UNITED STATES DEPARTMENT OF AGRICULTURE

Rural Utilities Service

**BULLETIN 1767B-3**

**SUBJECT:** **[Preparation and Use of the RUS Form 254,
Construction]{.underline}**

**[Inventory]{.underline}**

**TO:** All Electric Borrowers

> RUS Electric Staff
>
> Borrower Accounting Division

**EFFECTIVE DATE:** Date of Approval

**EXPIRATION DATE:** Four years from effective date

**OFFICE OF PRIMARY INTEREST:** Borrower Accounting Division

**PREVIOUS INSTRUCTIONS:** This Bulletin, together with RUS

Bulletin 1767B-2 replaces RUS Bulletin 184-2, Suggested Work Order
Procedure for Electric Borrowers of the Rural Utilities Service.

**FILING INSTRUCTIONS:** This is a new bulletin that should be filed
with 7 CFR Part 1767. This bulletin is available on REANET.

**PURPOSE:** To provide a uniform system of accounting for amounts due
contractors and for additions to and retirements of electric plant
resulting from labor and material contracts.

Wally Beyer [12-21-94]{.underline}

Administrator Date

**TABLE OF CONTENTS**

**TEXT:**

1\. General

2\. Engineering

3\. Construction Inventories

4\. Accounting for Contract Construction Costs

5\. Retirements

6\. Unitization and Classification by Record Units and Primary

Plant Accounts

7\. Compliance with 7 CFR Part 1721, Post-Loan Policies and

Procedures for Insured Electric Loans

8\. Case Study - Accounting for Contract Construction Costs

**EXHIBITS TO TEXT:**

A: RUS Form 254, Construction Inventory

B: RUS Form 254a, Construction Inventory

C: RUS Form 254b, Construction Inventory

D: RUS Form 254c, Construction Inventory

E: Schedule of Special Equipment Reused

F: Table D - Value of Material Items Creditable to Bidder

G: Retirement Work Order

H: Unitization and Distribution to Plant Accounts

I: RUS Form 219, Inventory of Work Orders

INDEX:

Accounting

Contract Procedures

RUS Form 254, Construction Inventory

**ABBREVIATIONS**

RUS Rural Utilities Service

**1.** **GENERAL:** The function of plant accounting is to record the
various elements of construction and retirement costs in a manner that
satisfies the requirements of 7 CFR Part 1767, Accounting Requirements
for Rural Utilities Service (RUS) Electric Borrowers, Subpart B, Uniform
System of Accounts

(Part 1767), and to form the basis for recording plant additions and
retirements.

**1.1** **[The objective]{.underline}** of this bulletin is to provide
guidance on the preparation and use of the RUS Form 254, Construction
Inventory, and the RUS Form 830, Electric System Construction Contract.
The Form 830 contract is illustrated in this bulletin because it
utilizes the RUS Forms 254a, 254b, and 254c, in their entirety. The RUS
Form 254 is, however, also used to close out the cost of completed
construction for the following contracts:

1.1.1 Transmission System Right of Way Clearing Contract, RUS Form 203;

1.1.2 Substation and Switching Station Erection Contract, RUS Form 764;

1.1.3 Electric Transmission Construction Contract, RUS Form 831.

**2. ENGINEERING**: The borrower\'s engineer monitors construction
progress and recommends the amount of the contractor\'s monthly invoice
to be paid in accordance with Article III, Section 1, of the RUS Form
830.

**2.1** When construction is completed, as defined in the RUS

Form 830, the engineer prepares five copies of the RUS Forms 254,
Construction Inventory (Exhibit A) and 254a (Exhibit B). If applicable,
the engineer also prepares five copies of the RUS Forms 254b (Exhibit C)
and 254c (Exhibit D).

**2.2** The engineer also performs the duties set forth in RUS Bulletin
81-6, Closeout Procedures and Documents for Contract Construction of
Distribution and Transmission Facilities.

**3. CONSTRUCTION INVENTORIES:** The total amount to which the
contractor is entitled is calculated on the RUS Form 254.

**3.1** Item A, \"Total Cost of Standard, New and Conversion Assembly
Units Installed,\" of the RUS Form 254 includes the labor and material
costs of the units installed. These costs are calculated in Column 1 and
Columns 3 through 6 of the RUS

Form 254a. The total of Column 6, Cost of Construction, is the total
cost reported as Item A.

**3.2** Item B, \"Cost to Remove \"I\" Units,\" on the RUS

Form 254 includes the labor costs incurred in removing \"I\" units in
accordance with the contract. Removal costs are tabulated in Column 7,
Due Contractor for Units Installed, Converted and Removed - Cost to
Remove \"I\" Units, of the RUS Form 254a and the total is reported as
Item B.

**3.3** The cost of installing special equipment items furnished by the
borrower and the cost of reinstalling special equipment items previously
removed are included in Item A. The cost to remove special equipment is
included in Item B. These amounts should be charged to expense when the
monthly invoices are recorded. (See Section 10.1 of RUS Bulletin
1767B-2, Work Order Procedure (Electric), for a definition of special
equipment items.)

**3.4** Item C, \"Amount to be Credited to Contractor for Materials
Removed from Existing Facilities and Returned,\" includes the cost of
material, at contract prices, removed from service and returned to the
borrower. This amount is tabulated in

Column 14, Total Credit to Contractor, of the RUS Form 254b and the
total is reported as Item C. The RUS Form 254b is used only when the
contract contains \"I\" removal units (See Section I of the RUS Form
830).

**3.5** Item D, \"Amount Chargeable to Contractor for Materials in
Assembly Units Removed,\" includes the cost of material, at contract
prices, removed from service and retained by the contractor. This amount
is tabulated in Column 9, Amount Chargeable to Contractor for Materials
in Assemblies Removed - Total, of the RUS Form 254a and the total is
reported as Item D. Each line item in Column 9 is calculated by
multiplying the number of units removed by the unit material values from
Table C of the RUS Form 830.

**3.6** Item E, \"Net Amount of Owner-Furnished Materials,\" includes
material furnished by the borrower. This amount is tabulated in Columns
20 through 24 of the RUS Form 254c and the total of Column 24 is
reported as Item E.

**3.7** Item F, \"Net Amount Due Contractor,\" is the net amount of
items A through E. When making the final payment to the contractor, this
amount is reduced by all prior payments made on the contract to date and
any amounts, such as liquidated damages, due the borrower.

**4. ACCOUNTING FOR CONTRACT CONSTRUCTION COSTS**: When the terms of the
contract are met over an extended period of time, all or a part of the
contract amount is recorded prior to the preparation of the RUS Form
254.

**4.1** **[Borrower furnished material]{.underline}** is charged out of
inventory to the contractor using Material Charge Tickets. The
contractor now becomes accountable for this material and, as such, the
borrower records a receivable from the contractor. Material is charged
to the contractor using Account 143, Other Accounts Receivable, and is
credited to Account 154, Plant Materials and Operating Supplies, at its
average cost. No material cost is charged to construction at this time.
The monthly invoices submitted by the contractor include the cost of
borrower furnished material and material provided by the contractor and
the contractor\'s labor costs. Therefore, borrower furnished material is
charged to construction when the monthly contractor invoices are
recorded. (See Section 4.2.)

**4.1.1** The RUS Form 830 contains a sample materials receipt form for
material furnished to the contractor at contract price. The receipt
should be signed by both the contractor and the borrower or their
agents.

**4.2** **[The total cost reported on the monthly
invoices]{.underline}** (material and labor) that are certified to and
submitted by the contractor, recommended by the borrower\'s engineer,
and approved by the borrower is charged to Account 107.1, Construction
Work in Progress - Contract. Either Account 232.1, Accounts Payable -
General, or Account 232.2, Accounts Payable - RUS Construction, is
credited, as appropriate.

**4.3** **[Payments to the contractor]{.underline}** (the invoice amount
less the amount retained) are debited to the appropriate subaccount of
Account 232. A portion of each invoice is retained pending completion of
the contract and the approval of the Certificate of Completion -
Contract Construction, RUS Form 187, by the borrower and the
Administrator of RUS.

**4.3.1** The amount of borrower furnished material included in the
invoice is credited to Account 143 at the unit prices shown in the List
of Borrower\'s Materials on Hand in the RUS Form 830. Because the
contractor has installed the portion of the borrower furnished material
in the units included in the invoice, the contractor is no longer
accountable for that portion of the material. Account 143 is credited to
relieve the contractor of that responsibility.

**4.3.2** As provided for in Article I, Section 3, of the RUS

Form 830, the monthly invoice payable to the contractor is reduced by
the cost of material furnished by the borrower and installed by the
contractor during the month. The difference between the amount of the
invoice, the amount retained, and the credit for owner furnished
material (Account 143) is credited to Account 131.1, Cash - General.

**4.4** **[Because borrower furnished material is charged to
construction at contract prices]{.underline}** rather than actual costs,
it is necessary to adjust Account 107.1 to reflect the actual cost of
the material.

**4.4.1** If the unit price stated in the contract is higher than the
average cost of the material recorded in Account 143,

Account 107.1 must be credited to reflect the lower cost.

**4.4.2** If the unit price stated in the contract is lower than the
average cost of the material recorded in Account 143,

Account 107.1 must be debited to reflect the higher cost.

**4.5** **[Special equipment items]{.underline}** are capitalized to the
appropriate plant account upon purchase. Therefore, for purposes of
tracking special equipment items furnished to the contractor, they are
charged to Account 143 at the unit prices shown in the List of
Borrower\'s Materials on Hand in the RUS Form 830. Their cost is charged
to construction when the monthly contractor invoices are recorded. When
the invoices are recorded, special equipment costs have been capitalized
twice - once upon purchase to the appropriate plant account and a second
time to construction. The offsetting entry to Account 143 is, therefore,
a credit to Account 107.1. This eliminates the duplicate capitalization
and retains the original cost of the special equipment items in the
proper plant accounts.

**4.5.1** The contractor\'s labor costs for installing and removing
special equipment items are deducted from the costs charged to
construction by crediting Account 107.1 and charging the appropriate
expense account as follows:

**4.5.1.1** Account 583, Overhead Line Expenses, or Account 584,
Underground Line Expenses, for transformers, oil circuit reclosers,
voltage regulators and sectionalizers; or

**4.5.1.2** Account 586, Meter Expenses, for meters, meter sockets,
current and potential transformers and other metering equipment.

**4.6 [The labor costs incurred in removing items]{.underline}** from
plant must be reclassified from construction to retirement by charging
Account 108.8, Retirement Work in Progress, and crediting

Account 107.1 Because the cost of the contractor\'s invoice initially
charged to construction included both construction and retirement costs
(See Section 4.2), the amount applicable to retirement must be
reclassified to retirement work-in-progress.

**4.7** **[Other direct and indirect construction costs]{.underline}**
incurred by the borrower that are required to complete the contract are
detailed and defined in Part 1767, Section 1767.16 (c), Components of
Construction Cost. These non-contract costs are charged to Account
107.1.

**4.7.1** These costs should be accumulated on a separate work order;
however, they should be submitted to RUS for financing on the same RUS
Form 219, Inventory of Work Orders (Exhibit I), that includes the
associated contract.

**4.8** **[Material furnished to the contractor that is not
used]{.underline}** and is returned to the borrower is returned to
inventory by debiting Account 154. By returning the material, the
contractor is no longer held accountable; therefore, Account 143 is
credited. Material Credit Tickets (Exhibit C of RUS Bulletin 1767B-2)
should be prepared for all material returned by the contractor.

**4.9** **[Material removed from existing facilities]{.underline}** is
charged to the contractor by debiting Account 143 and crediting Account
108.8.

If the contractor returns the material to the borrower, the contractor
is relieved of his responsibility for the material by crediting Account
143 and debiting Account 108.8. If the material is returned to the
borrower, Material Salvage Tickets (Exhibit E of RUS Bulletin 1767B-2)
are prepared.

**4.9.1** The Material Salvage Tickets are included in the Summary of
Material Salvage Tickets (Exhibit F of RUS Bulletin 1767B-2) for the
month and are entered in the Materials Register

(Exhibit G of RUS Bulletin 1767B-2) as a debit to Account 154 and a
credit to Account 108.8. If the material is reusable, it is priced as
follows:

**4.9.1.1** Large, individual items are priced at their original cost,
estimated if not known. The cost of repairing these items is charged to
the maintenance account appropriate for the previous use; or

**4.9.1.2** Relatively small items, the identity of which cannot be
ascertained without undue refinement in accounting, are priced at
current prices new for such items. The cost of repairing these items is
charged to the maintenance account appropriate for the previous use.

**4.9.2** Salvage tickets should be signed by both the borrower and the
contractor or their agents with a copy furnished to the contractor.

**4.9.3** The RUS Form 254b provides space, in Columns 15, 16 and 17,
for tracking reusable items salvaged although the amount payable to the
contractor is not affected.

**4.10** **[The cost of special equipment items removed from service and
reused]{.underline}** by the contractor have already been charged to
retirement (See Section 4.9) and to construction when the contractor\'s
invoice is recorded (See Section 4.2). Since these items are no longer
retired, they must be debited to

Account 108.8. As discussed in Section 4.5, special equipment items are
capitalized upon purchase and any duplicate capitalization of their
costs must be eliminated. When the contractor\'s invoices are recorded,
special equipment that has been reused is included in the invoice, as
well, and is, therefore, capitalized to Account 107.1. Account 107.1
must be credited to avoid the duplicate capitalization.

**4.11** **[When the contract is complete]{.underline}** and the
completed construction is placed in service, the costs remaining in

Account 107.1 are closed to Account 106, Completed Construction not
Classified - Electric. After completion of the Unitization and
Distribution of Costs, the appropriate plant accounts are charged.

**4.12** **[The original cost of all plant retired]{.underline}** from
service must be eliminated from the appropriate plant accounts and
charged to Account 108.8. (See Section 5.)

**5. RETIREMENTS:**

**5.1** **[The Section I - Removal Assembly Units]{.underline}**, shown
in Column 2 of the RUS Form 254a, are converted to retirement units
using the conversion tables in Appendix I of RUS Bulletin 1767B-2. The
retirement units are grouped into suitable record units, as shown in
Appendix I to RUS Bulletin 1767B-2.

**5.2** The engineer should provide the borrower with the number of
grounds removed by the contractor. This enables the grounds to be
included in the tabulation of retirement units and their value to be
included in the original cost of plant retired.

**5.3** The engineer should provide the borrower with the number of
anchor-guy assemblies removed if it differs from the inventory
tabulation in the contract.

**5.4** The record units are then summarized (Exhibit S, Tabulation of
Record Units - Overhead, and Exhibit T, Tabulation of Record Units for
Underground Staking Sheets, of RUS Bulletin 1767B-2 may be used) and
priced at the unit costs obtained from the continuing property records
to derive the original cost of property retired.

**5.4.1** The original cost of property retired is charged to Account
108.8 and credited to the plant accounts.

**5.4.2** The cost of removal is charged to Account 108.8 and credited
to Account 107.1.

**5.4.3** The total amount of the material returned to stock and the
amount reused by the contractor is considered salvage.

**5.4.4** The \"Net Loss Due to Retirement\" (the original cost of
property retired plus the cost of removal less salvage) is charged to
the appropriate accumulated provision for depreciation and credited to
Account 108.8.

**6.** **UNITIZATION AND CLASSIFICATION BY RECORD UNITS AND PRIMARY
PLANT ACCOUNTS:**

**6.1** **[The assembly unit for a conventional
transformer]{.underline}** also contains a lightning arrester and a
cutout which are record units. These units are included in the
Tabulation of Record Units and included on the Unitization and
Distribution to Plant Accounts (See Section 6.6).

**6.2** **[The \"H\" Conversion Assembly Units]{.underline}** included
in Column 2 of the RUS Form 254a have no counterpart in the work order
procedure. They are described in Section H of the RUS Form 830. The cost
of these units includes the labor and any additional material required
to change an existing pole-top assembly unit to a different unit.

**6.2.1** Conversion assembly units are identified by the prefix \"H\"
with the new construction assembly unit shown first followed by the
existing assembly unit. For example, an H B1:A1 requires the addition of
a crossarm, crossarm pins, braces, machine bolt, carriage bolts, lag
screw, and insulator; the existing insulator, single upset bolt, and
neutral spool is used in the new unit and the contractor retains the
pole top pin and two machine bolts. Appendix I of RUS Bulletin 1767B-2,
indicates that an A1 construction assembly unit contains no retirement
units while a B1 assembly unit includes the addition of a crossarm
retirement unit.

**6.2.2** These units, suitably grouped into record units are summarized
on the Tabulation of Record Units and included on the Unitization and
Distribution to Plant Accounts (See

Section 6.6).

**6.3** **[The conversion of standard new assembly units to
record]{.underline}** **[units]{.underline}** is similar to the
conversion of construction costs outlined in Section 9, Unitization and
Classification of Work Order Costs by Record Units and Primary Plant
Accounts, of RUS Bulletin 1767B-2. Appendix I of the RUS Bulletin
1767B-2 contains tables that convert construction units to retirement
units. RUS Bulletin 181-2, Standard List of Retirement Units, defines a
construction unit, retirement unit and record unit. RUS Bulletin 184-3,
Guide for Establishing Continuing Property Records, discusses the
organization of record units. Exhibits Q and R, Conversion to Record
Units of Property, of RUS Bulletin 1767B-2 may be useful in the
conversion. They provide for the direct conversion from construction
units to record units without the intermediate retirement units.

**6.4** **[Tabulation of Record Units]{.underline}**. Exhibit S,
Tabulation of Record Units - Overhead, and Exhibit T, Tabulation of
Record Units for Underground Staking Sheets, of RUS Bulletin 1767B-2 may
be useful in summarizing construction by record units. The cost of labor
and minor items of property associated with special equipment items
furnished to the contractor by the borrower or removed and reused by the
contractor are charged to expense. However, special equipment items
furnished and installed by the contractor are capitalized. These items,
shown as memorandum items on the conversion sheets, are brought forward
and tabulated in the proper accounts. The total of all the record units,
including the special equipment, are posted to Column 2 of the
Unitization and Distribution to Plant Accounts (Exhibit V of RUS

Bulletin 1767B-2).

**6.5** **[Standard Record Unit Costs]{.underline}**. Section 9.2.4 of
RUS

Bulletin 1767B-2 describes standard record unit costs and suggests two
methods for establishing them. When the contract is for a type of
construction with which the borrower has had no prior experience, such
as a first contract for underground or transmission plant, information
obtained from the contractor, the consulting engineer, or a similar
utility may be helpful.

**6.6** **[Unitization and Distribution to Plant
Accounts]{.underline}**. The Unitization and Distribution to Plant
Accounts (Exhibit H) is used to distribute overhead and the other costs
recorded in Account 107.1 to the appropriate record units and plant
accounts. The description of the record unit is entered in Column 1 if
it is not preprinted.

**6.6.1** The totals from the tabulation sheets are posted to

Column 2. These represent the record units converted from the new and
conversion assembly units in Item A of the RUS Form 254 and include the
\"Special Equipment\" furnished by the contractor.

**6.6.2** The standard record unit costs and the total unit price of the
assembly units containing special equipment, (See Section 6.1 concerning
conventional transformers) from Column 5 of the RUS Form 254a, are
entered in Column 3 and multiplied by Column 2 to determine the total
standard costs.

**6.6.3** The total amount of the contract remaining in

Account 107.1 is entered in Column 5 opposite \"B\", Total Actual Cost,
and divided by the total of Column 4, to calculate the ratio of actual
to standard costs.

**6.6.4** The standard cost of the individual record units in

Column 4 is multiplied by this ratio to determine the total actual cost
for Column 5.

**6.6.5** The units and costs in Columns 2 and 5 are posted to the
continuing property records.

**6.6.6** Column 5 is summarized by plant account and a journal entry is
made charging the classified plant accounts and crediting Account 106.

**7. COMPLIANCE WITH 7 CFR Part 1721, POST-LOAN POLICIES AND PROCEDURES
FOR INSURED ELECTRIC LOANS:** 7 CFR Part 1721, Post-

Loan Policies and Procedures for Insured Electric Loans, allows
borrowers to request loan fund advances in an amount representing actual
costs incurred but not to exceed 130 percent of the estimated project
costs reported on the approved RUS Form 740c, Costs Estimates and Loan
Budget for Electric Borrowers.

**7.1** If several projects are constructed under one contract,
compliance with the 130 percent requirement is determined by comparing
the total actual costs incurred for all projects constructed under the
contract with the total estimated costs of those projects as reported on
the RUS Form 740c. The total estimated costs for all projects is used
regardless of whether the different projects are included on a single
work order or are assigned to separate work orders.

**7.2** Contract costs are allocated to each project on a reasonable
basis.

**8.** **CASE STUDY - ACCOUNTING FOR CONTRACT CONSTRUCTION COSTS UNDER A
FORM 830 CONTRACT:**

**8.1** The following case study illustrates the accounting for contract
construction costs discussed in this bulletin. The case study includes:

**8.1.1** The journal entries required to record the transactions
associated with contract construction;

**8.1.2** The general ledger account summaries of the principle accounts
involved;

**8.1.3** Completed examples of the RUS Forms 254, 254a, 254b, and 254c;
and

**8.1.4** All additional materials necessary to complete the case study.

**8.2** For purposes of this case study, assume the following:

**8.2.1** The contractor\'s invoice for all construction and retirement
activities totalled \$448,184.96. A borrower typically receives several
monthly invoices before the completion of the contract and the rendering
of the final bill. However, to simplify the case study, we have included
all of the monthly billings in one total;

**8.2.2** The borrower retained 10% of the cash payments to the
contractor pending completion of the contract;

**8.2.3** The borrower\'s labor and overhead associated with the
contract totalled \$36,720.88;

**8.2.4** Material charged out to the contractor on Material Charge
Tickets totalled \$135,244.84; and

**8.2.5** Material returned by the contractor unused totalled
\$10,278.75.

**8.3** Journal entry discussed in Section 4.1:

Dr. 143, Other Accounts Receivable \$135,244.84

Cr. 154, Plant Materials and

Operating Supplies \$135,244.84

To record material taken from stock at average cost and furnished by the
borrower to the contractor.

**8.4** Journal entry discussed in Section 4.2:

Dr. 107.1, Construction Work in

Progress - Contract 448,184.96

Cr. 232.1, Accounts Payable -

General 448,184.96

or

Cr. 232.2, Accounts Payable -

RUS Construction 448,184.96

To record the contractor\'s monthly invoice.

**8.5** Journal entry discussed in Section 4.3:

Dr. 232.1, Accounts Payable - General 419,997.33

or

Dr. 232.2, Accounts Payable - RUS

Construction 419,997.33

Cr. 143, Other Accounts Receivable 166,308.58

Cr. 131.1, Cash - General 253,688.75

To record payment of the contractor\'s monthly invoice net of the
retained amount and the charge to the contractor for material furnished
by the borrower and installed by the contractor during

the month. In the case study, the borrower furnished material is
calculated as follows:

Materials furnished to the contractor \$135,244.84

Material adjustment (5,274.38)

Special equipment furnished to the

contractor 12,179.26

Material unused and returned (10,278.75)

Material removed from existing

assembly units 101,040.35

Material removed and returned [(66,602.74]{.underline})

Borrower furnished materials \$166,308.58

The cash payment is calculated by deducting borrower furnished material
and 10% of the remaining invoice amount. In the case study, the cash
payment is calculated as follows:

Total contractor\'s invoice \$448,184.96

Less: Borrower furnished

material [166,308.58]{.underline}

Cash required to satisfy

contractor\'s invoice \$281,876.38

Total contractor\'s invoice \$448,184.96

Less: Amount retained (10% of

the cash required to

satisfy the contractor\'s

invoice in full) [28,187.63]{.underline}

Cash payment \$419,997.33

Dr. 232.1, Accounts Payable - General \$ 28,187.63

or

Dr. 232.2, Accounts Payable - RUS

Construction 28,187.63

Cr. 131.1, Cash - General \$ 28,187.63

To record payment to the contractor of the amount retained. Final
payment was made after completion of the contract and the approval of
the Certificate of Completion - Contract Construction, RUS Form 187, by
the borrower and the Administrator of RUS.

**8.6** Journal entries discussed in Section 4.4:

Dr. 107.1, Construction Work in

Progress - Contract 5,274.38

Cr. 143, Other Accounts Receivable 5,274.38

To adjust for the difference in the price of the material furnished to
the contractor at average cost and the unit prices shown in the contract
(the unit prices stated in the contract were lower than the average
cost). The difference between the borrower\'s average cost and the
contract price is calculated in Column 25 of the RUS Form 254c.

Note: If the unit prices stated in the contract had been higher than the
average cost, Account 143 would have been debited and Account 107.1,
credited.

**8.7** Journal entries discussed in Section 4.5:

Dr. 143, Other Accounts Receivable 12,179.26

Cr. 107.1, Construction Work in

Progress - Contract 12,179.26

To record special equipment items furnished by the borrower to the
contractor. The cost of borrower furnished material is calculated in
Column 22 of the RUS Form 254c. In the case study, the costs of special
equipment items are reported in the shaded areas of the RUS Form 254c.

Dr. 583, Overhead Line Expenses 22,673.68

Cr. 107.1, Construction Work in

Progress - Contract 22,673.68

To record the labor cost incurred in removing and installing special
equipment items. The cost of removing special equipment items is
calculated in Column 7 of the RUS Form 254a. The cost of installing
special equipment items is calculated by multiplying the labor unit
price (Column 3 of the RUS Form 254a) by the quantity of units installed
(Column 1 of the RUS

Form 254a) and adding the products. In the case study, the cost of
installing and removing special equipment items is calculated as
follows:

Total cost of installing

special equipment items \$ 14,852.49

Plus: Total cost of removing

special equipment items [7,821.19]{.underline}

Total cost of installing and

removing special equipment items \$ 22,673.68

Note: Special equipment items installed and removed are reported in the
shaded areas of the RUS Form 254a.

**8.8** Journal entry discussed in Sections 4.6 and 5.4.2:

Dr. 108.8, Retirement Work in Progress \$ 48,561.02

Cr. 107.1, Construction Work in

Progress - Contract \$ 48,561.02

To reclassify labor costs incurred in removing plant from the system
under the terms of the contract. The cost of removal is calculated by
deducting the cost incurred in removing the special equipment items from
the total cost of removal reported in

Column 7 of the RUS Form 254a. In the case study, the cost of removal is
calculated as follows:

Total Cost to remove \"I\" units

(Column 7 of the RUS Form 254a) \$ 56,382.21

Less: The cost to remove

special equipment items [7,821.19]{.underline}

Cost of removal \$ 48,561.02

Note: Special equipment items installed and removed are reported in the
shaded areas of the RUS Form 254a.

**8.9** Journal entry discussed in Section 4.7:

Dr. 107.1, Construction Work in

Progress - Contract 36,720.88

Cr. 131.1, Cash - General 36,720.88

To charge the borrower\'s labor and overhead. This consists of direct
and indirect labor; administrative and general expenses; engineering;
social security taxes; property loss, property damage, and workmen\'s
compensation insurance; stores expense; transportation expense; employee
pensions and benefits; and employee holidays and vacations.

**8.10** Journal entry discussed in Section 4.8:

Dr. 154, Plant Materials and

Operating Supplies \$ 10,278.75

Cr. 143, Other Accounts Receivable \$ 10,278.75

To credit the contractor for material that was not used and was returned
to stock.

**8.11** Journal entries discussed in Section 4.9:

Dr. 143, Other Accounts Receivable 101,040.35

Cr. 108.8, Retirement Work in

Progress 101,040.35

To charge the contractor for the material removed from existing assembly
units. The value of the material removed from existing assembly units is
calculated in Column 9 of the RUS Form 254a.

Dr. 108.8, Retirement Work in Progress 66,602.74

Cr. 143, Other Accounts Receivable 66,602.74

To credit the contractor for the material returned to the borrower. The
value of the material returned to the borrower is calculated in Column
14 of the RUS Form 254b.

Dr. 154, Plant Materials and

Operating Supplies 7,650.78

Cr. 108.8, Retirement Work in

Progress 7,650.78

To record the salvage value of material returned to inventory. The total
salvage value of material returned to the borrower is calculated in
Column 17 of the RUS Form 254a. The salvage value of the special
equipment items returned must be deducted from the total to determine
the value of the material returned to inventory. In the case study, the
salvage value is calculated as follows:

Total salvage value

(Column 17 of the RUS Form 254b) \$ 16,364.34

Less: The salvage value of

special equipment items [8,713.56]{.underline}

Salvage value \$ 7,650.78

Note: Special equipment items salvaged are reported in the shaded areas
of the RUS Form 254b.

**8.12** Journal entry discussed in Section 4.10:

Dr. 108.8, Retirement Work in Progress \$ 28,440.27

Cr. 107.1, Construction Work in

Progress - Contract \$ 28,440.27

To record the cost of special equipment items removed from service and
reused by the contractor. Special equipment reused is calculated in the
Schedule of Special Equipment Reused (Exhibit E). The unit prices used
to calculate the value of special equipment reused are taken from Table
D \"Value of Material Items Creditable to Bidder\" (Exhibit F).

Note: The case study is based upon the assumption that all special
equipment units removed and not returned were reused by the contractor.
If the borrower furnished additional units, those not required for
construction were returned to the borrower unused.

**8.13** Journal entry discussed in Section 4.11:

Dr. 106, Completed Construction not

Classified - Electric 378,325.99

Cr. 107.1, Construction Work in

Progress - Contract 378,325.99

To record completion of the construction and energization of the line.

**8.14** Journal entry discussed in Sections 4.12 and 5.4.1:

Dr. 108.8, Retirement Work in Progress 68,948.63

Cr. 364, Poles, Towers and Fixtures 23,270.02

Cr. 365, Overhead Conductors and Devices 39,234.82

Cr. 368, Line Transformers 3,593.28

Cr. 369, Services 1,003.47

Cr. 371, Installations on Customers\'

Premises 1,847.04

To record the original cost of the property retired under the contract.
The assembly units removed were converted into record units and
summarized on the Retirement Work Order (Exhibit G). Each unit is priced
at its continuing property record value to determine the original cost
of the property retired.

**8.15** Journal entry discussed in Section 5.4.4:

Dr. 108.6, Accumulated Provision for

Depreciation of

Distribution Plant 103,861.53

Cr. 108.8, Retirement Work in

Progress 103,861.53

To record the net loss on plant retired from service. The net loss on
plant retired from service is calculated by adding the original cost of
the property retired plus the cost of removal and deducting salvage. In
the case study, the net loss on retirement is calculated as follows:

Original cost of property retired \$ 68,948.63

Plus: Cost of removal (See

Section 8.7) [48,561.02]{.underline}

117,509.65

Less: Salvage [13,648.12]{.underline}

Net loss due to retirement \$103,861.53

Salvage is calculated as follows:

Total value of material

removed by contractor \$101,040.35

Less: Material returned

by contractor [66,602.74]{.underline}

Salvage value of material

reused by contractor 34,437.61

Plus: Salvage value of

material returned

by contractor [7,650.78]{.underline}

Total salvage value of

all material removed 42,088.39

Less: Salvage value of

special equipment items

reused by contractor [28,440.27]{.underline}

Salvage value of all material

removed other than special

equipment items \$ 13,648.12

**8.16** Journal entry discussed in Section 6.6.6:

Dr. 364, Poles, Towers and Fixtures \$129,504.58

Dr. 365, Overhead Conductors and Devices 237,609.12

Dr. 367, Underground Conductor and

Devices 2,281.54

Dr. 368, Line Transformers 896.85

Dr. 369, Services 7,111.89

Dr. 371, Installations on Customers\'

Premises 922.01

Cr. 106, Completed Construction not

Classified \$378,325.99

To reclassify electric plant in service to the primary plant accounts
based upon the \"Unitization and Distribution to Plant Accounts\"
(Exhibit H).

**8.17** General Ledger Summaries:

**8.18** The following exhibits provide the basis upon which the
preceding journal entries were based:

**8.18.1** Exhibit A RUS Form 254, Construction Inventory

**8.18.2** Exhibit B RUS Form 254a, Construction Inventory

**8.18.3** Exhibit C RUS Form 254b, Construction Inventory

**8.18.4** Exhibit D RUS Form 254c, Construction Inventory

**8.18.5** Exhibit E Schedule of Special Equipment Reused

**8.18.6** Exhibit F Table D - Value of Material Items Creditable

to Bidder

**8.18.7** Exhibit G Retirement Work Order

**8.18.8** Exhibit H Unitization and Distribution to Plant Accounts

**8.18.9** Exhibit I RUS Form 219, Inventory of Work Orders