P 28-5 (Estimated time: 70 minutes)
Transaction
NumberAccount Titles and ExplanationsDr.Cr.
Requirement 1:
(1)ESTIMATED REVENUES...... 400,000
ESTIMATED OTHER FINANCING SOURCES—BOND PROCEEDS... 200,000
APPROPRIATIONS...... 572,000
APPROPRIATIONS—OPERATING TRANSFERS OUT 20,000
BUDGETARY FUND BALANCE 8,000
To record the legally adopted budget.
Fund Balance Reserved for Encumbrances...... 12,000
Unreserved Fund Balance.... 12,000
To reverse appropriation of fund balance made at the end of the
prior year.
P 28-5 (continued)
Requirement 1: (continued)
Transaction
NumberAccount Titles and ExplanationsDr.Cr.
ENCUMBRANCES...... 12,000
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES... 12,000
To reestablish budgetary control over encumbrances outstanding at
the end of the prior year, which will be honored during the
current year.
(2)Taxes Receivable—Current ($220,800 ÷ .96)...... 230,000
Allowance for Uncollectibles—Current 9,200
Deferred Revenues—Property Taxes 220,800
To record the property tax levy.
(3)ENCUMBRANCES...... 316,000
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES... 316,000
To record encumbrances on purchase orders issued.
(4)Unreserved Fund Balance...... 20,000
Fund Balance Reserved for Capital Outlay 20,000
To reserve a portion of the fund balance for possible future
appropriation for capital outlay.
(5)Cash...... 664,000
Taxes Receivable—Delinquent. 38,000
Taxes Receivable—Current... 226,000
Expenditures...... 4,000
Revenues—Fines, Forfeits, Penalties 88,000
Revenues—Miscellaneous.... 90,000
Other Financing Sources—Proceeds of Bond Issue 200,000
Residual Equity Transfer In... 18,000
To record cash collections and residual equity transfer from
discontinued fund.
Deferred Revenues...... 220,800
Revenues...... 220,800
To recognize property tax revenues based on collections of $226,000
(as limited to the $220,800 balance in the Deferred Revenues
account).
(6)BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES. 302,000
ENCUMBRANCES...... 302,000
To cancel encumbrances of $302,000 upon receipt of goods and
services totaling $308,000.
Expenditures...... 272,000
Inventory...... 36,000
Vouchers Payable...... 308,000
To record expenditures and acquisition of inventory, both of which
were previously encumbered.
P 28-5 (continued)
Requirement 1: (continued)
Transaction
NumberAccount Titles and ExplanationsDr.Cr.
(7)Expenditures...... 238,000
Other Financing Uses—Operating Transfer Out...... 20,000
Vouchers Payable...... 238,000
Due to Special Revenue Fund.. 20,000
To record expenditures for items not previously encumbered and to
record operating transfer.
(8)Taxes Receivable—Current...... 2,000
Deferred Revenues...... 2,000
To reflect overpayment of taxes as deferred revenues.
(9)Vouchers Payable...... 560,000
Due to Special Revenue Fund...... 20,000
Cash...... 580,000
To record cash disbursements.
(10)Expenditures...... 42,000
Inventory...... 42,000
($36,000 of purchases during the year + $6,000 decrease in the
physical inventory balance)
Requirement 2:
(1)Allowance for Uncollectibles—Current...... 3,200
Revenues—Property Taxes... 3,200
To adjust the allowance account to the balance in the Taxes
Receivable—Current account (which is the maximum balance that
can exist in the allowance account at year-end).
Calculation:
Current year assessment...... $230,000
+ Cash collections...... (226,000)
Subtotal...... $ 4,000
– Adjustment for overpayment by Albert..... 2,000
Adjusted Year-end Balance of Taxes Receivable—
Current account ...... $ 6,000
Balance in Allowance for Uncollectibles—Current
account at year-end...... $ 9,200
Adjustment required $ 3,200
(2)Taxes Receivable—Delinquent...... 6,000
Taxes Receivable—Current... 6,000
Allowance for Uncollectibles—Current...... 6,000
Allowance for Uncollectibles—Delinquent 6,000
To reclassify year-end balances to delinquent accounts.
P 28-5 (continued)
Requirement 3:
Transaction
NumberAccount Titles and ExplanationsDr.Cr.
(1)APPROPRIATIONS...... 572,000 APPROPRIATIONS—OPERATING TRANSFERS OUT 20,000
BUDGETARY FUND BALANCE...... 8,000
ESTIMATED REVENUES... 400,000
ESTIMATED OTHER FINANCING SOURCES—BOND
PROCEEDS...... 200,000
To reverse the entry previously made to record the legally adopted
annual operating budget.
(2)Revenues—Property Taxes ($220,800 + $3,200)...... 224,000
Revenues—Fines, Forfeits, Penalties...... 88,000
Revenues—Miscellaneous...... 90,000
Other Financing Sources—Bond Issue Proceeds...... 200,000
Expenditures ($272,000 + $238,000 + $42,000 – $4,000 in
Item (5) = $548,000)... 548,000
Other Financing Uses—Operating Transfer Out 20,000
Unreserved Fund Balance.... 34,000
To close actual revenues, expenditures, and other financing sources
and uses accounts into Unreserved Fund Balance.
(3)Residual Equity Transfer In...... 18,000
Unreserved Fund Balance.... 18,000
To close the actual residual equity transfer in account into
Unreserved Fund Balance.
(4)BUDGETARY FUND BALANCE RESERVED FOR ENCUMBRANCES. 26,000
ENCUMBRANCES...... 26,000
To close encumbrances outstanding at year-end by reversing the
entry that previously recorded them.
($12,000 + $316,000 = $328,000; $328,000 – $302,000 = $26,000)
Unreserved Fund Balance...... 26,000
Fund Balance Reserved for Encumbrances 26,000
To reserve a portion of the fund balance for encumbrances
outstanding at year-end.
P 28-5 (continued)
Requirement 4:
City of Solna
Balance Sheet—General Fund
December 31, 2002
Cash...... $146,000
Taxes receivable—Delinquent...... 14,000
Allowance for uncollectibles—Delinquent...... (14,000)
Stores Inventory—Program operations...... 12,000
Total Assets...... $158,000
Vouchers Payable...... $ 14,000
Deferred Revenue...... $ 2,000
Fund balance:
Reserved for capital outlay...... $ 20,000
Reserved for encumbrances...... 26,000
Unreserved...... 96,000
Total Fund Balance...... $142,000
Total Liabilities and Fund Balance...... $158,000
Requirement 5:
City of Solna
Statement of Revenues, Expenditures, and
Changes in Fund Balance—Budget and Actual—General Fund
for the Fiscal Year Ended December 31, 2002
Variance
Favorable
BudgetActual(Unfavorable)
Revenues:
Property taxes...... $ 220,000 $ 224,000 $ 4,000
Fines, forfeits, and penalties...... 80,000 88,000 8,000
Miscellaneous...... 100,000 90,000 (10,000)
Total Revenues...... $ 400,000 $ 402,000 $ 2,000
Expenditures:
Current—
Program operations...... $ 372,000 $ 354,000 $18,000
General administrative...... 120,000 118,000 2,000
Subtotal...... $ 492,000 $ 472,000 $20,000
Capital outlay...... 80,000 76,000a 4,000
Total Expenditures...... $ 572,000 $ 548,000 $24,000
Excess of Expenditures over Revenues $(172,000) $(146,000) $26,000
Other Financing Sources (uses):
Proceeds of bond issue...... $ 200,000 $ 200,000 -0-
Operating transfers out...... (20,000) (20,000) -0-
Total Other Financing Sources (Uses)...... $ 180,000 $ 180,000 $ -0-
Excess of Revenues and Other Financing Sources over
Expenditures and Other Financing Uses.. $ 8,000 $ 34,000 $26,000
Fund Balance—1/1/X3...... 90,000 90,000 -0-
Residual equity transfer in from discontinued fund -0- 18,000 18,000
Fund Balance—12/31/X3...... $ 98,000 $ 142,000 $44,000
a$62,000 + $18,000 – $4,000 refund in Item (5) of requirement 1 = $76,000.
P 28-5 (continued)
Requirement 6:
The city has borrowed money to finance current operations. Most states have laws prohibiting cities from issuing bonds to finance current operations because it is an unsound financial practice.