Chapter 4, Problem 27EP

 The City of Castleton’s General Fund had the following post-closing trial balance at June 30, 2019, the end of its fiscal year:

 During the year ended June 30, 2020, the following transactions, in summary form, with subsidiary ledger detail omitted, occurred:

1. 1. The budget for FY 2020 provided for General Fund estimated revenues totaling $3,140,000 and appropriations totaling $3,100,000.
2. 2. The city council authorized temporary borrowing of $500,000 in the form of a 120-day tax anticipation note. The loan was obtained from a local bank at a discount of 6 percent per annum (debit Expenditures for the discount in the General Fund journal and Expenses—General Government in the governmental activities journal).
3. 3. The property tax levy for FY 2020 was recorded. Net assessed valuation of taxable property for the year was $43,000,000, and the tax rate was $5 per $100. It was estimated that 3 percent of the levy would be uncollectible.
4. 4. Purchase orders and contracts were issued to vendors and others in the amount of $2,060,000.
5. 5. $1,961,000 of current taxes, $103,270 of delinquent taxes, and $3,570 of interest and penalties were collected. The delinquent taxes and associated interest and penalties were collected more than 60 days after the prior year-end.
6. 6. Additional interest and penalties on delinquent taxes were accrued in the amount of $3,430, of which 30 percent was estimated to be uncollectible.
7. 7. Because of a change in state law, the city was notified that it will receive $80,000 less in intergovernmental revenues than was budgeted.
8. 8. Delinquent taxes of $12,792 were deemed uncollectible and written off. The associated interest and penalties of $952 also were written off.
9. 9. Total payroll during the year was $819,490. Of that amount, $62,690 was withheld for employees’ FICA tax liability, $103,710 for employees’ federal income tax liability, and $34,400 for state taxes; the balance was paid to employees in cash.
10. 10. The employer’s FICA tax liability was recorded for $62,690.
11. 11. Revenues from sources other than taxes were collected in the amount of $947,000.
12. 12. Amounts due the federal government as of June 30, 2020, and amounts due for FICA taxes and state and federal withholding taxes during the year were vouchered.
13. 13. Purchase orders and contracts encumbered in the amount of $1,988,040 were filled at a net cost of $1,987,570, which was vouchered.
14. 14. Vouchers payable totaling $2,201,660 were paid after deducting a credit for purchases discount of $8,030 (credit Expenditures).
15. 15. The tax anticipation note of $500,000 was repaid.
16. 16. All unpaid current year’s property taxes became delinquent. The balances of the current taxes receivables and related uncollectibles were transferred to delinquent accounts. The City uses the 60-day rule for all revenues and does not expect to collect any delinquent property taxes or interest and penalties in the first 60 days of the next fiscal year.
17. 17. A physical inventory of materials and supplies at June 30, 2020, showed a total of $9,100. Inventory is recorded using the purchases method in the General Fund; the consumption method is used at the government-wide level. (Note: A periodic inventory system is used both in the General Fund and at the government-wide level. When inventory was purchased during the year, Expenditures were debited in the General Fund journal and Inventory of Supplies was debited in the governmental activities journal.)

    Required

18. a.      Record in general journal form the effect of the above transactions on the General Fund and governmental activities for the year ended June 30, 2020. Do not record subsidiary ledger debits and credits.
19. b.      Record in general journal form entries to close the budgetary and operating statement accounts in the General Fund only. Do not close the governmental activities accounts.
20. c.       Prepare a General Fund balance sheet as of June 30, 2020.
21. d.      Prepare a statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 2020. Do not prepare the government-wide financial statements.

To determine

Journalize the given transactions in General Fund and governmental activities in the general journals for the year ended June 30, 2020.

Explanation of Solution

General Fund: The chief operating fund of state and local government used to record the departmental operating activities and government support services is referred to as General Fund, or General Operating Fund, or General Revenue Fund. The activities recorded in General Funds are police, fire, public works, recreation, education, culture, social services, city office, finance, personnel, and data processing.

Journalize the given transactions in General Fund and governmental activities in the general journals for the year ended June 30, 2020.

1.

Entry to record estimated revenues and appropriations:

		General Ledger
		Debits	Credits
General Fund:
Estimated Revenues		$3,140,000
	Appropriations		$3,100,000
	Budgetary Fund Balance		40,000

Table (1)

2.

Entry to record the receipt of temporary borrowing as loan:

		General Ledger
		Debits	Credits
General Fund:
Cash		$490,000
Expenditures–2020		$10,000
	Tax Anticipation Notes Payable		$500,000
Governmental Activities:
Cash		$490,000
Expenses–General Government		$10,000
	Tax Anticipation Notes Payable		$500,000

Table (2)

Note: The local bank charged 6% discount per year on the temporary borrowing of $500,000 which amounts to $10,000$\left(\text{\$500,000×6\%×}\left(\text{120 days÷360 days}\right)\right)$ is reported as Expenditures.

3.

Entries to record property tax levy:

		General Ledger
		Debits	Credits
General Fund:
Taxes Receivable–Current		$2,150,000
	Allowance for Uncollectible Current Taxes		$64,500
	Revenues		$2,085,500
Governmental Activities:
Taxes Receivable–Current		$2,150,000
	Allowance for Uncollectible Current Taxes		$64,500
	Revenues		$2,085,500

Table (3)

Working Notes:

Compute gross tax levied.

$\begin{array}{c}\text{Gross tax levy = Assessed valuation×Tax rate}\\ \text{=\$43,000,000×}\frac{\text{\$5}}{\text{\$100}}\\ \text{=\$2,150,000}\end{array}$

Compute uncollectible taxes.

$\begin{array}{c}\text{Uncollectible taxes = Gross levy×Uncollectible percentage}\\ \text{=\$2,150,000×3\%}\\ \text{=\$64,500}\end{array}$

4.

Entry to record supplies ordered at an estimated cost:

		General Ledger
		Debits	Credits
General Fund:
Encumbrances–2020		$2,060,000
	Encumbrances Outstanding–2020		$2,060,000

Table (4)

5.

Entry to record collection of delinquent taxes, interest, and penalties:

		General Ledger
		Debits	Credits
General Fund and Governmental Activities:
Cash		$2,067,840
	Taxes Receivable–Current		$1,961,000
	Taxes Receivable–Delinquent		$103,270
	Interest and Penalties Receivable on Taxes		$3,570
General Fund:
Deferred Inflows of Resources–Unavailable Revenues		$106,840
	Revenues		$106,840

Note: The delinquent taxes and interest and penalties are recorded as Deferred Inflows of Resources–Unavailable Revenues because those taxes are collected after 60-day after the end of prior period.

Table (5)

6.

Entry to record accrued interest and penalties:

		General Ledger
		Debits	Credits
General Fund:
Interest and Penalties Receivable on Taxes		$3,430
	Allowance for Uncollectible Interest and Penalties		$1,029
	Revenues		$2,401
Governmental Activities:
Interest and Penalties Receivable on Taxes		$3,430
	Allowance for Uncollectible Interest and Penalties		$1,029
	General Revenues–Interest and Penalties on Delinquent Taxes		$2,401

Table (6)

7.

Entry to record decrease in the revenues than was budgeted:

		General Ledger
		Debits	Credits
General Fund:
Budgetary Fund Balance		$80,000
	Estimated Revenues		$80,000

Table (7)

8.

Entry to record delinquent taxes, interest and penalties as uncollectible and written off:

		General Ledger
		Debits	Credits
General Fund and Governmental Activities:
Allowance for Uncollectible Delinquent Taxes		$12,792
Allowance for Uncollectible Interest and Penalties		$952
	Taxes Receivable–Delinquent		$12,792
	Interest and Penalties Receivable on Taxes		$952

Table (8)

9.

Entry to record payment of payroll taxes:

		General Ledger
		Debits	Credits
General Fund:
Expenditures–2020		$819,490
	Due to Federal Government		$166,400
	Due to State Government		$34,400
	Cash		$618,690
Governmental Activities:
Expenses		$819,490
	Due to Federal Government		$166,400
	Due to State Government		$34,400
	Cash		$618,690

Table (9)

10.

Entry to record employer’s FICA tax liability:

		General Ledger
		Debits	Credits
General Fund:
Expenditures–2020		$62,690
	Due to Federal Government		$62,690
Governmental Activities:
Expenses		$62,690
	Due to Federal Government		$62,690

Table (10)

11.

Entry to record revenues other than taxes:

		General Ledger
		Debits	Credits
General Fund:
Cash		$947,000
	Revenues		$947,000
Governmental Activities:
Cash		$947,000
	Revenues (program or general)		$947,000

Table (11)

12.

Entry to record FICA and state and federal withholding taxes:

		General Ledger
		Debits	Credits
General Fund and Governmental Activities:
Due to Federal Government		$258,580
Due to State Government		$34,400
	Vouchers Payable		$292,980

Table (12)

13.

Entry to record purchase orders encumbered:

		General Ledger
		Debits	Credits
General Fund:
Encumbrances Outstanding–2020		$1,988,040
	Encumbrances–2020		$1,988,040
Expenditures–2020		$1,987,570
	Vouchers Payable		$1,987,570
Governmental Activities:
Expenses		$1,987,570
	Vouchers Payable		$1,987,570

Table (13)

14.

Entry to record payment of vouchers payable:

		General Ledger
		Debits	Credits
General Fund:
Vouchers Payable		$2,201,660
	Cash		$2,193,630
	Expenditures–2020		$8,030
Governmental Activities:
Vouchers Payable		$2,201,660
	Cash		$2,193,630
	Expenses		$8,030

Table (14)

15.

Entry to record the repayment of the tax anticipation notes:

		General Ledger
		Debits	Credits
General Fund and Governmental Activities:
Tax Anticipation Notes Payable		$500,000
	Cash		$500,000

Table (15)

16.

Entries to record reclassification of uncollected taxes as delinquent taxes:

		General Ledger
		Debits	Credits
General Fund and Governmental Activities:
Taxes Receivable–Delinquent		$189,000
Allowance for Uncollectible Current Taxes		$64,500
	Taxes Receivable–Current		$189,000
	Allowance for Uncollectible Delinquent Taxes		$64,500
General Fund:
Revenues		$126,901
	Deferred Inflows of Resources–Unavailable Revenues		$126,901

Table (16)

Note: The uncollected taxes amount to $189,000$\left(\$2,150,000–\$1,961,000\right)$. The uncollected taxes are reclassified as delinquent taxes, or taxes that are receivable, hence, classified as revenues, $126,901$\left(\left(\$189,000–\$64,500\right)+\$2,401\right)$.

17.

Entry to record the repayment of the tax anticipation notes:

		General Ledger
		Debits	Credits
General Fund:
Inventory Supplies		$3,000
	Fund Balance–Nonspendable–Inventory of Supplies		$3,000

Table (17)

To determine

Prepare journal entries to close budgetary and operating statement accounts in the General Fund.

Explanation of Solution

Prepare journal entries to close budgetary and operating statement accounts in the General Fund.

		General Ledger
		Debits	Credits
General Fund:
Appropriations		$3,100,000
	Estimated Revenues		$3,060,000
	Budgetary Fund Balance		$40,000
Revenues		$3,014,840
	Expenditures–2020		$2,871,720
	Fund Balance–Unassigned		$143,120

Table (18)

To determine

Prepare General Fund balance sheet of City C as of June 30, 2020.

Explanation of Solution

General Fund balance sheet: This is the financial statement that reports the financial position of the General Fund, and includes the sections assets, liabilities, deferred inflows of resources, and fund balances.

Prepare General Fund balance sheet of City C as of June 30, 2020.

City C
General Fund Balance Sheet
As of June 30, 2020
Assets
Cash		$468,640
Taxes receivable–Delinquent	$255,938
Less: Allowance for uncollectible taxes–Delinquent	$73,668	$182,270
Interest and penalties receivable	$5,188
Less: Allowance for uncollectible interest and penalties	$1,237	$3,951
Inventory of supplies		$9,100
Total Assets		$663,961
Liabilities, Deferred Inflows of Resources and Fund Balances
Liabilities and deferred inflows of resources:
Vouchers payable		$127,390
Deferred inflows of resources–Unavailable revenues		$186,221
Total liabilities and deferred inflows of resources		$313,611
Fund balances:
Nonspendable–inventory of supplies	$9,100
Unassigned	$341,250
Total fund balances		$350,350
Total liabilities, deferred inflows of resources, and fund balances		$663,961

Table (19)

To determine

Prepare a statement of revenues, expenditures, and changes in fund balance of General Fund for City C for the year ended June 30, 2020.

Explanation of Solution

Statement of revenues, expenditures, and changes in fund balance: This is the operating statement that accounts for the revenues and expenditures, and changes in the fund balances of the governmental funds.

Prepare a statement of revenues, expenditures, and changes in fund balance of General Fund for City C for the year ended June 30, 2020.

City C
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended June 30, 2020
Revenues
Taxes	$2,064,270
Interest and penalties on taxes	3,570
Other sources	947,000
Total Revenues	$3,014,840
Expenditures
Salaries and wages	$882,180
Interest on note payable	10,000
Other	1,979,540
Total Expenditures	$2,871,720
Excess (deficiency) of revenues over expenditures	143,120
Increase in inventory of supplies	3,000
Fund balances–January 1, 2020	204,230
Fund Balances–December 31, 2020	$350,350

Table (20)