Exam 3: Issues of Budgeting and Control

An appropriations budget applies to

Geneva County authorized the issuance of bonds and contracted with the Chessie Construction Company (CCC) to build a new convention center. During 2016, 2017, and 2018, the county engaged in the transactions that follow. All were recorded in the county's capital projects fund. a. In 2016, the county issued $350 million in bonds (and recorded them as bond proceeds, an account comparable to revenues.) b. The county approved the contract proposal from CCC for $350 million and encumbered the entire amount. c. CCC billed the county for $115 for construction to date. d. The county paid CCC the amount due in full. e. In 2017, CCC billed the county for additional construction to date of $190 million. f. The county paid the amount due in full. g. In 2018, CCC completed construction of the convention center and billed the county an additional $50 million. The county approved the additional costs, even though the total cost of the center was now $355 million, $5 million more than the contract initially provided for. h. The county transferred $5 million from its general fund to the capital projects fund. i. The county paid the $50 million in full. REQUIRED: 1. Prepare the journal entries to record these transactions in the capital projects fund, including closing entries. Assume that amounts originally encumbered are reappropriated each year. Hence the county need not reestablish encumbrances in each year after the first year. Instead, it can close the expenditures of the second and third years to reserve for encumbrances rather than to fund balance. 2. What other funds or schedules would be affected by the transactions listed?

A university that formally integrates the budget in the accounting system and uses encumbrance accounting orders some new computers that will cost approximately $20,000. To recognize this event the university should make which of the following entries?

In which of the following cases would the reserve for encumbrances account be decreased?

The mayor of the City of Geneva boasts that the budgeted year-end excess of revenues over expenditures for the year just ended was significantly greater than expected. Why is this "favorable" result not necessarily a good thing?

A review of Park City's books shows the following information: I. $2,500 of outstanding vouchers payable II. $3,000 of outstanding purchase order amounts Which of these amounts would you expect to see in the general fund's encumbrances account?

State and local governments must prepare their GAAP budgetary comparisons on the modified accrual basis of accounting.

Which of the following is NOT a function of a budget in the governmental environment?

Lincoln County uses encumbrance accounting to control expenditures. It charges the cost of outstanding purchase commitments to expenditures in the year they are ordered, not in the year they are received. If the county had $7,000 of purchase commitments outstanding at the end of Year 1 and received those goods during Year 2 at a cost of $7,800, what would be the impact on total fund balance for Year 2?

To close Encumbrances at the end of the year which of the following entries should be made?

Kayla County prepares its general fund financial reports in accordance with generally accepted accounting principles (GAAP) but its budgetary basis for the general fund differs from GAAP. The budget-to-actual comparison for the general fund is presented below. All numbers are in thousands. REQUIRED: Prepare the GAAP-basis operating statement for the general fund. (a) For budgetary purposes, the county recognizes encumbrances as expenditures in the year of the purchase commitment; it recognizes supplies as expenditures when acquired. For budgetary purposes the county recognizes all revenues in the fiscal year collected. For GAAP-basis financial reporting, the county recognizes supplies as expenditures as consumed. It recognizes property taxes as revenue if they are collected within 60 days of fiscal year-end. All other revenues are recognized on the cash basis for GAAP. (b) The following additional information is available.

Capital budgets focus on plans for the acquisition and construction of fixed assets.

Why would a government be more likely than a not-for-profit organization to integrate its budget into its accounting system?

Why may flexible budgets be more appropriate for a government's business-type activities than for its governmental activities?

A governmental entity has formally integrated the budget into its accounting records. At the end of the third quarter the ledger account "Expenditures--salaries" has a $100,000 debit balance. Which of the following is a true statement?

Character, in relation to expenditures, represents

Assume that the City of Pasco maintains its books and records in a manner that facilitates preparation of the fund financial statements. The city engaged in the following transactions related to its general fund during the current fiscal year. The city formally integrates the budget into the accounting records. The city does not maintain an inventory of supplies. All amounts are in thousands. REQUIRED: Prepare, in summary form, the appropriate journal entries. (a) The city council approved a budget with revenues estimated to be $800 and expenditures of $785. (b) The city ordered supplies at an estimated cost of $25 and equipment at an estimated cost of $20. (c) The city incurred salaries and other operating expenses during the year totaling $730. The city paid for these items in cash. (d) The city received the supplies at an actual cost of $23. (e) The city collected revenues of $795.

A government's unassigned general fund balance at year-end may not be indicative of the amount that the government has available for appropriation in future years. Explain and provide an example to support your answer.

Hill City uses encumbrance accounting to control expenditures. However, it charges the cost of outstanding purchase commitments to expenditures in the year they are received, not in the year they are ordered. If Hill City had $10,000 of purchase commitments outstanding at the end of Year 1 and received those goods during Year 2 at a cost of $9,800, what would be the impact on total fund balance for Year 2?

When Spruce City receives goods at a cost of $9,700 that were encumbered in the prior year for $10,000, which of the following entries are required (assume that encumbrances lapse at year end)?