Deck 3: Budgetary Considerations in Governmental Accounting

Question 1

The GASB sets accounting and reporting standards for state and local governmental budgets.

Answer 1

False

Question 2

Balanced budgets are defined identically between state and local governments and therefore are comparable across the country.

Answer 2

False

Question 3

The total of all departmental operating budgets along with estimated capital outlays by department and estimates of expenditures that will affect all departments (such as pension benefits and claims and judgments) are added together to provide the basis for the budget that is submitted to the legislature.

Answer 3

True

Question 4

After raising its revenues, a city may begin to determine what expenditures it can make.

Question 5

Most governments also prepare a cash forecast to help them determine when they will need to borrow money or when they may be able to invest in securities until the cash is needed.

Question 6

Property owned by governments, churches, and other nonprofits often are exempt from paying property taxes.

Question 7

State and local government spending limitations ensure the budget is balanced not only at beginning of the year but also at the end of the year.

Question 8

Comparing actual expenditures with planned expenditures at points along the year allows governments to take corrective action on their budgets.

Question 9

The legal level of control is the point at which another government or a state legislature must step in and take control over another government's spending.

Question 10

The basic principle of governmental accounting is that budgetary and accounting systems should be integrated and use common classifications and terminology.

Question 11

There are up to five expenditure subclassifications within government's budgets. The classification scheme for revenues is much simpler-fund and source.

Question 12

Using a government's expenditure classifications is not difficult because each lower-level subclassification rolls up into the next higher-level subclassification.

Question 13

Recording budgetary entries in a government's financial ledger helps the government set reference points for budgetary controls.

Question 14

When budgets are incorporated into a government's ledger, officials are able to tell when expenditures have exceeded budgeted amounts. To correct this, governments must find additional revenue sources.

Question 15

Budgetary interchanges allow a government to increase budgetary appropriations in one area and simultaneously reduce one of its other appropriations.

Question 16

From a budgetary perspective, when a government records an encumbrance it means an amount that it appropriated is no longer available for the government to spend.

Question 17

Encumbrances are not always recorded; some appropriations are drawn down in predicable patterns and encumbrances serve no control purpose.

Question 18

When governmental accountants prepare a journal entry to reverse an encumbrance, they reverse the encumbrance for the invoice amount provided by the supplier.

Question 19

An allotment system is another level of budgetary control that some governments use.

Question 20

Based on the language of the some of the laws requiring "balanced budgets," which of the following events are possible?

A) The budget may be balanced when submitted to the legislative body, but not balanced after the legislature acts on it.
B) The budget is balanced at the start of the year, but not at the end of the year.
C) The budget may be balanced mathematically, but not in economic substance.
D) All of the above.

Question 21

Which of the following occurs before the other three in the budget enactment process?

A) Determining the property tax (millage) rate
B) Holding public hearings on the budget
C) Preparing departmental expenditure requests
D) Presenting the budget to legislative body

Question 22

Stoppard City uses service efforts and accomplishments (SEA) reporting in addition to its annual financial report to inform citizens. Stoppard operates early intervention services for elementary school children. One of the SEA measures it reported was this: The percentage of children who were functioning within age expectations by the time they exited the program-68%. Which type of SEA measure is this reporting?

A) Inputs measure
B) Outputs measure
C) Outcomes measure
D) All of the above

Question 23

The budget director of a large city is reviewing her staff's calculation of the city's property tax millage rate. She examines the deductions from the total assessed value of property to determine the net assessed value of property. Which of the following is most likely to be a mistake?

A) The value of property owned by religious organizations was deducted
B) Ten percent of the value of property owned by veterans was deducted
C) Ten percent of the value of property owned by persons over 50 years of age was not deducted
D) The value of property owned by other governments was not deducted

Question 24

The County legislature approved its 2020 budget. Revenues from property taxes are estimated to be $800,000. The assessed value of all the property in the county is $40 million. The County has received certificates for property tax exemption of consisting of $3 million for homestead exemptions, $1.3 million for veterans, $700,000 for old age, and $5 million for nonprofits. In addition, the County believes all property taxes will be collectible. What property tax rate per $1,000 of net assessed value must the County charge to collect sufficient property taxes to meet its $800,000 estimate?

A) $2.67 for each $1,000 of net assessed value
B) $26.67 for each $1,000 of net assessed value
C) $20 for $1,000 of net assessed value
D) $16 for each $1,000 of net assessed value.

Question 25

Which of the following statements is typical of the requirements enacted by governments regarding the execution phase of the budget process?

A) No department shall spend more than 95 percent of the sum appropriated.
B) No department shall spend more than 105 percent of the sum appropriated.
C) No department shall spend more than the sum appropriated
D) Departments may spend more than the sum appropriated, provided the department manager obtains retroactive approval from the budget director.

Question 26

The GASB requires governments to present budgetary comparisons in their external annual financial statements (either as an additional financial statement or as schedules in required supplementary information). What does the GASB require these statements/schedules to include?

A) The original adopted budget and the final adopted budget
B) The original adopted budget, the final appropriated budget, and actual revenues and expenses on the government's budgetary basis of accounting
C) The original adopted budget, the final appropriated budget, and actual revenues and expenses on the accrual basis of accounting
D) The original adopted budget, the final appropriated budget, and actual revenues and expenditures on the modified accrual basis of accounting

Question 27

The City of Big Boot approved its budget for calendar year 2019. In that budget, the annual appropriation for salaries in the General Fund is $6,000,000. At the end of June 2019, the General Fund reported salary expenditures well over $3,000,000. Assuming that the City incurs salaries ratably throughout the year and does not hire extra personnel, for example, for summer services, what actions could the City take in light of actual salaries expenditures at June 30?

A) Set up a task force to consider what new revenue sources the City could create to make up for the inevitably higher salary expenditures
B) Place a freeze on new hiring so that General Fund vacant positions could be monitored and managed to ensure salaries do not exceed the annual appropriation.
C) Do nothing, assuming that the City can use up some of the positive unassigned General Fund balance that existed at the end of 2018.
D) Ask current employees to take pay cuts in the second half of the year.

Question 28

Which of the following sequences correctly portrays expenditure subclassifications from the highest to lowest level of summarization?

A) Program, organization unit, activity, object
B) Organizational unit, object, activity, program
C) Activity, organizational unit, object, program
D) Object, activity, organizational unit, program

Question 29

In its 2019 budget, a city authorized expenditures of $40,000 for replacing police patrolmen's uniforms with more modern, functional uniforms. What five expenditure subclassifications would the city use to record this budgetary appropriation to be able to capture expenditure data in its records, assuming the police activities are reported in the General Fund?

A) Fund: General Fund, Function/Program: Public Safety, Organizational Unit: Police Department, Activity: Patrol services, Object: Uniforms
B) Fund: General Fund, Function/Program: Public Safety, Organizational Unit: Police Department, Activity: Patrol services, Object: Arson investigation
C) Fund: General Fund, Function/Program: Public Safety, Organizational Unit: Police Department, Activity: Patrol Services, Object: Employee benefits
D) Fund: General Fund, Function/Program: Public Works, Organizational Unit: Police Department, Activity: Patrol services, Object: Uniforms

Question 30

In classifying expenditures, which of the following is an illustration of an "object"?

A) Public Safety
B) Materials and supplies
C) Fire Department
D) Arson investigation

Question 31

At the beginning of the year, the Cortlandt City Council adopts a budget calling for estimated revenues of $480,000 and appropriations of $470,000. When the City prepares its journal entry to record the budget

A) The Budgetary fund balance account must be credited
B) Expenditures for the year will be less than revenues
C) Revenues for the year will be less than expenditures
D) The Budgetary fund balance account must be debited

Question 32

During the year, the Cortlandt City Council approves a budgetary interchange, increasing fire department overtime by $8,000 and decreasing fire department supplies by $8,000. As a result

A) The Budgetary fund balance account must be credited
B) Appropriations-fire department supplies must be debited
C) Appropriations-fire department supplies must be credited
D) The Budgetary fund balance account must be debited

Question 33

A City Council approves its 2020 budget. The City experienced serve drought conditions during 2020, as a result the fire department had paid excess overtime of $8,000 for fighting wildfires as of mid-year. The City's budget officer estimated that total 2020 fire department overtime expenditures would be $13,000 compared to budgeted overtime appropriations of $5,000. The budget officer suggests deferring a portion of the City police department's planned new radio purchases by $8,000.
After consulting the police department, the City Council approves budgetary revision. What journal entry would be used to record this revision?

A) Debit Police Department appropriations-radio purchases $8,000, Credit Fire Department appropriations-overtime salaries $8,000
B) Debit Fire Department appropriations-overtime salaries $8,000, Credit Police Department appropriations-radio purchases $8,000
C) Debit Budgetary fund balance $8,000, Credit Fire Department appropriations-overtime salaries $8,000
D) Debit Police Department appropriations-radio purchases $8,000, Credit Fire Department appropriations-wildfire fighting $8,000

Question 34

During the year, the Cortlandt City Council approves a budget revision, reducing estimated revenues-sales taxes by $10,000 and increasing appropriations--fire department overtime by $5,000. As a result:

A) The Budgetary fund balance account must be credited in the amount of $15,000
B) Estimated revenues--sales taxes must be debited in the amount of $10,000
C) Appropriations--fire department overtime must be debited in the amount of $5,000
D) the Budgetary fund balance account must be debited in the amount of $15,000

Question 35

The City of Snow's 2020 annual budget included an appropriation of $65,000 for snow removal. By the end of January, the City had experienced 3 Nor'easters with total snow accumulation of 65 inches, equal to the amount anticipated for January and February. The City approves a budget revision to increase the appropriation for snow removal to $90,000 and reduce budgetary fund balance by an equal amount. The Waste Removal Department also receives invoices for and makes payments for January snow removal of $55,000. What was the effect on budgetary fund balance?

A) Budgetary fund balance was debited for $25,000
B) Budgetary fund balance was credited for $25,000
C) Budgetary fund balance was credited for $35,000
D) Budgetary fund balance was debited for $35,000

Question 36

One of the important functions of governmental accounting systems is to aid in the budgetary process both for departmental budget managers and the central budget office. Governmental accounting systems do this by recording:

A) Estimated and actual revenues
B) Appropriations and spending against the appropriations
C) Encumbrances
D) All of the above.

Question 37

During the year, the City of Kent finds that, because of an economic contraction, its sales tax revenues are likely to be $100,000 less than anticipated and that police department expenditures are likely to exceed authorized appropriations by $100,000. The City of Kent needs to:

A) Do nothing
B) Prepare a budgetary interchange
C) Debit appropriations--police department for $100,000
D) Revise the budget, so as to reduce budgetary fund balance by $200,000

Question 38

Under budgetary accounting, at what point in the accounting cycle is a portion of an entity's appropriation initially considered to be used up?

A) When the supplies are consumed
B) When the invoice for the supplies is paid
C) When the supplies are received from the supplier
D) When the order for supplies is placed with a supplier

Question 39

What journal entry is made when a purchase order is placed with a supplier?

A) Debit encumbrances and credit budgetary fund balance reserved for encumbrances
B) Debit expenditures and credit budgetary fund balance reserved for encumbrances
C) Debit appropriations consumed and credit budgetary fund balance reserved for encumbrances
D) Debit encumbrances and credit appropriations

Question 40

The City of Snow's 2020 annual budget included an appropriation of $65,000 for snow removal. The Waste Removal Department placed purchase orders with 10 snow plow operators for January, February, March, and April totaling $50,000. By the end of January, the City had experienced 3 Nor'easters with total snow accumulation of 65 inches, equal to the amount anticipated for January and February. The City approves a budget revision to increase the appropriation for snow removal to $90,000 and reduce budgetary fund balance by an equal amount. The Department also receives invoices for and makes payments for January snow removal of $55,000. At that point, how much of the appropriation was available for spending?

A) Net available appropriations are $40,000
B) Net available appropriations are $35,000
C) Net available appropriations are $15,000
D) Net available appropriations are $50,000

Question 41

Vista Village places an order for supplies and records an encumbrance. When the supplies are received, which of the following accounts is (are) debited?

A) Only Encumbrances
B) Only Budgetary fund balance reserved for encumbrances
C) Both Budgetary fund balance reserved encumbrances and Expenditures
D) Both Encumbrances and Appropriations

Question 42

Pleasantville maintains an appropriations ledger for police department supplies. The amount appropriated for supplies was $100,000. The ledger shows that two purchase orders were placed, PO A for $35,000 and PO B for $28,000. The supplies ordered on PO B arrived and were accepted; the invoice was for $28,000. At that point, how much of the appropriation was available for spending?

A) $28,000
B) $37,000
C) $63,000
D) $65,000

Question 43

The accounting department for Sea City Maryland maintains an appropriations ledger for its Beautification Department--supplies. The ledger shows that the amount appropriated for supplies $85,000. The ledger also shows that three purchase orders were placed, PO A for $15,000, PO B for $21,000, and PO C for $27,000. The flowers ordered on PO A arrived along with an invoice of $15,000. The soil and other supplies ordered on PO B arrived, were inspected, and a voucher was approved and paid in the amount of $24,000. The trees ordered on PO C had not yet arrived.
According to the appropriations ledger, how much of the appropriation was available for spending?

A) $43,000
B) $19,000
C) $49,000
D) $41,000

Question 44

The accounting department for Sing Sing Prison in Ossining maintains an appropriations ledger for Corrections Department--supplies. The ledger shows that the amount appropriated for supplies is $78,000. The ledger also shows that three purchase orders were placed, PO A for $25,000, PO B for $32,000, and PO C for $15,000. The supplies ordered on PO A arrived were awaiting inspection. The supplies ordered on PO B arrived, were inspected, and a voucher was approved and paid in the amount of $34,000. The supplies ordered on PO C had not yet arrived.
According to the appropriations ledger, how much of the appropriation was available for spending?

A) $46,000
B) $44,000
C) $6,000
D) $4,000

Question 45

Piccolo Village determines that it needs to raise $3,500,000 in property taxes to balance its budget for 2019. The following information is available to determine the tax (millage rate):
$\begin{array}{lr}\text { Property taxes to be collected } & \$ 3,500,000 \\\text { Estimated uncollectible and delinquent property taxes } & \$ 35,000 \\\text { Total assessed value of property at beginning of 2019 } & \$ 80,000,000 \\\text { Assessed value of non-taxable village-0wned property } & \$ 1,000,000 \\\text { Adjustments to assessed values for veterans } & \$ 800,000 \\\text { Adjustments to assessed values for senior citizens } & \$ 1,200,000\end{array}$ Required:
a. Compute the amount of property taxes required to be levied.
b. Compute the tax rate per $100 of net assessed valuation.
c. Determine the amount of property tax that a home owner whose property is assessed at $120,000 will have to pay.

Question 46

The City of Rio Rancho adopted the following budget for the calendar year 2020:
$\begin{array}{lr}\text { Revenues: }\\\text {Property taxes}&\$8,000,000\\\text {Miscellaneous revenues}&700,000\\\text {Appropriations:}\\\text { General government salaries } & 1,500,000 \\\text { Public safety salaries } & 5,400,000 \\\text { Public safety supplies } & 300,000 \\\text { Culture and recreation salaries and supplies } & 1,700,000\end{array}$ During the year the City decided to hold a special cultural event, which caused a need for additional police presence. To pay for the additional costs, the City Council revised the budget as follows: the appropriation for public safety salaries was increased by $30,000; the appropriation for culture and recreation salaries and supplies was increased by $25,000; and the appropriation for public safety supplies was decreased by $28,000. At the same time, because the event was expected to yield revenues, the Council increased estimated miscellaneous revenues by $20,000.
Required:
a. Prepare the general journal entry to record the budget.
b. Prepare the general journal entry to record the budget revision.

Question 47

Prepare journal entries to record the following budgetary revisions.
a. The City Commission of Kidwell, Florida, amended its budget for the fiscal year 2019 by providing an appropriation for $57,000 to study the effectiveness of its road safety mechanisms intended to aid senior citizen drivers. To finance the appropriation, the Commission designated "Use of fund balance." (Assume the appropriation was made to the Transportation Department.)
b. After receiving a large number of complaints from citizens about the poor condition of its secondary streets, the City's again amended its budget. The City increased its Streets and Bridges appropriation by $300,000 and reduced its Public Transportation appropriation by the same amount.

Question 48

The council of the Town of Tulia approved the 2020 budget as follows:
During 2020, the town's mayor presented the council with a budget revision to increase the amount appropriated for salaries by $10,000. The council approved this budget revision. To finance the appropriation, the town council designated "Use of fund balance."
Required:
a. Prepare the general journal entry necessary to record the budget.
b. Prepare the general journal entry necessary to record the budget revision.

Question 49

The Town of Southwick Fire Department had the following transactions. Prepare journal entries to record them.
a. Placed a purchase order in the amount of $12,000 for department uniforms.
b. Placed a purchase order with a car dealer to replace the fire department's attack truck. The expected cost of the truck is $92,000.
c. The fire attack truck was delivered to town officials with an invoice of $94,500. The invoice was approved and paid.
d. Unfortunately, some of the uniforms ordered in Transaction 1 were backordered and could not be shipped. However, uniforms that were expected to cost $8,000 were received along with an invoice for $7,900. The invoice was paid when received.
e. The remaining uniforms that were ordered in Transaction 1 were received. The invoice in the amount of $4,000 was paid.

Question 50

The Town of Stenberg had the following transactions. Prepare journal entries to record them.
1) Placed a purchase order in the amount of $12,000 for supplies.
2) Unfortunately, some of the supplies ordered in Transaction 1 were backordered and could not be shipped. However, supplies that were expected to cost $8,000 were received along with an invoice of $7,900. The invoice was paid when received.
3) The remaining supplies that were ordered in Transaction 1 were received. The invoice in the amount of $4,000 was paid.

Question 51

The City of Weston is preparing its budget for calendar year 2020. After estimating revenues from all other sources, the City calculates that it must raise $7,000,000 from property taxes. You are given the following information regarding the tax rate:
$\begin{array}{lr}\text { Property taxes to be collected } & \$ 7,000,000 \\\text { Estimated uncollectible property taxes } & \$ 70,707 \\\text { Total assessed value of property at beginning of } 2020 & \$ 65,000,000 \\\text { Expected reduction in assessed value from appeals } & \$ 200,000 \\\text { Assessed value of City property, not subject to tax } & \$ 1,400,000 \\\text { Adjustments to assessed values for senior citizen exemptions } & \$ 1,000,000\end{array}$ Required:
a. Compute the amount of property taxes required to be levied.
b. Compute the tax rate per $100 of net assessed valuation.
c. Determine the amount of property tax that a home owner whose property is assessed at $35,000 will have to pay.

Question 52

The Village of Peek's Kill enacted a budget that authorized the Peek's Kill police department to spend $150,000 for supplies and equipment. Prepare journal entries to record the following transactions relative to that appropriation. Also, calculate the balance available for spending after the transactions occurred.
1) Placed purchase order (PO) A in the amount of $15,000 for police officer uniforms.
2) Placed PO B in the amount of $30,000 for a car for the chief of police.
3) Placed PO C in the amount of $7,000 for various training items, such as ammunition and targets.
4) The police chief received a call from the supplier of the car ordered. The supplier informed him that special bells and whistles were available for the sedan for $2,000. PO B (see Transaction 2) was amended, thereby increasing the PO to $32,000.
5) The uniforms ordered in PO A (see Transaction 1) were received, along with an invoice for $14,500. The invoice was approved for payment.
6) The invoice received in Transaction 5 was paid by the village comptroller.

Question 53

The Town of Riley Ridge is a small residential community. The Town has two revenue sources, property taxes and charges for service; and two programs, administration and public safety. The Town's fiscal year 2020 budget follows:
Town of Riley Ridge
General Fund
Operating Budget
Fiscal Year 2020
$\begin{array}{lr}\text { Estimated Revenues }\\\text { Property taxes } & \$ 1,900,000 \\\text { Charges for services } & 360,000&\$2,260,000\\\\\text { Appropriations }\\\text { Administration } & \$ 320,000 \\\text { Public safety } & 1,800,000 \\&2,120,000\\\\\text { Budgeted Increase in Fund Balance }&&\$140,000\end{array}$ Operating transactions during the year consist of the following:
$\begin{array}{l}\text { 1) Placed orders for materials and supplies for: }\\\text { Administration } & 316,000 \\\text { Public safety } & 1,440,000\\\text { 2) Collected revenues of: }\\\text { Property taxes } & 1,900,000 \\\text { Charges for services } & 287,500 \\\text { (assume no property tax receivable recorded) } &\\\text { 3) Received some items on order (\#1 above) for: }\\\text { Administration } & 200,000 \\\text { Public safety } & 730,000\\\text { 4) Paid invoice for items received ( } \# 3 \text { above) for: }\\\text { Administration } & 201,000 \\\text { Public safety } & 730,000\\\text { 5) Received remaining items on order (\#1 above) for: }\\\text { Administration } & 116,000 \\\text { Public safety } & -\\\text { 6) Paid invoice for items received ( } \# 5 \text { above) for: }\\\text { Administration }&114,000\\\text { Public safety }&-\\\text { 7) Collected revenues of: }\\\text { Property taxes }&- \\\text { Charges for services }&81,000\end{array}$ Required:
A. Prepare the general journal entries necessary to record the budget and to record the operating transactions in 1 through 7, above.
B. Post the details of the budgetary entry and the operating entries to the revenues subsidiary ledger and the appropriations subsidiary ledger, as applicable. Subsidiary ledgers are provided below for your use. Town of Riley Ridge
General Fund / Revenues Ledger
Fiscal Year 2020
Source: Property Taxes
$\begin{array}{|l|l|c|c|c|}\hline \begin{array}{l}\text { Entry } \\\text { no. }\end{array} & \text { Item } & \begin{array}{c}\text { Estimated Revenue } \\\mathrm{Dr}\end{array} & \begin{array}{c}\text { Actual Revenue } \\\mathrm{Cr}\end{array} & \begin{array}{c}\text { Difference } \\\mathrm{Dr}(\mathrm{Cr})\end{array} \\\hline & & & & \\\hline & & & & \\\hline\end{array}$
Source: Charges for services
$\begin{array}{|l|l|c|c|c|}\hline \begin{array}{l}\text { Entry } \\\text { no. }\end{array} & \text { Item } & \begin{array}{c}\text { Estimated Revenue } \\\mathrm{Dr}\end{array} & \begin{array}{c}\text { Actual Revenue } \\\mathrm{Cr}\end{array} & \begin{array}{c}\text { Difference } \\\mathrm{Dr}(\mathrm{Cr})\end{array} \\\hline & & & & \\\hline & & & & \\\hline\end{array}$ General Fund / Appropriations Ledger
Fiscal Year 2020
Function: Administration
$\begin{array}{|l|l|l|l|l|l|l|}\hline \begin{array}{l}\text { Entry } \\\text { no. }\end{array} & \text { Item } &{\begin{array}{c}\text { Appropriation } \\\mathrm{Cr}\end{array}} &{\begin{array}{c}\text { Encumbrances } \\\mathrm{Dr}\end{array}} &{\begin{array}{c}\text { Expenditures } \\\mathrm{Dr}\end{array}} &\text { Cr }& \begin{array}{c}\text { Available } \\\text { Appropriation } \\\text { Cr }\end{array} \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline\end{array}$
Function: Public Safety
$\begin{array}{|l|l|l|l|l|l|l|}\hline \begin{array}{l}\text { Entry } \\\text { no. }\end{array} & \text { Item } &{\begin{array}{c}\text { Appropriation } \\\mathrm{Cr}\end{array}} &{\begin{array}{c}\text { Encumbrances } \\\mathrm{Dr}\end{array}} &{\begin{array}{c}\text { Expenditures } \\\mathrm{Dr}\end{array}} &\text { Cr }& \begin{array}{c}\text { Available } \\\text { Appropriation } \\\text { Cr }\end{array} \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline\end{array}$ ?