The dual objectives of assessing interperiod equity and ensuring budgetary compliance may necessitate different accounting practices. A city engages in the transactions that follow. For each transaction, indicate the amount of revenue or expenditure that it should report in 2020. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a “modified” cash basis (that is, it expands the definition of cash to include short‐term marketable securities), and its fiscal year ends on December 31. Employees earned $128,000 in salaries and wages for the last five days in December 2020. They were paid on January 5, 2021. A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225,000 to its firefighters' pension fund for benefits earned in 2020. However, the city contributed only $170,000, the amount budgeted at the start of the year. The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years. On December 1, 2020, the city invested $99,000 in short‐term commercial paper (promissory notes). The notes matured on January 1, 2021. The city received $100,000. The $1,000 difference between the two amounts represents the city's return (interest) on the investment. On January 3, 2020, the city acquired a new $10 million office building, financing it with 25‐year serial bonds. The bonds are to be repaid evenly over the period they are outstanding—that is, $400,000 per year. The useful life of the building is 25 years. On January 4, 2020, the city acquired another $10 million office building, financing this facility with 25‐year term bonds. These bonds will be repaid entirely when they mature on January 1, 2042. The useful life of this building is also 25 years. City restaurants are required to pay a $1,200 annual license fee, the proceeds of which the city uses to fund its restaurant inspection program. The license covers the period July 1 through June 30. In 2020, the city collected $120,000 in fees for the license period beginning July 1, 2020. The city borrowed $300,000 in November 2020 to cover a temporary shortage of cash. It expects to repay the loan in February 2021.

The dual objectives of assessing interperiod equity and ensuring budgetary compliance may necessitate different accounting practices. A city engages in the transactions that follow. For each transaction, indicate the amount of revenue or expenditure that it should report in 2020. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a “modified” cash basis (that is, it expands the definition of cash to include short‐term marketable securities), and its fiscal year ends on December 31. Employees earned $128,000 in salaries and wages for the last five days in December 2020. They were paid on January 5, 2021. A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225,000 to its firefighters' pension fund for benefits earned in 2020. However, the city contributed only $170,000, the amount budgeted at the start of the year. The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years. On December 1, 2020, the city invested $99,000 in short‐term commercial paper (promissory notes). The notes matured on January 1, 2021. The city received $100,000. The $1,000 difference between the two amounts represents the city's return (interest) on the investment. On January 3, 2020, the city acquired a new $10 million office building, financing it with 25‐year serial bonds. The bonds are to be repaid evenly over the period they are outstanding—that is, $400,000 per year. The useful life of the building is 25 years. On January 4, 2020, the city acquired another $10 million office building, financing this facility with 25‐year term bonds. These bonds will be repaid entirely when they mature on January 1, 2042. The useful life of this building is also 25 years. City restaurants are required to pay a $1,200 annual license fee, the proceeds of which the city uses to fund its restaurant inspection program. The license covers the period July 1 through June 30. In 2020, the city collected $120,000 in fees for the license period beginning July 1, 2020. The city borrowed $300,000 in November 2020 to cover a temporary shortage of cash. It expects to repay the loan in February 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The dual objectives of assessing interperiod equity and ensuring budgetary compliance may necessitate different accounting practices.

A city engages in the transactions that follow. For each transaction, indicate the amount of revenue or expenditure that it should report in 2020. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a “modified” cash basis (that is, it expands the definition of cash to include short‐term marketable securities), and its fiscal year ends on December 31.

Employees earned $128,000 in salaries and wages for the last five days in December 2020. They were paid on January 5, 2021.
A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225,000 to its firefighters' pension fund for benefits earned in 2020. However, the city contributed only $170,000, the amount budgeted at the start of the year.
The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years.
On December 1, 2020, the city invested $99,000 in short‐term commercial paper (promissory notes). The notes matured on January 1, 2021. The city received $100,000. The $1,000 difference between the two amounts represents the city's return (interest) on the investment.
On January 3, 2020, the city acquired a new $10 million office building, financing it with 25‐year serial bonds. The bonds are to be repaid evenly over the period they are outstanding—that is, $400,000 per year. The useful life of the building is 25 years.
On January 4, 2020, the city acquired another $10 million office building, financing this facility with 25‐year term bonds. These bonds will be repaid entirely when they mature on January 1, 2042. The useful life of this building is also 25 years.
City restaurants are required to pay a $1,200 annual license fee, the proceeds of which the city uses to fund its restaurant inspection program. The license covers the period July 1 through June 30. In 2020, the city collected $120,000 in fees for the license period beginning July 1, 2020.
The city borrowed $300,000 in November 2020 to cover a temporary shortage of cash. It expects to repay the loan in February 2021.

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