second year, what entry is necessary in the capital projects fund to recognize the remaining encumbrances of $8 million?

Question

Quizplus · Accepted Answer

At the beginning of the second year, the remaining encumbrances of $8 million should be recognized by debiting encumbrances and crediting fund balance-restricted to reflect the commitment of funds for the remaining construction contracts.

A State Government Begins a Project to Build Administrative Facilities