ExpertHard1 markMultiple Choice
CPA · Question 47 · Area 4: State and Local Governments
A city orders a new police car for $30,000. When the car is delivered, the invoice is for $31,000. What is the journal entry in the General Fund upon delivery?
A city orders a new police car for $30,000. When the car is delivered, the invoice is for $31,000. What is the journal entry in the General Fund upon delivery?
Answer options:
A.
Dr. Expenditure $31,000; Cr. Cash $31,000
B.
Dr. Budgetary Fund Balance - Reserved for Encumbrances $30,000; Cr. Encumbrances $30,000 AND Dr. Expenditures $31,000; Cr. Vouchers Payable $31,000
C.
Dr. Encumbrances $30,000; Cr. Budgetary Fund Balance $30,000 AND Dr. Expenditures $31,000; Cr. Cash $31,000
D.
Dr. Equipment $31,000; Cr. Cash $31,000
How to approach this question
Two steps: 1. Kill the Encumbrance (reverse original entry). 2. Book the Expenditure (actual invoice price).
Full Answer
B.Dr. Budgetary Fund Balance - Reserved for Encumbrances $30,000; Cr. Encumbrances $30,000 AND Dr. Expenditures $31,000; Cr. Vouchers Payable $31,000✓ Correct
B
When the item is received, the encumbrance is reversed for the amount originally recorded ($30,000). Then, the expenditure is recorded for the actual invoice amount ($31,000). Note: General Fund records 'Expenditure', not 'Equipment'.
Common mistakes
Reversing the encumbrance for $31,000; recording an asset.
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