Question

Following is the post-closing trial balance of the General Fund of Leisure City as at December 31, 2012:

Cash $300,000

Property taxes receivable—delinquent 50,000

Due from state government 80,000

Supplies and materials 30,000

Salaries payable $ 25,000

Deferred revenues—property taxes 20,000

Nonspendable fund balance 30,000

Assigned fund balance 15,000

Unassigned fund balance 370,000

The following additional information is provided regarding the city’s accounting policies and other matters: 1. Only items charged to the appropriation “Supplies and materials—other programs” are encumbered. Encumbrances lapse if they are outstanding at the close of a fiscal year. They are, however, included in the following year’s appropriation. Outstanding encumbrances at the end of 2012 ($15,000) are reported as Assigned fund balance. 2. The appropriation “Other program costs” covers vacation pay, pension, and retiree health care benefits, and all other program expenditures. 3. The city uses the purchase method to record the acquisition of supplies. The year-end supplies inventory is considered to be material and is reported in the city’s financial statements. 4. The city’s accounting policy regarding income taxes is to recognize income taxes as revenue of the tax year provided they are expected to be received by April 15 of the following year, the due date for filing tax returns. 5. The city maintains tight controls over licensing fees and fines from its inspection program and considers them susceptible to accrual.

The following transactions and events occurred in 2013:

1. The city council of Leisure City approves the following budget for fiscal 2013: Estimated Revenues Property taxes $3,200,000 Income taxes 2,400,000 Intergovernmental grants 300,000 Licensing fees and fines 100,000 Appropriations Food inspection program $ 600,000 Salaries—other programs $4,000,000 Supplies and materials—other programs 300,000 Other program costs 600,000 Transfer to Debt Service Fund 400,000 Budgeted Increase in Fund Balance $ 100,000

2. Open encumbrances at the end of 2012 are restored.

3. All delinquent property taxes outstanding at the end of 2012 are collected between January and May of 2013, together with late payment penalties of $2,000.

4. The state pays the $80,000 it owes the city.

5. The city levies property taxes in the amount of $3,300,000 in anticipation of realizing net cash of $3,200,000. It establishes a $100,000 allowance for uncollectible taxes and discounts.

6. The city reduces tax bills by $60,000 based on taxpayer appeals of property value assessments, and taxpayers deduct $30,000 in discounts for early payment of bills. As a result, the city’s net collection of property taxes in 2013 against the 2013 tax levy is $3,150,000.

7. All remaining unpaid taxes are declared delinquent. The city comptroller concludes that no allowance for uncollectible taxes is needed. He believes that $45,000 of the delinquent taxes will be collected in the first 60 days of 2014.

8. During 2013, the city collects $2,300,000 in personal income taxes as a result of withholdings by employers and payments made by taxpayers based on estimates for calendar year 2013.

9. At year-end, the comptroller estimates that, based on past experience, it is likely that taxpayers who file timely (that is, by April 15, 2014) will request refunds of $120,000 and will make payments of $50,000 with their returns. The comptroller also estimates that about $25,000 of additional taxes probably will be received later in 2014 from late filers of tax returns.

10. At the beginning of the year, the city receives an advance of $200,000 from the state on a grant for inspecting food establishments. The grant is for a maximum amount of $300,000, subject to the following requirements: (a) the state will reimburse the city for 50 percent of all expenditures paid by the city on the food inspection program, up to the maximum amount of the grant; and (b) the city must file a claim for the balance due to the city by no later than December 31, 2013.

11. The city pays $580,000 to operate the inspection program referenced in the previous transaction. It also files a claim on December 31 for the balance due from the state for the program.

12. The city bills a total of $95,000 in licensing fees and inspection fines (through violation notices). It collects $85,000 cash during the year and expects to collect the rest during the first 60 days of 2014.

13. In addition to the item recorded in transaction 2, purchase orders for supplies and materials are placed in the amount of $280,000 and charged to the appropriation “Supplies and materials— other programs.”

14. The following transactions occur regarding the total amount encumbered: a. Invoices of $260,000 are received, vouchered for payment, and paid against encumbrances totaling $265,000. b. Encumbrances totaling $10,000 are canceled. c. Encumbrances of $20,000 remain open at year-end. The appropriation lapses, but the purchase orders will be honored against the following year’s appropriation.

15. Salaries of $3,925,000 are paid during the year. Of this amount, $3,900,000 is charged to the appropriation for salaries—other programs, and $25,000 is charged to salaries payable at the beginning of the year.

16. At year-end, salaries owed to employees for the last week in December total $80,000. They will be paid with the first payroll in 2014.

17. Long-term general obligation debt is sold early in 2013, causing an increase in debt service requirements for the year. As a result, the General Fund budget is amended; the appropriation for “Transfer to Debt Service Fund” is increased by $40,000.

18. A cash transfer of $440,000 is made to the Debt Service Fund.

19. The following transactions and events occur regarding the appropriation for “Other program costs”: a. Analysis of vacation leave records shows that the total liability to employees for unused vacation days increases by $25,000 as a result of the year’s activity. The total liability includes $10,000 due to employees who retire December 31; they will receive that amount in January 2014. b. The retirement system actuary advises the city that the increase in liability for retiree health care benefits as a result of employees who have worked in 2013 is $75,000. The city’s policy, however, is to finance only the health care benefits of its retirees. For the year, those expenditures are $50,000, of which $45,000 is paid during the year, and the rest will be paid in January 2014. c. During the year, other payments of $500,000 are charged to the appropriation.

20. The year-end inventory of supplies and materials totals $35,000.

21. To avoid an increase in property tax rates, Leisure City’s budget for 2014 includes a formal appropriation of $50,000 to finance the difference between estimated revenues and appropriations.

Use the preceding information to do the following: a. Prepare journal entries to record the foregoing transactions and events. b. Prepare a trial balance for 2013 after recording the journal entries. c. Prepare a balance sheet and a statement of revenues, expenditures, and changes in fund balance. d. Prepare a budgetary comparison schedule for 2013.

Answer 1

Answer :

1.         Estimated revenues – property taxes   3,200,000

     Estimated revenues – income taxes    2,400,000

   Estimated revenues – intergovernmental grants                                300,000

   Estimated revenues – fines and penalties     100,000

            Appropriations – food inspection program       600,000

            Appropriations – salaries (other programs)   4,000,000

  Appropriations – supplies and materials (other programs    300,000

            Appropriations – other program costs              600,000

            Appropriations – Transfer to Debt Service Fund     400,000

            Budgetary fund balance     100,000

     To record adopted budget for 2013.

2.         Encumbrances                                                                    15,000

  Budgetary fund balance reserved for encumbrances    15,000

             To restore open encumbrances at end of 2012.

    Assigned fund balance    15,000

            Unassigned fund balance      15,000

             To reverse assignment of fund balance.

3.         Cash      52,000

  Property taxes receivable – delinquent    50,000

            Revenues – fines and penalties       2,000

            To record collection of delinquent receivables.

       Deferred revenues - property taxes       20,000

            Revenues – property taxes     20,000

            To recognize revenues deferred from 2012.

4.         Cash                                                                                            80,000

            Due from state government              80,000

            To record collection of receivable from state.

5.    Property taxes receivable     3,300,000

  Allowance for uncollectible taxes and discounts     100,000

            Revenues – property taxes                                                                              3,200,000

     To record property tax levy.

6.         Cash 3,150,000

            Allowance for uncollectible taxes and discounts     90,000

            Property taxes receivable                                                                                3,240,000

     To record collection of property taxes, less deductions

      resulting from assessment appeals and discounts.

7.    Property taxes receivable – delinquent    60,000

            Property taxes receivable                                                                                   60,000

     To record delinquent property taxes.

   Allowance for uncollectible taxes and discounts                               10,000

            Revenues – property taxes                                                                                 10,000

     To reverse balance in allowance account.

   Revenues – property taxes                                                        15,000

  Deferred revenues – property taxes    15,000

     To defer property taxes not expected to be collected in

      The first 60 days of 2014.

8.         Cash 2,300,000

  Revenues – income taxes 2,300,000

            To record collections of income taxes.

9.         Income taxes receivable              50,000

   Revenues – income taxes                                                                 70,000

            Income tax refunds payable                                                                            120,000

     To record estimated collections from and refunds due

      to timely filers of final income tax returns.

   Income taxes receivable                                                                   25,000

  Deferred revenues – income taxes      25,000

     To record estimated collections from late filers of

      2013 income tax returns due April 15, 2014.

10.       Cash                                                                                          200,000

  Advance received on grant    200,000

            To record advance from state on grant.

11.       Expenditures – food inspection program       580,000

            Cash                                                                                                        580,000

            To record program expenditures.

            Due from state government                                                       90,000

            Advance received on grant                                                       200,000

  Revenues – intergovernmental grants         290,000

             To recognize revenues on grant (50% of $580,000) and

             to record balance due from state on grant.

12.       Cash                                                                                   85,000

            Fees and fines receivable                                                                    10,000

  Revenues – licensing fees and fines    95,000

            To recognize revenues from licensing fees and fines.

13.       Encumbrances                                                                   280,000

  Budgetary fund balance reserved for encumbrances    280,000

     To record purchase orders for supplies and materials.

14a.     Budgetary fund balance reserved for encumbrances     265,000

  Encumbrances         265,000

            To record receipt of items ordered.

            Expenditures – supplies and materials (other programs)    260,000

  Vouchers payable    260,000

      To record vouchers for supplies accepted.

    Vouchers payable                                                                            260,000

            Cash                                                                                                                260,000

      To record payment of vouchers.

  b.     Budgetary fund balance reserved for encumbrances   10,000

            Encumbrances                                                                                                 10,000

      To record cancellation of encumbrances.

  c.     Budgetary fund balance reserved for encumbrances 20,000

            Encumbrances                                                                                                 20,000

      To record lapsing of open encumbrances at year-end.

      Unassigned fund balance   20,000

  Assigned fund balance    20,000

      To record assigned fund balance for open encumbrances.

15.       Salaries payable                                                                                   25,000

            Expenditures – salaries (other programs)                                  3,900,000

  Cash     3,925,000

             To record salaries paid during year.

16.     Expenditures – salaries (other programs) 80,000

  Salaries payable     80,000

            To accrue salaries payable at year-end.

17.     Budgetary fund balance     40,000

  Appropriations – Transfer to Debt Service Fund     40,000

            To record budget amendment.

18.     Transfer out to Debt Service Fund    440,000

  Cash         440,000

      To record transfer to Debt Service Fund.

19a.     Expenditures – other program costs    10,000

  Accrued expenditures       10,000

            To accrue vacation pay due and payable.

  b.     Expenditures – other program costs    50,000

            Cash                                                                                                                45,000

  Accrued expenditures 5,000

            To record payment and accrual of pension expenditures.

  c.     Expenditures – other program costs    500,000

  Cash         500,000

             To record payment of expenditures.

20.       Supplies and materials   5,000

  Nonspendable fund balance          5,000

            To record increase in year-end supplies inventory.

21.       Unassigned fund balance 50,000

  Assigned fund balance     50,000

      To record assigned fund balance for 2014 appropriation.

Leisure City

General Fund

Trial Balance

December 31, 2013

Debits Credits

Estimated revenues – property taxes 3,200,000

Estimated revenues – income taxes   2,400,000

Estimated revenues – intergovernmental grants 300,000

Estimated revenues – fines and penalties 100,000

Appropriations – food inspection program 600,000

Appropriations – salaries (other programs) 4,000,000

Appropriations – supplies and materials (other programs 300,000

Appropriations – other program costs 600,000

Appropriations – Transfer to Debt Service Fund 440,000

Budgetary fund balance 60,000

Cash 417,000

Property taxes receivable – delinquent 60,000

Income taxes receivable 75,000

License fees and fines receivable 10,000

Due from state government 90,000

Supplies and materials 35,000

Salaries payable 80,000

Accrued expenditures 15,000

Income tax refunds payable 120,000

Deferred revenues – property taxes 15,000

Deferred revenues – income taxes 25,000

Nonspendable fund balance 35,000

Assigned fund balance 70,000

Unassigned fund balance 315,000

Revenues – property taxes 3,215,000

Revenues – income taxes 2,230,000

Revenues – intergovernmental grants 290,000

Revenues – licensing fees and fines 97,000

Expenditures – food inspection program 580,000

Expenditures – salaries (other programs) 3,980,000

Expenditures – supplies and materials (other programs) 260,000

Expenditures – Other program costs 560,000

Transfer to Debt Service Fund    440,000 _________

12,507,000   12,507,000