That is correct.  Bisk has the same problem:

Carlson City's fiscal year ends December 31. On August 1, the city issued a purchase order for new vehicles to be delivered at the rate of two per month beginning October 15. Twelve vehicles were delivered as scheduled and payments of $264,000 were made upon delivery. If these were the only transactions made by the city, which of the following balances would appear on the balance sheet as of December 31?

A  Encumbrances $132,000
Reserve for encumbrances 132,000

B  Fund balance $132,000
Reserve for encumbrances 132,000

C  Reserve for encumbrances $264,000
Fund balance 264,000

D  Encumbrances $264,000
Reserve for encumbrances 264,000

Question ID: 8350, Bisk: 19-1-1

B Encumbrances are obligations to spend (purchase orders) to prevent overspending of appropriations. An encumbrance entry is made when an item is ordered in the amount of the estimated cost. The reverse entry is made for the same dollar amount when the invoice arrives. Outstanding encumbrances at year end are carried forward as a reserve of fund balance with a corresponding deduction of unreserved fund balance. The spending of a prior year's outstanding encumbrances is a use of reserved fund balance, not a current year expenditure. Only half the new vehicles were delivered by December 31 (two per month in October, November, and December out of twelve total). Thus, there would be half of the $264,000, or $132,000, in outstanding encumbrances at year end carried forward as a reserve of fund balance.