Assume that the city engaged in the following transactions in 2017 and 2018:
€¢ In 2017 it signed a service contract with a private security company. The company agreed to provide security services to the city's for one year at a cost of $72,000 ($6,000 per month). By year€end the company provided, and the city paid for, services for three months.
€¢ In 2018, the company performed, and the city paid for, the remaining nine months of the contract. However, because of agreed€upon changes in the services provided by the company, the total charges for 2018 were reduced from $54,000 to $50,000.
1. The city properly budgeted for the services and appropriated the funds consistent with policies set forth in the note. Prepare all budgetary, encumbrance, and expenditure entries relating to the service contract that would be required in 2017 and 2018. In 2017, when the city signed the contract, it appropriated the entire $72,000. Then, at the start of 2018, inasmuch as the city expended only $18,000 in 2017, it re appropriated $54,000.
a. Assume first that the contract was accounted for in Smith City's general fund.
b. Assume next that it was accounted for in a capital projects fund established for the construction of its Walnut Creek Amphitheatre. The city prepares annual financial statements for capital projects funds, but it does not close out its accounts. Moreover, it prepares budgets for the entire project, not for particular periods. The project was started in 2017 and completed in 2018.
2. Justify the city's practice of accounting differently for commitments in the two types of funds.

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Fund: General government Account: Consulting fees Encumbrances Expenditures Appropriations Available Balance $78,000 70,100 71,100 66,600 60,600 60.400 Date Dr. (Cr) Dr. (Cr) Cr. (Dr.) $78,000 $7,900 (4,000) 1/5 1/14 2/5 2/15 3,000 4,500 6,000 (3,200) 3,400