Question

The following transactions relate to Newport City’s special revenue fund. In 2020, Newport City created a special revenue fund to help fund the 911 emergency call center. The center is to be funded through a legally restricted tax on cellular phones. No budget is recorded. During the first year of operations, revenues from the newly imposed tax totaled $489,000. Of this amount, $444,000 has been received in cash and the remainder will be received within 60 days of the end of the fiscal year. Expenditures (salaries) incurred through the operation of the 911 emergency call center totaled $449,000. Of this amount, $422,000 was paid before year-end. During the year the state government awarded Newport City a grant to reimburse the City’s costs (not to exceed $150,000) for the purpose of training new 911 operators. During the year, the City paid $146,500 (not reflected in the expenditures above) to train new operators for the 911 emergency call center and billed the state government. $138,000 of the amount billed to the State had been received by year-end. Required: a. Prepare the journal entries for the above transactions. It is not necessary to use control accounts and subsidiary ledgers. Prepare closing entries for year-end. b. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the special revenue fund. c. Prepare a Balance Sheet assuming there are no committed or assigned net resources.

Answer 1

Solution:

A) Prepare the journal entries as shown below:

S.no	Account title	Debit ($)	Credit ($)
1	No entry is required
2	Cash	444,000
	Taxes receivable	45,000
	Phone tax revenues		489,000
3	Expenditure 911 operations	449,000
	Salaries payable		27,000
	Cash		422,000
4	Expenditures training	146,500
	Cash		146,500
	Due from state government	146,500
	Intergovernmental revenue		146,500
5	Cash	138,000
	Due from state government		138,000
	Phone tax revenues	489,000
	Intergovernmental revenue	146,500
	expenditure 911 operations		449,000
	Expenditures training		146,500
	Fund balance		40,000

B) statement of revenue , expenditures and changes in fund balance:

New port city Statement of revenue, expenditures and changes in fund balance
Particulars	Amount($)	Amount ($)
Revenues:
Phone taxes	489,000
Intergovernmental revenues	146,500
Total revenues		635,500
Expenditures:
911 operations	449,000
Training	149,500
Total expenditure		595,500
Excess of revenues over expenditues		40,000
Add: Fund balance jan 1, 2020
Fund balance Dec 31,2020		40,000

C)Balance sheet:

New port city Balance sheet
	Amount ($)	Amount ($)
assets
Cash($444,000 -$422,000 -$146,500 +$138,000)	13,500
Due from state government	8,500
Taxes receivable(489,000 - 444,000)	45,000
Total assets		$67,000
Liabilities & fund balance
Salaries payable(449,000 - 422,000)	27,000
Restricted for 911 call center operations	40,000
Fund balance Dec 31,2020		$67,000

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