Chapter 4 Recording operating transactions affecting the General Fund and governmental activities at the government-wide level

Presented below are a number of transactions of the City of Smithville that occurred during the fiscal year for which the budget given in Chapter 3 was prepared, the calendar year 2005. Read all instructions carefully. a. Record the following transactions in the general journal for the General Fund and, if applicable, in the general journal for governmental activities at the government-wide level. For all entries, the date selected should be year 2005. For each of the paragraphs that requires entries in both the General Fund and governmental activities journals, you can either record them in both journals on a paragraph-by-paragraph basis or, alternatively, record all the General Fund journal entries first for all paragraphs, then complete the governmental activities journal entries for all paragraphs last. If you choose the latter method, it might be useful to print the General Fund General Journal entries to assist in making the entries in the governmental activities journal. Regardless of the method you choose, we highly recommend that you refer to the illustrative journal entries in Chapter 4 of the Wilson and Kattelus textbook (13th Edition) for guidance in making all entries. Make all computations and journal entries to the nearest dollar. For each entry affecting budgetary accounts or operating statement accounts, you will be sent to the Detail Journal, as in Chapter 3, to record the appropriate amounts in the detail budgetary or actual accounts. 1. [Para. 4-a-1] Encumbrances in the following amounts for purchase orders issued were recorded against the appropriations indicated: General Government Public Safety--Police Public Safety--Fire Public Safety--Building Safety Public Works Health and Welfare Parks and Recreation Miscellaneous Total $ 58,600 53,020 51,480 5,770 147,420 103,250 77,800 24,740 $522,080

Required: Record the Encumbrances in the General Fund general journal and detail journal as appropriate. (Note: Type 4-a-1 as the paragraph number in the [Transaction Description] box for this entry; 4-a-2 for the next transaction, etc. Careful referencing by paragraph number will be very helpful should you need to determine where you may have omitted a required journal entry or may have made an error.) (In the Detail Journal,

19

select Purchase Orders from the drop down [Transaction Description] menu. You can also type in an alternative description, if desired.] 2. [Para. 4-a-2] On January 1, 2005, the real property tax levy for the year was made to yield the budgeted amount ($980,000), assuming 98 percent of the levy would be collectible. Required: Calculate the required tax levy and record this transaction in both the General Fund and governmental activities journal. (Select Accrued Revenue in the drop down [Transaction Description] menu in the Detail Journal related to the General Fund entry.) 3. [Para. 4-a-3] Additional interest and penalties were accrued on delinquent property taxes in the amount of $5,775. The current balance of Estimated Uncollectible Interest and Penalties was deemed adequate, so the entire $5,775 should be credited to Revenues. Required: Record this accrual in both the General Fund and governmental activities general journals. 4. [Para. 4-a-4] Late in FY 2005, the City of Smithville received notification that the state government would remit $98,000 to it early in the next fiscal year, although this amount is intended to finance certain public safety operations of the current year. This amount had been anticipated and was included in the budget for the current year as "Intergovernmental Revenue. Required: Record this transaction as a receivable and revenue in the General Fund and governmental activities journals. (Note: Select Accrued Revenue in the [Transaction Description] box in the Detail Journal). At the government-wide level, assume that this item is an operating grant to the Public Safety function (The City of Smithville does not classify program revenues in the more detailed sub-function categories of police, fire, or building safety.). 5. [Para. 4-a-5] Cash was collected during the year in the total amount of $3,405,088. These collections were from the following receivables and cash revenues, as indicated: Current Property Taxes $760,000 Delinquent Property Taxes 200,000 Interest and Penalties Receivable on Taxes 34,688 Due from State Government 500,000 Revenues: (total: $1,910,000) Sales Taxes 1,136,400 Licenses and Permits 347,500 Fines and Forfeits 252,000

20

Intergovernmental Charges for Services Miscellaneous Total

100,000 55,000 19,500 $3,405,088

Required: Record the receipt of cash and related credits to receivables and cashbasis revenues accounts in both the General Fund and governmental activities journals. For purposes of the governmental activities entries at the governmentwide level assume the following classifications: General Fund Sales Taxes Licenses and Permits Fines and Forfeits Intergovernmental Charges for Services Miscellaneous Governmental Activities General Revenues-Taxes-Sales Program Revenues-General Government-Charges for Services Program Revenues-General Government-Charges for Services Program Revenues-Public Safety-Operating Grants and Contributions Program Revenues-Parks and Recreation-Charges for Services General Revenues-Miscellaneous

6. [Para. 4-a-6] Invoices for some of the goods recorded as encumbrances in transaction 4-a-1 were received and approved for payment as listed below. Related encumbrances were canceled in the amounts listed below: Expenditures $ 55,856 53,240 44,364 5,770 113,450 105,000 71,000 24,500 $473,180 Encumbrances $ 56,400 52,420 45,000 5,770 113,400 103,050 73,800 24,740 $474,580

General Government Public Safety--Police Public Safety--Fire Public Safety--Building Safety Public Works Health and Welfare Parks and Recreation Miscellaneous

Required: Record the receipt of these goods and the related vouchers payable in both the General Fund and governmental activities journals. At the governmentwide level, you should assume the City uses the periodic inventory method. Thus, the invoiced amounts above should be recorded as expenses of the appropriate functions, except that $12,000 of the amount charged to the Public Works function was for a vehicle (debit Equipment for this item at the Government-Wide Level. Expenditures charged to the Miscellaneous appropriation should be

21

recorded in this case as General Government expenses at the government-wide level. 7. [Para. 4-a-7] Gross General Fund payrolls for the year totaled $2,270,000. Of that amount, $318,300 was withheld for employees' federal income taxes; $173,700 for employees' share of FICA taxes; $61,000 for employees' state income taxes; and the balance was paid to employees in cash. The City of Smithville does not record encumbrances for payrolls. The payrolls were chargeable against the following functions appropriations: General Government Public Safety--Police Public Safety--Fire Public Safety--Building Safety Public Works Health and Welfare Parks and Recreation Miscellaneous Appropriations Total $ 270,000 588,270 563,930 46,080 364,810 236,710 192,000 8,200 $2,270,000

Required: Make summary journal entries for payroll in both the General Fund and governmental activities general journals for the year. Assume that the amount charged to the Miscellaneous Appropriations should be reported as an expense of the General Government Function at the government-wide level. 8. [Para. 4-a-8] The City's share of FICA taxes, $173,700, and the City's contribution to other retirement funds administered by the state government, $116,300, were recorded as liabilities. These items were budgeted as part of the Contributions to Retirement Funds appropriation. Required: Record this transaction in both the General Fund and governmental activities general journals. Assume that the total $290,000 of expenses at the government-wide level should be allocated in the same proportions as in paragraph 4-a-7 above; that is: General Government: [($270,000 + $8,200)/$2,270,000] X $290,000 = $35,541 Public SafetyPolice: ($588,270/$2,270,000) X $290,000 = $75,153 Public SafetyFire: ($563,930/$2,270,000) X $290,000 = $72,044 Public SafetyBuilding Safety: ($46,080/$2,270,000) X $290,000 = $5,887 Public Works: ($364,810/$2,270,000) X $290,000 = $46,606 Health and Welfare: ($236,710/$2,270,000) X $290,000 = $30,240 Parks and Recreation: ($192,000/$2,270,000) X $290,000 = $24,529. [Note: The Parks and Recreation amount was increased by one dollar to compensate for rounding error.]

22

9. [ Para. 4-a-9] Checks were written in the total amount of $1,763,700 during 2005. These checks were in payment of the following items: Vouchers Payable Tax Anticipation Notes Payable Interest on Tax Anticipation Notes Payable (record as Interest Expenditure/Expense) Due to Federal Government Due to State Government Total amount paid $680,000 250,000 (see Chapter 2)

5,000 653,700 175,000 $1,763,700

Note: Interest expenditures are budgeted in Miscellaneous Appropriations. Required: Record the payment of these items in both the General Fund and governmental activities general journals. 10. [Para. 4-a-10] The Appropriations budget for 2005 was legally amended as follows: Decreases Increases General Government $ 3,000 Public SafetyPolice 20,000 Public SafetyFire 5,000 Public SafetyBuilding Safety $ 5,700 Public Works 11,000 Health and Welfare 11,000 Parks and Recreation 3,000 Contributions to Retirement Funds 12,000 Miscellaneous 1,000 $20,700 $51,000 Required: Record the budget amendments in the General Fund general journal only. Budgetary items do not affect the government-wide accounting records. 11. [Para. 4-a-11] Current taxes receivable uncollected at year-end, and the related estimated uncollectible current taxes account, were both reclassified as delinquent. Required: Record this transaction in the General Fund and governmental activities journals.

23

12. [Para. 4-a-12] Interest and penalties receivable on delinquent taxes was increased by $15,000; $6,000 of this was estimated as uncollectible. Required: Record this transaction in the General Fund and governmental activities journals. 13. [Para. 4-a-13] Delinquent taxes receivable in the amount of $17,348 were written off as uncollectible. Interest and penalties already recorded as receivable on these taxes, amounting to $12,404, were also written off. Additional interest on these taxes that had legally accrued was not recorded since it was deemed uncollectible in its entirety. Required: Record this transaction in the General Fund and governmental activities journals. 14. [Para. 4-a-14] Postaudit disclosed that goods amounting to $9,760, which had been recorded as an expenditure in that amount against the General Government appropriation of the General Fund should have been charged to the Solid Waste Disposal Fund, an enterprise fund and a business-type activity at the governmentwide level. This item had also been charged as an expense of the General Government function at the government-wide level. An interfund invoice was prepared to reduce Expenditures of the General Fund for the $9,760 and recognize an interfund receivable. This item will be recognized later in Chapter 7 of this case as an expense of the Solid Waste Disposal Fund. Required: Record this reimbursement transaction in the General Fund and governmental activities journals, debiting Due from Other Funds in the General Fund and Internal Receivables from Business-Type Activities at the governmentwide level. Do not make any entries in the Solid Waste Disposal Fund at this time. 15. [Para. 4-a-15] Services received by the General Government function of the General Fund from the Solid Waste Disposal Fund amounted to $9,800 during the year. Of this amount, $6,000 was paid in cash and $3,800 remained unpaid at year-end. Required: Record the receipt of these services, amounts paid during the year, and remaining liability in the General Fund and governmental activities journals. At the government-wide level the liability should be credited to Internal Payables to Business-Type Activities. Do not record these items in the Solid Waste Disposal Fund until instructed to do so in Chapter 7 of this case. Note: After reviewing all entries for accuracy, including year and paragraph numbers, post all entries to the general ledger accounts and to all subsidiary ledger accounts, by clicking on [Post Entries]. Also post all entries in the governmental activities journal.

24

16. [Closing Entry] Prepare and post at the end of year 2005, the necessary entries to close the Estimated Revenues, Revenues, Appropriations, Expenditures, and Encumbrances accounts to Fund Balance. Be sure to click on the check mark for [Closing Entry] and type Closing Entry in the [Transaction Description] box. It is necessary to reclick [Closing Entry] before closing each individual account. Also, you will be sent to the Detail Journal where you must close each individual budgetary or operating statement account. To determine the closing amounts for both General Ledger and subsidiary ledger accounts, you will need to first print the pre-closing version of these ledgers for year 2005 from the [Reports] menu. Note: DO NOT PREPARE CLOSING ENTRIES FOR GOVERNMENTAL ACTIVITIES AT THIS TIME since governmental activities will not be closed until Chapter 9, after capital projects fund (Chapter 5) and debt service fund (Chapter 6) transactions affecting governmental activities at the government-wide level have been recorded. b. Select Export from the drop down [File] menu to create an Excel worksheet of the General Fund Post-Closing Trial Balance as of December 31, 2005. Use Excel to prepare in good form a Balance Sheet for the General Fund as of December 31, 2005. Follow the format shown in Illustration 4-5 of Wilson and Kattelus, Accounting for Governmental and Nonprofit Entities, 13th Ed. Textbook (hereafter referred to as the textbook. Alternatively, you can click on [Reports] to print the Post-Closing Trial Balance and use the printed copy to manually prepare a Balance Sheet. c. Select Export from the drop down [File] menu to create an Excel worksheet of the General Fund Pre-Closing Operating Statement Account Balances for the year 2005. Use Excel to prepare in good form a Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund for the year ended December 31, 2005. (See Illustration 4-6 in the textbook for an example format.) d. Use the Excel worksheet of the General Fund Pre-Closing Operating Statement Account Balances created in part c above to prepare in good form a Statement of Revenues, Expenditures, and Changes in Fund Balance--Budget and Actual for the General Fund for the year ended December 31, 2005. (See Illustration 4-7 in the textbook for an example format.) e. Prepare in good form a reconciliation of total Expenditures reported in your solution to part c of this problem with the total Expenditures and Encumbrances reported in your solution to part d of this problem. (See example in the textbook in the discussion which compares Illustrations 4-6 and 4-7.)

[Note: File the printouts of all your worksheets and your completed financial statements in your cumulative problem folder until directed by your instructor to turn them in, unless your instructor specifies submission of computer files via e-mail.]
25