Question

London Township began Year 1 with a balance of $10 million in its bridge repair fund, a capital projects fund. The fund balance is classified as restricted.

At the start of the year, the governing council appropriated $6 million for the repair of two bridges. Shortly thereafter, the town signed contracts with a construction company to perform the repairs at a cost of $3 million per bridge.

During the year, the town received and paid bills from the construction company as follows:

• $3.2 million for the repairs on Bridge 1. The company completed the repairs, but owing to design changes approved by the town, the cost was $0.2 million greater than anticipated. The town did not encumber the additional $0.2 million.
• $2.0 million for the repairs, which were not completed, on Bridge 2.

At the start of the following year, the governing council reappropriated the $1 million to complete the repairs on Bridge 2. During that year, the town received and paid bills totaling $0.7 million. The construction company completed the repairs, but the final cost was less than anticipated—a total of only $2.7 million.

1. Prepare journal entries to record the events and transactions over the two‐year period. Include entries to appropriate, reappropriate, encumber, and reencumber the required funds; to record the payment of the bills; and to close the accounts at the end of each year.
2. Determine the restricted fund balance at the end of the second year. Is it equal to the initial fund balance less the total cost of the repairs?

Answer 1

London Township began Year 1 with a balance of $10 million in its bridge repair fund, a capital projects fund. The fund balance is classified as restricted.

At the start of the year, the governing council appropriated $6 million for the repair of two bridges. Shortly thereafter, the town signed contracts with a construction company to perform the repairs at a cost of $3 million per bridge.