Exam 5: Recognizing Expenditures in Governmental Funds

Star City leased a bulldozer for use in activities accounted for in the general fund. The city paid $40,000 and agreed to pay $40,000 per year for 3 years. The bulldozer has a useful life of six years. The lease qualified as a capital lease. Assuming that the city maintains is books and records in a manner that facilitates the preparation of the fund financial statements, the appropriate entry in the general fund at the date of acquisition would be

The construction of a bike path in Bay City was accounted for in a capital projects fund. Financing for the project came from the following sources: Transfer from Bay City's general fund $ 10,000 Proceeds from general obligation bond issue $100,000 Grant from state government $ 50,000 Which of the following amounts should appear in this year's governmental funds statement of revenues, expenditures, and changes in fund balances for other financing sources?

Janet Township decides to rent a vacant garage to provide extra parking space for police vehicles, beginning June 1, 2019. The rental is to be accounted for in the general fund. The township pays $24,000 in advance for two years rent. The city's fiscal year ends on December 31. A. Assume that the township uses the purchases method to account for prepayments. Prepare 1. The journal entry to record the rental on June 1, 2019. 2. Any required journal entries on December 31, 2019. 3. Any required journal entries on December 31, 2020. B. Assume that the township uses the consumption method to account for prepayments. Prepare 1. The journal entry to record the rental on June 1, 2019. 2. Any required journal entries on December 31, 2019. 3. Any required journal entries on December 31, 2020. C. How would the unused portion of the rental payment be reported in the township's 2019 year-end governmental fund balance sheet, assuming the township 1. used the purchases method? 2. used the consumption method?

Shoshone County uses the consumption method to account for supplies. At the beginning of the year the city had no supplies on hand. During the year the city purchased $450,000 of supplies for use by activities accounted for in the general fund. The city used $300,000 of those supplies during the year. At fiscal year-end the appropriate account balances on the government-wide financial statements would be

Employees of the general fund of Scott City earn ten days of vacation for each 12 months of employment. The city permits employees to carry the vacation days forward as long as they wish. During the current year employees earned $800,000 of vacation benefits, of which the city estimates $500,000 will be taken in the next year and the balance will be carried forward. Assuming that the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?

This year, Port City was sued for injuries sustained when a citizen slipped and broke her hip on the icy City Hall steps. The city attorney estimates the city will be held liable by the courts and a judgment of $300,000 will result. Because of the nature of the case it will likely be four years before the city makes any payment related to the accident. The present value of the likely future payment is $251,000. In the general fund, at the end of the current fiscal year, Port City should recognize a liability of

When a government finances the purchase of a capital asset from a governmental fund, the acquisition is treated as an expenditure and reduces net current financial resources during the year of acquisition. During the years that principal and interest payments are being made on the debt incurred to finance the capital asset acquisition, the principal and interest amounts are also treated as expenditures. This appears to reduce the net current financial resources by twice the cost of the capital asset. Discuss these transactions and their overall effect on the net current financial resources of the government.

Expenditures are generally recognized when resources are acquired; expenses when resources are consumed.

Government-wide statements present revenues and expenses from the perspective of the government, not of individual funds.

During the year, the City of Pittsboro engaged in the following transactions. The city has a 12/31 fiscal year end. REQUIRED: Assuming that the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, record the following transactions related to capital asset acquisition and payments on long-term debt. a. On April 1, 2018, the city acquired a piece of equipment for $150,000. The equipment will be used by the Streets Department. The city financed the purchase by borrowing $150,000 from the local bank at 5 percent interest. Principal payments of $20,000 plus interest are due yearly each April 1. b. The city paid $30,000 to employees who retired during the current year. These payments were made to compensate the employees for sick pay that had been earned but unused over the many years of the employees' service to the city c. The city transferred $2,500,000 from the general fund to a debt service fund to make principal and interest payments during the current year. d. The city made payments of $2 million principal and $500,000 interest on bonds that had been outstanding for several years. e. On June 1, the City paid $4,000 on account for supplies purchased in May. f. On September 1, 2018, the city acquired several computers through a leasing agreement that qualified as a capital lease. The terms of the lease require yearly annual payments. The present value of the minimum lease payments is $50,000.

Use the following information to answer Questions Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement. During the fiscal year ended 6/30/18, city employees who are paid from the general fund earned $2.8 million of sick leave, of which $1.0 was taken. Of the balance, the city estimates that $0.2 million will be taken in the next 60 days, $0.6 million will be taken in the next five years, $0.4 million will vest, and $0.6 million will never be taken. -The amount of sick leave liability that should appear on the general fund balance sheet at 6/30/18 is

Employees of the City of Hastings are paid from the general fund semi-monthly on the 15^th day and the last day of the month. The city provides numerous employee benefits. Employees earn ten vacation days for each 12 months of employment. The employee can take the vacation during any summer months (May-September) prior to retirement. The employees also earn one sick day for each month of employment. Sick pay vests at the completion of five years of continuous service. Vested unused sick pay will be paid upon retirement or termination. The city contributes to a retirement plan that is administered by the state. Each year the city gets a statement from the state explaining the actuarially determined contribution required. The city recognizes revenues/expenditures when collected/paid or if collected/paid within 60 days of year-end. The city's fiscal year end is December 31. At the beginning of the current year employees had $0.4 million of earned vacation time and $7 million of vested earned sick leave. The city uses the FIFO method of accounting for vacation and sick days. REQUIRED: Assuming that the city maintains its books and records in a manner to facilitate the preparation of fund financial statements, record the following transactions related to employee salaries and benefits. a. During the year employees of the city earned $60 million in salaries. At year-end all but $2 million had been paid to the employees. b. During the year the employees of the city earned $2.5 million in vacation pay. By year-end the employees had taken $2 million of vacation. Of the balance of vacation pay due to the employees, the city estimates that $0.3 million will be taken during the next year and $0.2 million will be deferred until later. c. During the year the employees of the city earned $3 million in sick pay, of which $2.5 million is expected to vest. Of the $2.5 million, employees are expected to take $2.0 million and $0.5 million is expected to be paid to employees upon their termination or retirement. During the year employees took $1 million in sick days. d. The city received a statement from the state requiring a contribution to the retirement plan of $8 million for the current year. Because of a cash shortage the city paid $6 million of the required contribution during the year, $1.5 million on February 15 of the following year and $0.5 million in June of the following year.

Which of the following items is NOT an example of an item that would be reported as Other Financing Sources/Uses in the general fund?

Bay City uses the purchases method to account for supplies. At the beginning of the year the city had no supplies on hand. During the year the city purchased $600,000 of supplies for use by activities accounted for in the general fund. The city used $400,000 of those supplies during the year. Assuming that the city maintains its books and records in a manner that facilitates the preparation of its fund financial statements, at fiscal year-end the appropriate account balances related to supplies expenditures and supplies inventory would be

Sugar City uses the purchases method to record all prepayments. The city has a 6/30 fiscal year-end. On 12/31/17, the city purchased a three-year insurance policy covering all city owned vehicles acquired by the general fund to be used in general government activities. Cost of the policy was $360,000. After the 6/30/18 closing entries, the appropriate balance sheet accounts and balances in the city's general fund associated with this transaction are

Compensated absences, such as vacation pay and sick leave, should be accounted for on the accrual basis in governmental funds.

Scarlett City's general fund activities for 2019 are summarized below. Accounts are maintained on a modified accrual basis consistent with GAAP. Prepare in good form a statement of revenues, expenditures, and changes in fund balance for 2019 for the city's general fund. Assume that the city reports revenues by source and expenditures by function. Assume also that 75 percent of the wages and salaries are attributable to public safety and 25 percent to general administration. Insurance is attributable in total to general administration.

Prepaid expenses such as for insurance are classified as deferred outflows, rather than as assets.

The Sadie School District is considering six different options for purchasing new computer equipment. REQUIRED: Show the journal entries that would be required in the district's general fund to recognize both the acquisition of the new computers and payment for them under each of these options. Which of these options would best achieve interperiod equity for the district? Why? a. Buy the computers outright with cash; cost will be $60,000 b. Buy the computers and finance them with a $60,000, three-year, 10 percent note. The district will repay the note and pay the entire interest with a single payment of $79,860 when the note matures. c. Buy the computers and finance them with a $60,000, three-year 10 percent installment note. The district will repay the note (plus interest) in three annual installments of $24,127 each. d. Lease the computers under an operating lease, but prepay the entire rent ($60,000) in advance. (Assume it is the district's policy to use the purchases method for reporting prepayments.) e. Lease the computers under a capital lease, requiring three end-of-year payments of $24,127. f. Lease the computers under an operating lease, making three end-of-year payments of $24,127.

Use of the consumption method of accounting for inventory is not acceptable for the fund financial statements.