The capital projects fund of Hood River completed construction of an addition to its city hall at a cost of $4,000,000.The city council approved payment of the amount due the general contractor,less a 10 percent retainage.How should the capital projects fund account for the 10 percent retainage?
I.As a credit of $400,000 to Deferred Revenue-Retained Percentage.
II.As a credit for $400,000 to Contracts Payable-Retained Percentage.

Question

Quizplus · Accepted Answer

The 10 percent retainage is a portion of the total amount due to the general contractor that will be withheld until the work is completed satisfactorily. Therefore, it should be recorded as a credit to Contracts Payable-Retained Percentage in the capital projects fund. Deferred Revenue-Retained Percentage is typically used for unearned revenue, which is not applicable in this scenario.

The Capital Projects Fund of Hood River Completed Construction of an Addition