Question

A change to the full accrual basis may have little impact upon reported revenues. A city levies property taxes of $4 billion in June 2018 for its fiscal year beginning July 1, 2018. The taxes are due by January 31, 2019. The following (in millions) indicates actual and anticipated cash collections relating to the levy: June 2018 $100 July 2018 through June 2019 $3,600 July 2019 through August 2019 $80 September 2019 through June 2020 $150 The city estimates that $30 million will eventually have to be funded, owing to taxpayer appeals of the assessed valuation of their property, and that $70 million will be uncollectible. 1.     Prepare a journal entry that summarizes the city’s property tax activity for the fiscal year ending June 30, 2019, based on: a.     The modified accrual basis (i.e. for the fund statements) b.     The full accrual basis (i.e. for government-wide statements) 2.     Indicate the differences in amounts that would be reported on both the statement of net position and the statement of activities on a full accrual basis. 3.     Suppose that in the following year the tax levy and pattern of collections were identical to those of the previous year. What would now be the difference in amounts reported on the statement of net position and the statement of activities on a full accrual basis?

Answer 1

Requirement 1:
Journal entries based on modified accrual basis:
Account	Debit ($)	Credit ($)
Property tax receivable	4 Billion
Property tax levy		4 Billion
(Being property taxes levied)
Cash	100 million
Property tax receivable		100 million
(Being cash received for the month of June, 2018)
Cash	3600 million
Property tax receivable		3600 million
Journal entries based on full accrual basis:
Property tax receivable	4 Billion
Property tax levy		4 Billion
(Being property taxes levied)
Cash	100 million
Property tax receivable		100 million
(Being cash received for the month of June, 2018)
Cash	80 Million
Property tax receivable		80 Million
(Being cash receivable from the month of July, 2019 to August, 2019 is recorded )
Cash	150 Million
Property tax receivable		150 Million
(Being cash receivable from the month of September, 2019 to June, 2020 is recorded )
Appeal and filing expenses	30 Million
Cash		30 Million
(Being provision for $30 million)
Bad debt	70 Million
Property tax levy		70 Million
(Being bad debt recognized)

Requirement 2:

Statement of net position:
Particulars	Amount ($)	Amount ($)
Property tax receivable	4000000000
Less: Property taxes received	3930000000
Uncollectable		70000000

Statement of activities
Particulars	Amount ($)
Property tax levy	4000000000
Collected	100000000
Net property tax receivable	3900000000

Requirement 3:

Statement of net position:
Particulars	Amount ($)
Property tax receivable	4000000000
Less: Property taxes received	4000000000
Uncollectable
Statement of activities
Particulars	Amount ($)
Property tax levy	4000000000
Collected	100000000
Net property tax receivable	3900000000