In 2027, Sunset City signed a contract in the amount of $8,000,000 for the construction of a new city hall. Expenditures were $4,000,000 in 2027 and $2,050,000 in 2028, which included a change to the original construction design in the amount of $50,000. What amount should be added to capital assets in the governmental activities accounts in 2028?

• A. 2,000,000
• B. 2,050,000
• C. 4,050,000
• D. 8,000,000

Answer: (B)

In government-wide accounting, costs incurred for constructing a capital asset are accumulated as construction-in-progress and then transferred to the capital asset when the asset is placed in service. Only the costs incurred in the current year (plus any change orders that increase the asset’s cost) are added in that year; prior-year expenditures have already been capitalized.

Here, 4,000,000 was spent in 2027 and 2,050,000 in 2028, with 50,000 of that 2,050,000 representing a change to the original design. The 4,000,000 from 2027 has already been capitalized in a previous year, so the amount to add in 2028 is the new expenditures for that year, including the change order: 2,050,000. Therefore, the correct amount to add is 2,050,000.