Chapter 4 Questions 4-3 How does the use of encumbrance’s procedures improve budgetary control over expenditures? It improves budgetary control by allocating funds so that the government can’t overspend. Appropriations – expenses – encumbrances = avail to spend 4-5 If the General Fund of a certain city needs $6,720,000 of revenue from property taxes to finance estimated expenditures of the next fiscal year and historical experience indicates that 4% of the gross levy will not be collected, what should be the amount of the gross levy for property taxes? Show all computations in good form $6,720,000 .96 4-9 = $7,000,000 How does a permanent fund differ from public-purpose trusts that are reported in special revenue funds? How does it differ from private-purpose trust funds? Permanent fund – principal can’t be spent, however, the earnings can be spent for a government purpose Public Purpose Trust – both principal and interest can be spent for a government service Private Purpose – it has a specific intention and can be spent on something other than a government purpose 4-10 Name the four classes of nonexchange transactions defined by GASB standards and explain the revenue and expenditure/expense recognition rules applicable to each class. Derived Tax Revenue – Cash Basis Imposed – non-exchange – When resources are assessed Government Mandated – case by case basis Voluntary – Non-exchange case by case basis Exercises and Problems 2-2 Multiple Choice 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 2. The City of Marshall uses the purchases method for recording its inventory of supplies in the general Fund. Rather than use a perpetual inventory system inventories are updated at year-end based on a physical count. Physical inventories were $85,000 and $75,000 at Dec 31, 2013 and 2014, respectively. The adjusting journal entry on December 31, 2014 will include a debit to: a. Debit to Inventory of Supplies for $75,000 b. Debit to Expenditures for $10,000 c. Credit to Inventory of Supplies for $10,000 d. Credit to Expenditures for $10,000 3. 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 General Fund to record the receipt of the goods will include a: a. Debit to Encumbrances Outstanding for $1000 b. Credit to Vouchers Payable for $985 c. Debit to Expenditures for $985 d. All of the above are correct 4. Which of the following items would be reported as General Revenue on the government-wide statement of activities? a. Parking fines b. Federal Grants earmarked for specific programs c. Housing inspection fees d. Sales tax earmarked for maintenance of roads and bridges 5. Garden City has calculated that General Fund property tax revenues of $4,608,000 are required for the current fiscal year. Over the past several years, the city has collected 96% of all property taxes levied. The city levied property taxes in the amount that will generate the required $4,608,000. Which of the following journal entries would correctly record the property tax levy? a. Taxes receivable- Current 4,608,000 Estimated Unc. Curr Taxes 184,320 Revenues 4,423,680 b. Taxes Receivable – Current Estimated Unc. Curr Taxes Revenues 4,800,800 c. Taxes Receivable – Current Deferred Taxes Revenues 4,608,000 d. Taxes Receivable – Current Deferred Taxes, Revenues 4,800,000 192,000 4,608,000 184,320 4,423,680 192,000 4,608,000 6. The Village of Wilhelm borrowed $1,000,000 from a local bank by issuing a 6% tax anticipation notes. If the village repaid the tax anticipation notes six months later Special Revenue Fund, Voluntary Non-exchange Transactions. The City of Smithton applied for a competitive grant from the state government for park improvements such as upgrading hiking trails and bike paths. On May 1, 2014, the city was notified that it had been awarded a grant of $200,000 for the program, to be received in two installments on July 1, 2014 and July 1, 2015. The grant stipulates that $100,000 is for use in each of the city’s fiscal years ending June 30, 2015 and June 30, 2016. Any amounts expended during FY 2015 can be carried over for use in FY 2016. During FY 2015, the city expended $90,000 for park improvements from grant resources. Required: For Special Revenue fund, provide the appropriate journal entries, if any that would be made for the following: 1. May 1, 2014 notification of grant approval No Journal Entry 2. July 1, 2014 receipt of first installment of the grant Cash 100,000 Revenues 100,000 3. During FY 2015 to record expenditures under the grant Expenditures 90,000 Cash 90,000 4. July 1, 2015 Cash Revenues 100,000 100,000 4-7 Inter-fund and Interactivity Transactions. The following transactions affected various funds and activities of the Town of Big Springs Required: a. Make the required journal entries in the general journal of the General Fund and any other funds affected by the inter-fund transactions described b. Make entries in the governmental activities journal for any transactions. Do not make entries for subsidiary ledgers c. Why is it unnecessary to make entries in a business-type activities journal for any transaction affecting enterprise funds? 1. The fire department, a governmental activity purchased $100,000 of water from the Water Utility Fund, a business type activity. Fire Dept Transfer out Water Transfer in $100,000 $100,000 2. The Big Springs Golf Course, an enterprise fund, reimbursed the General Fund $500 for office supplies that the General Fund had purchased on its behalf and that were used in the course of the fiscal year General Fund Cash Due From Golf current $500.00 $500.00 Golf Fund Due to GF current Cash $500.00 $500.00 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 town departments. General Fund Due From Central Stores non current Cash $50,000 $50,000 Golf Fund Cash Due to GF non current $50,000 $50,000 4. The General Fund paid its annual contribution of $100,000 to the debt service fund for interest and principal on general obligation bonds due during the year. General Fund Cash Debt Service Fund $100,000 $100,000 Debt Svc Fund Cash Revenues $100,000 $100,000 5. The $5,000 balance in the capital projects fund at the completion of construction of a new Town Hall was transferred to the general fund. General Fund Cash Cap Projects $5000 Capital Projects Capital Project Expenditures Cash $5000 $5000 $5000
