Rule: When the purpose of the appropriation has been achieved, it should be restored to unappropriated retained earnings. Choice "A" is correct. $1,200,000 appropriated retained earnings at Dec. 31, Year 2 (for the construction of a new plant only).Choices "c" and "b" are incorrect. When the new ($1,500,000) office building was completed in Year 2, $1,750,000 was restored to unappropriated retained earnings.
Choice "d" is incorrect. "Cash restricted for the retirement of bonds" (an asset account called "sinking fund cash") typically reduces regular cash and does not affect retained earnings. (There may also be an appropriation, but this would have to be specifically mentioned in the question.)