Question

A contractor sends a final billing report to a city requesting payment on a new fire station. City personnel inspect the building and approve payment of the accumulated retainage of $8 million. The total amount billed to the city for the project was $80 million. Which account and amount is debited to record the payment of the retainage to the contractor in a Capital Projects Fund?

a. Retainage payable should be debited for $8 million.
b. Retainage payable should be debited for $72 million.
c. Expenditures—construction cost is debited for $8 million.
d. Expenditures—construction cost is debited for $72 million.

Answer 1

The Expenditures—construction cost account should be debited for $8 million to record the payment of retainage to the contractor in a Capital Projects Fund in a city.

Step-by-step explanation:

The correct answer is c. Expenditures—construction cost should be debited for $8 million to record the payment of the retainage to the contractor in a Capital Projects Fund.

The retainage payable is an account that represents the amount of money retained by the city as a guarantee until the work is completed satisfactorily. When the city approves payment of the retainage, it means that the work has been completed and the contractor is now entitled to receive the retained amount.

The transaction is recorded by debiting the Expenditures—construction cost account for the $8 million payment made to the contractor.