Identification of Fund St. George County has entered into a contract for the demolition and construction of a six-lane bridge. It is expected that the project will take three years to complete. The terms of the contract indicate that the county will retain 5 percent (retained percentage) from each progress billing. The contract also requires that the retained percentage be invested and accounted for in a separate fund. Investment of the retained percentage is for the benefit of the contractor, who will receive the retained percentage and investment earnings upon successful completion and acceptance of the bridge.
Required
a. What type of fund should St. George County use to account for the retained percentage? Explain your answer.
b. Record the following events in the retained percentage fund.
1. A retained percentage was withheld from a progress payment of $900,000.
2. The retained percentage was invested in certificates of deposit.
3. Interest of $675 was received.
4. At year-end, interest of $1,350 was accrued. There was no adjustment to fair value.
5. Nominal accounts were closed.