The schedule that follows reports the beginning balances and activity during the year in a towns supplies fund (a governmental fund). The government accounts for supplies on a purchases basis (in thousands). Fund balance (unassigned),

January 1 $ 400

Fund balance, assigned

(encumbrances), January 1 $240

Fund balance, nonspendable

(inventory), January 1 $170

Total fund balance, January 1 $ 810

Appropriations (for purchases of supplies) $3,400

Estimated revenues 3,200

Actual revenues 3,300

Supplies ordered 3,160

Supplies received 3,360

Supplies paid-for 2,800

Supplies used 3,280

1. Compute the following (and show your computations):

a. Fund balance, nonspendable (inventory), December 31

b. Fund balance, assigned (encumbrances), December 31

c. Fund balance (unassigned), December 31

2. How can you justify the continued use of the purchases method when it appears so contrary to everything you learned in classes pertaining to business accounting?