Chapter 16, Problem 41P

Following are descriptions of transactions and other financial events for the City of Tetris for the year ending December 2017. Not all transactions have been included here. Only the general fund formally records a budget. No encumbrances were carried over from 2016.

Paid salary for police officers	$ 21,000
Received government grant to pay ambulance drivers	40,000
Estimated revenues	232,000
Received invoices for rent on equipment used by fire department during last four months of the year	3,000
Paid for newly constructed city hall	1,044,000
Made commitment to acquire ambulance	111,000
Received cash from bonds sold for construction purposes	300,000
Placed order for new sanitation truck	154,000
Paid salary to ambulance drivers—money derived from state government grant given for that purpose	24,000
Paid for supplies for school system	16,000
Made transfer from General Fund to eventually pay off a long-term debt	33,000
Received but did not pay for new ambulance	120,000
Levied property tax receivables for 2017. City anticipates that 95% ($ 190,000) will be collected during the year and 5% will be uncollectible	200,000
Acquired and paid for new school bus	40,000
Received cash from business licenses and parking meters (not previously accrued)	14,000
Approved appropriations	225,000

 The following questions are independent although each is based on the preceding information. Assume that the government is preparing information for its fund financial statements.

1. a. What is the balance in the Budgetary Fund Balance account for the budget for the year? Is it a debit or credit?
2. b. Assume that 60 percent of the school supplies are used during the year so that 40 percent remain. If the consumption method is being applied, how is this recorded?
3. c. The sanitation truck that was ordered was not received before the end of the year. The commitment will be honored in the subsequent year when the truck arrives. What reporting is made at the end of 2015?
4. d. Assume that new ambulance was received on December 31, 2017. Provide all necessary journal entries on that date.
5. e. Prepare all journal entries that should have been made when the $33,000 transfer was made for the eventual payment of a long-term debt.
6. f. What amount of revenue would be recognized for the period? Explain the composition of this total.
7. g. What are the total expenditures? Explain the makeup of this total. Include response to (b) here.
8. h. What journal entry or entries were prepared when the bonds were issued?

To determine

Find the balance in the Budgetary Fund Balance account for the budget for the year.

Explanation of Solution

The balance in the Budgetary Fund Balance account for the budget for the year:

Particulars	Amount
Estimated Revenues	$       232,000
Appropriations	$     (225,000)
Budgetary Fund Balance	$           7,000

Table: (1)

The amount of appropriations is more than that of estimated revenues. Thus, the balance of fund is credit balance.

To determine

Explain if the consumption method is being applied, how this is recorded.

Explanation of Solution

The amount which is currently being used is recorded as an asset under the consumption method. The 40% amount is not being used which will be transferred to the Fund Balance-Unassigned.

Computation of the amount of supplies being used currently:

$\begin{array}{c}\text{Currently}\text{used}\text{=}\text{Supplies}\text{×}\text{60\%}\\ =\$16,000\times 0.60\\ =\$9,600\end{array}$

To determine

Identify the reporting which is made at the end of 2015.

Explanation of Solution

The truck is being purchased at the end of year due to which it will be delivered in the next year. Thus, the amount of encumbrances and the Fund Balance-Reserved for encumbrances will be eliminated from the reporting as there had been no transaction. Earlier the encumbrance was recorded in order to reserve the amount for specific purpose.

To determine

Provide all necessary journal entries on that date.

Explanation of Solution

The journal entries as on December 31, 2107 are as follows:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
12/31/2017	Fund Balance-Reserved for encumbrances		$   111,000
	Encumbrances			$   111,000
	(being encumbrance removed)
	Expenditures Control		$   120,000
	Vouchers Payable			$   120,000
	(being expenditures control recorded)

Table: (2)

To determine

Prepare all journal entries that should have been made when the $33,000 transfer was made for the eventual payment of a long-term debt.

Explanation of Solution

The journal entries that should have been made when the $33,000 transfer was made for the eventual payment of a long-term debt:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
12/31/2017	Other Financing Uses-Transfer Out		33,000
	Cash			33,000
	(being the other financing used recorded)
	Cash		33,000
	Other Financing Sources-Transfer in			33,000
	(being the other financing used recorded)

Table: (3)

To determine

Find the amount of revenue which would be recognized for the period. Explain the composition of this total.

Explanation of Solution

The amount of revenue which would be recognized for the period:

Particulars	Amount
Property tax collected	$       190,000
Cash received from business licenses	$         14,000
Grant for ambulance drivers	$         24,000
Total revenues	$       228,000

Table: (4)

To determine

Find the total expenditures. Explain the makeup of this total.

Explanation of Solution

Computation of the total expenditures:

Particulars	Amount
Paid salaries to police officers	$         21,000
Salaries paid to ambulance drivers	$         24,000
Equipment rental	$           3,000
Cost of used supplies	$           9,600
New school bus acquired	$         40,000
New ambulance acquired	$       120,000
New C' Hall acquired	$    1,044,000
Total expenditure	$    1,261,600

Table: (5)

To determine

Identify the journal entry or entries which were prepared when the bonds were issued.

Explanation of Solution

The journal entry or entries which were prepared when the bonds were issued:

Date	Account Title and Explanation	Post ref.	Debit ($)	Credit ($)
	Cash		300,000
	Other Financing Uses			300,000
	(being the other financing used recorded)

Table: (6)