Chapters 5 & 6
Which of the following transactions creates an expenditure on the General Fund statement of revenues, expenditures, and changes in fund balance?
A purchase of water from the Water Enterprise Fund
Which of the following sets of accounts are most likely to appear in the General Fund balance sheet?
Accrued salaries and other payables, Due to other funds, and Deferred inflows of resources—unavailable property taxes
The City of Cowling's General Fund loans $88,000 to its Golf Course Enterprise Fund. The loan must be repaid in five years. Which account in the Golf Course Enterprise Fund is credited when the loan is made?
Advance from General Fund
Long-term loan
Advance to (Receivable) Advance from (Payable)
Establish allowance for discount on property taxes by reducing revenue when taxes levied:
DR: Property taxes receivable CR: Allowances for discounts on property taxes CR: Revenues - property taxes
The city declares all unpaid taxes as delinquent. Property taxes levied 4,000,000 Property taxes collected (3,800,000) Property taxes written off (100,000) Property taxes receivable $100,000
DR: Property taxes receivable - delinquent 100,000 CR: Property taxes receivable 100,000
A city levies property taxes in the amount of $4,000,000. Experience shows that about $100,000 of the amount levied will not be collected.
DR: Property taxes receivable 4,000,00 CR: Allowance for refunds and uncollectible taxes 100,000 CR: Revenues - property taxes 3,900,000
Year-end deferral for property taxes not expected to be collected within 60 days of next fiscal year:
DR: Revenues - property taxes CR: Deferred inflow of resources - unavailable property taxes
A village levied property taxes of $910,000 for calendar year 2022 on January 1, 2022 and immediately set up an allowance of $10,000 for uncollectible taxes. The village collected $870,000 in cash during 2022. It expected to collect $22,000 of the unpaid taxes during the first 60 days of 2023 and an additional $8,000 during the rest of 2023.How much should the village recognize as property tax revenues in its 2022 General Fund financial statements?
$892,000 Cash collections $870,000 + Collections during the first 60 days of 2023 $22,000 = $892,000
Unassigned Fund Balance
- Amounts available for spending for any legal purpose - Residual classification for General Fund
intergovernmental grants: recognize revenue when
- eligibility requirements are met - resources are available
Archambault Township authorized a bond issue for a parking garage with an estimated cost of $4,000,000. The garage would be financed through a $2,500,000 bond issue and a $1,500,000 contribution from the General Fund. The General Fund made its contribution, and the bonds were sold for $2,700,000, which included a $200,000 premium over the face amount of the bonds. Prepare journal entries to record (1) the budget for the parking garage, (2) the payment and receipt of the General Fund's contribution, and (3) the issuance of the bonds, assuming the premium remained in the Capital Projects Fund.
1. DR: Estimated other financing source — transfer in 1,500,000 DR: Estimated other financing source — long term debt issued 2,500,000 CR: Appropriations 4,000,000
Property tax lien
A government's legal right to prevent sale of property in order to satisfy government's property tax claim against property owner
Restricted Fund Balance
Amounts can be used for no purpose other than specified in constitutional provision, enabling legislation, or contractual provision creating the restraint. - Restrictions may be externally imposed by creditors (debt covenants), grantors, contributors, or laws or regulations of other governments - Imposed by law through constitutional provisions or enabling legislation
Committed Fund Balance
Amounts constrained as to use as a result of formal action (legislation, resolution, ordinance) of government's highest level of decision-making authority. - Vote that already said funds will be used for this specific purpose
Assigned Fund Balance
Amounts constrained by government's intent to spend resources for specific purposes. Intent expressed by governing body or a body or person that governing body designates For all governmental funds except General Fund Report amounts not reported as nonspendable, restricted, or committed fund balance are assigned fund balance.
Assigned Fund Balance: General Fund
Amounts encumbered from unassigned resources should be reported as Assigned fund balance at the end of the fiscal year because the authority given to the person that places an order results in that amount meeting the criteria for classification as assigned.
Nonspendable Fund Balance
Amounts not available for appropriation because they are either - Not in spendable form (inventory, prepaid items, long-term interfund loans) or - Legally or contractually required to be maintained intact (corpus of Permanent Fund)
Which of the following involves a routine movement of cash from the General Fund to a Debt Service Fund in order to provide resources for the Debt Service Fund to pay interest and principal on a bond issue?
An inter-fund transfer
Pursuant to law, a city imposes a hotel occupancy tax for the sole purpose of beautifying the downtown area. The city corporation counsel advises the finance commissioner that the taxes must be used solely as stipulated in the law. During the year the city collects hotel occupancy taxes of $800,000, deposits that amount in a Downtown Redevelopment Special Revenue Fund, and spends $450,000 of it. How should the remaining $350,000 of net assets be classified in the Special Revenue Fund's balance sheet?
As Restricted fund balance
Arbitrage
Borrow money at lower tax-exempt interest rate Invest money received at a higher interest rate on taxable investments Must pay excess interest to federal government, or - Subject to excise tax on excess earnings OR - Lose tax-exempt status for debt Professional guidance recommended
A $2,000,000 bond issue was sold at par. The bonds were general obligation debt issued to finance an addition to the local court system building.
Capital Projects Fund DR: Cash 2,000,000 CR: Other financing source― long-term debt issued2,000,000
Construction of a bridge across the Mississippi River was completed at a total cost of $8,000,000. The bridge had been under construction for three years. Costs incurred in previous years totaled $7,000,000. (Prepare the closing entry, assuming the only transaction during the current year was the expenditure necessary to complete the bridge. Also, assume fund balance is restricted.)
Capital Projects Fund DR: Restricted fund balance 1,000,000 DR: Expenditures―construction costs1,000,000
The construction costs paid on the court building addition (#7) during the year was $500,000.
Capital Projects Fund DR: Budgetary fund balance reserved for encumbrances 500,000 CR: Encumbrances―capital project 500,000 DR: Expenditures―construction costs 500,000 CR: Cash 500,000
A contract was signed with Legal, Inc. to construct an addition to the court building. The amount of the contract was $5,000,000.
Capital Projects Fund DR: Encumbrances―capital project 5,000,000 CR: Budgetary fund balance reserved for encumbrances5,000,000
On the first day of its fiscal year, city officials sign a non-cancellable lease for computer equipment. - The lease is for 10 years. - The present value of payments expected to be made during the lease is $78,017. - The city's incremental borrowing rate is 6 percent. - The $10,000 annual lease payment is due on the first day of each fiscal year beginning with the first payment being due when the lease is signed. Prepare all journal entries necessary to record the lease transactions for the current year and the payment made in the next fiscal year. Assume that a voucher system is not used.
Current Year: General Fund DR: Expenditures—capital outlay 78,017 CR: Other financing source-long-term leases 78,017 DR: Expenditures—lease principal 10,000 CR: Cash 10,000 Next Fiscal Year General Fund DR: Expenditures—lease principal 5,919 CR: Expenditures—lease interest 4,081 CR: Cash 10,000 Og obligation 78,017 first pmt (10,000) current bal 68,017 annual interest x .06 Interest = $4,081
Record appeals of tax assessments if taxpayer wins appeal:
DR: Allowance for refunds and uncollectible taxes CR: Cash CR: Property taxes receivable
Based on tax assessment appeals, the city reduces taxes for several taxpayers by a total of $100,000. The taxpayers had not paid any of the taxes that they were appealing.
DR: Allowance for refunds and uncollectible taxes 100,000 CR: Property taxes receivable 100,000
Property tax collected:
DR: Cash CR: Property taxes receivable
In its next fiscal year, the city collects $10,000 of the delinquent property taxes receivable 90 days after its previous fiscal year end:
DR: Cash 10,000 CR: Property taxes receivable - delinquent 10,000 DR: Deferred inflow of resources - unavailable property taxes 10,000 CR: Revenues - property taxes 10,000
A city collects cash of $3,800,000 on the property tax levy.
DR: Cash 3,800,000 CR: Property taxes receivable 3,800,000
Asset and Revenue Recognition entry:
DR: Cash or Sales taxes receivable CR: Revenues - sales taxes
Recognize property tax revenue associated with previous deferral that is collected more than 60 days into the subsequent year:
DR: Deferred inflow of resources - unavailable property taxes CR: Revenues - property taxes
What journal entry is made in the Capital Projects Fund when a contract is signed and encumbrance accounting is used?
DR: Encumbrances CR: Budgetary fund balance reserved for encumbrances
Nick County is preparing financial statements for the fiscal year ended June 30, 2022. The county pays health care benefits on behalf of its retired employees. Nick's actuary advised the county that if the plan were financed in accordance with actuarial standards, it would need to contribute $600,000 for fiscal year 2022 to a trust fund. Instead, the county makes monthly payments for the actual expenditures made on behalf of its retirees. The county paid $125,000 for retiree health care costs between July 1, 2021 and June 30, 2022, and will pay an additional $18,000 on July 10, 2022 for benefit claims made in June 2022.
DR: Expenditures - retiree health care benefits 18,000 CR: Accrued liabilities 18,000
Nick County is preparing financial statements for the fiscal year ended June 30, 2022. For the last week in June 2022, Nick County's employees earned $620,000. They are paid in the first week of July.
DR: Expenditures - salaries 620,000 CR: Accrued salaries payable 620,000
Accrue income taxes for the current fiscal year based on actual tax receipts in first month of next fiscal year and the state expects to receive additional tax receipts and expects to make tax refunds during "availability" period
DR: Income taxes receivable CR: Income tax refunds payable DR/CR: Revenues—income taxes (difference)
Accrue income taxes for the current fiscal year based on actual tax receipts in first month of next fiscal year.
DR: Income taxes receivable CR: Revenues—income taxes
Property tax levy with allowance for refunds and uncollectible accounts:
DR: Property taxes receivable CR: Allowance for refunds and uncollectible taxes CR: Revenues - property taxes
At its fiscal year-end, the city comptroller determines that all unpaid taxes will be collected in the next fiscal year, but that only $75,000 of the amount due will be collected in the first 60 days of the next fiscal year.
DR: Revenues―property taxes 25,000 CR: Deferred inflow of resources― unavailable property taxes 25,000
Record tax lien:
DR: Tax liens receivable CR: Property taxes receivable - delinquent CR: Interest and penalties receivable
Record additional expected income tax receipts from late filers that are not "available"
DR: income taxes receivable CR: Deferred inflow of resources - income taxes
A Debt Service Fund retired bonds with a face value of $3,000,000.
Debt Service Fund DR: Expenditures―bond principal 3,000,000 CR: Matured bonds payable 3,000,000 DR: Matured bonds payable 3,000,000 CR: Cash
A Debt Service Fund paid $800,000 interest on outstanding bonds.
Debt Service Fund DR: Expenditures―interest 800,000 CR: Matured interest payable 800,000 DR: Matured interest payable 800,000 CR: Cash 800,000
Several years ago a city established a sinking fund to retire an issue of general obligation bonds. This year the city made a $50,000 contribution to the sinking fund from general revenues and realized $15,000 in revenue from securities in the sinking fund. The bonds due this year were retired. These transactions require accounting recognition in which of the following funds? (AICPA adapted)
Debt Service Fund and General Fund
Short-term loan
Due from (Receivable) Due to (Payable)
What is the purpose of establishing an allowance for uncollectible property taxes at the time the property tax levy is recorded?
Establishing an allowance for uncollectible property taxes at the time the property tax levy causes the government to raise additional revenues in the year of the tax levy to offset estimated shortfalls resulting from the appeals process. Failure to follow this procedure may keep tax rates down in one year but can have serious consequences for future years.
Governmental Funds Accounting Equation:
Financial Assets + Deferred Outflows of Resources -------------------------------------- = Near-term Liabilities (short-term and matured) + Deferred Inflows of Resources + Fund Balance
What are the accounting implications of an accounting model whose measurement focus is on "current financial resources"?
From a budgetary perspective, the accounting model focus on spendable resources which can be spent currently. From a revenue perspective, revenues are recognized if resources are measurable and available. From an expenditure perspective, expenditure should be budgeted on a cash or near-cash basis and expenditures are accrued if liabilities are incurred and "normally" paid from current financial resources
The General Fund makes a long-term loan of $100,000 to a Capital Projects Fund.
General Fund DR: Advance to Capital Projects Fund 100,000 Cash 100,000 Capital Projects Fund DR: Cash 100,000 CR: Advance from General Fund 100,000
The General Fund makes a short-term loan of $100,000 to a Capital Projects Fund.
General Fund DR: Due from Capital Projects Fund 100,000 CR: Cash 100,000 Capital Projects Fund DR: Cash 100,000 CR: Due to General Fund
The General Fund had previously paid $40,000 for consulting services and recorded the entire amount as expenditures. It now bills the Capital Projects Fund $20,000 for that fund's share of the consulting services.
General Fund DR: Due from Capital Projects Fund 20,000 CR: Expenditures―consulting services 20,000 Capital Projects Fund DR: Expenditures―consulting services 20,000 CR: Due to General Fund 20,000
Interfund Reimbursements The General Fund paid for $7,000 of professional services for the Capital Projects Fund, which is reimbursed by the Capital Projects Fund.
General Fund DR: Due from Capital Projects Fund 7,000 CR: Expenditures 7,000 Capital Projects Fund DR: Expenditures—professional services 7,000 CR: Due to General Fund 7,000
Interfund Loans The General Fund makes a short-term loan of $75,000 to a Proprietary Fund.
General Fund DR: Due from Proprietary Fund 75,000 CR: Cash 75,000 Proprietary Fund DR: Cash 75,000 CR: Due to General Fund 75,000
The General Fund receives a bill for $50,000 from the Motor Pool Internal Service Fund for motor vehicle services provided to city agencies in June.
General Fund DR: Expenditures—motor vehicle services 50,000 CR: Due to Motor Pool Internal Service Fund 50,000 Motor Pool Internal Service Fund DR: Due from General Fund 50,000 CR: Revenues—services provided 50,000
The General Fund made its annual transfer of $6,000,000 to a Debt Service Fund.
General Fund DR: Transfer out to Debt Service Fund 6,000,000 CR: Cash 6,000,000 Debt Service Fund DR: Cash 6,000,000 CR: Transfer in from General Fund 6,000,000
Interfund Transfers The General Fund transfers $100,000 to a Debt Service Fund so the Debt Service Fund can pay for debt service that is soon due.
General Fund DR: Transfer out to the Debt Service Fund 100,000 CR: Cash 100,000 Debt Service Fund DR: Cash 100,000 CR: Transfer in from General Fund 100,000
The General Fund makes a long-term loan of $100,000 to a Capital Projects Fund. Record the General Fund journal entry to reclassify unassigned fund balance that is not available for spending due to the long-term loan.
General Fund DR: Unassigned fund balance 100,000 CR: Non-spendable fund balance 100,000
The General Fund sends $75,000 cash to the Capital Projects Fund with no expectation of being repaid.
General Fund DR: Transfer out to Capital Projects Fund 75,000 CR: Cash 75,000 Capital Projects Fund DR: Cash 75,000 CR: Transfer in from General Fund 75,000
1. The General Fund makes a short-term loan of $75,000 to a Special Revenue Fund.
General Fund: DR: Due from Special Revenue Fund 75,000 CR: Cash 75,000 Special Revenue Fund: DR: Cash 75,000 CR: Due to General Fund 75,000
2. The General Fund sends $100,000 cash to the Debt Service Fund so the latter fund can pay the debt service on general obligation bonds.
General Fund: DR: Transfer out to Debt Service Fund 100,000 CR: Cash 100,000 Debt Service Fund: DR: Cash 100,000 CR: Transfer in from General Fund 100,000
4. The General Fund had previously paid $34,000 for consulting services and recorded the entire amount as expenditures. It now bills the Capital Projects Fund $10,000 for that fund's share of the consulting services.
General Fund: DR: Due from Capital Projects Fund 10,000 CR: Expenditures - consulting services 10,000 Capital Projects Fund DR: Expenditures - consulting services 10,000 CR: Due to General Fund 10,000
3. The General Fund receives a bill for $45,000 from the Motor Pool Internal Service Fund for motor vehicle services provided to city agencies in April.
General Fund: DR: Expenditures - motor vehicle services 45,000 CR: Due to Motor Pool Internal Service Fund 45,000 Motor Pool Internal Service Fund: DR: Due from General Fund 45,000 CR: Revenues - services provided 45,000
The city sold some of its street repair equipment. The equipment originally cost $50,000, but it was sold for $500.
Governmental Fund DR: Cash 500 CR: Other financing source―sale of equipment 500
Interfund Services Provided and Used An activity accounted for in the General Fund purchases $50,000 of water from a Water Utility Fund; record entries
In the General Fund DR: Expenditures—water services 50,000 DR: Due to Water Utility Dune 50,000 In Water Utility Fund DR: Due from General Fund 50,000 CR: Revenues—water services 50,000
accrue salaries, utilities under modified accrual basis
Liability occurs in current period and will be paid early in next period (these items fall within general rule of "normally paid timely from current financial resources")
Nick County is preparing financial statements for the fiscal year ended June 30, 2022. A claim for $100,000 was filed against a county health clinic for medical malpractice in March 2022. The case is scheduled to go to trial in January 2023.County attorneys believe it is probable the county will lose the case if it goes to trial and thus will try to negotiate a settlement. They believe the claim can be settled for about $40,000, but it may take almost a year to settle the case.
No entry needed
accrue expenditures when:
Normally paid in a timely manner and in full from current financial resources. But, for certain specific exceptions, accrue only to the extent liabilities have matured and are due for payment
The issuance of bonds to provide resources to construct a new courthouse should be recorded in a Capital Projects Fund by crediting which of the following accounts?
Other financing source—long-term debt issued
The City of Matthews has been given a $1,000,000 gift that is restricted by the donor, Rebecca Smith. Ms. Smith's gift agreement mandates that only the earnings from the gift may be used to maintain or improve athletic facilities owned by the city. Which fund should be used to account for the gift?
Permanent Fund
Debt Service Funds Used to account for financial resources that are restricted or otherwise limited to spending for principal and interest on general long-term debt
Required when - Legally mandated - Financial resources being accumulated for principal and interest payments that come due in future years
The town of Gracie has established a permanent fund to account for numerous significant gifts intended to maintain a cemetery in perpetuity. Investment earnings from the permanent fund have been more than enough to maintain the cemetery. What fund balance classification should be used to account for unspent investment earnings that remain in the fund at year end?
Restricted fund balance
accrue vacation pay under modified accrual basis
Specific exception; accrue for matured liability if employee has retired by year-end
accrue pensions under modified accrual basis
Specific exception; accrue if benefit payments are due and payable and pension plan has insufficient resources to pay
accrue retiree healthcare under modified accrual basis
Specific exception; accrue if benefit payments are due and payable and plan has insufficient resources to pay (for example, plan is not funded and retiree submits medical bills that have not been paid by year-end)
accrue claims, judgements under modified accrual basis
Specific exception; accrue if due and payable because settlement reached or judgment made by year-end
Which of the following transactions or events best describes when a grant recipient may recognize revenues from intergovernmental grants in governmental-type funds?
The recipient complies with all grant eligibility requirements, and the resources are "available."
Proprietary and Fiduciary Funds assets and liabilities
all assets (includes capital assets) all liabilities (current and long-term)
Property taxes recognized as revenue in this fiscal year levied if:
available (collected within at least 60 days of year end) defer if not collected in 60 days
The resources used to finance Capital Projects Funds may come from which of the following sources? a. Private donations b. General obligation debt c. Intergovernmental revenues d. All of the above
d. All of the above
Revenues property taxes debit:
decreases account - defer property taxes levied for current fiscal year that are expected to be collected after the first 60 days of the next fiscal year - adjust revenue for underestimated allowances
The City of New Easton constructed a convention center. After completion of the project, the convention center should be recorded as an asset in which of the following funds? a. General Fund b. Capital Projects Fund c. Debt Service Fund d. Both b and c e. None of the above
e. None of the above
The principal amount of bonds issued to finance the cost of a new city hall would be recorded as a liability in which of the following funds? a. General Fund b. Special Revenue Fund c. Capital Projects Fund d. Debt Service Fund e. None of the above
e. None of the above
To provide for the retirement of general obligation bonds, a city invests a portion of its general revenue receipts in marketable securities. This investment activity should be accounted for in which of the following funds? (AICPA adapted) a. Trust Fund b. Enterprise Fund c. Custodial Fund d. Special Revenue Fund e. None of the above
e. None of the above
Reduce revenues to provide for:
estimated uncollectible taxes estimated tax refunds or discounts
modified accrual expenditure recognition
expenditures are accrued if liabilities are incurred and normally paid from current financial resources
Deferred Outflows of Resources
expenditures related to future periods; reported in a separate section of the balance sheet after assets
Governmental Funds assets and liabilities
financial assets short-term liabilities matured long-term liabilities
Revenues property taxes credit:
increases account - property taxes levied for previous year, but not collectible until after the first 60 days of current fiscal year - current year property tax levy, net allowances - adjust revenue for overestimated allowances
types of liabilities not recognized in governmental-type funds
noncurrent liabilities compensated absences claims and judgements pensions
Property taxes collected in a period before they are levied:
reported as deferred inflows of resources and recognize as revenue in period for which they are levied
modified accrual revenue recognition
revenues recognized if resources are measurable and available "collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period"
Deferred Inflows of Resources
revenues related to future periods; reported in a separate section of the balance sheet after liabilities
types of liabilities recognized in governmental-type funds
short-term liabilities; once incurred normally paid in a timely manner from current financial resources - salaries, professional services, supplies, utilities, and travel matured long-term liabilities expected to be liquidated within expendable available financial resources - matured portion of bonds and notes payable
intergovernmental grants: purpose restrictions
specify activities the grant may be used for
intergovernmental grants: time req
specify time period when resources must be used or when use may begin
GASB Statement No. 54 Levels of Constraints
unassigned = liquid nobody really cares about you
Assets (cash or receivable) are recognized:
when exchange occurs
Revenues (net refunds and estimated uncollectible amounts) are recognized:
when exchange occurs and resources available