Continuous
Problem – City of Monroe to
Accompany
Essentials of
Accounting for Governmental
and Not-for-Profit
Organizations:
Eleventh EditionChapters 3 through 6 describe accounting and financial reporting by
state and local governments. A continuous problem is presented to provide an
overview of the reporting process, including preparation of fund basis and
government-wide statements. The problem
assumes the government is using fund accounting for its internal record-keeping
and then at year-end makes necessary adjustments to prepare the government-wide
statements. The problem that follows is presented in the same order as the
textbook (beginning with Chapters 3, and 4).Each chapter requires the preparation of journal entries to record
the events and transactions of governmental, proprietary, or fiduciary
funds. For the General Fund, use control
accounts for the budgetary accounts, revenues, expenditures and
encumbrances. For all other funds, use
separate accounts for each type of revenue and expenditure/expense. At appropriate stages, preparation of the
fund and government-wide statements are required. The following funds are included
in this series of problems:Governmental Funds
Ø General
Ø Special revenue—Street and Highway Fund
Ø Capital projects—City Hall Annex Construction Fund
Ø Debt service—City Jail Annex Debt Service Fund
Ø Debt service—City Hall Debt Service FundProprietary Funds
Ø Internal service—Stores and Services Fund
Ø Enterprise—Water and Sewer FundChapter 3 – Modified Accrual Accounting:
Including the Role of Fund Balances and Budgetary Authority
&
Chapter 4 – Accounting for the General and
Special Revenue FundsThe Balance Sheets of the General Fund and the Street and Highway
Fund of the City of Monroe as of December 31, 2013, follow. These (beginning) balances
have been entered in the proper general ledger accounts, as of 1/1/2014.CITY OF MONROEGeneral Fund Balance SheetAs of December 31, 2013AssetsCash$490,000Taxes receivable—delinquent$210,000Less: Estimated uncollectible delinquent
taxes(21,000)189,000Interest and penalties receivable on
taxes5,200Less: Estimated uncollectible interest
and penalties(950)4,250Due from state government210,000Total assets$893,250Liabilities and Fund EquityLiabilities:Accounts payable$104,000Due to other funds27,000Deferred revenues—property taxes19,000Total liabilities150,000Fund equity:Fund balance—assigned
(for outstanding encumbrances)$12,000Fund balance—unassigned731,250Total fund balance743,250Total liabilities and fund equity$893,250CITY OF MONROEStreet and Highway Fund Balance SheetAs of December 31, 2013AssetsCash$16,500Investments65,000Due from state government109,000Total assets$190,500Liabilities and Fund EquityLiabilities:Accounts payable$8,500Fund equity:Fund balance—assigned for streets and highways182,000Total liabilities and fund equity$190,5003–C. This portion of the continuous
problem continues the General Fund and special revenue fund examples by
requiring the recording and posting of the budgetary entries. To reduce
clerical effort required for the solution use control accounts for the budgetary
accounts, revenues, expenditures and encumbrances. Subsidiary accounts are not required. Budget
information for the City includes:a)
As of January 1, 2014, the City
Council approved and the mayor signed a budget calling for $10,750,000 in
property tax and other revenue, $9,255,000 in appropriations for expenditures,
and $1,280,000 to be transferred to two debt service funds for the payment of
principal and interest. Record the budget for the General Fund and post to the
ledger.b)
Also as of January 1, 2014, the
City Council approved and the mayor signed a budget for the Street and Highway
Fund that provided for estimated revenues from the state government in the
amount of $1,070,000 and appropriations of $1,065,000. Record the budget and post
to the ledger.4–C. Part 1. General Fund TransactionsRequired:
a.Record
journal entries for the following transactions for FY 2014. Make any
computations to the nearest dollar. Journal entry explanations are not
required. Use control accounts for
revenues, expenditures and budgetary accounts.
It is not necessary to reflect subsidiary ledger entries.
(1) Encumbrances of $ 12,000 for purchase orders outstanding
at the end of 2013 were re-established.
(2) The January 1, 2014, balance in
Deferred Revenues relates to the amount of the 2013 levy that was expected to
be collected more than 60 days after December 31. This amount should be
recognized as 2014 revenues.
(3) A general tax levy in the amount
of $6,350,000 was made. It is estimated that 2 percent of the tax will be
uncollectible.
(4) Tax anticipation notes in the
amount of $400,000 were issued.
(5) Goods and supplies related to
all encumbrances outstanding as of December 31, 2013 were received, along with
invoices amounting to $11,800; the invoices were approved for payment. The City maintains immaterial amounts in supply
inventories and it is the practice of the City to charge supplies to
expenditure when received.
(6) All vouchers and the amount due
other funds were paid.
(7) The General Fund collected the
following in cash:
oprior year taxes, $160,000;
ointerest and penalties receivable on prior year taxes, $3,500;
ocurrent taxes, $5,900,000;
o$210,000 previously recorded as due from the state government;
olicenses and permits, $780,000;
osales taxes, $2,870,000; and
omiscellaneous revenues, $330,000.(8) Purchase orders and contracts
were issued in the amount of $3,476,000.
(9) Payrolls for the General Fund
totaled $5,065,000. Of that amount, $498,000 were withheld for employees’
federal income taxes and $357,000 were withheld for employees’ FICA and
Medicare tax liability; the balance was paid in cash. The encumbrance system is
not used for payrolls.
(10) The liability for the city’s
share of FICA and Medicare taxes, $357,000, was recorded as was the liability
for state unemployment taxes in the amount of $33,000.
(11) Invoices for most of the
supplies and services ordered in transaction 8 were received in the amount of
$3,370,300 and approved for payment. The related encumbrance amounted to $3,385,000.
(12) Tax anticipation notes were
paid at maturity, along with interest in the amount of $16,000.
(13) Notification was received that
an unrestricted state grant in the amount of $312,000 would be received during
the first month of the next year.
(14) The General Fund recorded a
liability to the Water and Sewer Fund for services in the amount of $45,000 and
to the Stores and Services Fund for supplies in the amount of $313,200;
$300,000 of the amount due the Stores and Services Fund was paid.
(15) The General Fund recorded an
amount due of $42,000 from the state government, representing sales taxes to be
collected from retail sales taking place during the last week of the year.
(16) The General Fund paid vouchers
in the amount of $3,007,000 and paid the amounts due the federal and state
governments. The General Fund also transferred to the debt service funds cash
in the amount of $1,662,000 for the recurring payment of principal and
interest.
(17) All required legal steps were
accomplished to increase appropriations by the net amount of $212,000.
Estimated revenues were increased by $203,000.
(18) The City Council authorized a
write-off of $83,200 in delinquent property taxes and corresponding interest
and penalties amounting to $400.
(19) Interest and penalties receivable
on taxes were accrued in the amount of $13,000; $1,100 of this amount is
expected to be uncollectible.
(20) It is estimated that $26,000 of
the outstanding taxes receivable will be collected more than 60 days beyond the
fiscal year-end.4–C. Part 2. Special Revenue Fund
Transactions
Required:
a.Record
journal entries for the following transactions for FY 2014 and post to the
general ledger. As there are relatively few revenues and expenditures, the use
of control accounts is not necessary. (Make entries directly to individual revenue
and expenditure accounts).(1) The state government notified
the City that $1,085,000 will be available for street and highway maintenance during
2014 (i.e. the City has met eligibility requirements). The funds arenot considered reimbursement-type as
defined by GASB standards.
(2) Cash in the total amount of $990,000
was received from the state government.
(3) Contracts, all eligible for
payment from the Street and Highway Fund, were signed in the amount of $1,044,000.
(4) Contractual services (see
transaction 3) were received; the related contracts amounted to $1,037,500.
Invoices amounting to $1,026,000 for these items were approved for payment. The
goods and services all were for street and highway maintenance.
(5) Investment revenue of $6,000 was
earned and received.
(6) Vouchers were paid in the amount
of $956,000.
(7) All required legal steps were
accomplished to increase appropriations in the amount of $12,500.Chapter 5 – Accounting for Other
Governmental Fund Types: Capital Projects, Debt Service, and Permanent5–C.Part 1. Capital
Projects Fund Transactions
The voters of the City of Monroe approved the issuance of tax-supported
bonds in the face amount of $4,000,000 for the construction and equipping of a
new City Jail. Architects were to be retained, and construction was to be
completed by outside contractors. In addition to the bond proceeds, a $1,000,000
grant was expected from the state government.Required:
a.Open
a general journal for the City Jail Annex Construction Fund. Record the
following transactions and post to the general ledger. Control accounts are not necessary.
(1) On January 1, 2014, the total
face amount of bonds bearing an interest rate of 8 percent was sold at a $120,000
premium. The bonds are to mature in blocks of $200,000 each year over a 20-year
period commencing January 1, 2015. Interest payment dates are July 1 and January
1. The first interest payment will be July 1, 2014. The premium was transferred
to the City Jail Debt Service Fund for the future payment of principal on the
bonds.
(2) The receivable from the state
government was recorded.
(3) Legal and engineering fees early
in the project were paid in the amount of $77,000. This amount had not been
encumbered.
(4) Architects were engaged at a fee
of $176,000.
(5) Preliminary plans were approved,
and the architects were paid 20 percent of the fee.
(6) The complete plans and
specifications were received from the architects and approved. A liability in
the amount of $105,600 (60% of the contract) to the architects was approved and
paid.
(7) Bids were received and opened in
public session. After considerable discussion in City Council, the low bid from
Hardhat Construction Company in the amount of $4,300,000 was accepted, and a
contract was signed.
(8) The contractor required partial
payment of $1,500,000. Payment was approved and vouchered with the exception of
a 5 percent retainage.
(9) Cash in the full amount of the
grant was received from the state government.
(10) Furniture and equipment for the
annex were ordered at a total cost of $450,000.
(11) Payment was made to the
contractor for the amount vouchered (see 8 above).
(12) The contractor completed
construction and requested payment of the balance due on the contract. After
inspection of the work, the amount, including the past retainage, was vouchered
and paid.
(13)The furniture and equipment were
received at a total actual installed cost of $439,300. Invoices were approved
for payment.
(14) The remaining 20% of the
architects’ fees was approved for payment.
(15) The City Jail Construction Fund
paid all outstanding accounts payables ($ 474,500) on December 31, 2014.5–C.Part 2. Existing
Debt Service Fund TransactionsThe City Hall Debt Service Fund of the City of Monroe has been open
for five years; it was created to service an $16,000,000, 3 percent tax-supported
bond issue. As of December 31, 2013, this serial bond issue had a balance of
$12,000,000. Semiannual interest payments are made on January 1 and July 1, and
a principal payment of $400,000 is due on January 1 and July 1 of each year.As this is a regular serial bond debt service fund, the only
accounts with balances as of January 1, 2014, were Cash with Fiscal Agent and
Fund Balance—Assigned for Debt Service, each with balances of $580,000. (Revenues
were raised and collected in cash in 2013 in order to be able to pay bond
principal and interest due on January 1, 2014.) The government chose not to
accrue interest payable.Required:
a.Open
a general journal for the City Hall Debt Service Fund and prepare journal
entries for the following transactions. Control accounts are not necessary
(1) The fiscal agent reported that
$180,000 in checks had been mailed to bondholders for interest due on January 1,
and $400,000 in checks were mailed for bonds maturing that day.
(2) Cash in the amount of $574,000
was received from the General Fund on June 30 and was transferred to the fiscal
agent.
(3) The fiscal agent reported that
checks dated July 1 had been mailed to bondholders for interest of $ 174,000 due
that day and $400,000 in checks were mailed for bonds maturing that day.
(4) Cash in the amount of $568,000
was received from the General Fund on December 31 and transferred to the fiscal
agent to be used for the interest and principal due on January 1 (next fiscal
year). The government elected to not accrue the interest or principal at
year-end.5–C.Part 3. New Debt
Service Fund TransactionsOn the advice of the city attorney, a City Jail Debt Service Fund is
opened to account for debt service transactions related to the bond issue sold on
January 1, 2014 (see Part 1).Required:
a.Open
a general journal for the City Jail Debt Service Fund. Record the following
transactions, as necessary. Control accounts are not necessary
(1) The premium described in
transaction 1 of Part 1 was received as a transfer from the capital projects
fund.
(2) Cash in the amount of $160,000
was received from the General Fund on June 30 and was transferred to the fiscal
agent.
(3) The fiscal agent reported that
checks dated July 1 had been mailed to bondholders for interest due that day.
(4) The transfer described in partc
of Part 1 was received.
(5) Cash in the amount of $360,000
was received from the General Fund on December 31 and transferred to the fiscal
agent to be used for interest and principal payments due on January 1 (next
fiscal year). The government elected to not accrue the interest at year-end.
(6) $ 120,000 of the remaining cash
on hand was invested.Chapter 6 – Proprietary Funds6–C.Part 1. Internal
Service Fund TransactionsThe Stores and Service Fund of the City of Monroe had the following
account balances as of January 1, 2014:DebitsCreditsCash$17,000Due from other funds25,000Inventory of supplies35,000Land19,000Buildings82,000Accumulated depreciation—buildings$21,500Equipment46,000Accumulated depreciation—equipment18,000Accounts payable13,500Advance from water utility fund30,000Net position141,000Totals$224,000$224,000Required:
a.Open
a general journal for the City of Monroe Stores and Service Fund and record the
following transactions.
(1) A budget was prepared for FY 2014.
It was estimated that the price charged other departments for supplies should
be 1.25% of cost to achieve the desired breakeven for the year.
(2) The amount due from other funds
as of January 1, 2014, was collected in full.
(3) During the year, supplies were
ordered and received in the amount of $302,000. This amount was vouchered.
(4) $10,000 of the advance from the
Water Utility Fund, originally provided for construction, was repaid. No
interest is charged.
(5) During the year, supplies
costing $250,560 were issued to the General Fund, and supplies costing $46,400
were issued to the Water Utility Fund.
These funds were charged based on the previously determined markup ($
313,200 to General Fund and 58,000 to the Water Utility Fund).
(6) Operating expenses, exclusive of
depreciation, were recorded in accounts payable as follows: Purchasing, $11,500;
Warehousing, $16,000; Delivery, $17,500; and Administrative, $8,800.
(7) Cash was received from the
General Fund in the amount of $300,000 and from the Water Utility Fund in the
amount of $50,000.
(8) Accounts payable were paid in
the amount of $357,000.
(9) Depreciation in the amount of $8,200
was recorded for buildings and $11,000 for equipment.6–C.Part 2. Enterprise
Fund TransactionsThe
City of Monroe maintains a Water and Sewer Fund to provide utility services to
its citizens. As of January 1, 2014, the City of Monroe Water and Sewer Fund
had the following account balances:DebitsCreditsCash$112,600Customer Accounts Receivable89,000Estimated Uncollectible Accounts Receivable$3,600Materials and Supplies96,300Advance to Stores and Services Fund30,000Restricted Assets117,000Water Treatment Plant in Service4,075,000Construction Work in Progress203,000Accumulated Depreciation – Utility Plant687,500Accounts Payable132,000Revenue Bonds Payable2,500,000Net position1,399,800Totals$4,722,900$4,722,900Required:
a.Open
a general journal for the City of Monroe Water and Sewer Utility Fund and
record the following transactions.
(1) During the year, sales of water
to non-government customers amounted to $997,900 and sales of water to the
General Fund amounted to $45,000.
(2) Collections from non-government
customers amounted to $935,000.
(3) The Stores and Services Fund
repaid $10,000 of the long-term advance to the Water and Sewer Fund.
(4) Materials and supplies in the
amount of $263,000 were received. A liability in that amount was recorded.
(5) Materials and supplies were
issued and were charged to the following accounts: cost of sales and services,
$165,000; selling, $15,000; administration, $18,000; construction work in
progress, $62,000.
(6) Payroll costs for the year
totaled $416,200. Of that amount, $351,900 was paid in cash, and the remainder
was withheld for taxes. In addition, taxes that are expenses of the utility
amounted to $34,200. The $450,400 (416,200 + 34,200) was distributed as
follows: cost of sales and services, $265,800; sales, $49,900; administration,
$91,400; construction work in progress, $43,300.
(7) Bond interest (6½%) in the
amount of $162,500 was paid.
(8) Interest in the amount of $17,000
(included in 7 above) was reclassified to Construction Work in Progress.
(9) Construction projects at the
water treatment plant were completed in the amount of $235,000, and the assets
were placed in service. Payment was not yet made.
(10) Collection efforts were discontinued
on bills totaling $4,260. The unpaid receivables were written off.
(11) An analysis of customer
receivable balances indicated the Estimated Uncollectible Accounts needed to be
increased by $6,300.
(12) Payment of accounts payable
amounted to $305,500. Payments of payroll taxes totaled $95,200.
(13) Supplies transferred from the
Stores and Services Fund amounted to $58,000. Cash in the amount of $50,000 was
paid to the Stores and Services Fund for supplies.
(14) Depreciation expense for the
year was computed to be $275,000.
(15) In accord with the revenue bond
indenture, $17,500 cash was transferred from operating cash to restricted
assets.