[cpa007]

Carlson City’s fiscal year ends December 31. On August 1, the city issued a purchase order for new vehicles to be delivered at the rate of two per month beginning October 15. Twelve vehicles were delivered as scheduled and payments of $264,000 were made upon delivery. If these were the only transactions made by the city, which of the following balances would appear on the balance sheet as of December 31?

ANS: Because the vehicles were delivered at a rate of two per month starting in October, and twelve vehicles were delivered in all, only six vehicles were actually delivered and paid for during the fiscal year ending December 31. Therefore, half of the funds (1/2 X $264,000 = $132,000) for the vehicles would still be encumbered as of December 31. The balance sheet would therefore show both a fund balance of $132,000 and a Reserved for encumbrances balance of $132,000.

JE: Please check if my JE is correct?

Encumbrances $264,000

Reserved for encumbrances $264,000

Reserved for Encumbrances $132,000

Encumbrances $132,000

Fund balances $132,000

Reserved for encumbrances $132,000

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