Chapter_4_HW - 160 Part One State and Local Governments...

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Unformatted text preview: 160 Part One State and Local Governments Exercises and 4—1 Examine the CAFR. Utilizing the comprehensive annual financial report obtained for Exercise 1—1, follow these instructions. a. Governmental Activities, Government-wide Level. Answer the following questions. (1) Are governmental activities reported in a separate column from business-type activities in the two government-wide financial statements? . (2) Are assets and liabilities reported either in the relative order of their 1 liquidity or on a classified basis on the statement of net assets? (3) Is informa— ’ tion on expenses for governmental activities presented at least at the functional level of detail? (4) Are program revenues segregated into (a) charges for services, (b) operating grants and contributions, and (0) capital grants and contributions on the statement of activities? b. General Fund. Answer the following questions. (1) What statements and schedules pertaining to the General Fund are presented? (2) In what respects (headings, arrangements, items included, etc.) do they seem similar to the year—end statements illustrated or described in the text? (3) In what respects do they differ? (4) What purpose is each statement and schedule intended to serve? (5) How well, in your reasoned opinion, does each statement and schedule accomplish its intended purpose? (6) Are any noncurrent or nonliq— uid assets included in the General Fund balance sheet? If so, are they offset by “Reserve” accounts in the Fund Equity section? (7) Are any noncurrent . liabilities included in the General Fund balance sheet? If so, describe them. i i. (8) Are revenue classifications sufficiently detailed to be meaningful? (9) Has ' the government refrained from reporting expenses rather than expenditures? 0. Special Revenue Funds. Answer the following questions. (1) What state- ments and schedules pertaining to the special revenue funds are presented? (2) Are these only combining statements, or are there also statements for indi- vidual special revenue funds? (3) Are expenditures classified by character (i.e., current, intergovernmental, capital outlay, and debt service)? (4) Are cur- rent expenditures further categorized at least by function? d. Examine Again. Refer to part [9. Answer each question again, now from the perspective of the special revenue funds. Review your answers to Exercises 1—1, 2—1, and 3—1 in light of your study of Chapter 4. If you now believe your earlier answers were not entirely correct, change them to conform with your present understanding of GASB financial reporting standards. Problems 4—2 Multiple Choice. Choose the best answer. 1. When equipment was purchased with General Fund resources, which of the following accounts would have been debited in the General Fund? a. Expenditures. b. Equipment. c. Encumbrances. d. No entry should be made in the General Fund. . The City of Marshall uses the purchases method for recording its inventory of supplies in the General Fund. Rather than using a perpetual inventory system, inventories are updated at year-end based on a physical count. Physical inven- tories were $85,000 and $75,000 at December 31, 2010 and 2011, respectively. The adjusting journal entry on December 31, 2011, will include a: a. Debit to Inventory of Supplies for $75,000. b. Debit to Expenditures for $10,000. ' Chapter 4 Accounting for Govemmentai Operating Activities—Illustrative Transactions and Financial Statements 161 0. Credit to Inventory of Supplies for $10,000. (1. Credit to Expenditures for $10,000. . Goods for which a purchase order had been placed at an estimated cost of $1,000 were received at an actual cost of $985. The journal entry in the Gen- eral Fund to record the receipt of the goods will include a: a. Debit to Reserve for Encumbrances for $1,000. b. Credit to Vouchers Payable for $985. 0. Debit to Expenditures for $985. d. All of the above are correct. . The City of Fenton levied $3,000,000 of General Fund property taxes for the fiscal year ‘ ending December 31, 2011, with an estimated uncollectible amount of $200, 000. During 2011 and January and February of 2012, $2, 500, 000 of the levy 1s expected to be collected, however, $300, 000 of the levy 1s not expected to be collected until after February 2012. The amount of property tax revenues to be recognized 1n FY 2011 is: a. $3, 000, 000 in governmental activities at the government—wide level and $2, 800,000 in the General Fund b. $2,800,000 in governmental activities at the government-wide level and $2,500,000 in the General Fund. 0. $2,500,000 in governmental activities at the government— —wide level and $2,800,000 in the General Fund.‘ 61’. $2,500,000 in governmental activities at the government—wide level and ' $2,500,000 in the General Fund. . Which of the following items would be reported as a program revenue on the government—wide statement of activities? a. Sales taxes. b. Interest and penalties on taxes. 0. Unrestricted federal grants. (2’. Fines and forfeits. . Internal exchange transactions in which a governmental fund receives goods. or services from an enterprise fund are: a. Reported as expenditures by the governmental fund and as revenues by the enterprise fund. b. Reported as interfund transfers out by the governmental fund and as inter- fund transfers in by the internal service fund. 0. Reported as expenses by governmental funds and as revenues by the enter- prise fund. d. Either a or b, depending on local policy. . Which of the following revenues would be classified as an imposed nonex- change revenue? a. Sales taxes. b. Federal and state grants. 0. Property taxes. d. Income taxes. . Which of the following transactions is reported on the government-wide financial statements? a. An interfund loan from the General Fund to a special revenue filnd. F... 162 Part One State and Local Governments [7. Equipment used by the General Fund is transferred to an internal service fund that predominantly serves departments that are engaged in govern— mental activities. 0. The City Airport Fund, an enterprise fund, transfers a portion of board- ing fees charged to passengers to the General Fund. d. An interfund transfer is made between the General Fund and the Debt Service Fund. 9. A special revenue fund that administers a program funded by a reimbursement- type (expenditure-driven) federal grant should recognize revenue: a. When notified of grant approval. b. When qualifying expenditures have been made. c. When cash is received. d. When the special revenue fund has paid for all of the services it has provided. 10. A city received a $1,000,000 cash contribution under a trust agreement in which investment earnings (but not the principal amount) can be used to maintain the city cemetery. This contribution should be recorded in a (an): a. Fiduciary fund. b. Permanent fund. 0. Special revenue fund. d. Internal service fund. ‘4—3 Calculating Required Tax Anticipation Financing and Recording Issuance of Tax Anticipation Notes. The City of Perrin collects its annual property taxes late In its fiscal year. Consequently, each year it must finance part of its oper- ating budget using tax anticipation notes. The notes are repaid upon collection of property taxes. On April 1, 2011, the City estimated that it will require $2,470,000 to finance governmental activities for the remainder of the 2011 fiscal year. On that date, it had $740,000 of cash on hand and $830,000 of current liabilities. Collections for the remainder of FY 2011 from revenues other than current property taxes and from delinquent property taxes, including interest and penalties, were estimated at $1,100,000. Required (1. Calculate the estimated amount of tax anticipation financing that will be required for the remainder of FY 2011. Show work in good form. b. Assume that on April 2, 2011, the City of Perrin borrowed the amount cal- culated in part a by signing tax anticipation notes bearing 5 percent per annum to a local bank. Record the issuance of the tax anticipation notes in the general journals of the General Fund and governmental activities at the government-wide level. c. By October 1, 2011, the City had collected a sufficient amount of current property taxes to repay the tax anticipation notes with interest. Record the repayment of the tax anticipation notes and interest in the general journals of the General Fund and governmental activities at the government-wide level. 4—4 Property Tax Calculations and Journal Entries. The Village of Darby’s bud- get calls for property tax revenues for the fiscal year ending December 31, 2011, of $2,660,000. Village records indicate that, on average, 2 percent of taxes levied Chapter 4 Accounting for Governmental Operating Activities—Illustrative Transactions and Financial Statements 163 are not collected. The county tax assessor has assessed the value of taxable prop- erty located in the village at $135,714,300. Required a. Calculate to the nearest penny what tax rate per $100 of assessed valuation is required to generate a tax levy that will produce the required amount of revenue for the year. 1). Record the tax levy for 2011 in the General Fund. (Ignore subsidiary detail and entries at the government—wide level.) 0. By December 31, 2011, $2,540,000 of the current property tax levy had been collected. Record the amounts collected and reclassify the uncollected amount as delinquent. Interest and penalties of 6 percent were immediately due on the delinquent taxes, but the finance director estimates that 10 percent will not be collectible. Record the interest and penalties receivable. (Round all amounts to the nearest dollar.) 4—5 Adjusting Entries for Inventory of Supplies. The Village of Baxter uses the purchases method of accounting for its inventories of supplies in the General Fund. GASB standards, however, require that the consumption method be used for the government-wide financial statements. Because its computer system is very limited, the Village uses a periodic inventory system, adjusting inventory balances based on a physical inventory of supplies at year-end. When supplies are received during the year, the Village records expenditures and expenses in the general journals of the General Fund and governmental activities, respec— tively. The Village’s inventory records showed the following information for the fiscal year ending December 31, 2011: Balance of inventory, December 31, 2010 $140,000 Purchases of inventory during 2011 720,000 Balance of inventory, December 31, 2011 155,000 Required 7 a. Provide the required adjusting entries at the end of 2011, assuming that the December 31, 2011, balance of Inventory of Supplies has been confirmed by physical count. Make entries in the general journals of both the General Fund (omitting subsidiary detail) and governmental activities at the government— wide level. b. Assume that the General Fund uses the consumption method for reporting inventories of supplies rather than the purchases method. Make the required adjusting entries for. the General Fund and governmental activities at the government—wide level. 4—6 Special Revenue Fund, Voluntary Nonexchange Transactions. The City of Eldon applied for a competitive grant from the state government for park improvements such as upgrading hiking trails and bike paths. On May 1, 2011, the City was notified that it had been awarded a grant of $200,000 for the pro— gram, to be received in two installments on July 1, 2011, and July 1, 2012. The grant stipulates that $100,000 is for use in each of the city’s fiscal years ending June 30, 2012, and June 30, 2013. Any amounts not expended during FY 2012 can be carried over for use in FY 2013.‘During FY 2012, the city expended $90,000 for park improvements from grant resources. ' a V\ M 0’6, 9d) nole; Noe/13'5”] RiiutreC/IGP/tlcg {0/1 V???”9 3 ”bl 164 Part One State and Local Governments Required For the special revenue fund, provide the appropriate journal entries, if any, that would be made for the following: 1. May 1, 2011, notification of grant approval. 2. July 1, 2011, receipt of first installment of the grant. 3. During FY 2011 to record expenditures under the grant. 4. July 1, 2012. “ 1 4—7 Closing Journal Entries. At the end of a fiscal year, budgetary and operating statement control accounts in the general ledger of the General Fund of Dade City had the following balances: Appropriations, $6,224,000; Estimated Other Financing Uses, $2,776,000; Estimated Revenues, $7,997,000; Encumbrances, $0; Expenditures, $6,192,000; Other Financing Uses, $2,770,000; and Revenues, $7,980,000. Appropriations included the authorization to order a certain item at a cost not to exceed $65,000; this was not ordered during the year because it will not be available until late in the following year. Required Show in general journal form the entry needed to close all of the preceding accounts that should be closed as of the end of the fiscal year. various funds and activities of the City of Atwater. . (p 1. The Fire Department, a governmental activity, purchased $100,000 of water i 9‘ 0‘ from the Water Utility Fund, a business—type activity. {pa/(”bud /2_ The Municipal Golf Course, an enterprise fund, reimbursed the General Fund l “1/ “ ' $1,000 for office supplies that the General Fund had purchased on its behalf ‘ 5 WM and that were used in the course of the fiscal yeahéf; CR 200+th PEN D 177/055 3. The General Fund made a long-term loan in the amount of $50,000 to the ‘ . Central Stores Fund, an internal service fund that services city departments. } 4. The General Fund paid its annual contribution of $80,000 to the debt ser— i 4—8 Interfund and Interactivity Transactions. The following transactions affected 1 i M \ ()1 vice fund for interest and principal on general obligation bonds due during the year. - p 5. The $5,000 balance in the capital projects fund at the completion of con— struction of a new City Hall was transferred to the General Fund. Required a. Make the required journal entries in the general journal of the General Fund and any other fund(s) affected by the interfund transactions described. Also make entries in the governmental activities journal for any transaction(s) affecting a governmental fund. Do not make entries in the subsidiary ledgers. b. Why is it unnecessary to make entries in a business-type activities journal for any transaction(s) affecting proprietary fiands? Are internal service funds any different? 4—9 Transactions and Budgetary Comparison Schedule. The following transac- tions occurred during the 2011 fiscal year for the City of Fayette. For budgetary purposes, the city reports encumbrances in the Expenditures section of its bud- getary comparison schedule for the General Fund but excludes expenditures chargeable to a prior year’s appropriation. Chapter 4 Accounting for Governmental Operating Activities—Illustrative Transactions and Financial Statements 165 1. The budget prepared for the fiscal year 2011 was as follows: Estimated Revenues: Taxes $1,943,000 Licenses and permits 372,000 Intergovernmental revenue 397,000 Miscellaneous revenues 62,000 Total estimated revenues ' 2,774,000 Appropriations: General government 471,000 Public safety 886,000 Public works 650,000 Health and welfare 600,000 Miscellaneous appropriations 86,000 Total appropriations 2,693,000 Budgeted increase in fund balance $ 81,000 2. Encumbrances issued against the appropriations during the year were as follows: _____—_—_—_——————————————— General government $ 58,000 Public safety 250,000 Public works 392,000 Health and welfare 160,000 Miscellaneous appropriations 71,000 Total $931,000 3. The current year’s tax levy of $2,005,000 was recorded; uncollectibles were estimated as $65,000. 4. Tax collections from prior years’ levies totaled $132,000; collections of the current year’s levy totaled $1,459,000. 5. Personnel costs during the year were charged to the following appropriations in the amounts indicated. Encumbrances were not recorded for personnel costs. Since no liabilities currently exist for withholdings, you may ignore any FICA or federal or state income tax withholdings. (Note: Expenditures charged to Mis- cellaneous Appropriations should be treated as General Government expenses in the governmental activities general journal at the government-wide level.) General government 35 411,000 Public safety 635,000 Public works 254,000 Health and welfare 439,000 Miscellaneous appropriations 11,100 Credit to Vouchers Payable $1,750,100 . Invoices for all items ordered during the prior year were received and approved for payment in the amount of $14,470. Encumbrances had been recorded in the prior year for these items in the amount of $14,000. The amount chargeable to each, year’s appropriations should be charged to the Public Safety appropriation. 7. Invoices were received and approved for payment for items ordered in docu- ments recorded as encumbrances in Transaction (2) of this problem. The fol- lowing appropriations were affected. ' (343$) \ 166 Part One State and Local Governments (‘1)Q /\K ___________._—————————-— Actual Estimated Liability Liability General government 33 52,700 $ 52,200 Public safety 236,200 240,900 Public works 360,000 357,000 Health and safety 130,600 130,100 Miscellaneous appropriations 71,000 71,000 $850,500 $851,200 8. Revenue other than taxes collected during the year consisted of licenses and permits, $373,000; intergovernmental revenue, $400,000; and $66,000 of mis- cellaneous revenues. For purposes of accounting for these revenues 'at the gov- ernment-wide level, the intergovernmental revenues were operating grants and contributions for the Public Safety function. Miscellaneous revenues are not identifiable with any function and therefore are recorded as General Revenues at the government-wide level. . Payments on Vouchers Payable totaled $2,505,000. Additional information follows: The General Fund Fund Balance account had a credit balance of $82,900 as of December 31, 2010; no entries have been made in the Fund Balance account during 2011. Required a. Record the preceding transactions in general journal form for fiscal year 2011 in both the General Fund and governmental activities general journals. b. Prepare a budgetary comparison schedule for the General Fund of the City of Fayette for the fiscal year ending December 31, 2011, as shown in Illus- tration 4—7. Do not prepare a government-wide statement of activities since other governmental funds would affect that statement. 4—10 Operating Transactions, Special Topics, and Financial Statements. The City of Ashland’s General Fund had the following post-closing trial balance at April 30, 2010, the end of its fiscal year: Debits Credits Cash $ 97,000 Taxes Receivable—Delinquent 583,000 g, Estimated Uncollectible Delinquent Taxes $189,000 Interest and Penalties Receivable 26,280 Estimated UncoIIectibIe Interest and Penalties 11,160 Inventory of Supplies \ 16,100 Vouchers Payable 148,500 Due to Federal Government 59,490 Reserve for Inventory of Supplies 16,100 Fund Balance ~ ' " 298,130 $722,380 $722,380 During the year ended April 30, 2011, the following transactions, in summary form, with subsidiary ledger detail omitted, occurred: 1. The budget for FY 2011 provided for General Fund estimated revenues totaling $3,140,000 and appropriations totaling $3,100,000. 2. The city council authorized temporary borrowing of $300,000 in the form of a 120—day tax anticipation note. The loan was obtained from a local bank at a discount of 6 percent per annum (debit Expenditures for discount). Chapter 4 Accounting for Governmental Operating Activities—Illustrative Transactions and Financial Statements 167 I V}? '3. The property tax levy for FY 2011 was recorded. Net assessed valuation ‘ 6 of taxable property for the year was $43,000,000, and the tax rate was $5 per $100. It was estimated that 4 percent of the levy would be uncollectible. 4. Purchase orders and contracts were...
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