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Quiz 3 :

Modified Accrual Accounting: Including the Role of Fund Balances and Budgetary Authority

Quiz 3 :

Modified Accrual Accounting: Including the Role of Fund Balances and Budgetary Authority

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Presented here are several transactions and events of the General Fund of Johnson County. All transactions and events relate to calendar year 2012. 1. Estimated revenues from the following sources were legally budgeted. img 2. Appropriations for the following functions were legally budgeted. img 3. During the year, revenues were received in cash from the following sources: img 4. During the year, contracts and purchase orders were issued as follows: img 5. Goods and services (these are a portion of the total ordered in transaction 4) were received, as follows: img 6. A budget revision was approved by the County Commission. Estimated revenues for intergovernmental revenues were increased by $35,000. Appropriations for general government were increased by $100,000. 7. Vouchers were issued for items not previously encumbered, primarily personal services, in the following amounts: img a. Record the transactions in general journal form. Include subsidiary accounts as illustrated in this chapter. b. Open budgetary, revenue, expenditure, and encumbrance general ledger control accounts and post the transactions. You may use T-accounts. c. Open Revenue and Appropriations, Expenditures, and Encumbrances subsidiary ledgers. Post the transactions. Prove that the control account balances agree with the related subsidiary ledger accounts. d. Assume a beginning Fund BalanceUnreserved of $150,000. Prepare a budgetary comparison schedule for the General Fund. Include encumbrances with expenditures. Use Illustration 38 as an example. e. Assuming that encumbered appropriations do not lapse at the end of the budget year, how much of the appropriations, by function, did lapse at the end of 2012 Show computations in good form.
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Subsidiary ledgers are being maintained by every government department to record and account for their part of budget appropriation and fund balance. Every time transactions take place an entry is made subsequently in the subsidiary ledger to account for the expenses and also ascertain the available or unexpended fund balance.
However it may be noted that appropriation are expendable. And once such appropriation is made purchase order or contracts are placed with respective vendor and contractors initiating liability and are being encumbered.
And when good or services are received they are recorded in encumbrance account and respective expenditure are accounted for simultaneously.
However, it is necessary to make corresponding entries accurately in subsidiary ledger for matching appropriations, encumbrance and expenditure account so that reconciliation is made and accounts are matched.
a) Journal entries are prepared, in respect of General fund of J County for 2012, as under.
img Explanation: Estimated revenue is recognized and recorded by source.
Estimated revenue control is debited by source for receivables and budgetary fund balance is credited consequently.
img Explanation: Budget appropriation is recognized and recorded.
Budgetary fund balance is debited for receipt of appropriation and Appropriation is credited towards receivable.
img Explanation: Receipt of revenues in cash is recognized and recorded.
Cash is debited for receipt of revenues in cash and estimated revenue controls by source are credited for the same.
img Explanation: Encumbrance of Contracts and purchase orders placed during the year is recognized and recorded.
Encumbrance control is debited towards initiation of liability of expenses and Budgetary fund balance -reserve is credited for the same by function.
img Explanation: Goods and services received is recognized and recorded.
Budgetary fund balance -Reserve is debited by function towards receipt of goods and services and Encumbrance control is credited to utilization of the same.
img Explanation: Increased inter governmental revenues by budget revision is recognized and recorded.
Estimated revenues control is debited towards increased inter governmental revenues by budget revision and budgetary balance is credited towards receivable.
img Explanation: Budget revision to increase General government appropriation is recognized and recorded.
Budgetary fund balance is debited towards increased General government appropriation and appropriation General government is credited to increase expendable balance.
img Explanation: Vouchers payable towards expenses is recognized and recorded.
Expenditure is debited towards occurrence of expenses and vouchers payable is credited towards liability to pay.
b) Following are the budgetary revenue, expenditure and encumbrance account.
img img img c) Following are the Revenue and appropriations, expenditure and encumbrance subsidiary ledgers
img img img d) Following is the budgetary comparison schedule for J County for the year 2012.
img e) Following are the details of appropriation which are lapsed during 2012.
img Thus the lapsed appropriation in total during 2012 is $306,000.

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Prepare budgetary entries, using general ledger accounts only, for each of the following unrelated situations: a. Anticipated revenues are $10 million; anticipated expenditures and en­cumbrances are $9.8 million. b. Anticipated revenues are $9.8 million; anticipated expenditures and en­cumbrances are $10 million. c. Anticipated revenues are $10 million; anticipated transfers from other funds are $1.3 million; anticipated expenditures and encumbrances are $9.8 million; anticipated transfers to other funds are $1.2 million. d. Anticipated revenues are $9.8 million; anticipated transfers from other funds are $1.2 million; anticipated expenditures and encumbrances are $10 million; anticipated transfers to other funds are $1.3 million.
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For each of the summarized transactions for the Village of Sycamore Gen­eral Fund, prepare the general ledger journal entries. The year is January 1- December 31, 2012. a. The budget was formally adopted, providing for estimated revenues of $1,000,000 and appropriations of $980,000. b. Revenues were received, all in cash, in the amount of $1,010,000. c. Purchase orders were issued in the amount of $500,000. d. Of the $500,000 in ( c ), purchase orders were filled in the amount of $490,000; the invoice amount was $480,000 (not yet paid). e. Expenditures, not encumbered, amounted to $460,000 (not yet paid). f. Amounts from ( d ) and ( e ) are paid in cash.
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Distinguish between the (1) GAAP basis and (2) budgetary basis of report­ing for the General Fund.
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The City of South Dundee budget for the fiscal year ended June 30, 2012, included an appropriation for the police department in the amount of $16,000,000. During the month of July 2011, the following transactions occurred (in summary): Purchase orders were issued in the amount of $600,000. Of the $600,000 in purchase orders, $580,000 were filled, with invoices amounting to $575,000. Salaries, not encumbered, amounted to $798,000. A budget appropriations reduction in the amount of $20,000 was approved by the city council. Prepare an appropriations, expenditures and encumbrances ledger for the police department for the month of July, in a format similar to Illustration 3-7.
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Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 31, 2012. 1. Estimated revenues (legally budgeted) img 2. Appropriations img 3. Revenues received (cash) img 4. Encumbrances issued (includes salaries and other recurring items) img 5. Goods and services received (paid in cash) img 6. Budget revisions img 7. Fund balance-Unrestricted on January 1, 2012, was $735,000. There were no outstanding encumbrances at that date. a. Record the transactions using appropriate journal entries. b. Prepare a budgetary comparison schedule for the General Fund.
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How should rainy day funds be reported under GASB Statement 54
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Appearing below is the subsidiary ledger for the public safety department of the City of Boone. After the first month of the year, five entries have been made to the ledger. img Describe the most likely event that led to each of the postings (items 15).
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Using the annual report obtained for Exercise 1-1, answer the following questions. a. Look at the Statement of Revenues, Expenditures, and Changes in Fund Balances for the governmental funds. List the revenue source classes. Do they agree with those sources discussed in this chapter Are expen­ditures reported by character List the functional classifications under the current character classification. Do those classifications agree with those listed in the example shown in this chapter Are Other Financing Sources and Uses presented separately Does your report show transfers in Transfers out Capital leases Proceeds of bonds b. Look at the Budgetary Comparison Schedule in the RSI section of your annual Report (or Budgetary Comparison Statement, if that is used by your government) for the General Fund. Is the budgetary format used, or is the schedule in the format used for the Statement of Revenues, Expenditures, and Changes in Fund Balances Does the report reflect the original budget, revised budget, and actual figures Are variance columns presented comparing the actual with the revised budget and comparing the original with the revised budget Is a reconciliation between the budgetary basis of accounting and GAAP presented on the budgetary comparison schedule or in a separate schedule What are the major differences, if any Are budgetary comparison schedules (or statements) presented for special revenue funds Are all special revenue funds included c. Look at the note that describes the basis of budgeting (usually in the Summary of Significant Accounting Policies). Is the budget prepared on the GAAP basis or some other basis Are the differences, if any, be­tween the budgetary basis and GAAP clearly explained Does the note indicate that encumbrance accounting is used Do unexpended encum­brances lapse at year-end If unexpended encumbrances lapse, are they normally reappropriated in the following year Do the notes describe the budget calendar (a separate note may have this information) Do the notes describe the legal level of budgetary control and the levels at which certain budget revisions might be made Were budget revisions necessary during the year
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Microsoft Excel templates are available on the text Web site for use with problems 3-15 and 3-16 (www.mhhe.com/copley10e). The City of Grafton's records reflected the following budget and actual data for the General Fund for the fiscal year ended June 30, 2012. 1. Estimated revenues: img 2. Revenues: img 3. Appropriations: img 4. Expenditures of 2012 appropriations: img 5. Encumbrances of 2012 appropriations, outstanding as of June 30, 2012. img 6. Transfer to debt service fund: img 7. Budget revisions approved by the city council: img 8. Total fund balance at July 1, 2011, was $1,038,000. Required : Use the Excel file provided to prepare a budgetary comparision schedule for the City of Grafton for the fiscal year ended June 30, 2012. Include outstanding encumbrances with expenditures. Use the formula feature (e.g., sum, =, etc.) of Excel to calculate the amounts in cells shaded blue.
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The Budgetary Comparison Schedule for the City of Vienna appears below. Several items of information are missing (denoted**). img Required: a. Determine the missing amounts. b. During the year, the City made a single budget revision. Prepare the journal entry to record that revision.
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a. Outline revenue recognition criteria under modified accrual accounting. Include specific requirements for property tax revenue. b. Outline expenditure recognition criteria under modified accrual accounting.
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a. Distinguish between (1) exchange and (2) nonexchange transactions. b. Identify and describe the four eligibility requirements for a government to recognize revenue in a nonexchange transaction. c. GASB Statement 33 classifies nonexchange transactions into four cat­egories. List the four categories, give an example of each, and outline asset and revenue recognition criteria for each.
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Microsoft Excel templates are available on the text Web site for use with problems 3-15 and 3-16 (www.mhhe.com/copley10e). The Budgetary Comparison Schedule for the City of Salem appears in Illustration 2-16. Assume the general and subsidiary ledgers for the General Fund were lost after a water pipe burst. You are charged with reproducing the journal entries that took place during the year ended December 31, 2012. Use the excel file provided to prepare summary journal entries, including subsidiary ledger entries, for the following events. a. Record the original budget. b. Record the revisions to the budget. c. Record the actual revenues. d. Record the encumbrances, assuming all expenditures originated as encumbrances and the encumbrance and expenditure are equal in amount. e. Record the actual expenditures and reversal of the associated encumbrance. You should follow the format of the entries provided in entries 1 to 7 of the appendix to Chapter 3.
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The City of Oxbow General Fund has the following net resources at year- end: • $100,000 unexpended proceeds of a state grant required by law to be used for health education. • $15,000 of prepaid insurance. • $500,000 rainy day fund approved by city council for use under speci­fied circumstances. • $25,000 of contractual obligations for capital projects. • $50,000 unexpended proceeds of a tax required by law to be used for emergency 911 services. • $550,000 to be used to fund government operations in the future. Required: Prepare the fund balance section of the Balance Sheet.
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The town council of Riverside met in December 2011. The council estimated revenues for 2012 to be $750,000 from property taxes and $150,000 from business licenses. The appropriations budget from the council was as follows: img In 2012, heavy spring rains caused some flooding near the river. As a result, a picnic area at River's Edge Park was ruined and several damaged shops had to shut down. The council adopted an upward revision of $22,000 for the parks and recreation budget and reduced the estimated revenues from business licenses by 10 percent. The General Fund began the year with a balance of $22,888. During 2012, tax collections totaled $748,800 and revenues from business licenses were $137,202. Expenditures were $499,200 for general government, $131,345 for parks and recreation, $91,600 for sanitation, and $157,333 for streets and sidewalks. There are no outstanding encumbrances at year-end. 1. Prepare a budgetary comparison schedule for the General Fund for 2012.
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