Liabilities and fund balances

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6. 3. 4. 5.

CHAPTER 10 SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS MULTIPLE CHOICE QUESTIONS

1. 2. c c a a d Appropriations (= 20,000,000 + 500,000) Less expenditures Less encumbrances Available funds $ 20,500,000 (7,600,000) (75,000) $ 12,825,000 b The budget entry added $243,000 to fund balance, as follows: Estimated revenues Estimated other financing sources Appropriations Estimated other financing uses Fund balance— unassigned 1,290,000 60,000 1,085,000 22,000 243,000 Therefore the fund balance prior to the budget entry was $285,000 - $243,000 = $42,000.

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 1

7. 8. 9. d Closing entries are: Property tax revenues Speeding ticket revenues Transfers in Bond proceeds Appropriations Estimated other financing uses Estimated revenues Estimated other financing sources Fund balance— unassigned General expenditures Capital outlay Debt service: principal Debt service: interest Transfers out Fund balance— unassigned 950,000 400,000 8,000 50,000 1,290,000 60,000 58,000 1,085,000 22,000 1,015,000 25,000 2,000 8,000 20,000 37,000 $58,000 + $37,000 = $95,000 d General expenditures Capital outlay Debt service: principal payments Debt service: interest payments Total expenditures b Cash Taxes receivable, net Due from other funds Total $1,015,000 25,000 2,000 8,000 $1,050,000 $371,000 68,000 12,000 $451,000

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10. b Original assessment of 2013 taxes $1,000,000 - $25,000 End of year adjustment in allowance ($60,000 - $15,000) - $25,000 Excess cash collected on 2012 taxes $30,000 - $21,000 Total property tax revenue for 2013 Or alternatively, 2013 taxes collected Uncollected 2013 taxes expected to be collected in early 2014 Excess collections on 2012 taxes $30,000 - $21,000 Total property tax revenue for 2013 $975,000 (20,000) 9,000 $964,000 $940,000 15,000 9,000 $964,000

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5. 6. 7. 8. 9. 10. 11. 12. 13.

EXERCISES E10.1

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Identify Appropriate Fund

special revenue capital project enterprise agency internal service pension trust agency general capital project debt service or general fund 11. 12. 13. 14.

E10.2

1. 2. 3. 4. special revenue debt service permanent private-purpose trust

Identify Appropriate Fund(s)

debt service fund special revenue fund general fund (for transfer to capital projects fund and for processing and receiving the assessments), capital projects fund (for construction activities) general fund (for processing assessments and receiving and distributing money from the assessments), capital projects fund (for construction activities), and (a) debt service fund (for receiving the assessments from the general fund and servicing the debt); (b) agency fund (for processing the assessments, accounting for and servicing the debt) capital projects fund general fund (for transfer of withheld wages), pension trust fund general fund internal service fund general fund general fund general fund (for transfer of withheld wages), agency fund general fund (if museum activities are reported in the general fund), permanent fund investment trust fund

©Cambridge Business Publishers, 2013 4 Advanced Accounting, 2nd Edition

a.

E10.3

a. b.

Property Tax Rate and Revenues

Last year’s property tax revenue was: $7,920,000 = $.88 x ($900,000,000/$100) Property tax revenue required is $8,645,000 = $9,500,000 - $855,000 $8,645,000/($950,000,000/$100) = $0.91 per $100 of assessed valuation c. $0.88 x ($950,000,000/$100) = $8,360,000

E10.4 Computing Available Funds

All dollar amounts in thousands

Funds available for encumbrance consist of: appropriations - expenditures - outstanding encumbrances Appropriations are $3,800,000 (= estimated revenue of $4,000,000 – budgetary surplus of $200,000). Thus, available funds = $3,800,000 - 2,500,000 - 225,000 = $1,075,000 The other numerical data given are irrelevant to this calculation. b. Yes, the budget appears ripe for cutting. Operating costs average about $248,000 per month [= (2,500,000 + 225,000)/11]. Yet there is $1,075,000 remaining to cover operating costs of $248,000 in the last month of the fiscal year.

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 5

E10.5 Reconstruct Budget Entry, Compute Fund Balance

The detailed budget may be reconstructed as follows:

Actual Over (Under) Budget

Revenues: Property taxes Fines Intergovernmental Fees and service charges Miscellaneous $2,975,000 6,000 12,000 500,000 4,000 $125,000 6,000 0 (75,000) (1,000) Total Expenditures: $3,497,000 $ 55,000 Administration Public safety Health and environment $ 500,000 2,050,000 950,000 $ 1,000 6,000 4,000 $ 11,000 Total a. $3,500,000 Therefore, the budget entry was: Estimated revenues Fund balance-unassigned Appropriations b. Fund balance, beginning of year Budget entry effect (planned decrease) Excess of actual revenues over budgeted revenues Excess of budgeted expenditures over actual expenditures Fund balance, end of year Alternative calculation: Fund balance, beginning of year Excess of expenditures over revenues Fund balance, end of year

Budget

3,442,000 69,000 $2,850,000 0 12,000 575,000 5,000 $3,442,000 $ 501,000 2,056,000 954,000 $3,511,000 3,511,000 $2,100,000 (69,000) 55,000 11,000 $2,097,000 $2,100,000 (3,000) $2,097,000

©Cambridge Business Publishers, 2013 6 Advanced Accounting, 2nd Edition

E10.6 Transactions, Closing Entries, and Budgetary Comparison Schedule

All dollar amounts in thousands

a. Journal entries: (1) Estimated revenues Appropriations 51,000 Taxes receivable Property tax revenues 41,000 (2) Cash Taxes receivable 18,500 Cash Taxes receivable 26,500 (3) Encumbrances Fund balance—assigned 50,300 51,000 41,000 18,500 26,500 50,300 (4) Fund balance—assigned ($50,300 - $13,000 = $37,300) Encumbrances 37,300 37,300 Expenditures Accounts payable 37,500 37,500 (5) Accounts payable Cash 44,000 44,000 (6) Cash Fee and service revenues 11,000 11,000

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b. c. d. Closing entries: Property tax revenues Fee and service revenues Fund balance—unassigned Estimated revenues Appropriations Fund balance—unassigned Expenditures Encumbrances $38,500 = $37,000 + $1,000 + $500 41,000 11,000 51,000 1,000 51,000 500 37,500 13,000 Revenues Expenditures

Budgetary Comparison Schedule For the Year Ended December 31, 2013

Change in fund balance (1)

Budget

$51,000 51,000 $ 0

Actual

$52,000 37,500 $14,500

Variance— Favorable (Unfavorable)

$ 1,000 13,500 $14,500 (1) Closing entries $1,000 + $500 plus increase in fund balance—assigned $13,000.

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E10.7

a.

Property Tax Transactions

Taxes receivable— current Revenues To record tax levy and establish allowance for uncollectible taxes. Cash Revenues Allowance for uncollectible taxes—current 30,000,000 9,009,000 91,000 1,200,000 28,800,000 Taxes receivable—current 9,100,000 To record collection of taxes prior to due date and reduction of revenues by 1% discount ($9,100,000 = $9,009,000/.99). Cash Taxes receivable—current To record collection of taxes prior to January 1; $18,900,000 = $30,000,000 - $9,100,000 - $2,000,000. Taxes receivable— delinquent Taxes receivable—current To reclassify taxes declared delinquent on January 1. 18,900,000 2,000,000 18,900,000 2,000,000 Allow. for uncollectible taxes—current 1,200,000 Revenues Allow. for uncollectible taxes—delinquent 600,000 1,800,000 To adjust the allowance for delinquent taxes to $1,800,000 (= $2,000,000 - $200,000). Cash Allow. for uncollectible taxes—delinquent Taxes Receivable— delinquent Revenues To record collection of delinquent taxes subsequent to January 1. 300,000 1,800,000 2,000,000 100,000 Expenditures Cash To record cash expenditures for the year. 25,000,000 25,000,000

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b.

E10.8

a. Balance sheet accounts Cash ($850,000 + $9,009,000 + $18,900,000 + $300,000 - $25,000,000) Fund balance: Actual revenues ($28,800,000 - $91,000 - $600,000 + $100,000) Estimated revenue Decrease in fund balance with closing entry Beginning fund balance after the budget entry Ending fund balance

Inventory Accounting

Expenditures (1) Inventory (2)

Consumption method

Cash Accounts payable 17,900,000 100,000 $ 4,059,000 $28,209,000 29,000,000 5,200,000 $ 4,409,000 (791,000) 15,500,000 2,500,000 Fund balance – unassigned (2) Fund balance— nonspendable (2) 100,000 100,000 Expenditures

Purchases method

Cash Accounts payable 18,000,000 15,500,000 2,500,000 Inventory (2) Fund balance— nonspendable (2) (1) 17,900,000 = 1,000,000 + 18,000,000 – 1,100,000 (2) 100,000 = 1,100,000 – 1,000,000 100,000 100,000

©Cambridge Business Publishers, 2013 10 Advanced Accounting, 2nd Edition

E10.9

a.

Closing Entries

Revenues Appropriations b. Revenues Appropriations c. Revenues Fund balance—unassigned Appropriations d. Revenues Fund balance—unassigned Appropriations Estimated revenues Expenditures Estimated revenues Expenditures Fund balance—unassigned Estimated revenues Expenditures Fund balance—unassigned Estimated revenues Expenditures Fund balance—unassigned 3,501,000 3,501,000 3,449,000 3,449,000 3,501,000 3,449,000 3,440,000 61,000 3,449,000 3,495,000 6,000 3,449,000 3,501,000 3,427,000 22,000 3,501,000 3,440,000 9,000 3,501,000 3,443,000 6,000

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E10.10

a.

Carryover Encumbrances

Legal budgetary basis Expenditures—prior year encumbrances Accounts payable To record invoices for goods and services ordered in 2012. b. 1,965,000 Fund Balance—assigned Fund balance—unassigned Expenditures—prior year encumbrances 1,900,000 65,000 To close encumbrances carried over from 2012 and related expenditures. GAAP budgetary basis 1,965,000 1,965,000 Encumbrances Fund balance—unassigned To restore encumbrances carried over from 2012. Fund balance—assigned Encumbrances To reverse encumbrances for goods and services received. 1,900,000 1,900,000 1,900,000 1,900,000 Expenditures Accounts payable 1,965,000 1,965,000 4. 5. 6. To record invoices for goods and services. No special closing entry is required; expenditures are closed in the normal manner.

E10.11

1. 2.

Interfund Transactions

Balance sheet asset: Due from special revenue fund Statement of revenues, expenditures, and changes in fund balances: Transfers out, listed 3. under other financing uses Statement of revenues, expenditures, and changes in fund balances: Transfer in, listed under other financing sources Statement of revenues, expenditures, and changes in fund balances: Expenditures Balance sheet asset: Due from enterprise fund Balance sheet: reduces Due from special revenue fund

©Cambridge Business Publishers, 2013 12 Advanced Accounting, 2nd Edition

E10.12

a.

Adjusting and Closing Entries, Balance Sheet

Taxes receivable— delinquent Allowance for uncollectible taxes—current Revenues Taxes receivable—current To reclassify receivables outstanding at year end as delinquent. Allowance for uncollectible taxes—delinquent To fully reserve delinquent taxes. Fund balance— nonspendable Supplies To adjust ending supplies balance. Fund balance—assigned Fund balance—unassigned To close prior year encumbrances and related expenditures. Revenues To close revenues. Expenditures—prior year Estimated revenues Fund balance—unassigned Appropriations Expenditures Encumbrances Fund balance—unassigned To close expenditures and encumbrances. 800,000 450,000 350,000 30,000 450,000 800,000 800,000 30,000 420,000 30,000 13,650,000 13,000,000 650,000 11,000,000 10,500,000 300,000 200,000

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b.

Assets

Cash Taxes receivable-delinquent (less $800,000 allowance for uncollectible delinquent taxes) Due from other funds Supplies Total

Liabilities and Fund Balances

$3,500,000 Accounts payable $1,800,000 0 Due to other funds 210,000 120,000 Fund balances: 250,000 Nonspendable Assigned $3,870,000 Total 250,000 300,000 1,310,000 $3,870,000

Graystone General Fund Analysis of changes in fund balance - unassigned

(not required) Fund balance (deficit), beginning (See Note 1) Excess of revenues over expenditures: Revenues Expenditures (including encumbrances of $300,000) $13,650,000 10,800,000 Fund balance, ending Note 1: The beginning unassigned fund balance is calculated as follows: Fund balance, beginning (plug) Add: amount credited in budget entry ($13,000,000 estimated revenues less $11,000,000 appropriations) Balance per trial balance Beginning balance implied above Add: adjustment for excess prior year's encumbrance over expenditure Beginning balance as adjusted ($1,540,000) 2,850,000 $ 1,310,000 $(1,570,000) 2,000,000 430,000 (1,570,000) 30,000 $(1,540,000)

©Cambridge Business Publishers, 2013 14 Advanced Accounting, 2nd Edition

E10.13

a. 1.

General Fund Capital Asset and Long-Term Debt Transactions

Capital outlay Cash, accounts payable 2,250,000 2. Cash Proceeds from sale of capital assets 370,000 3. Debt service: interest Debt service: principal Cash 2,000,000 500,000 b. All transactions are reported in the general fund and Changes in Fund Balances. = 2,250,000 2,500,000 s Statement of Revenues, Expenditures, 370,000 Capital outlay of $2,250,000 is reported as an expenditure. Proceeds from sale of capital assets of $370,000 is reported as other financing sources. c. Debt service: principal of $500,000 and debt service: interest of $2,000,000 are reported as expenditures. Effect on general fund unassigned fund balance: $(4,380,000) = - $2,250,000 + $370,000 - $2,000,000 - $500,000.

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E10.14

1.

Identifying the Reporting Entity

The school district is a discretely presented component unit. The city is financially accountable for the school district—the city approves its budget and is legally liable for its debt. The city also provides significant funding. Financial results are discretely presented rather than blended because the district has a different governing body. 2. The housing authority is not a component unit of the city. The city is not financially accountable for it. 3. The landfill is a discretely presented component unit. The city is financially accountable because it controls the board and sets landfill rates. 4. The sewer district is not a component unit of the city, since the city does not control its board, and is not financially liable for its activities. 5. The building authority is a blended component unit of the city. It is a component unit because the city appoints the board and is liable for the authority = s debts. The building authority = s financial information is blended with that of the city because the authority provides services entirely to the city.

©Cambridge Business Publishers, 2013 16 Advanced Accounting, 2nd Edition

PROBLEMS P10.1

1.

Determining the Reporting Entity

Megalopolis is the primary government. The Convention Authority (CA) should be included with Megalopolis for financial reporting purposes. The city appoints the CA's governing board and, even though it appears that the city will not be subsidizing the CA, bonds issued by the CA and backed (guaranteed) by the city impose a financial burden on the city. Megalopolis is financially accountable to its constituents for the activities of the CA. 2. Megalopolis remains the primary government. However, the CA now appears to be a separate financial reporting entity. Even though the city appoints the governing board, the activities of the CA are essentially independent of the city. The CA may levy its own sales tax and issue its own bonds. The bonds are not backed by the city and, presumably, will be repaid with the CA's revenue. Council has no authority to approve or disapprove the CA's plans and is neither financially impacted by nor financially accountable for the CA's activities. 3. Gigantic County is the primary government. Each volunteer fire department is a separate not-for-profit financial reporting entity, not a component of the Gigantic county reporting entity. The county has no control over the fire departments and contracts for their services voluntarily. County expenditures for the capital equipment become analogous to the contractual expenditures for fire-fighting services. 4. The City of Winitville is the primary government. The Winitville Board of Education is included with the city for financial reporting purposes. Separate election of school board members is more than offset by the city's influence over the Board's ability to spend, through its annual appropriation. Moreover, because the city provides the funding for the Board of Education, the Board is fiscally dependent upon the city. In effect, the city is accountable to taxpayers and creditors for the school board's operations. 5. The State of Michigan is the primary government. The Great Lakes Protection Fund (GLPF) is a separate joint venture not included with the state for financial reporting purposes. Although Michigan is represented on the Board of the GLPF, the GLPF has its own Articles of Incorporation and Michigan does not have control over decisions made. The GLPF is also not fiscally dependent on the State of Michigan. 6. The State of Georgia is the primary government. The Georgia Public Telecommunications Commission is included as a component unit in the State financial reports. The State has control over the Commission's ability to spend, and the Commission is financially accountable to the State.

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P10.2

a.

General Fund Entries and Financial Statements

Journal entries for 2013: Appropriations 9,100,000 To record 2013 budget. Estimated revenues are ($2,700,000 + $3,500,000 + $1,000,000 + $250,000) and appropriations are ($6,700,000 + $1,150,000 + $750,000 + $350,000 + $150,000). Estimated revenues Fund balance—unassigned Taxes receivable To accrue taxes receivable. Tax revenues 7,450,000 1,650,000 2,700,000 2,700,000 Cash Taxes receivable To record collection of property taxes. Waste management expenditures Cash To record expenditures for waste management. 2,700,000 6,680,000 2,700,000 6,680,000 1,120,000 1,120,000 Court expenditures Cash To record expenditures for court costs. Cash Accounts receivable—waste management To record receipt of payment on 2012 waste management bills. Cash Accounts receivable— waste management Waste management revenues To record revenues from waste management. Cash Court fines To record revenues from court fines. 400,000 3,390,000 210,000 920,000 400,000 920,000 3,600,000

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Salaries and operating expenditures Cash To record salaries and operating expenditures. Investments Interest revenue To record interest revenue from investments. Miscellaneous expenditures Cash To record miscellaneous expenditures. Supplies expenditures Waste management supplies To record consumption of supplies inventory. Fund balance— nonspendable Fund balance—unassigned To adjust the nonspendable fund balance. Closing entries: Tax revenues Water revenues Court fines Interest revenue Estimated revenues Fund balance—unassigned To close revenues to fund balance. Appropriations Waste management expenditures Court expenditures Salaries and operating expenditures Miscellaneous expenditures Supplies expenditures Fund balance—unassigned To close expenditures to fund balance. 745,000 235,000 149,000 340,000 340,000 745,000 235,000 149,000 340,000 340,000 2,700,000 3,600,000 920,000 235,000 7,450,000 5,000 9,100,000 6,680,000 1,120,000 745,000 149,000 340,000 66,000

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b.

Town of Amherst General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Year Ended December 31, 2013

Revenues: Property taxes Waste management service Court fines Interest Expenditures: Waste management department Court costs Salaries and expenditures Supplies Miscellaneous Total expenditures Excess of revenues over (under) expenditures Fund balance—January 1, 2013 Fund balance—December 31, 2013 $ 2,700,000 3,600,000 920,000 235,000 $ 7,455,000 $ 6,680,000 1,120,000 745,000 340,000 149,000 9,034,000 (1,579,000) 10,280,000 $ 8,701,000

Town of Amherst General Fund Balance Sheet December 31, 2013 Liabilities and fund balance Assets

Cash (1) Investments $2,216,000 Fund balance—nonspendable 6,235,000 Fund balance –unassigned (2) $ 40,000 8,661,000 Accounts receivable—waste management Waste management supplies 210,000 40,000 $8,701,000 $8,701,000 (1) $2,216,000 = $3,500,000 + $2,700,000 - $6,680,000 - $1,120,000 + $400,000 + $3,390,000 + $920,000 - $745,000 - $149,000. (2) $8,701,000 = $9,900,000 - $1,650,000 + $5,000 + $66,000 + $340,000. ________

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P10.3

(in thousands)

General Fund Adjustments and Financial Statements

a. Adjusting and closing entries for the general fund: (1) Due from enterprise fund Accounts receivable To reclassify receivable from Golf Course Fund for advance. (2a) Taxes receivable—delinquent Taxes receivable—current To reclassify outstanding taxes as delinquent. (2b) Revenues Allowance for uncollectible taxes—delinquent 2,000 10,000 10,000 2,000 10,000 10,000 To record allowance for uncollectible taxes. (3) Expenditures Bonds payable 40,000 40,000 To correct recording of retirement of general obligation bonds and payment of interest. (4) Supplies inventory Fund balance—nonspendable 3,500 To record supplies inventory at year end and classify this amount as fund balance— nonspendable. (5) 3,500 Encumbrances Fund balance—assigned 4,500 4,500 To record encumbering of appropriations for purchase orders outstanding at year end. (6) Due from State Revenues 9,000 9,000 To record Town's portion of gasoline taxes collected by State.

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b. (7a) Expenditures Town property To correct recording of purchase of equipment. (7b) Town property Proceeds from sale of capital assets To correct recording of sale of equipment. Closing entries: Appropriations Expenditures 20,000 1,000 380,000 20,000 1,000 375,000 Encumbrances Fund balance—unassigned 4,500 To close expenditures and encumbrances; $375,000 = $315,000 + $40,000 + $20,000. 500 Revenues Proceeds from sale of capital assets Fund balance—unassigned Estimated revenues 439,000 1,000 20,000 460,000 To close revenues accounts; $439,000 = $440,000 - $10,000 + $9,000.

Town of Fountain Inn General Fund Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2014

(in thousands) Revenues Expenditures Excess of revenues over (under) expenditures Other financing sources (uses): Proceeds from sale of capital assets Excess of revenues and other financing sources over expenditures and other financing uses $ 439,000 375,000 64,000 65,000 1,000 Fund balances—July 1, 2013 (1) Increase in inventories Fund balances—June 30, 2014 (2) (44,000) 3,500 $ 24,500

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(1) The beginning total fund balance is $(44,000), calculated as follows: Fund balances, beginning (plug) Add: Amount credited in budget entry ($460,000 estimated revenues less $380,000 appropriations) Amount per trial balance (2) Nonspendable Assigned Unassigned Total fund balances $ 3,500 4,500 16,500 $24,500

(in thousands)

Assets

Cash Taxes receivable—delinquent Allowance for uncollectible taxes Due from enterprise fund Due from State Supplies inventory Total assets

Liabilities and fund balances

Accounts payable Fund balances: Nonspendable Assigned Unassigned Total liabilities and fund balances

Town of Fountain Inn General Fund Balance Sheet June 30, 2014

$ (44,000) 80,000 $ 28,000 $ 10,000 (10,000) 0 2,000 9,000 3,500 $ 42,500 $ 18,000 3,500 4,500 16,500 $ 42,500 $ 36,000

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P10.4 Reconstructing General Fund Journal Entries

(in thousands)

Cash Investments To record liquidation of investments. Due from state government To record anticipated state grant. Revenues Cash Due from federal government To record receipt of grant from federal government. Expenditures—prior year encumbrances Accounts payable To record expenditures for prior year's encumbrances. Expenditures To record expenditures. Computation of expenditures: Accounts payable Unassigned fund balance decrease ($78,000 - $120,000) Decrease from budget entry Increase from prior year's encumbrances Revenues less than budgeted Expenditures less than appropriations (plug) Unassigned fund balance decrease Appropriations Excess of appropriations over expenditures Expenditures 23,000 23,000 49,000 49,000 105,000 105,000 7,000 7,000 92,000 92,000 $ (42,000) (30,000) 1,000 (16,000) 3,000 (42,000) 95,000 (3,000) $ 92,000

©Cambridge Business Publishers, 2013 24 Advanced Accounting, 2nd Edition

Accounts payable Cash 109,000 To record payment of accounts payable; $109,000 = $42,000 + $7,000 + $92,000 - $32,000. Revenues Fund balance—unassigned To close revenues. Estimated revenues 49,000 16,000 Appropriations Expenditures Fund balance—unassigned 95,000 To close expenditures. Fund balance—assigned Expenditures—prior year encumbrances Fund balance—unassigned 8,000 To close prior year encumbrance accounts.

General Fund—Corrections, Adjustments, and Financial Statements

109,000 65,000 92,000 3,000 7,000 1,000

P10.5

a. Reclassification and adjusting entries for general fund

(in thousands)

: (1) Due from Water Utility Fund Accounts receivable To reclassify receivable from water utility fund. 1,500 1,500 (2a) Taxes receivable—delinquent Taxes receivable—current To reclassify current taxes now considered delinquent. (2b) 30,000 Revenues Allow. for uncollectible taxes—delinquent 24,000 To establish an allowance account for taxes estimated to be uncollectible. 30,000 24,000

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(3) Expenditures Supplies inventory Bonds payable Fund balance— nonspendable 52,000 To correct recording of retirement of general obligation bonds and payment of interest. (4) 44,000 52,000 44,000 To record supplies inventory at June 30, 2013: Inventory on hand at June 30, 2013 = $128,000 - $84,000 = $44,000. (5a) Expenditures—prior year encumbrances Expenditures 11,200 11,200 To record purchase orders outstanding at June 30, 2012, and charged to expenditures in the following year. (5b) Fund balance—unassigned Fund balance—assigned To adjust fund balance at beginning of year. (5c) 11,200 11,200 Encumbrances Fund balance—assigned To record encumbrances for purchase orders at June 30, 2013. (6) 5,000 5,000 34,000 34,000 Due from State Revenue Dept. Revenues To record Town's portion of state tax due from State. (7) Expenditures General property To correct recording of purchase of equipment. General property Proceeds from sale of capital assets To correct recording of sale of equipment. 90,000 4,600 90,000 4,600

©Cambridge Business Publishers, 2013 26 Advanced Accounting, 2nd Edition

Closing entries: Appropriations Encumbrances Fund balance—unassigned 5,000 2,200 To close expenditures and encumbrances;$512,800 = $382,000 + $52,000 - $11,200 + $90,000. Revenues Proceeds from sale of capital assets Expenditures 520,000 570,000 4,600 512,800 Estimated revenues Fund balance—unassigned 520,000 54,600 To close revenues and other financing sources; $570,000 = $560,000 - $24,000 + $34,000. Fund balance—assigned Expenditures—prior year encumbrances 11,200 11,200 To close prior year encumbrance accounts.

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b.

Salleytown Statement of Revenues, Expenditures, and Changes in Fund Balances General Fund For the Year Ended June 30, 2013

(in thousands)

Revenues Expenditures: $ 570,000 Operating expenditures (1) Debt service: principal Debt service: interest Capital outlay Excess of revenues over expenditures $ 370,800 40,000 12,000 90,000 512,800 57,200 Other financing sources (uses): Proceeds from sale of capital assets Excess of revenues and other financing sources over expenditures and other financing uses Fund balances—July 1, 2012 (2) Prior year expenditures Increase in nonspendable fund balance Fund balances—June 30, 2013 (3) 4,600 61,800 7,700 (11,200) 44,000 $ 102,300 (1) Operating expenditures = total expenditures - debt service payments - capital outlays = $512,800 - 52,000 - 90,000. (2) Fund balances—July 1, 2012: Because the budget is balanced (estimated revenues = appropriations), the fund balance—unassigned reported in the trial balance equals the fund balance—unassigned prior to the budget entry. (3) Fund Balances—June 30, 2013 = the sum of all fund balances; see Balance Sheet in requirement c.: $102,300 = $5,000 + $44,000 + $53,300.

©Cambridge Business Publishers, 2013 28 Advanced Accounting, 2nd Edition

c.

Salleytown Balance Sheet—General Fund As of June 30, 2013

(in thousands)

Assets

Cash Short-term investments Accounts receivable Due from Water Utility Due from State Taxes receivable—delinquent (net of allowance of $24,000) Supplies Total assets

Liabilities and fund balances

Accounts payable Fund balances: Nonspendable Assigned Unassigned Total fund balances Total liabilities and fund balances

P10.6 Comprehensive General Fund Review

Requirement a: 1. D Requirement b: 6. D Requirement c: 11. D 2. C 3. C 4. C 5. N 7. N 8. C 9. C 10. N 12. C 13. N 14. N 15. N Requirement d: 16. C 17. D 18. D 19. C 20. N Requirement e: 21. N 22. N 23. C 24. D 25. N Requirement f: 26. C 27. N 28. D 29. D 30. C 31. D 32. C 33. N 34. N 35. N 36. N Requirement g: 37. C 38. N 39. D $ 16,800 40,000 10,000 1,500 34,000 6,000 44,000 $152,300 $ 50,000 44,000 5,000 53,300 102,300 $152,300

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 29

P10.7

a.

Comprehensive General Fund—Entries and Statements

Journal entries for fiscal 2014

(in thousands)

: (1a) Estimated revenues Fund balance—unassigned Appropriations Estimated other financing uses To record budget. (1b) Taxes receivable—current Revenues Allow. for uncollectible taxes—current 30,000 2,000 37,000 31,200 800 30,000 7,000 To record tax levy. (2) Cash Taxes receivable—current 30,500 30,500 To record collection of taxes. (3a) Allowance for uncollectible taxes—current Revenues Taxes receivable—current 1,250 500 750 To increase revenue by the additional $500 (= $5,500 - $5,000) collected on 2013 taxes, and write off remaining 2013 receivables. (3b) Allowance for uncollectible taxes—current Revenues 4,600 4,600 To correct allowance account. Taxes receivable = $6,250 + $37,000 - $30,500 - $750 = $12,000. Allowance account = $7,000. Ending balance in allowance account should be 20% x $12,000 = $2,400. Adjustment = $4,600. (4) Cash Proceeds from sale of capital assets 100 100 To record sale of old desks.

©Cambridge Business Publishers, 2013 30 Advanced Accounting, 2nd Edition

(5) Expenditures To record purchase of desks. (6) Expenditures Cash Accounts payable To record expenditures for repairs and cleaning. (7) Expenditures 300 400 28,000 To record expenditures. (8a) Accounts payable Expenditures Inventory To adjust inventory to year-end balance of $1,500. (8b) 500 To adjust nonspendable fund balance to $1,500. (9a) Accounts payable 31,400 Cash To record payment of accounts payable; $31,400 = $3,000 + $400 + $28,000. (9b) Fund balance—nonspendable Encumbrances To record purchase orders. (10) Fund balance—unassigned Fund balance—assigned 500 600 Fund balance—assigned To cancel 2013 encumbrances. (11) Fund balance—unassigned Transfer out To record transfer to enterprise fund. Cash 500 750

Solutions Manual, Chapter 10

300 400 28,000 500 500 31,400 600 500 750

©Cambridge Business Publishers, 2013 31

b.

Closing entries at June 30, 2014: Revenues Proceeds from sale of capital assets 35,100 100 Fund balance—unassigned Estimated revenues To close revenues and other financing sources; $35,100 = $30,000 + $500 + $4,600. 5,200 30,000 Appropriations Estimated other financing uses Expenditures Encumbrances Transfer out Fund balance—unassigned To close expenditures and encumbrances; $29,200 = $300 + $400 + $28,000 + $500.

Quarryville School District General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances For the Year Ended June 30, 2014

31,200 800 29,200 600 750 1,450 Revenues Expenditures Excess of revenues over expenditures Other financing sources (uses): Transfer out Proceeds from sale of capital assets Excess of revenues and other financing sources over expenditures and other financing uses Fund balances—July 1, 2013 Fund balances—June 30, 2014 * $2,000 + $500 + $5,500 $ 35,100 29,200 5,900 (750) 100 5,250 8,000* $ 13,250

©Cambridge Business Publishers, 2013 32 Advanced Accounting, 2nd Edition

(in thousands)

Assets

Cash Taxes receivable—current (net of $2,400 allowance for uncollectible taxes) Inventory Total

Liabilities and fund balances

Fund balance: Nonspendable Assigned

Quarryville School District General Fund Balance Sheet June 20, 2014

$ 2,150 9,600 1,500 $13,250 $ 1,500 600 Unassigned Total 11,150 $13,250 The T-accounts below show computations for ending balances of cash, taxes receivable, allowance for uncollectible taxes, and fund balance. The numbers are keyed to the journal entries from requirement a. Beginning balance Cash 4,000 (2) 30,500 (4) 100 300 (5) 31,400 (9a) 750 (11) Ending balance 2,150 Beginning balance Taxes receivable—current 6,250 (1b) 37,000 30,500 (2) 750 (3a) Ending balance 12,000 Allowance for uncollectible taxes—current Beginning balance (3a) 1,250 (3b) 4,600 Ending balance 1,250 7,000 (1b) 2,400

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 33

Fund Balance—unassigned (1a) 2,000 Beginning balance Ending balance 5,500 500 (8b) 500 (10) 5,200 (c) 1,450 (c) 11,150

P10.8

a. (Note: c-closing entry)

Employee Compensated Absences

Expenditures for compensated absences Cash b. c. 25,000,000 25,000,000 No liability for future compensated absence payments is reported. Compensated absence expense Liability for compensated absences (1)19,164,000 5,836,000 Cash 25,000,000 (1) $19,164,000 = $214,113,000 - $219,949,000 + $25,000,000. The general fund would report a total liability for compensated absences at fiscal year-end of $214,113,000. The general fund balance sheet, prepared using modified accrual accounting, will not reveal any information concerning the State’s future obligation for compensated absences. Expenditures are recorded as incurred.

©Cambridge Business Publishers, 2013 34 Advanced Accounting, 2nd Edition

P10.9

a.

General Fund Reporting

Budget and encumbrance entries b. Estimated revenues Estimated other financing sources Fund balance—unassigned Appropriations Estimated other financing uses 8,500,000 500,000 50,000 To record budget entry. Encumbrances Fund balance— unassigned 78,000 To re-establish beginning of year encumbrances. Net effect on fund balance—unassigned: $78,000 - $50,000 = $28,000 cr Entries made during 2014 for property taxes (not required): To accrue property taxes for 2014. Allowance for uncollectible taxes—current Property tax revenues Property taxes receivable— current Allow. for uncoll. taxes— current Property taxes receivable—current To write off current property taxes. Allowance for uncollectible taxes—delinquent Property taxes receivable—delinquent To write off delinquent property taxes. 8,600,000 60,000 10,000 8,800,000 250,000 78,000 100,000 8,500,000 60,000 10,000

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 35

c. d. Cash Allowance for uncollectible taxes—delinquent Property taxes receivable—delinquent Property tax revenues To record collection of delinquent property taxes. Cash Property taxes receivable—current To record collection of current property taxes; $8,420,000 = $8,600,000 - ($100,000 - $40,000) - $120,000. 15,000 15,000 8,420,000 Property taxes receivable— delinquent Allowance for uncollectible taxes—current Property tax revenues Allow. for uncoll. taxes— delinquent Property taxes receivable—current 120,000 40,000 80,000 To fully reserve unpaid property taxes and reclassify them as delinquent. Property tax revenues for 2014 = $8,500,000 + $15,000 - $80,000 = $8,435,000. Cash collected for 2014 = $8,420,000 + $15,000 = $8,435,000. Zero. Interest is not accrued until the year it will be paid. Other entries for 2014 (not required): Cash To record issuance of bonds. Cash Bond proceeds Proceeds from sale of capital assets To record sale of equipment. 500,000 6,000 15,000 15,000 8,420,000 120,000 120,000 500,000 6,000

©Cambridge Business Publishers, 2013 36 Advanced Accounting, 2nd Edition

Transfers out Cash To record transfers to capital projects and enterprise funds. Expenditures Cash or accounts payable To record expenditures for the year. Encumbrances Fund balance—assigned To record net increase in encumbrances for the year. Closing entries for 2014: Property tax revenues Bond proceeds Proceeds from sale of capital assets Fund balance—unassigned Estimated revenues Estimated other financing sources To close revenue and other financing sources accounts. 250,000 8,720,000 50,000 8,435,000 500,000 6,000 59,000 Appropriations Estimated other financing uses Fund balance—unassigned Expenditures Transfers out Encumbrances 8,800,000 250,000 50,000 To close expenditure, encumbrance, and other financing uses accounts. 250,000 8,720,000 50,000 8,500,000 500,000 8,720,000 250,000 130,000

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 37

e. Property tax revenues Expenditures Excess of revenues over (under) expenditures Other financing sources (uses): Transfers out Bond proceeds

City of Middletown Budgetary Comparison Schedule For the year 2014

Proceeds from sale of capital assets Total other financing sources

Budget

$ 8,500,000 8,800,000

---

(300,000) (250,000) 250,000 500,000

Actual

$8,435,000 8,720,000 (285,000) (250,000) 256,000 6,000 500,000 Excess of revenues & other sources over (under) expenditures & other uses $ (50,000) $ (29,000)

P10.10

a.

General Fund—Entries and Financial Statements

2014 journal entries Beginning of year: Encumbrances Fund balance—unassigned To restore beginning of year encumbrances. Estimated revenues— property taxes Estimated revenues— licenses and fines Estimated revenues—federal grants Fund balance—unassigned Appropriations— general government To establish budget. Appropriations— human services Estimated other financing uses 6,000 500,000 35,000 100,000 31,000

Variance

B

Favorable (Unfavorable)

$ (65,000) 80,000 15,000

---

6,000 --- 6,000 $ 21,000 6,000 250,000 402,000 14,000

©Cambridge Business Publishers, 2013 38 Advanced Accounting, 2nd Edition

Property taxes receivable— current To accrue property taxes. Cash Allowance for uncollectible taxes—current Property tax revenues Property taxes receivable— current 500,000 430,000 To record collection of current property taxes. Cash Allowance for uncollectible taxes—delinquent 60,000 40,000 Property taxes receivable— delinquent Property tax revenues To record collection of delinquent property taxes and write-off of remainder. 50,000 450,000 430,000 65,000 35,000 Property taxes receivable— delinquent Allowance for uncollectible taxes—current Property tax revenues Property taxes receivable— current 70,000 50,000 5,000 70,000 To reclassify uncollected taxes as delinquent and provide for a $55,000 allowance. Due from federal government Allowance for uncollectible taxes—delinquent Revenues—federal grants 100,000 55,000 100,000 To accrue federal grants. Cash Due from federal government To record collection of federal grants. Cash Revenues—licenses and fines To record collection of license and fine revenues. 95,000 34,000 95,000 34,000

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 39

Inventories ($18,000 - $15,000) Accounts payable ($30,000 - $15,000) 3,000 15,000 To record cash expenditures. Fund balance—unassigned Cash Fund balance—nonspendable 3,000 To adjust the nonspendable fund balance to the ending $18,000 inventory balance. 652,000 3,000 Expenditures—general government Expenditures—human services Fund balance—assigned Encumbrances To record net reduction in encumbrances for the year. 234,000 400,000 2,000 2,000 14,000 14,000 Transfers out Cash To record transfers to debt service fund. Cash Due from other funds To record collection of cash advance to enterprise fund. Due from other funds Cash To record advance to capital projects fund. Cash Due to other funds To record advance from enterprise fund. 2,000 5,000 25,000 2,000 5,000 25,000

©Cambridge Business Publishers, 2013 40 Advanced Accounting, 2nd Edition

Closing entries: Property tax revenues ($450,000 + $35,000 - $5,000) Revenues—licenses and fines Revenues—federal grants Fund balance—unassigned Estimated revenues—property taxes Estimated revenues—licenses and fines Estimated revenues—federal grants To close revenues. Appropriations— general government Appropriations— Human Services Estimated other financing uses Expenditures—general government Expenditures—human services Transfers out Encumbrances Fund balance—unassigned To close expenditures, encumbrances and transfers. 480,000 34,000 100,000 21,000 500,000 35,000 100,000 250,000 402,000 14,000 234,000 400,000 14,000 4,000 14,000

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 41

b. (1)

City of Los Alvos Statement of Revenues, Expenditures, and Changes in Fund Balances

C

General Fund For the Year Ended December 31, 2014 Revenues

Property taxes Licenses and fines Federal grants Total revenues

Expenditures

General government Human services Total expenditures Excess of revenues over (under) expenditures

Other financing sources (uses)

Transfers out Total other financing sources (uses) Excess of revenues and other financing sources over (under) expenditures and other financing uses Fund balances—December 31, 2013 Fund balances—December 31, 2014 $ 480,000 34,000 100,000 614,000 234,000 400,000 634,000 (20,000) (14,000) (14,000) (34,000) 52,000 $ 18,000 (2)

City of Los Alvos Balance Sheet

C

General Fund December 31, 2014 Assets

Cash Property taxes receivable—delinquent (net) Due from other funds Due from federal government Inventories Total assets

Liabilities and fund balances

Accounts payable Due to other funds Total liabilities Fund balances: Nonspendable Assigned Unassigned Total fund balances Total liabilities and fund balances

©Cambridge Business Publishers, 2013 42 Advanced Accounting, 2nd Edition

$ 5,000 15,000 5,000 15,000 18,000 $ 58,000 $ 15,000 25,000 40,000 18,000 4,000 (4,000) 18,000 $ 58,000

(3)

Revenues

Property taxes Licenses and fines Federal grants Total revenues

Expenditures

General government Human services Total expenditures Excess of revenues over (under) expenditures

City of Los Alvos Budgetary Comparison Schedule

C

General Fund For the Year Ended December 31, 2014 Budget

$ 500,000

Actual

$ 480,000 35,000 100,000 635,000 250,000 402,000 652,000 (17,000) 34,000 100,000 614,000 234,000 400,000 634,000 (20,000)

Other financing sources (uses)

Transfers out Total other financing sources (uses) Excess of revenues and other financing sources over (under) expenditures and other financing uses Fund balance—December 31, 2013 Fund balance—December 31, 2014 14,000 (14,000) (31,000) 52,000 $ 21,000 14,000 (14,000) (34,000) 52,000 $ 18,000

Variance-- Favorable (Unfavorable)

$ (20,000) ( 1,000) -- (21,000) 16,000 2,000 18,000 (3,000) -- -- (3,000) -- $ (3,000)

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 43

P10.11

a. b.

General Fund—Budget and Closing Entries, Financial Statements

Estimated revenues Estimated other financing sources Appropriations Estimated other financing uses 260,000 2,000 257,000 4,800 Fund balance— unassigned 200 To establish budget. In addition to the budget entry, an entry was made at the beginning of the year to reverse the encumbrances write-off from 2013: c. Encumbrances 800 Fund balance— unassigned 800 Therefore the beginning fund balance—unassigned was $23,000 - $200 - $800 = $22,000. Revenues—property taxes Revenues—income taxes Revenues—fines and licenses Revenues—state grants 55,000 180,000 18,000 6,000 Proceeds from sale of capital assets Fund balance—unassigned To close revenues and other financing sources. Appropriations Estimated other financing uses Estimated revenues Estimated other financing sources Encumbrances Expenditures—general government Capital outlay 2,300 700 257,000 4,800 260,000 2,000 500 130,400 11,000 Transfers out Debt service—interest Debt service—principal Fund balance— unassigned To close expenditures and other financing uses. 4,500 35,000 80,000 400

©Cambridge Business Publishers, 2013 44 Advanced Accounting, 2nd Edition

d.

City of Akron General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances For the Year Ended December 31, 2014

(in thousands)

Revenues

Property taxes $ 55,000 Income taxes Fines and licenses State grants Total revenues 180,000 18,000 6,000 259,000

Expenditures

General government Capital outlay Debt service Interest payments Principal payments Total expenditures Excess of revenues over (under) expenditures 130,400 11,000 35,000 80,000 256,400 2,600

Other financing sources (uses)

Transfers out Proceeds from sale of capital assets Total other financing sources (uses) Excess of revenues and other financing sources over expenditures and other financing uses Fund balance—December 31, 2013 (1) Fund balance—December 31, 2014 (2) (1) Fund balance—unassigned = Fund balance—assigned = (2) Fund balance—unassigned: $23,000 - $700 + $400 = Fund balance—assigned = $22,000 800 $22,800 $22,700 500 $23,200 2,300 (4,500) (2,200) 400 22,800 $ 23,200

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 45

e.

P10.12

a.

City of Akron General Fund Balance Sheet At December 31, 2014

(in thousands)

Assets

Cash Investments Property taxes receivable (net) Due from other funds Total assets

Liabilities and fund balances

Accounts payable Due to other funds Total liabilities Fund balances: Assigned Unassigned Total fund balances Total liabilities and fund balances

General Fund—Entries and Financial Statements

Estimated revenues Fund balance—unassigned Appropriations Estimated other financing uses To establish budget. Encumbrances Fund balance— unassigned To reverse outstanding encumbrance closing entry from last year. State grant receivable To accrue state grant. State grant revenue 410,500 9,500 3,000 40,000 $ 5,000 14,000 36,000 9,000 $ 64,000 $ 33,200 7,600 40,800 500 22,700 23,200 $ 64,000 370,000 50,000 3,000 40,000

©Cambridge Business Publishers, 2013 46 Advanced Accounting, 2nd Edition

b. Transactions for the year: Taxes receivable Property tax revenue Allowance for uncollectible taxes To record property tax bills. Cash To record property tax collection. Taxes receivable Cash To record state grant cash received. Cash To record collection of delinquent taxes. State grant receivable Property tax revenue Allowance for uncollectible taxes— delinquent Taxes receivable— delinquent To write off uncollected delinquent taxes. Transfers out Cash To record transfer to special revenue fund. Cash Fee and license revenue To record fee and license revenue received in cash. Fund balance—assigned Encumbrances Expenditures Accounts payable To record receipt of inventories on purchase orders sent last year. 300,000 280,000 25,000 10,000 22,500 50,000 65,000 3,000 3,200 285,000 15,000 280,000 25,000 10,000 22,500 50,000 65,000 3,000 3,200

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 47

Due from capital projects fund Cash To record advance to capital projects fund. Cash Due from special revenue fund To record collection of loan to special revenue fund. Expenditures Accounts payable To record inventories purchased on account. Expenditures Accounts payable To record other expenditures for the year. Encumbrances Fund balance—assigned To record purchase orders outstanding at year-end. Accounts payable To record payment of accounts payable. Adjusting entries at year-end: Cash Fund balance—nonspendable Inventories To adjust the inventories balance to current year-end amount. Property tax revenue Allowance for uncollectible taxes To fully reserve uncollected taxes at year-end. Taxes receivable—delinquent Allowance for uncollectible taxes Taxes receivable Allowance for uncollectible taxes— delinquent To reclassify uncollected taxes as delinquent.

©Cambridge Business Publishers, 2013 48

8,000 12,000 45,000 320,000 4,000 367,000 1,500 5,000 20,000 20,000 8,000 12,000 45,000 320,000 4,000 367,000 1,500 5,000 20,000 20,000

Advanced Accounting, 2nd Edition

c. d. Closing entries: Property tax revenue Fee and license revenue State grant revenue Fund balance—unassigned Estimated revenue To close revenues against estimated revenues. 290,000 65,000 40,000 15,500 410,500 Appropriations Estimated other financing uses Fund balance—unassigned Transfers out 370,000 50,000 2,200 50,000 Expenditures Encumbrances 368,200 4,000 To close expenditures and other financing uses against appropriations and estimated other financing uses.

Montana County General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances For the Year Ended June 30, 2013

(in thousands)

Revenues: Property taxes $ 290,000 Fees and licenses State grant Total revenues Expenditures Excess of revenues over (under) expenditures 65,000 40,000 395,000 (368,200) 26,800 (50,000) (23,200)

Other financing sources (uses)

Transfers out Excess of revenues over (under) expenditures and other financing uses Fund balances—July 1, 2012 (1) Change in fund balance—nonspendable Fund balances—June 30, 2013 (2) (1) Fund balance—assigned Fund balance—nonspendable Fund balance—unassigned (2) Fund balance—assigned Fund balance—nonspendable Fund balance—unassigned $ 3,000 7,500 124,500 $135,000 $ 4,000 6,000 100,300 $110,300 135,000 (1,500) $ 110,300

Solutions Manual, Chapter 10 ©Cambridge Business Publishers, 2013 49

e.

Montana County General Fund Balance Sheet At June 30, 2013

(in thousands)

Assets

Cash Property taxes receivable (net of $20,000 allowance for uncollectibles) State grant receivable Due from special revenue fund Due from capital projects fund Inventories Total assets

Liabilities and fund balances

Accounts payable Fund balances: Assigned Nonspendable Unassigned Total fund balances Total liabilities and fund balances $ 87,000

--

15,000 3,000 8,000 6,000 $ 119,000 $ 8,700 4,000 6,000 100,300 110,300 $ 119,000

©Cambridge Business Publishers, 2013 50 Advanced Accounting, 2nd Edition

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