Continuous Problem – City of Monroe

Continuous Problem – City of Monroeto Accompany

Essentials of Accounting for Governmental

and Not-for-Profit Organizations:

Eleventh Edition

Chapters 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 Fund

Proprietary Funds

Ø Internal service—Stores and Services Fund

Ø Enterprise—Water and Sewer Fund

Chapter 3 – Modified Accrual Accounting: Including the Role of Fund Balances and Budgetary Authority

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Chapter 4 – Accounting for the General and Special Revenue Funds

The 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.

3–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 Transactions

Required:

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 Permanent

5–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 Transactions

The 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 Transactions

On 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 partcof 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 Funds

6–C.Part 1. Internal Service Fund Transactions

The Stores and Service Fund of the City of Monroe had the following account balances as of January 1, 2014:

Required:

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 Transactions

The 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:

Required:

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.