The Town of Terry Began 2016 with an Unreserved Balance

question 61

Essay

The town of Terry began 2016 with an unreserved balance of $15 million in its street repair fund, a capital projects fund. At the start of the year, the city council appropriated $9 million to reconstruct portions of the roadbed for two of its major roads-Main Street and Koeller Avenue. Shortly after, the town signed contracts with two construction companies to perform the repairs for a total of $9 million. During the year, the town received bills from the construction companies as follows:
a. $4.8 million for the entire cost of repairs to Main Street. This amount is $0.3 higher than expected due to design changes approved by the town. The town did not encumber the additional $0.3 million.
b. $3.0 million, representing a progress billing for repairs to Koeller Avenue, which were not completed at the end of 2016.
At the beginning of 2017, the town reappropriated the remaining $1.5 million for the Koeller Avenue repairs. During the year, the town received this bill:
c. $0.1 million, representing the final billing for the Koeller Avenue repairs. The final cost was $0.5 million less than anticipated.
REQUIRED:
Prepare journal entries to record the events and transactions over the two-year period. Include entries to appropriate, reappropriate, encumber, and re-encumber the required resources, to record the payment of the bills, and to close the accounts at the end of each year.
Determine the reserve for encumbrances (committed or assigned) and fund balance-unassigned for the capital projects fund at the end of the second year.

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Definitions:

Labor

The body of work performed by human beings, often in exchange for payment, significant in economics for its role in production.

Materials

Substances or components used in the production of goods or in the performance of services.

Square Yards

A unit of area measurement equal to a square measuring one yard on each side, used in both the U.S. customary and British imperial systems.

Herb Garden

A dedicated garden space for growing herbs, often used for culinary, medicinal, or aromatic purposes.