Question

A contractor sends a progress billing report to a city requesting payment of $20 million for work done to date on a new fire station. The city retains 10 percent of the payment to the contractor until the fire station is completed and construction is inspected and approved. Which account and amount is debited to record the progress billing in a Capital Projects Fund?

a. Construction in progress is debited for $20 million.
b. Construction in progress is debited for $18 million.
c. Expenditures—construction cost is debited for $18 million.
d. Expenditures—construction cost is debited for $20 million.

Answer 1

The correct entry for progress billing in a Capital Projects Fund is a debit to Expenditures—construction cost for $18 million, accounting for a 10% retainage on a $20 million billing.

Step-by-step explanation:

The correct answer to the question about which account and amount is debited to record the progress billing in a Capital Projects Fund, when a contractor bills a city for $20 million but the city retains 10%, is option c. Expenditures—construction cost is debited for $18 million. When the city retains 10% ($2 million) of the payment, the actual amount recorded as an expenditure is the net amount due to the contractor after the retainage, which is $18 million ($20 million - 10%). The account titled 'Expenditures - construction cost' typically reflects the cost incurred for construction in progress on the financial records of a Capital Projects Fund. Therefore, the entity debits the expenditures account, acknowledging the progress billing net of the retainage.