Encumbrances at Year-EndThe City of Batavia ordered new computer equipment for $21,000 on...

Encumbrances at Year-End

The City of Batavia ordered new computer equipment for $21,000 on November 3, 20X2. The equipment had not been received by December 31, 20X2, the end of Batavia’s fiscal year.

Required

a. Assume that the city has a policy that outstanding encumbrances lapse at year-end.

(1) Prepare the entry to record the encumbrance on November 3, 20X2.

(2) Prepare the entries required on December 31, 20X2.

(3) Assuming that the city council accepts outstanding encumbrances in its budget for the next fiscal period (20X3), prepare entries on January 1, 20X3.

(4) Prepare entries on January 18, 20X3, when the equipment was received with an invoice cost of $21,800 and accepted by the city.

(5) Prepare the closing entry on December 31, 20X3, to close the expenditures account.

b. Assume the city’s policy is that outstanding encumbrances are nonlapsing.

(1) Prepare the entry to record the encumbrance on November 3, 20X2.

(2) Prepare the entries required on December 31, 20X2.

(3) Prepare the entry on January 1, 20X3, to classify the expenditure with 20X2, the year the encumbrance was initiated.

(4) Prepare the entry on January 18, 20X3, when the equipment was received for $21,800. The City Council approved the additional cost of $800 for the equipment as an addition to 20X3’s expenditures.

(5) Prepare the closing entries on December 31, 20X3, to close the expenditures accounts.

c. Now assume the city has a policy that outstanding encumbrances are nonlapsing, but the 20X3 City Council decided, during its budget hearings for 20X3, not to accept the encumbrance for the computer equipment that had been ordered on November 3, 20X2.

(1) Prepare the entry required on January 1, 20X3, to cancel the encumbrance reserve for the equipment ordered on November 3, 20X2.