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CHAPTER 15

UNDERSTANDING THE ISSUES

1. GASB Statement No. 34 stipulates a new re- as control accounts to allow for budgetary
porting model that includes two separate, but comparisons in the ledgers as well as to facili-
related sets of financial statements. The first tate financial reporting of a budgetary compari-
set, the fund financial statements, focuses on son statement.
reporting activity as a collection of separate
4. The advantage of reporting designations of the
funds with a current working-capital focus that
fund balance is improved communications of
uses a modified accrual basis of accounting.
decisions made by the common council or
The second set contains government-wide
town/village board that will impact the availabili-
statements that concentrate on the government
ty of resources for other purposes. While not
as a whole with an economic long-term focus
restricted by external grantors or donors, these
using full accrual-basis accounting. The value
funds are internally designated for specific pur-
of both perspectives is the retention of a near
poses, e.g., planned purchases, reduction of
cash or working capital focus on funding gov-
taxes, and improvements in services.
ernment with a longer term focus that meas-
ures whether such services can continue 5. The encumbrance system is designed as an
without attention to condition of all capital as- early indicator or an expected expenditure to
sets and recognition of and planning for prevent overspending and to plan for payment
increased expenditures in future periods. Capi- of an expected liability. It is an estimate of an
tal assets and long-term liabilities are not ac- expenditure that may or may not be realized by
counted for in the governmental funds but will year-end but will require the use of existing or
be accounted for and reported in the future financial resources.
government-wide financial statements. Thus,
the working capital fund balance will be re- 6. The governmental funds are designed to cap-
placed with a long-term notion of net assets ture financial resources information. Therefore,
when a capital asset is acquired or sold, the re-
broken into unrestricted, restricted, and capital,
net of related debt. sources (financial resources used or acquired)
are recorded in the funds. The account groups
2. Separating activity into governmental, proprie- are designed to provide information on the
tary, and fiduciary funds allows for detailed re- number and condition of these capital assets.
porting of resources and spending. Separating The same is true for long-term liabilities. When
of activities also allows for a different debt is incurred, the cash is recorded in the
measurement focus and basis of accounting fund to capture the inflow of financial re-
depending on whether activities are general sources. But the debt is recorded in the ac-
government or business-type activities. In addi- count group. When debt is repaid, the outflow
tion, since the governmental activities are of cash is recorded in the fund, and the debt is
accounted for using a modified accrual basis of removed from the account group. Since the
accounting in order to capture financial re- fund and account groups capture different in-
source information, the account groups have formation, making a journal entry only in the
served to record (i.e., list) the long-term capital fund would adequately record flows of financial
assets and liabilities. Proponents of this model resources but not record the balances of long-
argue that information generated best serves term liabilities and/or capital assets.
the budget-planning process and answers
7. (Appendix) The 13 basic principles of govern-
questions relating to how much resources are
needed to pay for the current level of services. ment accounting are found in GASB Statement
No. 1 and in Codification of Governmental Ac-
3. Budgets are the legal authorization to raise counting and Financial Reporting Standards.
revenue, incur long-term debt, and appropriate They form a model of fund accounting theory
resources. Authorized expenditures are termed and help anchor the subsequent work of the
appropriations. Budgetary totals, including ap- GASB as detailed in Chapters 1517 of this
propriations, are recorded in the general ledger text.

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Ch. 15Exercises

EXERCISES

EXERCISE 15-1

(1) c Items (a) and (b) are Other Financing Sources, while (d) is a reduction of Expenditures.
(2) d (a), (b), and (c) represent outflows of financial resources to acquire goods and services. The
consumption, not the purchase of inventory, is an expenditure.
(3) b Representing potential inflow of assets, Estimated Revenues is debited.
(4) d Taxes ReceivableCurrent is debited with offsetting credits to an allowance for uncollectible
taxes and revenues.
(5) a Donated fixed assets are recorded in the general fixed asset account group at their estimated
fair value when received.
(6) c Long-term debt related to governmental funds may be operating debt or general long-term
capital debt.
(7) b The purchase of equipment is an outflow of resources from the general fund. An additional
entry to record the fixed asset will be made in the account group.
(8) b Expenditures are closed along with the other nominal accounts to determine an increase or a
decrease in the fund balance from the current-period operations.
(9) d When a purchase order is approved, Encumbrances is debited to reflect the expected expend-
iture. A reserve is also established by a credit to Fund BalanceReserved for Encumbrances.
(10) a The lease obligation is long-term debt and should be recorded in the account group.

EXERCISE 15-2

(1) a Grants without restriction are recorded as revenue when received.


(2) e These pension expenditures will be recorded in the internal service fund.
(3) b This is an expenditure by the general fund.
(4) c This is recorded as a transfer to the swimming pool fund.
(5) e A loan only affects the balance sheet accounts.
(6) c This is a general fund contribution to establish an internal service fund and not an expenditure
for services.
(7) b Payments on an operating lease are expenditures for the general fund.

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Ch. 15Exercises

EXERCISE 15-3

Estimated Revenues ($355,000 + $7,000 + $90,000 + $50,000) .... 502,000


Estimated Other Financing Sources ($100,000 + $15,000) ............. 115,000
Appropriations ............................................................................ 500,000
Estimated Other Financing Uses ($30,000 + $15,000) .............. 45,000
Budgetary Fund Balance ........................................................... 72,000
(Note to Instructor: Property taxes paid by a proprietary fund are considered revenue.)

EXERCISE 15-4

Jan. Cash ..................................................................................... 275,000


Tax Anticipation Notes Payable ..................................... 275,000
To record borrowing.

Feb. Cash ..................................................................................... 14,000


Tax Liens Receivable ..................................................... 12,000
Revenues ....................................................................... 2,000
To record collection of tax liens.
Cash ..................................................................................... 16,000
Tax Liens Receivable ..................................................... 16,000
To record collection of tax liens, sale of property.
Allowance for Uncollectible Tax Liens.................................. 23,000
Tax Liens Receivable ..................................................... 17,000
Revenues ....................................................................... 6,000
To close allowance.

Apr. Cash ..................................................................................... 104,500


Delinquent Property Taxes Receivable .......................... 100,000
Revenues ....................................................................... 4,500
To record collection of delinquent property taxes.
Tax Liens Receivable ........................................................... 35,000
Delinquent Property Taxes Receivable .......................... 35,000
To transfer delinquent property taxes to tax liens.
Allowance for Uncollectible Delinquent Taxes ..................... 40,000
Allowance for Uncollectible Tax Liens ............................ 35,000
Revenues ....................................................................... 5,000
To transfer allowance for uncollectible delinquent
taxes to allowance for uncollectible tax liens.

July Property Taxes Receivable .................................................. 422,000


Allowance for Property Taxes Receivable ..................... 21,100
Revenues ....................................................................... 400,900
To record current property tax levy.

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Ch. 15Exercises

Exercise 15-4, Concluded

Sept. Cash ..................................................................................... 365,000


Property Taxes Receivable ............................................ 365,000
To collect current property taxes.
Tax Anticipation Notes Payable ........................................... 275,000
Expenditures ........................................................................ 18,000
Cash ............................................................................... 293,000
To pay off tax anticipation notes.

EXERCISE 15-5

(1) Cash ............................................................................................... 45,000


Other Financing Sources .......................................................... 45,000
To transfer from municipal trust fund.

(2) No entry in the general fund for land. Record in the general
fixed assets account group:
Land................................................................................................ 75,000
Investment in General Fixed AssetsDonations ..................... 75,000
To record donation of park.

(3) Due from State ............................................................................... 30,000


Revenues ................................................................................. 30,000
To record state grant.

(4) Cash ............................................................................................... 9,000


Other Financing Sources .......................................................... 9,000
To record sale of fire truck.
Additional entry in General Fixed Assets Group:
Investment in General Fixed AssetsGeneral Fund Revenues .... 36,000
Equipment ................................................................................ 36,000

(5) Cash ............................................................................................... 5,000


Revenues ................................................................................. 2,500
Deferred Revenue .................................................................... 2,500
To record sale of park stickers.

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Ch. 15Exercises

EXERCISE 15-6

(1) Expenditures ($120,000 + $60,000 + $125,000 + $13,000) ........... 318,000


Tax Anticipation Notes Payable...................................................... 200,000
Inventory of Supplies ...................................................................... 45,000
Vouchers Payable .................................................................... 563,000
To record payment of vouchers.

(2) Other Financing Uses ..................................................................... 57,000


Cash ......................................................................................... 57,000
To transfer to debt service fund.

(3) Expenditures................................................................................... 42,500


Inventory of Supplies ................................................................ 42,500
To record consumption of inventory.
Fund BalanceUnreserved, Undesignated ................................... 2,500
Fund BalanceReserved for Inventory ................................... 2,500
To adjust reserve to match inventory balance.

EXERCISE 15-7

(1) Encumbrances................................................................................ 18,000


Fund BalanceUnreserved, Undesignated ............................. 18,000
To restore previous years encumbrances.

(2) Encumbrances................................................................................ 70,000


Fund BalanceReserved for Encumbrances .......................... 70,000
To record current encumbrances.

(3) Fund BalanceReserved for Encumbrances ................................ 88,000


Encumbrances .......................................................................... 88,000
To reverse encumbrances for orders received.
Inventory of Supplies ...................................................................... 87,000
Vouchers Payable .................................................................... 87,000
To record purchase of inventory.

(4) Expenditures ($31,000 + $87,000 $35,000) ................................ 83,000


Inventory of Supplies ................................................................ 83,000
To record use of inventory.
Fund BalanceUnreserved, Undesignated ................................... 4,000
Fund BalanceReserved for Inventory ................................... 4,000
To adjust reserved fund balance to match inventory.

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Ch. 15Exercises

EXERCISE 15-8

Encumbrances Unobligated
Date Item Debit Credit Balance Expenditures Balance
January 1 Budget 23,000
January 15 Encumbrances 14,000 14,000 9,000
February 1 Vouchers 5,000 4,000
February 15 Vouchers 12,000 2,000 12,300 3,700
June 3 Vouchers 2,000 4,300 1,400
December 31 Inventory (1,500) 2,900

EXERCISE 15-9

(a) Estimated Revenues ...................................................................... 520,000


Appropriations .......................................................................... 515,000
Budgetary Fund BalanceUnreserved .................................... 5,000
To record budget for the year.

(b) Taxes ReceivableCurrent ........................................................... 378,788


Allowance for Uncollectible Current Taxes ............................... 3,788
Revenues ................................................................................. 375,000
To record tax levy.

(c) Encumbrances................................................................................ 240,000


Fund BalanceReserved for Encumbrances .......................... 240,000
To record purchase orders authorized.

(d) Cash ............................................................................................... 280,000


Taxes ReceivableCurrent ..................................................... 280,000
To record receipt of tax payments.

(e) Fund BalanceReserved for Encumbrances ................................ 223,000


Encumbrances .......................................................................... 223,000
To reverse encumbrance entry for items invoiced.
Expenditures................................................................................... 225,000
Vouchers Payable .................................................................... 225,000
To record invoices vouchered.

(f) Expenditures................................................................................... 135,000


Vouchers Payable .................................................................... 135,000
To record salaries approved for payment.

(g) Cash ............................................................................................... 100,000


Revenues ................................................................................. 100,000
To record receipt of a grant-in-aid.

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Ch. 15Exercises

Exercise 15-9, Concluded

(h) Cash ............................................................................................... 10,000


Revenues ................................................................................. 10,000
To record receipt of miscellaneous revenues.

(i) Expenditures................................................................................... 120,000


Cash ......................................................................................... 120,000
To record purchase of property. (The property would also
be entered in the general fixed assets account group.)

(j) No entry. Recorded only in general fixed assets account group.

(k) Other Financing Uses ..................................................................... 12,000


Due to Other Funds .................................................................. 12,000
To record amount due other funds and approved for
payment.

(l) Due from State ............................................................................... 30,000


Revenues ................................................................................. 30,000
To record share of state sales taxes receivable.

(m) Vouchers Payable .......................................................................... 175,000


Cash ......................................................................................... 175,000
To record vouchers paid.

(n) Budgetary Fund BalanceUnreserved .......................................... 5,000


Appropriations ................................................................................ 515,000
Estimated Revenues ................................................................ 520,000
To reverse budgetary entry.
Revenues ....................................................................................... 515,000
Expenditures ............................................................................. 480,000
Other Financing Uses ............................................................... 12,000
Fund BalanceUnreserved, Undesignated ............................. 23,000
Fund BalanceUnreserved, Undesignated ................................... 17,000
Encumbrances .......................................................................... 17,000
To close nominal accounts.

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Ch. 15Exercises

EXERCISE 15-10

(1) Closing entries:

Appropriations .................................................................................. 650,000


Estimated Other Financing Uses ..................................................... 50,000
Budgetary Fund Balance ................................................................. 50,000
Estimated Revenues ................................................................ 600,000
Estimated Other Financing Sources ......................................... 150,000

Other Financing Sources ................................................................. 166,500


Revenues ......................................................................................... 605,000
Expenditures ............................................................................. 598,000
Other Financing Uses ............................................................... 46,500
Fund BalanceUnreserved, Undesignated ............................. 127,000

Fund BalanceUnreserved, Undesignated .................................... 60,000


Encumbrances .......................................................................... 60,000

(2) Marshal Village


General Fund
Budgetary Comparison Schedule
For Fiscal Year Ended June 30, 20X9
Variance
Favorable
Budget Actual (Unfavorable)
Revenues .................................................................... $ 600,000 $ 605,000$
5,000
Expenditures ............................................................... 650,000 598,000
52,000
Excess (shortage) of revenues over
expenditures.......................................................... $ (50,000) $ 7,000 $
57,000
Other financing sources .............................................. $ 150,000 $ 166,500$
16,500
Other financing uses ................................................... 50,000 46,500
3,500
Total other financing sources (uses) ..................... $ 100,000 $ 120,000$
20,000
Fund balances, July 1, 20X8 ....................................... $ 92,000 $ 92,000 $
0
Fund balances, June 30, 20X9 ................................... $ 142,000 $ 219,000$
77,000

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Ch. 15Exercises

Exercise 15-10, Concluded

(3) Marshal Village


General Fund Balance Sheet
June 30, 20X9

Assets Liabilities and Fund Equity


Cash...................................... $210,000 Liabilities: Vouchers payable ............ $125,000
Receivables (net) .................. 134,000 Fund balances:
Reserved for encumbrances ......... $ 60,000
Unreserved, undesignated ............ 159,000*
Total fund equity ............................... $219,000
Total assets ........................ $344,000 Total liabilities and fund equity ...... $344,000
*$92,000 balance plus $771,500 inflows minus $644,500 outflows minus $60,000 encumbrances

EXERCISE 15-11

Event Fund or Group Entry

Purchase General Fund Expenditures .................................................... 75,000


Cash ........................................................... 75,000

Fund BalanceReserved for Encumbrances .. 80,000


Encumbrances ........................................... 80,000

General Land ................................................................. 75,000


Fixed Assets Investment in General Fixed Assets
Account Group General Fund Revenues ...................... 75,000

Sale General Fund Cash................................................................. 117,000


(10 years Other Financing Sources ........................... 75,000
later) Revenues ................................................... 42,000

General Investment in General Fixed Assets


Fixed Assets General Fund Revenues ............................ 75,000
Account Group Land ..................................................... 75,000

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Ch. 15Exercises

EXERCISE 15-12

(a) Land................................................................................................ 325,000


Buildings ......................................................................................... 975,000
Investment in General Fixed AssetsGeneral Funds.............. 1,300,000
To record property purchase.

(b) Land................................................................................................ 330,000


Buildings ......................................................................................... 220,000
Investment in General Fixed AssetsDonations ..................... 550,000
To record donated property at its fair value.

(c) Construction in Progress ................................................................ 800,000


Investment in General Fixed AssetsCapital Projects Funds
(General Obligation Bonds) ................................................ 800,000
To record cost of work to date.

(d) Machinery and Equipment .............................................................. 190,000


Investment in General Fixed AssetsGeneral Fund
Revenues............................................................................ 190,000
To record fire engine purchase at full value.
Investment in General Fixed AssetsGeneral Fund Revenues .... 100,000
Machinery and Equipment ........................................................ 100,000
To record trade-in.

(e) Infrastructure .................................................................................. 250,000


Investment in General Fixed AssetsCapital Projects Funds ..... 250,000
To record cost of new street.

(f) Computer Software......................................................................... 70,000


Investment in General Fixed AssetsGeneral Fund Revenues .. 70,000

EXERCISE 15-13

(1) Amount to Be Provided for Compensated Absences ..................... 2,200,000


Unfunded Compensated Absences .......................................... 2,200,000
To record the noncurrent portion of the obligation for
vacations.

(2) Unfunded Compensated Absences ................................................ 400,000


Amount to Be Provided for Compensated Absences ............... 400,000
To reduce the long-term obligation for vacations.

(3) Amount to Be Provided for Claims and Judgments ........................ 11,000,000


Claims and Judgments Payable ............................................... 11,000,000
To record the noncurrent portion of the judgment against
the city.

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Ch. 15Exercises

Exercise 15-13, Concluded

(4) Amount to Be Provided for Payment of Bonds ............................... 100,000,000


General Obligation Bonds Payable .......................................... 100,000,000
To record the issuance of general obligation bonds at
maturity value.

(5) Amount Available in the Debt Service Fund ................................... 1,000,000


Amount to Be Provided for Payment of Bonds ......................... 1,000,000
To record accumulation of resources in the debt service
fund for bond principal.

(6) Amount Available in the Debt Service Fund ................................... 4,800,000


Amount to Be Provided for Payment of Bonds ......................... 4,800,000
To record interest earned and appreciation in fair value
of investments in the debt service fund.

EXERCISE 15-14

(a) Amount to Be Provided for Payment of Term Bonds...................... 13,000,000


Term Bonds Payable ................................................................ 13,000,000
To record issuance of general obligation bonds at maturity
value to finance construction of an art center.

(b) Amount Available in Debt Service FundsTerm Bonds ................ 1,300,000


Amount to Be Provided for Payment of Term Bonds ................ 1,300,000
To record allocation to debt service fund.

(c) Amount to Be Provided for Payment of Serial Bonds ..................... 6,000,000


Serial Bonds Payable ............................................................... 6,000,000
To record serial bonds issued to finance construction of
a health center.
Amount Available in Debt Service FundsSerial Bonds ............... 600,000
Amount to Be Provided for Payment of Serial Bonds ............... 600,000
To record allocation to debt service fund ($6,000,000/10).

(d) Serial Bonds Payable ..................................................................... 600,000


Amount Available in Debt Service FundsSerial Bonds ......... 600,000
To record retirement of serial bond issue.

EXERCISE 15-15

(Note to Instructor: The GASB Web site lists all of the pronouncements of the board. Individual stan-
dards can be purchased, but current exposure drafts and discussion memoranda can be obtained for
no fee. In addition, the GASB mission, board membership, and meeting schedules are found on the
site.)

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Ch. 15Problems

PROBLEMS

PROBLEM 15-1

(1) b Funds are used to separate reporting of the diverse variety of governmental activities and to
meet legal provisions stipulating use of resources imposed on the governmental unit.
(2) a The Governmental Accounting Standards Board is the authoritative body for financial reporting
standards used by state and local governments.
(3) b The GASB stipulated that the measurement focus for governmental funds is the flow of finan-
cial resources.
(4) c Interperiod equity seeks to determine whether current-year revenues are sufficient to pay for
current-year services or whether future taxpayers will be required to assume burdens for ser-
vices previously provided. The flow of financial resources measurement focus measures the
extent to which financial resources obtained during a period are sufficient to cover claims
incurred during that period against financial resources of a governmental fund. The GASB rec-
ognized that because budgetary and fund accounting practices cause costs of government ac-
tivities to be spread among a number of funds, general purpose financial reporting must also
include the measurement of the cost of services provided during a period.
(5) a Long-term debt used to purchase fixed assets is recorded in the general fund as an other fi-
nancial resource, but the debt itself is recorded in the general long-term debt account group.
(6) d Current standards specify that neither interest nor principal on long-term debt should be ac-
crued in advance of the year in which it is due. Governments may, however, opt to accrue prin-
cipal if resources are available in the debt service fund by year-end.
(7) b Reporting outstanding encumbrances as a fund balance reserve indicates that not all of the
resources in the fund are available for new expenditures.

PROBLEM 15-2

(1) a Encumbrance control is increased when an order is placed and decreased when the voucher is
recorded. When encumbrances are closed at year end, they are decreased.
(2) a Grants from outside units are revenues unless they require the prior recording of an expendi-
ture that is then reimbursed.
(3) c The appropriation still available for use is the original appropriation less expenditures and en-
cumbrances.
(4) c These notes are short-term operating debt that will be repaid out of current revenues.
(5) d When supplies are received, the original entry to encumber the estimated cost is reversed.
(6) b A hypothetical entry to record the tax levy is:
Taxes ReceivableCurrent ............................................... 100,000
Allowance for Uncollectible Current Taxes ................... 4,000
Revenues...................................................................... 96,000

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Ch. 15Problems

Problem 15-2, Concluded

Because revenues are estimated and recorded net of the uncollectible, a decrease in the al-
lowance is a revision (in this case an increase) of revenues. This is true even if the revenues
were recorded in a prior period.
(7) b Revenues are recognized when measurable and available to meet current-period expenditures.
This is interpreted to include collections of the current period or shortly after year-end (usually
within 60 days of year-end).
(8) a The general fixed assets account group records the fixed assets of governmental funds but not
proprietary funds or trust funds.
(9) c Expenditures are recorded when the liability is incurred. Under the modified accrual basis of
accounting, the noncurrent liability is recorded in the general long-term debt account group.
(10) d The fixed asset is recorded in the account group at its fair value with a credit to Investment in
General Fixed Assets identifying the original funding source.

PROBLEM 15-3

(1) At inception of the lease:


General Fund Expenditures ............................................................. 800,000
Other Financing Sources .................................... 800,000
To record the acquisition of the
equipment under capital lease.
General Leased Equipment ................................................... 800,000
Fixed Assets Investment in General Fixed
Account Group AssetsCapital Leases ................................. 800,000
To record the equipment.
General Amount to Be Provided ............................................. 800,000
Long-Term Capital Lease Obligation ..................................... 800,000
Debt Account To record the capital lease
Group obligation.

(2) First interest payment:


General Fund Expenditures (interest) ($800,000 6%) .................. 48,000
Expenditures (principal) ............................................ 60,694
Cash.................................................................... 108,694
To record the first lease payment
of principal and interest.
General Investment in General
Fixed Assets Fixed AssetsCapital Leases ............................ 80,000
Account Group Leased Equipment ........................................ 80,000
To record the depreciation on the
leased equipment (optional entry
under current standards).

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Ch. 15Problems

Problem 15-3, Concluded

General Capital Lease Obligation ........................................... 60,694


Long-Term Amount to Be Provided ....................................... 60,694
Debt Account To record the reduction of the lease principal.
Group Note: Each lease payment reduces the
principal balance of the obligation. Therefore,
each subsequent payment will allocate a
smaller portion to interest and a larger
portion to principal.

PROBLEM 15-4

(1) (a) Estimated Revenues ................................................................ 450,000


Appropriations ................................................................... 392,000
Budgetary Fund BalanceUnreserved............................. 58,000
To record budget.
Encumbrances .......................................................................... 16,000
Fund BalanceUnreserved, Undesignated ...................... 16,000
To reinstate encumbrance.

(b) Fund BalanceReserved for Encumbrances .......................... 16,000


Encumbrances .................................................................. 16,000
To reverse encumbrance entry.
Expenditures ............................................................................. 16,400
Vouchers Payable ............................................................. 16,400
To record voucher.

(c) Taxes ReceivableCurrent ..................................................... 300,000


Allowance for Uncollectible Current Taxes (4%) ............... 12,000
Revenues .......................................................................... 288,000
To record tax levy.

(d) Cash ......................................................................................... 409,600


Taxes ReceivableCurrent .............................................. 270,000
Taxes ReceivableDelinquent ......................................... 104,000
Interest and Penalties Receivable on Taxes ..................... 7,600
Due from Other Funds....................................................... 28,000
To record receipts.
Allowance for Uncollectible Delinquent Taxes .......................... 12,000
Allowance for Uncollectible Interest and Penalties ................... 800
Revenues ................................................................................. 3,600
Taxes ReceivableDelinquent ......................................... 16,000
Interest and Penalties Receivable on Taxes ..................... 400

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Ch. 15Problems

Problem 15-4, Concluded

(e) Encumbrances .......................................................................... 276,000


Fund BalanceReserved for Encumbrances ................... 276,000
To record encumbrances.
Supplies Inventory .................................................................... 16,000
Expenditures ............................................................................. 244,000
Vouchers Payable ............................................................. 260,000
To record vouchers.
Fund BalanceReserved for Encumbrances .......................... 254,000
Encumbrances .................................................................. 254,000
To record encumbrance entry.

(f) Expenditures ............................................................................. 50,000


Vouchers Payable .................................................................... 280,000
Cash .................................................................................. 330,000
To record payments.

(g) Expenditures ............................................................................. 16,000


Vouchers Payable ............................................................. 16,000
To record voucher for automobile.

(h) Expenditures ............................................................................. 10,000


Inventory of Supplies ......................................................... 10,000
To record use of inventory.
Fund BalanceUnreserved, Undesignated ............................. 6,000
Fund BalanceReserved for Inventory of Supplies ......... 6,000
To establish desired reserve.

(2) Appropriations .................................................................................. 392,000


Budgetary Fund BalanceUnreserved ........................................... 58,000
Estimated Revenues ................................................................ 450,000
Fund BalanceUnreserved, Undesignated .................................... 52,000
Revenues ......................................................................................... 284,400
Expenditures ............................................................................. 336,400
Fund BalanceUnreserved, Undesignated .................................... 22,000
Encumbrances .......................................................................... 22,000

(3) Statement of Revenues, Expenditures, and Changes in Fund Balance:


Revenues ..................................................................................................... $284,400
Expenditures ................................................................................................ 336,400
Excess of Revenues over Expenditures* ..................................................... $ (52,000)
Fund Balances, July 1, 20X8 ....................................................................... 76,000
Fund Balances, June 30, 20X9 .................................................................... $ 24,000
*In practice, this title remains as shown even though the result is negative (a deficit). However, al-
ternate wording, such as Excess of Expenditures over Revenues, could be used.

665
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Ch. 15Problems

PROBLEM 15-5

(a) Estimated Revenues .................................................................. 400,000


Estimated Other Financing Sources .......................................... 200,000
Appropriations ...................................................................... 560,000
Estimated Other Financing Uses ......................................... 20,000
Budgetary Fund BalanceUnreserved ............................... 20,000
Encumbrances ........................................................................... 12,000
Fund BalanceUnreserved, Undesignated......................... 12,000

(b) Taxes ReceivableCurrent ($220,800/96%) ............................ 230,000


Allowance for Uncollectible Current Taxes .......................... 9,200
Revenues ............................................................................. 220,800

(c) Encumbrances ........................................................................... 316,000


Fund BalanceReserved for Encumbrances ...................... 316,000

(d) Fund BalanceUnreserved, Undesignated .............................. 20,000


Fund BalanceDesignated for Capital Outlays................... 20,000

(e) Cash........................................................................................... 664,000


Allowance for Uncollectible Delinquent Taxes ........................... 8,000
Taxes ReceivableDelinquent ............................................ 46,000
Taxes ReceivableCurrent ................................................. 226,000
Expenditures ........................................................................ 4,000
Revenues ............................................................................. 178,000
Other Financing Sources ..................................................... 200,000
Other Financing Sources ..................................................... 18,000

(f) Fund BalanceReserved for Encumbrances ............................ 302,000


Encumbrances ..................................................................... 302,000
Expenditures .............................................................................. 308,000
Vouchers Payable ................................................................ 308,000

(g) Inventory .................................................................................... 40,000


Expenditures .............................................................................. 204,000
Other Financing Uses ................................................................ 20,000
Vouchers Payable ................................................................ 244,000
Due to Debt Service Fund .................................................... 20,000

(h) Revenues ................................................................................... 2,000


Deferred Revenues .............................................................. 2,000
Allowance for Uncollectible Current Taxes ................................ 5,200
Revenues ($226,000 $220,800)........................................ 5,200

666
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Ch. 15Problems

Problem 15-5, Concluded

(i) Vouchers Payable ...................................................................... 580,000


Cash ..................................................................................... 580,000

(j) Expenditures .............................................................................. 46,000


Inventory .............................................................................. 46,000
Fund BalanceReserved for Inventory ..................................... 6,000
Fund BalanceUnreserved, Undesignated......................... 6,000

PROBLEM 15-6

(1) (a) Estimated Revenues ................................................................ 900,000


Estimated Other Financing Sources ......................................... 27,000
Appropriations ................................................................... 875,000
Estimated Other Financing Uses....................................... 20,000
Budgetary Fund BalanceUnreserved............................. 32,000
To record the approved budget.
(b) Encumbrances .......................................................................... 15,000
Fund BalanceUnreserved, Undesignated ...................... 15,000
To return encumbered amount to fund balance.

(c) Taxes ReceivableCurrent ..................................................... 650,000


Allowance for Uncollectible Current Taxes........................ 6,500
Revenues .......................................................................... 643,500
To record tax levy.

(d) Fund BalanceReserved for Encumbrances .......................... 25,000


Encumbrances .................................................................. 25,000
To return reserve to unreserved balance.
Expenditures ............................................................................. 24,000
Vouchers Payable ............................................................. 24,000
To voucher invoices received.

(e) Cash ......................................................................................... 644,000


Taxes ReceivableCurrent .............................................. 624,000
Taxes ReceivableDelinquent ......................................... 20,000
To record receipt of property tax payments.
Taxes ReceivableDelinquent ................................................ 26,000
Allowance for Uncollectible Current Taxes ............................... 6,500
Taxes ReceivableCurrent .............................................. 26,000
Allowance for Uncollectible Delinquent Taxes .................. 6,500
To record delinquent taxes and reclassify related
estimated uncollectibles.

667
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Ch. 15Problems

Problem 15-6, Continued

Tax Liens Receivable ............................................................... 8,000


Allowance for Uncollectible Delinquent Taxes .......................... 3,000
Taxes ReceivableDelinquent ......................................... 8,000
Allowance for Uncollectible Tax Liens ............................... 3,000
To record tax liens and reclassify related
uncollectibles.

(f) Encumbrances .......................................................................... 700,000


Fund BalanceReserved for Encumbrances ................... 700,000
To record issuance of purchase orders.
Fund BalanceReserved for Encumbrances .......................... 680,000
Encumbrances .................................................................. 680,000
To reverse encumbrance entry for items invoiced.
Expenditures ............................................................................. 675,000
Supplies Inventory .................................................................... 10,000
Vouchers Payable ............................................................. 685,000
To voucher invoices received.

(g) Expenditures ............................................................................. 8,000


Supplies Inventory ............................................................. 8,000
To record consumption of inventory.
Fund BalanceUnreserved, Undesignated ............................. 2,000
Fund BalanceReserved for Inventory of Supplies ......... 2,000
To establish supplies reserve.

(h) Expenditures ............................................................................. 250,000


Cash .................................................................................. 250,000
To record purchase of land. (Also requires
entry in general fixed assets account group.)

(i) Cash ......................................................................................... 300,000


Due from State Government ..................................................... 60,000
Revenues .......................................................................... 360,000
To record federal and state revenues.

(j) Other Financing Uses ............................................................... 20,000


Cash .................................................................................. 20,000
To record transfers made to other funds.
(Requires entries in other funds.)

(k) Expenditures ............................................................................. 50,000


Cash .................................................................................. 50,000
To record mortgage payment. (Requires entry
in general long-term debt account group.)

668
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Ch. 15Problems

Problem 15-6, Continued

(l) Cash ......................................................................................... 100,000


Notes Receivable ..................................................................... 280,000
Other Financing Sources................................................... 250,000
Revenues .......................................................................... 130,000
To record sale of land. Only the $130,000 gain is
new revenue. (Requires entry in general fixed assets
account group.)

(m) Cash ......................................................................................... 23,000


Other Financing Sources................................................... 23,000
To record cash received from other funds.
(Requires entries in other funds.)

(n) Cash ......................................................................................... 285,600


Notes Receivable .............................................................. 280,000
Revenues ($280,000 8% 1/4 year) ............................ 5,600
To record cash received from developer.

(2) Appropriations .................................................................................. 875,000


Estimated Other Financing Uses ..................................................... 20,000
Budgetary Fund BalanceUnreserved ........................................... 32,000
Estimated Revenues ................................................................ 900,000
Estimated Other Financing Sources ......................................... 27,000
To reverse entry recording budget.
Revenues ......................................................................................... 1,139,100
Other Financing Sources ................................................................. 273,000
Expenditures ............................................................................. 1,007,000
Other Financing Uses ............................................................... 20,000
Fund BalanceUnreserved, Undesignated ............................. 385,100
Fund BalanceUnreserved, Undesignated .................................... 20,000
Encumbrances .......................................................................... 20,000
To close nominal accounts.

669
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Ch. 15Problems

Problem 15-6, Concluded

(3) City of Wautoma


General Fund
Budgetary Comparison Schedule
For Year Ended December 31, 20X9
Variance
Favorable
Budget Actual (Unfavorable)
Revenues .................................................................... $ 900,000 $1,139,100 $
239,100
Expenditures ............................................................... 875,000 1,007,000
(132,000)
Excess of revenues over expenditures ....................... $ 25,000 $ 132,100 $
107,100
Other financing sources .............................................. 27,000 273,000
246,000
Other financing uses ................................................... (20,000) (20,000)
0
Excess of revenues and other sources over
expenditures and other uses ................................. $ 32,000 $ 385,100 $
353,100
*Fund balances, January 1, 20X9 ................................ (165,000) (165,000)
0
*Fund balances, December 31, 20X9 .......................... $ (133,000) $ 220,100 $
353,100

January 1 December 31
*The total of the fund balances consists of:
Fund balancereserved for inventory ....................................... $ 0 $ 2,000
Fund balancereserved for encumbrances .............................. 15,000 20,000
Fund balanceunreserved, undesignated ................................ (180,000) 198,100
Total fund balances ............................................................ $ (165,000) $220,100

PROBLEM 15-7

(1) Year 1:

General Fund Expenditures............................................................. 5,000,000


Cash ................................................................... 5,000,000
To record the pension benefits
financed by current-year resources.

General
Long-Term Amount to Be Provided............................................. 1,000,000
Debt Account Unfunded Pension Obligation ............................. 1,000,000
Group To record the portion of the actuarial

670
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Ch. 15Problems

required contribution not financed in


the current period.

671
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Ch. 15Problems

Problem 15-7, Concluded

(2) Year 2:

General Fund Expenditures............................................................. 6,000,000


Cash ................................................................... 6,000,000
To record the pension benefits paid
in year 2.

General Unfunded Pension Obligation ................................... 500,000


Long-Term Amount to Be Provided ....................................... 500,000
Debt Account To record the payment of
Group $500,000 over the actuarial
required contribution in year 2.

PROBLEM 15-8

(1) Expenditures

(2) Investment in General Fixed AssetsCapital Leases

(3) Amount to Be Provided for Lease Payments ............................. 150,000


Capital Lease Payable ......................................................... 150,000

672
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Ch. 15Problems

PROBLEM 15-9

Entry in General Fixed


Entry in General Fund Assets Account Group
(a) Expenditures ........................... 80,000 Machinery and Equipment ................. 80,000
Voucher Payable ................ 80,000 Investment in General Fixed Assets
To record voucher. General Fund Revenues...... 80,000
To record purchase.

Fund Balances Reserved for


Encumbrances ................... 75,000
Encumbrances .............. 75,000
To reverse encumbrance.

(b) Cash ........................................ 6,000 Investment in General Fixed Assets


Other Financing Sources ... 6,000 General Fund Revenues ......... 15,000
To record proceeds Machinery and Equipment ....... 15,000
from equipment sale. To remove equipment sold.

(c) No entry. Land................................................... 100,000


Investment in General Fixed
AssetsDonations .................. 100,000
To record donated land.

Construction in Progress ................... 300,000


Investment in General Fixed
AssetsDonations .................. 300,000
To record partially finished
donated building.

(d) Expenditures ........................... 92,000 Investment in General Fixed Assets


Cash ................................... 92,000 Special Revenue Funds .......... 66,000
To record payment for Machinery and Equipment....... 66,000
snow plow. To remove traded snow plow.

Machinery and Equipment ................. 110,000


Investment in General Fixed
AssetsGeneral Fund
Revenues ................................ 110,000
To record new snow plow
acquired.

673
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Ch. 15Problems

PROBLEM 15-10

Trans- Fund or
action Group Entry

(a) GLTDAG Amount to Be Provided for Payment


of Term Bonds .................................................... 2,700,000
Term Bonds Payable .................................... 2,700,000

(b) General Other Financing Uses ............................................... 200,000


Fund Cash ................................................................... 200,000
GLTDAG Amount Available in Debt Service Funds
Term Bonds ........................................................ 200,000
Amount to Be Provided for Payment
of Term Bonds ........................................ 200,000

(c) General Other Financing Uses ............................................... 135,000


Fund Cash ................................................................... 135,000
GLTDAG Amount Available in Debt Service Funds
Serial Bonds ....................................................... 135,000
Amount to Be Provided for Payment
of Serial Bonds........................................ 135,000

(d) General Expenditures............................................................. 22,000


Fund Cash ................................................................... 22,000
GFAAG Equipment ................................................................ 25,000
Investment in General Fixed Assets
General Fund Revenues ............................... 25,000
Investment in General Fixed Assets
General Fund Revenues..................................... 15,000
Equipment ..................................................... 15,000

(e) GLTDAG Serial Bonds Payable ............................................... 135,000


Amount Available in Debt Service Funds
Serial Bonds ................................................. 135,000

(f) GFAAG Construction in Progress .......................................... 450,000


Investment in General Fixed Assets
Capital Projects Fund ................................... 450,000

674
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Ch. 15Problems

PROBLEM 15-11

(1) (a) Buildings ................................................................................... 850,000


Construction in Progress ................................................... 250,000
Investment in General Fixed Assets
Capital Projects Funds ............................................... 600,000
To record completion of new school.

(b) Land .......................................................................................... 140,000


Investment in General Fixed AssetsDonations .............. 140,000
To record donation of land.

(c) Proprietary funds maintain their own record of fixed assets as will be illustrated in the next
chapter. These business-type activities will not be recorded in the general fixed assets account
group, but will be shown on the capital assets schedule.

(d) Machinery and Equipment ........................................................ 120,000


Investment in General Fixed Assets
General Fund Revenues ............................................ 120,000
To record purchase of new engine.
Investment in General Fixed AssetsGeneral
Fund Revenues ................................................................. 65,000
Machinery and Equipment ......................................... 65,000
To record trade-in of old engine.

(e) Buildings ................................................................................... 40,000


Investment in General Fixed Assets
General Fund Revenues ............................................ 40,000
To record capital improvements on city hall.

(f) Infrastructure Assets ................................................................. 20,000


Investment in General Fixed Assets
Special Revenue Funds ............................................. 20,000
To record improvements other than buildings.

(g) Investment in General Fixed Assets ......................................... 175,000


Accumulated DepreciationBuildings .............................. 100,000
Accumulated DepreciationMachinery and Equipment ... 50,000
Accumulated DepreciationInfrastructure........................ 25,000

675
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Ch. 15Problems

Problem 15-11, Concluded

(2) City of Elmwood


Schedule of Capital Assets
December 31, 20X9
Beg. Balance Additions Retirements End. Balance
Governmental activities:
Land .................................................. $1,000,000 $ 140,000
$1,140,000
Buildings............................................ 2,150,000 890,000
3,040,000
Construction in progress ................... 250,000 $ 250,000
0
Machinery and equipment ................. 800,000 120,000 65,000
855,000
Infrastructure assets.......................... 1,400,000 20,000
1,420,000
Total general fixed assets ........... $5,600,000 $1,170,000 $ 315,000
$6,455,000
Less accumulated depreciation:
Buildings............................................ $ 400,000 $ 100,000 $
500,000
Machinery and equipment ................. 300,000 50,000
350,000
Infrastructure ..................................... 500,000 25,000
525,000
Total depreciation ........................ $1,200,000 $ 175,000 $ 0
$1,375,000
Governmental capital assets ................... $4,400,000 $ 995,000 $ 315,000
$5,080,000

PROBLEM 15-12

(1) (a) 20X4


July 1 Amount to Be Provided for Payment of Term Bonds ........... 1,500,000
Term Bonds Payable ...................................................... 1,500,000
To record issuance of term bonds for school project.

(b) 20X6
Jan. 1 Amount to Be Provided for Payment of Serial Bonds ........... 1,000,000
Serial Bonds Payable ..................................................... 1,000,000
To record issuance of serial bonds to finance city
hall and center.
2 Amount Available in Debt Service FundsSerial Bonds ..... 70,000
Amount to Be Provided for Payment of Serial Bonds ..... 70,000
To record January 2, 20X6, deposit in debt service
fund. The same entry would be repeated at the
beginning of each year until maturity.

676
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Ch. 15Problems

677
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Ch. 15Problems

Problem 15-12, Continued

Dec. 31 Amount Available in Debt Service FundsSerial Bonds ..... 5,600


Amount to Be Provided for Payment of Serial Bonds ..... 5,600
To record 20X6 earnings of sinking fund
($70,000 8%). This same entry would be
repeated at the end of each year, using the
following annual earnings:

Serial Annual Cumulative Annual Amount Available


Redemption Deposit Balance Earnings for Serial Bond
Year January 1 January 2 January 2 at 8% Redemption December 31
20X6 $70,000 $ 70,000 $ 5,600$ 75,600
20X7 70,000 145,600 11,648 157,248
20X8 70,000 227,248 18,180 245,428
20X9 $100,000 70,000 215,428 17,234 232,662

20X9
Jan. 1 Serial Bonds Payable ........................................................... 100,000
Amount Available in Debt Service Funds
Serial Bonds ............................................................. 100,000
To record retirement of serial bonds
maturing January 1, 20X9.

(c) No entry in general long-term debt account group, because proprietary funds maintain their own
records of long-term debt.

(d) 20X7
Jan. 1 Amount to Be Provided for Payment of Term Bonds ........... 400,000
Term Bonds Payable ...................................................... 400,000
To record issuance of term bonds.

Note: The following entry would be made annually to record the contribution to the sinking fund:
Amount Available in Debt Service FundsTerm Bonds ...... 40,000
Amount to Be Provided for Payment of Term Bonds...... 40,000

Note: The general long-term debt account group would not record the earnings of the sinking fund
because they are to be applied to the semiannual interest payments.

678
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Ch. 15Problems

Problem 15-12, Concluded

(2) City of Chester


Schedule of General Long-Term Debt
December 31, 20X9
General Long-Term Debt
Beg. Balance Additions Deductions End. Balance
Term bonds payable .......................... $1,900,000 $ 0
$1,900,000
Serial bonds payable ......................... 1,000,000 0 $100,000
900,000
Total general long-term debt payable $2,900,000 $ 0 $100,000
$2,800,000

PROBLEM 15-13

(1) Purchase MethodThe purchase method is the preferred accounting treatment. When the pur-
chase method is used, a portion of the fund balance is reserved for the amount in inventory at
year-end. This reflects the expected expenditure in future periods as inventory is consumed or ex-
pended.
(2) $79,000 = $21,000 reserved for supplies (equal to the inventory balance as of December 31,
20X8) and $58,000 ($43,000 + $15,000) reserved for encumbrance.
(3) $811,000 = $825,000 less $14,000 net balance in receivables.
(4) $89,000Vouchers payable is the amount due suppliers.
(5) $100,000The capital outlay expenditures amount is capitalized in the general fixed assets ac-
count group.
(6) $52,000The debt service principal is calculated as $74,000 debt service expenditures less
$22,000 interest amount.
(7) $1,392,000 = $1,349,000 expenditures for 20X9 + $43,000 open encumbrances.

679
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Ch. 15Problems

PROBLEM 15-14

(1) Croix Township


General Fund Worksheet
For Six Months Ended June 30, 20X8
Revenues and
Trial Balance Operating Entries Expenditures Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash ................................................................................ 45,000 .......... (b) 120,000 (h) 204,000 ............ ............... ................
........................................................................................
.......... .......... (d) 4,000 ............... ............ ............ ............... ................
.......... .......... (f) 344,000 ............... ............ ............ 309,000...
Taxes ReceivableDelinquent ....................................... 20,000 .......... ............... (f) 20,000 ............ ............ ............... ................
Allowance for Uncollectible Delinquent Taxes ................. .......... 2,000 (f) 2,000 ............... ............ ............ ............... ................
Tax Liens Receivable ...................................................... 4,000 .......... ............... (d) 4,000 ............ ............ ............... ................
Allowance for Uncollectible Tax Liens ............................. .......... 1,000 (d) 1,000 ............... ............ ............ ............... ................
Due from Parks Fund ...................................................... 12,000 .......... ............... (f) 11,000 ............ ............ 1,000 ..............
Inventory of Supplies ....................................................... 5,000 .......... (g) 26,000 (i) 10,000 . ............ 21,000.....
Vouchers Payable ........................................................... .......... 43,000 (h) 151,000 (g) 186,000 ............ ...............
............................................................................. 78,000
Due to Utility Fund ........................................................... .......... 4,000 (h) 4,000 ............... ............ ............ ............... ................
Fund BalanceReserved for Supplies Inventory ............ .......... 5,000 ............... (i) 16,000 ............ ............ ............... 21,000
Fund BalanceUnreserved, Undesignated .................... .......... 31,000 (i) 16,000 ............... ............ ............ ...............
............................................................................. 15,000
86,000 86,000 ............... ............... ............ ............ ............... ................
Tax Anticipation Notes Payable ...................................... .......... .......... ............... (b) 120,000 ............ ............ ............... 120,000
Estimated Revenues ....................................................... .......... .......... (a) 655,000 ............... ............ ............ 655,000...
Estimated Other Financing Uses ..................................... .......... .......... ............... (a) 27,000 ............ ............ ............... 27,000
Appropriations ................................................................. .......... .......... ............... (a) 620,000 ............ ............ ............... 620,000
Budgetary Fund BalanceUnreserved ........................... .......... .......... ............... (a) 8,000 ............ ............ ............... 8,000
Taxes ReceivableCurrent ............................................ .......... .......... (c) 430,000 (f) 290,000 ............ .... 140,000
........................................................................................
Allowance for Uncollectible Current Taxes ...................... .......... .......... ............... (c) 8,600 ............ ............ ............... 8,600
Revenues ........................................................................ .......... .......... ............... (c) 421,400 ............ ............ ............... ................
.......... .......... ............... (d) 1,000 ............ ............ ............... ................
.......... .......... ............... (f) 2,000 ............ ............ ............... ................
.......... .......... ............... (f) 23,000 ............ 447,400 ............... ................
Expenditures ................................................................... .......... .......... (i) 10,000 ............... ............ ............ ............... ................
.......... .......... (g) 160,000 ............... ............ ............ ............... ................
.......... .......... (h) 49,000 ............... 219,000 ............... ................

Encumbrances ................................................................ .......... .......... (e) 250,000 (g) 183,000 ............ ...... 67,000
........................................................................................

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Ch. 15Problems

Fund BalanceReserved for Encumbrances ................. .......... .......... (g) 183,000 (e) 250,000 ............ ...............
............................................................................. 67,000
Excess of Revenues over Expenditures .......................... .......... .......... ............... ............... 228,400 .......... ...............
........................................................................... 228,400
.......... .......... 2,405,000 2,405,000447,400 447,400 1,193,000
1,193,000

681
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Ch. 15Problems

Problem 15-14, Concluded

(2) Croix Township


General Fund Balance Sheet
June 30, 20X8

Assets and Resources


Current Assets:
Cash................................................................................................. $309,000
Taxes receivablecurrent ............................................................... $140,000
Less: Allowance for uncollectible current taxes ......................... 8,600 131,400
Due from Parks Fund ....................................................................... 1,000
Inventory and supplies ..................................................................... 21,000
Total current assets.................................................................... $462,400

Liabilities and Fund Equity


Liabilities:
Tax anticipation notes payable ........................................................ $120,000
Vouchers payable ............................................................................ 78,000
Total liabilities............................................................................. $198,000
Fund Balances:
Reserved for encumbrances ............................................................ $ 67,000
Reserved for supplies ...................................................................... 21,000
Unreserved ...................................................................................... 176,400
Total fund balance...................................................................... 264,400
Total liabilities and fund equity ................................................... $462,400

682
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Ch. 15Problems

683