London Township began Year 1 with a balance of $10 million inits bridge repair fund, a capital projects fund. The fund balanceis classified as restricted.
At the start of the year, the governing council appropriated $6million for the repair of two bridges. Shortly thereafter, the townsigned contracts with a construction company to perform the repairsat a cost of $3 million per bridge.
During the year, the town received and paid bills from theconstruction company as follows:
- $3.2 million for the repairs on Bridge 1. The company completedthe repairs, but owing to design changes approved by the town, thecost was $0.2 million greater than anticipated. The town did notencumber the additional $0.2 million.
- $2.0 million for the repairs, which were not completed, onBridge 2.
At the start of the following year, the governing councilreappropriated the $1 million to complete the repairs on Bridge 2.During that year, the town received and paid bills totaling $0.7million. The construction company completed the repairs, but thefinal cost was less than anticipated—a total of only $2.7million.
- Prepare journal entries to record the events and transactionsover the two?year period. Include entries to appropriate,reappropriate, encumber, and reencumber the required funds; torecord the payment of the bills; and to close the accounts at theend of each year.
- Determine the restricted fund balance at the end of the secondyear. Is it equal to the initial fund balance less the total costof the repairs?
