(Encumbrances)

In February 2004, the City of Golders Green ordered a fire engine, for which the manufacturer quoted a price of $120,000. The machine arrived the following month, along with an invoice for $120,000.

Required:

1. Make the appropriate journal entries to record setting up the encumbrance, the removal of the encumbrance, and the expenditure and the liability to the vendor.

2. Assume that the actual cost of the fire engine was $125,000. Would your entries be the same as in the preceding question? Why?