18.11 Flashcards
The following information pertains to property taxes levied by Oak City for calendar Year 6:
Collections during Year 6: $500,000
Expected collections during the first 60 days of Year 7: 100,000
Expected collections during the balance of Year 7: 60,000
Expected collections during January Year 8: 30,000
Estimated to be uncollectible: 10,000
Total levy: $700,000
What amount should Oak report for Year 6 net property tax revenues?
$600,000
Property taxes are recognized in the period for which they are levied if the availability criterion is met. (Property taxes generally are accounted for in governmental funds, which use the modified accrual basis.) For property tax purposes, “available” means collected within the current period or expected to be collected soon enough thereafter to be used to pay current liabilities. Moreover, “soon enough thereafter” means within 60 days. Accordingly, the $500,000 of Year 6 collections plus the $100,000 expected to be collected in the first 60 days of Year 7 are recognized as Year 6 property tax revenue.
During the year, a city’s electric utility, which is operated as an enterprise fund, rendered billings for electricity supplied to the general fund. Which of the following accounts should be debited by the general fund?
Expenditures.
Enterprise funds are used to account for operations similar to those of private businesses. The services provided by the enterprise fund to the general fund are (1) most likely at prices equivalent to external exchange values and (2) classified as interfund services provided and used. The result is revenue to the seller and an expenditure to the buyer, a governmental fund. Unpaid amounts are interfund receivables or payables. The entry is to debit expenditures and credit due to enterprise fund.
Brandon County’s general fund had the following transactions during the year:
Transfer to a debt service fund: $100,000
Payment to a pension trust fund: 500,000
Purchase of equipment: 300,000
What amount should Brandon County report for the general fund as other financing uses in its governmental funds statement of revenues, expenditures, and changes in fund balances?
$100,000
Other financing sources and uses are reported in the governmental funds statement of revenues, expenditures, and changes in fund balances. They include (1) the face amount of long-term debt, (2) issuance premium or discount, (3) some payments to escrow agents for bond refundings, (4) interfund transfers, and (5) sales of capital assets. Accordingly, the only item reported in the general fund as other financing uses is the $100,000 transfer to a debt service fund.
On December 31, the city of Vane paid a contractor $3 million for the total cost of a new municipal annex built during the year on city-owned land. Financing was provided by a $2 million general obligation bond issue sold at face amount on December 31, with the remaining $1 million transferred from the general fund. If this project was accounted for in a capital projects fund, the transfer is reported in the government-wide statement of activities as
An elimination.
The general fund and the capital projects fund are governmental funds. Because governmental activities are reported in those funds, the transfer is within the scope of the governmental activities section of the statement of activities. But transfers within the governmental activities section are eliminated (not reported in the government-wide statements). These transfers result in no overall change in governmental activities.
Which account in the general fund should Spring Township credit when it issues a purchase order for supplies?
Encumbrances outstanding.
When a commitment is made to expend general fund resources, the entry is to debit encumbrances for the amount of the purchase order. The credit is to encumbrances outstanding. When the related liability is incurred, (1) the encumbrance entry is reversed, (2) expenditures is debited, and (3) vouchers payable is credited.
The following financial resources were among those held by Seco City:
For acquisition of major capital facilities: $6,000,000
To create a public-purpose expendable trust: 2,000,000
What amount should be accounted for in Seco’s special revenue funds?
$2,000,000.
A capital projects fund is used to account for financial resources restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Given that the $6 million amount is to be used for the acquisition of major capital facilities, it should be accounted for in a capital projects fund. A special revenue fund is used to account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Thus, the $2 million amount to be used to create a public-purpose expendable trust should be accounted for in a special revenue fund.
Assuming no outstanding encumbrances at year end, closing entries for which of the following situations would increase the general fund’s unassigned fund balance at year end?
Appropriations exceed actual expenditures.
Unassigned fund balance (the residual balance of the general fund) is a real account. It is the fund balance of a general fund that is spendable but not restricted, committed, or assigned. Appropriations (public funds set aside for a specific purpose) are recognized in the budgetary entry at the beginning of the fiscal period. If they exceed the government’s actual expenditures for the year, unassigned fund balance increases. The reason is that no reclassifications to committed or assigned fund balance are recorded for encumbered amounts not already restricted, committed, or assigned.
Governmental fund financial statements are prepared using the
Economic Resources Measurement Focus:
Current Financial Resources Measurement Focus:
Accrual Basis:
Modified Accrual Basis:
No
Yes
No
Yes
The current financial resources measurement focus and the modified accrual basis of accounting are required in the financial statements of governmental funds. The emphasis is on determination of financial position and changes in it (sources, uses, and balances of financial resources). Revenues should be recognized when they become available and measurable. Expenditures should be recognized when the fund liability is incurred, if measurable. However, unmatured interest on general long-term liabilities is recognized when due.
Which of the following amount(s) is(are) included in a general fund’s encumbrances account?
I. Outstanding vouchers payable amounts
II. Outstanding purchase order amounts
III. Excess of the amount of a purchase order over the actual expenditure for that order
II.
When a purchase order is approved, an encumbrance is recognized. When the goods are delivered or the services are performed, the entry is reversed, effectively eliminating the purchase order amount. Thus, encumbrances include only outstanding purchase orders.
In the government-wide statement of activities, special items are transactions or other events that are
Unusual in nature or infrequent in occurrence and within management’s control.
Extraordinary items are both unusual in nature and infrequent in occurrence. Special items are significant transactions or other events within the control of management that are either unusual or infrequent. They are reported separately after extraordinary items.
State of Denial has enacted a 6% sales tax, and City of Angels has enacted a 1% sales tax. Businesses that collect sales taxes must transfer all collections to State within 30 days after the end of the month. State must transfer collected taxes to local governments within 90 days after the end of the month. City and State account for sales taxes in the general fund, and each has a December 31 fiscal year end. Sales subject to sales taxes in City were $5,000,000 in December and $3,000,000 in January. At year-end, City and State should recognize
City
Revenues: $
Payable:
State
Revenues:
Payable:
$0
$350,000
$300,000
$50,000
Taxation of sales is a nonexchange transaction. It results in derived tax revenues, that is, assessments on exchange transactions (such as sales and income taxes). Assets are recognized at the earlier of (1) when the underlying exchange transaction occurs or (2) receipt of resources. The underlying exchanges occurred in December. Revenues (net of estimated refunds and uncollectibles) are recognized at the same time as the assets if the underlying exchange has occurred. In governmental funds (e.g., the general fund), resources also must be susceptible to accrual in accordance with the modified accrual basis of accounting. This criterion is met when the resources become measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay current liabilities. Sales taxes are measurable because (1) liability has been established by the legal requirements for transfers of tax collections, and (2) collectibility is reasonably assured when one state or local government is liable for sales tax collections to be paid to another. Moreover, collectibility soon enough to be used to pay current liabilities (availability) must be assumed if full payment is to be made within 30 days after December 31 to State by businesses in City. Total collections are $350,000 [$5,000,000 December sales × (6% state tax + 1% local tax)]. State therefore recognizes tax revenue of $300,000 ($5,000,000 × 6% state tax) and a payable of $50,000. State must pay collected taxes to City within 90 days of month end. This amount is $50,000 ($5,000,000 December sales × 1% local tax). But this amount is unlikely to be collectible soon enough to pay current liabilities. It does not meet the availability criterion, and revenue cannot be recognized. When a government debits an asset (tax collections receivable) and revenue is not available, the credit is to a deferred inflow of resources. Accordingly, City recognizes (1) an asset (debit) and a payable (credit) for $350,000 and (2) a receivable (debit) and a deferred inflow of resources (credit) for $50,000.
Tott City’s serial bonds are serviced through a debt service fund with cash provided by the general fund. In the governmental funds financial statements, how are cash receipts and cash payments reported?
Cash Receipts:
Cash Payment:
Interfund transfers.
Expenditures.
An interfund transfer is a nonreciprocal interfund activity because no repayment is required. Accordingly, cash receipts of a debt service fund from the general fund are recorded as interfund transfers. Furthermore, these resources already have been recorded as revenues in the general fund. An expenditure is recognized in accordance with the modified accrual basis of accounting used in the governmental funds when the fund liability is incurred, if measurable. Exceptions are the unmatured principal and interest on general long-term debt (e.g., the serial bonds), which are recognized when due. Thus, maturing amounts of principal and interest on serial bonds are recorded as expenditures when they are due, whether or not the cash payments are made. The actual credit for a cash payment is therefore offset by a debit to expenditures or to a liability.
Which of the following is a true statement about a fund balance classification?
The general fund is the only fund that reports a positive unassigned fund balance.
The general fund is the only fund that reports a positive unassigned balance (the sum of the amounts not classified elsewhere). In other governmental funds, this classification is used only for a deficit balance, e.g., when expenditures exceed amounts restricted, committed, or assigned to the fund.
The following information pertains to Cobb City.
Year 6 governmental fund revenues that became measurable and available in time to be used for payment of Year 6 liabilities (including $2,000,000 from Year 4 and Year 5): $16,000,000
Sales taxes collected by merchants in Year 6 but not remitted to Cobb City until January Year 7: 3,000,000
For the year ended December 31, Year 6, Cobb City should recognize revenues in its governmental fund financial statements of
$19,000,000.
Governmental fund revenues are recognized when the resources are measurable and available to satisfy current liabilities. The $16 million of Year 6 revenues is measurable and available to pay current liabilities, and the amounts included from Year 4 and Year 5 transactions did not meet the recognition criteria until Year 6. Thus, $16,000,000 should be recognized for the year ended December 31, Year 6. Sales taxes are derived tax revenues. Recognition of such revenues occurs when (1) the underlying exchanges occurred and (2) the resources are available. When the modified accrual basis is used, the resources (the sales tax collections) also must be available (collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period). Collection in the month following the December 31 fiscal year end meets the availability criterion (i.e., 60 days). Thus, $3 million of sales taxes should be recognized as revenues regardless of which basis of accounting (accrual or modified accrual) applies. Total revenues recognized are $19 million ($16 million + $3 million).
The measurement focus of the fund-based financial statements of a governmental fund is on the determination of
Economic Resources:
Financial Position:
Changes in Financial Position:
No
Yes
Yes
The measurement focus refers to what is being measured or tracked by the information provided in the financial statements. The measurement focus of governmental funds financial statements is on current financial resources, specifically financial position and changes in financial position. The measurement focus of the government-wide statements, proprietary funds, and fiduciary funds is on economic resources.
