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.