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Homework answers / question archive / Completing Chapters 2 through 11 of the City of Smithville Full Version This full version of a cumulative problem written for the computer presents a series of transactions covering activities for the City of Smithville, assuming the city utilizes the dual-track accounting approach to the GASB reporting model described in Reck, Lowensohn, and Neely, Accounting for Governmental & Nonprofit Entities, 19th edition

Completing Chapters 2 through 11 of the City of Smithville Full Version This full version of a cumulative problem written for the computer presents a series of transactions covering activities for the City of Smithville, assuming the city utilizes the dual-track accounting approach to the GASB reporting model described in Reck, Lowensohn, and Neely, Accounting for Governmental & Nonprofit Entities, 19th edition

Computer Science

Completing Chapters 2 through 11 of the City of Smithville Full Version

This full version of a cumulative problem written for the computer presents a series of transactions covering activities for the City of Smithville, assuming the city utilizes the dual-track accounting approach to the GASB reporting model described in Reck, Lowensohn, and Neely, Accounting for Governmental & Nonprofit Entities, 19th edition. The transactions presented relate to the city’s General Fund, capital projects, debt service, enterprise, and fiduciary funds, as well as to an additional accounting entity, governmental activities at the government-wide level. The transactions and instructions in this series are designated Chapter 2, Chapter 3, etc., corresponding to the chapters of Reck, Lowensohn, and Neely, Accounting for Governmental & Nonprofit Entities, 19th edition.

 

You should begin the project with Chapter 2 of the instructions as you complete Chapter 2 of the textbook.  Some problems require you to print trial balances or other documents.  Other problems require the preparation of financial statements or other documents.  The specified documents can either be turned in chapter by chapter or retained in a cumulative folder until the end of the project, depending on your instructor’s preference and instructions.  Some instructors may prefer that you electronically submit your project data file and either Excel or .pdf files containing your trial balances, financial statements, and other documents, rather than submitting printed copies. 

 

To minimize errors, you should read and follow all instructions carefully.  Students find that this computerized cumulative problem significantly enhances their learning if they complete each City of Smithville chapter as the corresponding chapter of the textbook is covered.  Conversely, students who procrastinate often find that the project takes more time than they expected and that it is harder to recall how to make the journal entries covered in the earlier chapters.  Thus, delaying until your project is nearly due may increase the total time it takes you to do the project and leave you little time for anything else that week.  So, our advice is to stay current with the project.

 

 

 

Chapter 2 Opening the Books

 

The City of Smithville just implemented a dual-track computerized accounting system, which provides files for general journal entries and posting to appropriate general ledger/subsidiary ledger accounts. Budgetary, operating statement, and balance sheet accounts are provided for the General Fund and the other governmental fund types. Operating statement accounts and balance sheet accounts are also provided for governmental activities at the government-wide level and the proprietary and fiduciary funds of the City of Smithville that you will use in Chapters 5-9 of the problem. As the city’s new accountant, it is your job to enter the city’s initial accounting information as of December 31, 2022, in preparation for placing the new accounting system in full operation effective January 1, 2023.   

 

Required

 

Refer to [Help] to understand the general instructions on how to navigate and use this application.

 

Open the City of Smithville software by clicking on the MHECitiesSmithvilleBingham 19e program. Access the instructions for the Full Version of the City of Smithville project by clicking on instructions in [Instructions] in the opening window and then [Smithville], which appears at the top of the window. When you click on [Smithville] a drop-down menu appears that will allow you to select the full version of the instructions.

 

If creating a new project, click [Create New Project], when the [Create New Project] window appears choose the [Smithville] icon.  In addition, in the [Your name] box type your first and last name so that it will appear on all printable reports, and then click [Create].  This will create the project and provide access to all of the funds and accounts that you will need to complete the Full Version City of Smithville cumulative problem.

 

To protect yourself from possible hard drive failure or corruption of your project data file, we recommend that you save your file to not only your hard drive but also another location (e.g., flash drive or the cloud), creating a backup file for your project at the end of each session. You can create multiple files by changing the name or putting the date on the file when saving it to your backup location.

 

To open an existing project, click on [Open Project] in the opening window or select the project from the “Recent projects” list. 

 

a.            If not already displayed, select [General Fund] in the [Current Accounting Entity] window and the [Accounts] tab.  Clicking on the [Accounts] tab allows you to see the chart of accounts that will be used for the [General Fund]. A different chart of accounts is provided for each accounting entity. Next, select the [Journal] tab and click the [Add new entry] button and then click on [Select account or search by account name or number] in the Account column. You will see the same general ledger accounts that were listed when you clicked on the [Accounts] tab. For purposes of this exercise, date suffixes are omitted from the Expenditures and Encumbrances accounts as expenditures occur only from a single year’s appropriations. You will not use all accounts listed for this project.

 

b.            The trial balance for the General Fund of the City of Smithville as of December 31, 2022, follows. Select the [Journal] tab and create a journal entry to enter the balance sheet accounts and amounts shown in the trial balance. To create an entry start by clicking on [Add new entry]. Select the desired account name from the drop down [Account] window. Be sure to enter 2022 from the drop-down [Year] menu and enter the paragraph number from these instructions in the [Add description] box of the [Journal]. For this entry you should enter 2-b. Select the appropriate accounts individually and insert the appropriate amounts. You should enter all dollar amounts without dollar signs, commas, and decimal points. For all entries, it is vitally important that the correct year be selected.

 

You enter each account and amount one line at a time by clicking [Add]. The [Add] button will not be active if information for the entry is missing (e.g., the transaction description is missing.)

 

The year and transaction description need only be entered for the first line of the journal entry; it will remain selected for the rest of the accounts. When you have completed entering all account data and amounts, verify your entries, including date and paragraph numbers. When you are sure that your entries are correct, click [Post entries] to post the items to the general ledger of the General Fund. 

 

CITY OF SMITHVILLE

General Fund Post-Closing Trial Balance

As of December 31, 2022

 

      Account Title                  Debits Credits

Cash        $  342,223

Taxes Receivable—Delinquent  391,756

Allowance for Uncollectible Delinquent Taxes                    $    4,752

Interest and Penalties Receivable on Taxes         37,718

Allowance for Uncollectible Interest and Penalties                           1,203

Due from Other Funds  4,600

Due from State Government      165,000

Inventory of Supplies     59,000

Vouchers Payable                            272,187

Due to Other Funds                        7,400

Due to Federal Government                       135,720

Due to State Government                           32,600

Deferred Inflows of Resources                  97,704

Fund Balance—Nonspendable—Inventory of Supplies                  59,000

Fund Balance—Restricted—Public Safety                             114,000

Fund Balance—Assigned—Culture and Recreation                           56,800

Fund Balance—Unassigned                                              218,931

    Totals                $1,000,297           $1,000,297

 

Unpost capability.  As discussed in Chapter 1 of these instructions, the City of Smithville software program permits students to “unpost” a particular batch of posted transactions. Unposted entries then can be edited and re-posted. In addition, any omitted entries can be inserted above or below a selected balance sheet account journal line in any unposted batch of entries. Prior to unposting a batch, all batches must be posted.

 

Select [Reports, Trial Balances, Post-Closing Trial Balance] and print or save as a .pdf file the post-closing trial balance for year 2022. Retain the printed trial balance in your personal cumulative folder until the due date assigned by your instructor for the project or submit a saved version of the trial balance electronically if directed to do so by your instructor. 

 

c.             Select [Governmental Activities, Government-wide Level] in the [Current Accounting Entity] drop-down box and the [Accounts] tab.  You will see most of the accounts included in the preceding trial balance, plus many other accounts that will be used in the various chapters of the City of Smithville project.

 

d.            Select the [Journal] tab and create a journal entry to enter the statement of net position (i.e., balance sheet) accounts and amounts shown in the following trial balance.  It is necessary to enter these items in the accounts of the governmental activities category at the government-wide level as the general journal and general ledger for governmental activities comprise a separate “set of books” from those for the General Fund.  Be sure to enter 2022 from the drop-down date menu and enter 2-d in the [Add description] box.  Select each account individually and insert the appropriate debit or credit amount for each account.  When you have completed entering the initial data, verify the accuracy and click [Post entries] to post the entry to the governmental activities, government-wide general ledger.

 

CITY OF SMITHVILLE

Governmental Activities Government-wide Level

Post-Closing Trial Balance

As of December 31, 2022

 

      Account Title                Debits   Credits

Cash      $    342,223

Taxes Receivable—Delinquent  391,756

Allowance for Uncollectible Delinquent Taxes                    $     4,752

Interest and Penalties Receivable on Taxes         37,718

Allowance for Uncollectible Interest and Penalties                           1,203

Due from State Government      165,000

Internal Receivables from Business-type Activities           4,600

Inventory of Supplies     59,000

Land      4,231,000

Infrastructure    9,802,000

Accumulated Depreciation—Infrastructure                         2,773,944

Buildings              6,296,000

Accumulated Depreciation—Buildings                    1,731,000

Equipment          3,556,800

Accumulated Depreciation—Equipment                               1,756,480

Vouchers Payable                            272,187

Due to Federal Government                       135,720

Due to State Government                           32,600

Internal Payables to Business-type Activities                       7,400

Net Position—Net Investment in Capital Assets                                                17,624,376

Net Position—Restricted for Public Safety                                            114,000

Net Position—Unrestricted                                                 432,435 

   Totals $24,886,097        $24,886,097

 

 

e.            Select [Reports, Trial Balances, Post-Closing Trial Balance] and print the trial balance for 2022 or submit a saved .pdf version of the trial balance electronically if directed to do so by your instructor.  Retain in your cumulative file until the due date for your project or the time specified by your instructor.

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As]. Click on “Export my Project” if you are using Chromebook.

 

 

 

Chapter 3 Recording the Annual Budget

 

The following budget for the General Fund of the City of Smithville was legally adopted for the fiscal year ending December 31, 2023.

 

Estimated Revenues:

                  Taxes:

                                  Property            $1,859,913

                                  Sales    1,578,000

                                Interest and Penalties on Taxes 37,000

                                Licenses and Permits      500,000

                                Fines and Forfeits            175,000

                                Intergovernmental Revenue      789,000

                                Charges for Services       659,720

                                Miscellaneous Revenues                     91,300

         Total Estimated Revenues  $5,689,933

 

Appropriations:

                                General Government    $1,169,500

                                Public Safety      2,206,000

                                Public Works      875,700

                                Health and Welfare         735,000

                                Culture and Recreation      660,500

                                Total Appropriations       $5,646,700

 

Estimated Other Financing Sources and Uses:

                Interfund Transfers Out                $     38,750

 

 

Required

 

a.            After opening the file you created for Chapter 2 of this project, record the budget in the general journal, providing entries in the Detail Journal when directed.  Begin by selecting [General Fund] in the [Current Accounting Entity] drop-down box and the [Journal] tab.  In the [Year] box, be sure to select the year 2023. Enter 3-a in the [Add description] box.  Select Estimated Revenues in the drop down [Account] window. Click [Add subsidiary] to go to the Detail Journal where you will enter the detail for each estimated revenue source.  In the Detail Journal, select “Budget Authorization” from the drop-down menu for [Description]. 

 

When you have finished entering the estimated revenue detail information, verify that the correct total amount is shown in the Detail Journal, then click on [Add entry and return to Journal] and the total estimated revenues will be entered in the general journal Estimated Revenues control account. Follow the same procedure to record the budget detail for Appropriations. To complete this entry debit or credit Budgetary Fund Balance as appropriate to balance the budgetary entry.

 

To finish recording the budget debit Budgetary Fund Balance and credit Estimated Other Financing Uses—Interfund Transfer Out for $38,750. Note that budgetary entries have no effect on governmental activities at the government-wide level and thus the budget information is only recorded in the General Fund.

 

When you are satisfied you have made the entries correctly, post them to the general ledger by clicking on [Post entries].  Before posting, or after unposting as described previously, you can edit, delete or insert entries in the journal by placing the cursor in the line you want to adjust and then right-clicking. Note that the “Insert Entry” function will work if you are inserting an entry prior to a balance sheet account. However, it will not work when inserting an entry prior to any account that has an associated subsidiary ledger (e.g., estimated revenues, expenditures). 

 

b.            Go to [Reports], print the pre-closing subsidiary ledgers and pre-closing trial balance for year 2023 and retain them in your cumulative file until directed by your instructor to submit them, or submit saved versions of these documents electronically if directed to do so by your instructor. As of this time, only the budget has been recorded. This is your last opportunity to print or export these documents with budget information only. After operating transactions have been journalized and posted in Chapter 4, subsidiary ledgers and trial balances will contain both budgetary and operating accounts and balances.

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].  Click on “Export my Project” if you are using Chromebook.

 

 

 

 

 

 

Chapter 4 Recording Operating Transactions Affecting the General Fund and Governmental Activities at the Government-wide Level

 

Presented below are a number of transactions for the City of Smithville that occurred during fiscal year 2023, the year for which the budget given in Chapter 3 was recorded.   Read all instructions carefully. 

 

a.            After opening the data file containing your data from Chapters 2 and 3 of this project, 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 2023. 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. Regardless of the method you choose, we recommend that you refer to the illustrative journal entries in Chapter 4 of the Reck, Lowensohn, and Neely textbook (19th edition) for guidance in making all entries.

 

For each entry affecting budgetary accounts or operating statement accounts, you will be directed to the Detail Journal to allow you to record the appropriate amounts in the detail budgetary or actual accounts, as was the case in Chapter 3.

 

1.   [Para. 4-a-1] On January 2, 2023, property taxes were levied for the year in the amount of $1,878,700. It was estimated that 1 percent of the levy would be uncollectible.  

 

Required: Record this transaction in both the General Fund and governmental activities journal. Type 4-a-1 as the paragraph number in the [Add description] box for this entry; 4-a-2 for the next transaction, etc. Careful referencing by paragraph number is very helpful should you need to determine where you may have omitted a required journal entry or made an error. For the General Fund you will be directed to the Detail Journal. Select “Accrued Revenue” in the drop down [Description] menu in the Detail Journal related to the General Fund entry.

 

2.            [Para. 4-a-2] Encumbrances were recorded in the following amounts for purchase orders issued against the appropriations indicated:

 

                                General Government                           $   193,220

                                Public Safety                                                      442,900

                                Public Works                                                      216,632

                                Health and Welfare                                         162,045

                                Culture and Recreation                 143,580

                                                                                Total             $1,158,377

 

Required:  Record the encumbrances in the General Fund general journal and Detail Journal as appropriate. In the Detail Journal, select “Purchase Orders” from the drop down [Description] menu. 

 

3.            [4-a-3] The General Fund transferred $38,750 to the Street Improvement Bond Debt Service Fund to assist with interest payments due on July 1, 2023 and January 1, 2024.

 

                Required: Record this transaction in the General Fund only. The transaction has no effect at the government-wide level since it occurs between two governmental activities. Do not record this transaction in the Street Improvement Bond Debt Service Fund until instructed to do so in Chapter 6 of this case.

 

4.            [Para. 4-a-4] Cash was received during the year in the total amount of $5,980,222 for collections from the following receivables and cash revenues, as indicated:

 

Receivable Collections:

Current Property Taxes                                 $1,596,895

Delinquent Property Taxes                                               387,201

Interest and Penalties Receivable on Taxes                34,270

Due from Other Funds/Internal Receivables                4,600

Due from State Government                                           165,000

Cash Collections of Revenues: (total: $3,792,256)

                Sales Taxes                                                           1,579,203

                Licenses and Permits                                           497,960

                Fines and Forfeits                                                 173,590

                Intergovernmental                                              789,000

                Charges for Services                                            661,253

                Miscellaneous                                                      91,250

                                      Total                                            $5,980,222

               

Required:  Record the receipt of cash and the related credits to receivables and revenues accounts, as applicable, in both the General Fund and governmental activities journals. Select “Received in cash” in the drop down [Description] menu in the Detail Journal related to the General Fund revenue entries.

 

For purposes of the governmental activities entries at the government-wide level assume the following revenue classifications:

 

                  General Fund                  Governmental Activities                      

                Sales Taxes         General Revenues—Taxes—Sales

                Licenses and Permits      Program Revenues—General Government—

                                                Charges for Services

                Fines and Forfeits            Program Revenues—General Government—

                                                Charges for Services

                Intergovernmental         Program Revenues—Public Safety—Operating

                                                Grants and Contributions, $360,000

                                Program Revenues—Health and Welfare—

                                                Operating Grants and Contributions,

                                                $429,000

                Charges for Services       Program Revenues—General Government—

                                           Charges for Services, $268,095

                                Program Revenues—Public Safety—

                                           Charges for Services, $99,519

                                Program Revenues—Culture and Recreation—

                                                Charges for Services, $293,639

                Miscellaneous   General Revenues—Miscellaneous, $91,250

 

5.   [Para. 4-a-5] Of the $387,201 in delinquent property taxes collected in transaction 4-a-3, $88,115 had been recorded in the Deferred Inflows of Resources account. Additionally, $7,766 of the interest and penalties collected in 4-a-3 had also been recorded as deferred inflows of resources.

 

Required:  In the General Fund recognize the property tax revenues and the interest and penalties revenues related to the deferred inflows of resources. To do this debit the Deferred Inflows of Resources account and credit related property tax revenues and interest and penalties revenues. Select “Previous Deferral” in the [Description] menu in the Detail Journal. Under accrual accounting the deferral was not recognized in the governmental activities journal; therefore, there is no need to record a journal entry in the governmental activities journal.

 

6.            [Para. 4-a-6] General Fund payrolls for the year totaled $4,460,212. Of that amount, $936,701 was withheld for employees' federal income taxes; $535,258 for federal payroll taxes; $133,815 for employees’ state income taxes; $267,629 for retirement funds administered by the state government; and the remaining $2,586,809 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                    $   956,254  

                                Public Safety                                        1,771,480

                                Public Works                                           656,690

                                Health and Welfare                              572,370

                                Culture and Recreation      503.418

                                                                Total                  $4,460,212

 

Required:  Make summary journal entries for payroll in both the General Fund and governmental activities general journals for the year. 

 

7.            [Para. 4-a-7] Invoices for some of the goods recorded as encumbrances in transaction 4-a-2 were received and vouchered for later payment, as listed below. Related encumbrances were canceled in the amounts shown. Select “Elimination” in the drop down [Description] menu in the Detail Journal.

               

                                                                                                Expenditures                     Encumbrances

                                General Government                    $    191,709                          $    191,720

                                Public Safety                                            442,870                                 442,900

                                Public Works                                            206,308                             206,241

                                Health and Welfare                               162,020                             162,045

                                Culture and Recreation       141,990                                 142,000

                                                                Total                       $1,144,897                       $1,144,906

 

Required:  Record the receipt of these goods and services and the related vouchers payable in both the General Fund and governmental activities journals. In the Detail Journal select “Goods received” for expenditure description. At the government-wide level, you should assume the city uses the consumption inventory method and initially records inventory as expenditure/expense.  Thus, at the government-wide level the invoiced amounts above should be recorded as expenses of the appropriate functions, except that $45,095 of the amount charged to the Public Works function was for a vehicle and $39,680 of the amount charged to the Culture and Recreation function was for recreation equipment (debit Equipment for these items at the government-wide level).

 

8.            [Para. 4-a-8] Checks were written in the total amount of $3,076,943 during 2023.  These checks were in payment of the following items:

 

Vouchers Payable                            $1,197,963

Due to Other Funds/Internal Payables                   7,400

Due to Federal Government                       1,473,706 

Due to State Government                                397,874

                Total amount paid                           $3,076, 943

 

Required:   Record the payment of these items in both the General Fund and governmental activities general journals.

 

8.            [Para. 4-a-9] Current taxes receivable uncollected at year-end, and the related Allowance for Uncollectible Current Taxes account, were both reclassified as delinquent.

 

Of the amount classified as delinquent it was determined $70,450 would not be collected within 60 days of the fiscal year end and would therefore be unavailable for use in the current period.  As a result, the related amount of revenues was reclassified as deferred inflows of resources.

 

Required:  Record the reclassification of the balances in the current taxes receivable account and related allowance for uncollectible account in the General Fund and governmental activities journals. 

 

Reclassify $70,450 of property tax revenue to the Deferred Inflows of Resources account in the General Fund journal only.  To accomplish the reclassification of revenue, debit the revenue account and credit deferred inflows of resources. Select “Deferral” in the [Description] menu in the Detail Journal.

 

10.          [Para. 4-a-10] The city’s budget for 2023 was legally amended as follows:

 

                Estimated Revenues:

                Decreases           Increases

                Property Taxes                 $17,500

                Interest and Penalties      $ 22,000            

 

                Appropriations:

                General Government                    $   8,500

                Public Safety                      $   9,000

                Culture and Recreation $ 13,000

 

Required:  Record the budget amendments in the General Fund general journal only. Budgetary items do not affect the government-wide accounting records. Select “Budget Amendment” in the [Description] box in the Detail Journal.

 

11.          [Para. 4-a-11] Interest and penalties receivable on delinquent taxes was increased by $8,454; $1,536 of this was estimated as uncollectible and based on past history $2,113 was considered to be unavailable for use in the current fiscal year.

 

Required:  Record this transaction in the General Fund and governmental activities journals. The $2,113 considered unavailable for use is recorded as deferred inflows of resources in the General Fund journal and as revenue in the governmental activities journal.

 

12.          [Para. 4-a-12] Services received by the General Government function of the General Fund from the Solid Waste Disposal Fund amounted to $28,500 during the year. Of this amount, $25,400 was paid in cash and $3,100 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 in 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.

 

13.          [4-a-13] Adjusting Entry. Because the city uses a periodic inventory system a physical count of consumable supplies was taken at year-end showing an ending balance of $60,420, an increase of $1,420 during the year. The city uses the consumption method of accounting for its inventory in the General Fund and at the government-wide level. Recall that inventory purchases were initially recorded as expenditures in the General Fund and as expenses at the government-wide level. Therefore, an increase in inventory requires adjustments to the expenditure and expense accounts of the General Government function.

 

Required:  Prepare the adjusting journal entries in the General Fund journal to adjust General Government expenditures and Inventory of Supplies, and the Fund Balance—Nonspendable—Inventory of Supplies and Fund Balance—Unassigned accounts to the correct balances. In the governmental activities journal adjust the Expenses—General Government and Inventory of Supplies accounts. 

 

Post all journal entries to the ledgers: 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.

 

14.          Closing Entry. Following the instructions in the next paragraph, prepare and post the necessary entries to close the General Fund Estimated Revenues, Appropriations, and Estimated Other Financing Uses accounts to Budgetary Fund Balance, and Revenues, Expenditures, and Other Financing Uses to Fund Balance—Unassigned. Because the City of Smithville honors all outstanding encumbrances at year-end, it is not necessary to close Encumbrances to Encumbrances Outstanding at year-end since encumbrances do not affect the General Fund balance sheet or statement of revenues, expenditures, and changes in fund balances. If, however, you would like to avoid having these accounts appear in the post-closing trial balance, you can opt to close Encumbrances to Encumbrances Outstanding.  If the accounts are closed, they would need to be reestablished at the beginning of the next year.

 

To close the temporary accounts, you must click the box for [Closing Entry] that appears when you [Add new entry]. “Closing Entry” will appear in the [Add description] box. Be sure the check mark in the box for [Closing Entry] is showing 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 view the pre-closing version of these ledgers for year 2023 from the [Reports] menu. 

 

                At year-end, an analysis by the city’s finance department determined the following constraints on resources in the General Fund. Prepare the appropriate journal entry in the General Fund to reclassify amounts between Fund Balance—Unassigned and the fund balance accounts corresponding to the constraints shown below. You should consider the beginning of year balances in fund balance accounts when calculating the amounts to be reclassified. Be sure the check mark in the box for [Closing Entry] is showing before closing each individual account.

 

                                Account                               Ending Balance

Fund Balance—Restricted—Public Safety             $54,000

Fund Balance—Committed—Health and Welfare             43,000

Fund Balance—Assigned—Culture and Recreation             0

               

                Note: DO NOT PREPARE CLOSING ENTRIES FOR GOVERNMENTAL ACTIVITIES AT THIS TIME since governmental activities will not be closed until Chapter 9, after the 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, 2023.  Use Excel to prepare in good form a balance sheet for the General Fund as of December 31, 2023.  Follow the format shown in Illustration 4-4 of Reck, Lowensohn, and Neely, Accounting for Governmental & Nonprofit Entities,19th edition textbook (hereafter referred to as “the textbook”).   

 

c.             Select [Export] from the drop down [File] menu to create an Excel worksheet of the General Fund pre-closing subsidiary ledger account balances for the year 2023.  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, 2023. See Illustration 4-5 in the textbook for an example format.

 

d.            Use the Excel worksheet of the General Fund pre-closing subsidiary ledger account balances created in part c above to prepare in good form a schedule of revenues, expenditures, and changes in fund balance—budget and actual for the General Fund for the year ended December 31, 2023. See Illustration 4-6 in the textbook for an example format.

 

e.            Prepare 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. In Chapter 4 below Illustration 4-5, see discussion and example which compares Illustrations 4-5 and 4-6.

 

[Note: File the printouts of all your worksheets and your completed financial statements in your cumulative problem folder until directed by your instructor to submit them, unless your instructor specifies submission of files electronically, in which case you will need to save a .pdf version of you trial balances.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

Chapter 5 Recording Capital Asset Transactions

 

Street Improvement Capital Projects Fund and Governmental Activities at the Government-wide Level

 

During late 2022, the voters of the City of Smithville authorized tax-supported bond issues totaling $9,000,000 as partial financing for projects to construct the extension of two streets and the related curbs, culverts, and storm sewers in the city. The estimated total cost of the projects, which are expected to extend over the next three years, was $11,200,000. In addition to the bond financing, voters also approved a special 1 cent sales tax to assist in financing the projects.  The sales tax begins January 1, 2023 and will continue for seven years.  The sales tax is projected to generate $380,000 each year.

 

Required

 

a.            Prepare general journal entries as necessary to record the transactions described below in the Street Improvement Fund general journal and, if applicable, in the governmental activities general journal. Do not record entries at this time in other affected funds; those entries will be made in the later chapters of this cumulative problem that cover the affected funds. Use account titles listed under the drop down [Account] menu.  Be sure the year 2023 is selected from the drop-down [Year] menu and the appropriate paragraph number shown in bold-face font below is in the [Add description] box.

 

1.            [Para. 5-a-1] In early 2023, design plans and specifications for the first project, the Elm Street Project, were submitted by a construction engineering firm. The firm billed the Street Improvement Fund for $110,000.

 

Required:  Record this billing and the related Vouchers Payable liability in the Street Improvement Fund and governmental activities journals. (Note: this transaction was not encumbered.)

 

2.            [Para. 5-a-2] On February 1, 2023, 2.5% deferred serial bonds with a face value of $3,000,000 were sold for a total amount of $3,036,250, of which $6,250 was for accrued interest from the January 1, 2023 date of the bonds and $30,000 was a premium on the bonds sold. Cash in the amount of the accrued interest and premium was deposited directly in the Street Improvement Bond Debt Service Fund. Cash in the amount of $3,000,000 was deposited and recorded in the Street Improvement Fund. 

 

Required:  Record these transactions in the Street Improvement Fund and governmental activities journals. In addition to recording the liability for bonds payable in the governmental activities journal, you should record the premium on the bonds payable (credit Premium on Deferred Serial Bonds) and accrued interest on bonds sold (we recommend that you credit Expenses—Interest on Long-term Debt)in the governmental activities general journal for the $6,250 of accrued interest.) For now you should not make the entries in the Street Improvement Bond Debt Service Fund to record the accrued interest and premium. Those entries will be made in Chapter 6 of this cumulative problem.

 

3.            [Para. 5-a-3] On February 21, 2023, construction bids were opened and analyzed. A bid of $3,300,000 was accepted, and the contract was awarded for the Elm Street Project. The contract provided for a retained percentage of 5 percent from each progress payment, and from the final payment, until final inspection and acceptance by the city’s public works inspectors.

 

Required:  Record the signing of the contract in the Street Improvement Fund general journal. This transaction has no effect at the government-wide level.

 

4.            [Para. 5-a-4] Sales tax revenue of $83,000 was received.

 

Required:  Record this transaction in both the Street Improvement Fund and governmental activities general journals.

 

5.            [Para. 5-a-5] Vouchers payable accumulated to date were paid on March 30, 2023.

 

Required:  Record this transaction in both the Street Improvement Fund and governmental activities general journals.

 

6.            [Para. 5-a-6] July 6, 2023, the contractor for the Elm Street Project reported that the project was about one-half completed and requested a progress payment of $1,600,000. This amount was paid July 25, 2023, less the 5% retained percentage.

 

Required:  Record these transactions in both the Street Improvement Fund and governmental activities general journals.

 

7.            [Para. 5-a-7] Additional sales taxes were collected in the amount of $278,000 on December 1, 2023.

 

Required:  Record this transaction in both the Street Improvement Fund and governmental activities journals.

 

8.            [Para. 5-a-8] On December 10, 2023 the Elm Street project was completed and the contractor for the project requested a final payment of $1,650,000. This amount was recorded as a liability. Payment was made, less the retained percentage, on December 15, 2023. 

 

Required:  Record these transactions in both the Street Improvement Fund and governmental activities journals. Because the project is completed, all encumbrances for the project should be closed.

 

9.            [Para. 5-a-9] The city submitted a $190,000 purchase order for design plans and specifications for the second street improvement project, the “Spruce Street Project.”

 

Required:  Record this encumbrance in the Street Improvement Fund.

 

10.          [Para. 5-a-10] The city engineer approved the final construction on the Elm Street Project, and the city paid the retained percentage (Transactions 6 and 8) to the contractor.

 

Required:  Record this transaction in both the Street Improvement Fund and governmental activities journals. Total construction costs for the Elm Street Project should be capitalized in the Infrastructure account in governmental activities.

 

11.          Verify the accuracy of all your preceding entries in the Street Improvement Fund and governmental activities general journals, then click [Post entries] of each entity to post the entries to the respective general ledgers.  For the Street Improvement Fund only, prepare year-end closing entries for 2023 and post them to the fund’s general ledger, Fund Balance—Restricted.  You must click on the box for [Closing Entry] to check mark it; “Closing Entry” will appear in the [Add description] box for the account being closed. Be sure the check mark is present for each account being closed.  Click [Post entries] to post the closing entry. Under GASB standards encumbrances and encumbrances outstanding are not reported in any financial statements. Consequently, there is no need to close these accounts since the Spruce Street Project is still underway at year-end.

 

Closing entries will be made in the governmental activities general journal in Chapter 9 of this cumulative problem. Ignore those entries for now.

 

c.             Export the post-closing trial balance for year 2023 to an Excel worksheet and use Excel to prepare a balance sheet for the Street Improvement Fund as of December 31, 2023. See Illustration 4-4 in the textbook for an example of an appropriate format of a governmental fund balance sheet. In addition, print or save as a .pdf the post-closing trial balance from the [Reports] drop-down menu.

 

d.            Export the pre-closing trial balance for year 2023 to an Excel worksheet and use Excel to prepare a statement of revenues, expenditures, and changes in fund balance for the Street Improvement Fund for the year ended December 31, 2023. See Illustration 5-3 in textbook for an example of the format of a capital projects fund statement of revenues, expenditures, and changes in fund balance. Print or save as a .pdf the pre-closing trial balance from the [Reports] drop-down menu.

 

[Note: Retain all required printouts and your financial statements in your cumulative folder until directed by your instructor to submit them, unless your instructor prefers to have files submitted electronically, in which case you will submit the .pdf versions of your trial balance.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

Chapter 6 Transactions Affecting General Long-term Liabilities and Debt Service

 

The City of Smithville created a Street Improvement Bond Debt Service Fund to be used to retire the bonds issued for the purposes described in Chapter 5 of this cumulative problem, and to pay the interest on the bonds. The $3,000,000 face value of bonds issued during 2023 are dated January 1, 2023, but were not issued until February 1, 2023.  Because bondholders will receive six months of interest on July 1, 2023 in the total amount of $37,500, they were required to pay $6,250 on the date of issue to pay the city for unearned interest from January 1 to February 1. The bonds bear interest of 2.5 percent per annum. The first interest payment of $37,500 is due July 1, 2023. Subsequent semiannual interest payments will be made January 1 and July 1 of each following year until the maturity of the bonds. Bonds in the amount of $750,000 are to mature five years after the date of the bonds (January 1, 2028), and $150,000 is to mature January 1 of each year thereafter until all the bonds issued in 2023 have been retired. Thus, these bonds are deferred serial bonds as discussed in Chapter 6 of the textbook. Make entries as instructed in the following paragraphs.

 

Bond covenants related to this bond issue require the city to levy property taxes sufficient to make principal and interest payments until the bonds have been retired. The city council has approved a resolution to enable the property tax levy, beginning in fiscal year 2024. As the bond issue did not occur until February 2023, the city will not levy debt service property taxes until next year. 

 

a.            Prepare general journal entries, as necessary to record the transactions described below in the Street Improvement Bond Debt Service Fund general journal and, if applicable, in the governmental activities general journal. Use account titles listed under the drop down [Account] menu. Be sure the year 2023 is selected from the drop-down [Year] menu and the appropriate paragraph number shown in bold-face font below is in the [Add description] box.

 

1.            [Para. 6-a-1] In early February 2023, an amendment to the annual budget for 2023 was approved by the city council for inflows and outflows in the Street Improvement Bond Debt Service Fund related to the bond issue. The debt service fund budget amendment provides for estimated other financing sources of $30,000 for the premium on bonds sold, estimated other financing sources of $38,750 for a transfer from the General Fund that will be used to help pay interest due on July 1, 2023 and January 1, 2024, estimated revenues of $6,250 for accrued interest on bonds sold, and appropriations in the amount of the one interest payment of $37,500 to be made during 2023. (The payment that is due on July 1, 2023.) 

 

Required:  Record the budget for the Street Improvement Bond Debt Service Fund for year 2023. Budgetary entries have no effect on the government-wide accounting records.

 

2.            [Para. 6-a-2] On February 1, 2023, the premium and accrued interest on bonds sold were received by the Street Improvement Bond Debt Service Fund. (See Transaction 5-a-2 in the Street Improvement Fund.) 

 

Required: Record this transaction in the debt service fund.  No entry is required at this time in the governmental activities general journal since the bond issue, including the related premium and accrued interest, was recorded in the governmental activities general journal in transaction 5-a-2.

 

3.            [Para. 6-a-3] To permit payment of the $37,500 interest payments due on July 1, 2023 and January 1, 2024, the Street Improvement Bond Debt Service Fund received $38,750 from the General Fund.

 

Required: Record the interfund transfer in the debt service fund journal only.  This transaction was previously recorded in the General Fund in Chapter 4 of this problem. The transaction has no effect at the government-wide level since it occurs between two governmental funds.

 

4.            [Para. 6-a-4] The July 1, 2023, interest payment was made in the amount of $37,500.

 

Required: Record the interest payment in both the debt service fund and the governmental activities general journals. Since Expense—Interest on Long-Term Debt was credited for $6,250 in 5-a-2 in the governmental activities general journal record the full July 1, 2023 interest payment as a debit to Interest Expense, less amortization of the premium. For the entry in the governmental activities journal, assume that the appropriate amount of amortization of the Premium on Deferred Serial Bonds Payable for the period the bonds have been outstanding (February 1 to July 1) is $231. Although premiums and discounts on bonds issued are not amortized in a debt service fund, they should be amortized at the government-wide level since the accrual basis of accounting is used at that level.

 

5.            [Para. 6-a-5] Accrue six months of interest payable on the 2.5% deferred serial bonds from the July 1 interest payment until the end of the fiscal year, December 31, 2023.

 

Required: Make the required journal entry in the governmental activities general journal. For this entry, assume that the appropriate amount of amortization of the Premium on Deferred Serial Bonds Payable is $233. Recall that interest is not accrued for the period July 1 to December 31, 2023 in the debt service fund as no appropriation exists for this expenditure and the interest is not due this fiscal year.

 

6.            Verify the accuracy of journal entries, including dates and paragraph numbers, and, if you have not already done so, post all entries to the general ledger of both the Street Improvement Bond Debt Service Fund and governmental activities by clicking on [Post entries].  Make the entries needed to close the budgetary and operating statement accounts at the end of fiscal year 2023. Budgetary and operating statement accounts should be closed to Budgetary Fund Balance and Fund Balance—Restricted, as appropriate. Make this entry only in the Street Improvement Bond Debt Service Fund journal. Be sure that for each account being closed that the check mark for [Closing Entry] is on and that “Closing Entry” appears in the [Add description] box. Closing entries for governmental activities at the government-wide level will be made in Chapter 9 of this cumulative problem.

 

b.            Go to [File/Export] and export Excel files of the pre-closing and post-closing trial balances for the Street Improvement Bond Debt Service Fund as of December 31, 2023, and use them to prepare a balance sheet; statement of revenues, expenditures, and changes in fund balances; schedule of revenues, expenditures, and changes in fund balances—budget and actual for the Street Improvement Bond Debt Service Fund.  The format for the statements will be similar to that of the combing statements in Illustrations 6-8, 6-9, and 6-10 of the textbook.

 

[Note: Retain all required printouts in your cumulative folder until directed by your instructor to submit them, unless your instructor specifies submission of files electronically, in which case you will need to save a .pdf version of your trial balance.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

c.             As given later in Chapter 8 of this project, the assessed valuation of property within the City of Smithville is $342,581,818. Assuming the legal general obligation debt limit is 8 percent of assessed valuation, prepare in good form a schedule showing the legal debt limit, debt outstanding subject to the limit, and the legal debt margin of the city as of December 31, 2023, rounding the debt limit to the nearest whole dollar (see Illustration 6-3 for an example). A note at the bottom of the schedule should disclose the bonds authorized but unissued, as described in the introductory paragraph of Chapter 5 of the City of Smithville cumulative problem. This will inform the reader that additional debt issuances are pending. 

 

Fiscal year 2024 Transactions:

 

d.            On January 2, 2024, the City of Smithville approved the issuance of additional street improvement bonds in the total amount of $6,000,000. The new bonds will be serial bonds and will bear interest at the nominal annual rate of 2.75 percent. These bonds are dated January 1, 2024, and will be issued during the next few months when the city’s bond underwriters believe market conditions are most favorable.

  

The first interest payment on the new bonds will be due on July 1, 2024; interest will be payable January 1 and July 1 of each following year until maturity. Bonds in the amount of $200,000 will mature on January 1, 2025, and in the same amount at each interest payment date thereafter until all bonds of the 2024 issue have been retired.  To give you some additional practice on accounting for a debt service fund record the following events and transactions that are presumed to occur in fiscal year 2024. The transactions are to be recorded in the Street Improvement Bond Debt Service Fund only. 

 

You should ignore entries that would be required in the General Fund and in the governmental activities general journal related to these transactions for fiscal year 2024.  Keep in mind that these transactions will not affect the 2023 financial statements that will be prepared in Chapter 9.  Be sure to select 2024 in the [Year] menu.

 

1.            [Para. 6-d-1] On January 2, 2024, the Street Improvement Bond Debt Service Fund budget for 2024 is legally adopted. The budget should provide for estimated property tax revenue of $645,000, of which $300,000 will be invested to accumulate resources over the next four years for the $750,000 principal payment that will be due on January 1, 2028 for the 2.5% deferred serial bonds. The budget should include estimated investment earnings of $4,000 during 2024. Property tax revenues are intended to help pay $75,000 interest due during 2024 on the 2.5% deferred serial bonds (due January 1 and July 1), as well as the $82,500 interest payment that will be due on the 2.75% serial bonds on July 1, 2024. The property tax levy will also provide resources to help pay interest of $120,000 due on January 1, 2025 ($37,500 interest on the 2.5% deferred serial bonds and $82,500 on the 2.75% serial bonds). No premium or accrued interest on bonds sold is included in the 2024 estimated other financing sources or estimated revenues. If the Street Improvement Debt Service Fund does receive such items the budget will be amended accordingly to reflect such items.

 

Required: Record the budget for FY 2024 in the general journals for the Street Improvement Bond Debt Service Fund. [As a reminder, you should make journal entries for FY 2024 only in the debt service fund, ignoring any entries for governmental activities at the government-wide level or any other funds.]

 

2.            [Para. 6-d-2] Property taxes were levied in the amount of $650,000, of which $5,000 was estimated to be uncollectible. 

 

Required: Prepare the journal entry to record the taxes levied and related estimated uncollectible.

 

3.            [Para. 6-d-3] Bond interest due on January 1, 2024 in the amount of $37,500 was paid for the 2.5% deferred serial bonds.

 

Required: Prepare the journal entry to record the payment of interest.

 

4.            [Para. 6-d-4] On March 1, 2024, the Street Improvement Debt Service Fund received $27,500 for two months of accrued interest from the sale of the additional $6,000,000 street improvement bonds (see first paragraph of section d). 

 

Required: Prepare journal entries to record the receipt of $27,500 in cash. Also, prepare a journal entry to amend the FY 2024 budget to reflect the amount of the accrued interest on bonds sold. You should credit Budgetary Fund Balance for the full $27,500, since the appropriation for the interest payment due on July 1, 2024, was recorded in Paragraph 6-d-1.

 

5.            [Para. 6-d-5] By June 30, 2024, property taxes had been collected in the amount of $475,000; $300,000 was invested in temporary investments that earn 2.6 percent per annum.

 

Required: Prepare the journal entry to record the amount invested.

 

6.            [Para. 6-d-6] Bond interest of $37,500 due July 1, 2024 on the deferred serial bonds issued in 2023 and $82,500 on the 2.75% serial bonds issued in 2024 was paid on July 1.

 

Required: Prepare the journal entry to record the payment of interest.

 

7.            [Para. 6-d-7] During the second half of 2024, property taxes were collected in the amount of $150,000. 

 

Required: Prepare the journal entry to record the receipt of current property taxes.

 

8.            [Para. 6-d-8] At year-end, the uncollected amount of current property taxes receivable and related estimated uncollectible amount were reclassified as delinquent.

 

Interest and penalties of $875 were also levied, of which $131 was estimated as uncollectible and $684 was classified as a deferred inflow of resources, the remainder was recognized as revenue.

 

Required: Prepare the journal entries to reclassify amounts as indicated; to accrue interest and penalties, and related revenues and deferred inflow of resources.

 

9.            [Para. 6-d-9] Of the amount of current property taxes classified as delinquent in 6-d-8, it was determined based on history that $7,440 would not be collected within 60 days of the fiscal year end.

 

Required: Reclassify the revenues as deferred inflows of resources.

 

10.          [Para. 6-d-10] Investment earnings received in cash during the year amounted to $3,900. 

 

Required: Prepare the journal entry to record the investment earnings received.

 

11.          After verifying the accuracy of the preceding entries, post the amounts to the general ledger accounts by clicking [Post entries]. Prepare closing entries for the Street Improvement Bond Debt Service Fund as of December 31, 2024. For each account closed, be sure and click on the check mark for [Closing Entry] and that “Closing Entry” appears in the [Add description] box. Post the closing entries to the general ledger by clicking [Post entries].

 

e.            Export the post-closing trial balance (click on [File/Export]) for year 2024 to Excel to prepare a balance sheet for the Street Improvement Bond Debt Service Fund as of December 31, 2024.

 

f.             Export a pre-closing trial balance for year 2024 to Excel to prepare a statement of revenues, expenditures, and changes in fund balance for the Street Improvement Bond Debt Service Fund for the year ended December 31, 2024.

 

g.            Use the same trial balance exported in item f above to prepare a schedule of revenues, expenditures, and changes in fund balance—budget and actual for the Street Improvement Bond Debt Service Fund for the year ended December 31, 2024.

 

[Note: Retain a printout of all worksheets and your financial statements in your cumulative file until directed by your instructor to submit them, unless your instructor specifies that you should submit files electronically, in which case you will need to save a .pdf version of your trial balance.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

Chapter 7 Recording Transactions Affecting the Enterprise Fund and Business-type Activities

 

The City of Smithville accounts for its solid waste collection and disposal activities in an enterprise fund. The balance sheet for the Solid Waste Disposal Fund as of December 31, 2022 appears below.

 

CITY OF SMITHVILLE

Solid Waste Disposal Fund

Post-closing Trial Balance

As of December 31, 2022

 

Account Title      Debits   Credits

Cash                      $   245,000

Customer Accounts Receivable 117,100

Allowance for Doubtful Accounts                             $      4,752

Due from Other Funds  7,400

Inventories         54,060

Land      600,000

Buildings              1,650,000

Accumulated Depreciation—Buildings                    791,250

Equipment          1,340,400

Accumulated Depreciation—Equipment                                   604,512

Vouchers Payable                            45,180

Due to Other Funds                        4,600

Accrued Payroll and Fringe Benefits                           166,720

Net Position—Net Investment in Capital Assets                2,194,638

Net Position—Unrestricted                                                202,308

   Totals $4,013,960           $4,013,960

 

Required

 

a.            Open a general journal as of December 31, 2022, for the Solid Waste Disposal Fund by entering each of the accounts and amounts shown in the above post-closing trial balance. Enter 2022 from the drop-down [Year] menu. Each of the account titles will be found in the drop-down menu [Account] in the [Journal] view of the program.  Be sure to enter 7-a as your paragraph number in the [Add description] box and enter the appropriate paragraph number for all subsequent journal entries. Verify the accuracy of your journal entry and post it to the general ledger by clicking [Post entries]. Unless your instructor specifies electronic submission, print a post-closing trial balance as of December 31, 2022, and retain it in your cumulative file until directed by your instructor to submit it. 

 

Entries in this enterprise fund are not recorded at the government-wide level since enterprise funds and business-type activities at the government-wide level both use the same (accrual) basis of accounting and same (economic resources) measurement focus. Thus, the same information recorded in the accounts of the enterprise fund can also, with only slight modification, be reported as business-type activities at the government-wide level.

 

b.            Record the following events and transactions, which occurred during the year ended December 31, 2023. Be sure that 2023 appears in the [Year] menu.

 

1.            [Para. 7-b-1] Billings to customers for Charges for Services of the Solid Waste Disposal Fund totaled $2,618,263 for the year, which included $38,500 billed to City of Smithville departments accounted for in the General Fund. For the amount billed to City of Smithville departments you should debit Due from Other Funds.

 

2.            [Para. 7-b-2] Equipment costing $459,600 was purchased on July 1, 2023. Cash in the amount of $159,600 was paid at the time of purchase; the vendor accepted revenue anticipation notes in the amount of $300,000 to finance the remainder of the equipment. Of this amount, $150,000 of the notes will be payable on July 1, 2024; the other $150,000 will be payable on July 1, 2025. All notes bear interest at the rate of 3.25 percent per year. Record only the purchase and the related payment of cash and issuance of notes at this time; interest will be recorded in a later transaction.

 

3.            [Para. 7-b-3] Vouchers for materials and supplies to be used in the operations of the fund were issued in the total amount of $896,320 (debit Inventories).

 

4.            [Para. 7-b-4] Collections from customers totaled $2,639,850 during 2023. This amount included $42,800 collected from the General Fund (see 7-a balance and 7-b-1 above).

 

5.            [Para. 7-b-5] Payrolls and fringe benefits paid in cash during the year totaled $1,483,358 including the amount accrued at December 31, 2022.

 

6.            [Para. 7-b-6] Vouchers in the amount of $855,900 and the amount Due to Other Funds were paid during the year.

 

7.            [Para. 7-b-7] Accrued salaries and fringe benefits at year-end amounted to $27,429. Inventories of materials and supplies used in operations during the year amounted to $875,797, at cost.

 

8.            [Para. 7-b-8] The city uses the following annual straight-line depreciation rates: Buildings, 2.5 percent; Equipment, 20 percent (equipment purchased during the year need not be depreciated because it was not held for more than 6 months of the year). Apply these rates to the original cost of buildings and equipment as of December 31, 2022, assuming no residual or salvage value.

 

9.            [Para. 7-b-9] Interest of $4,875 had accrued on the notes payable as of year-end (see transaction 7-b-2).

 

10.          [Para. 7-b-10] Management decided to increase the allowance for doubtful accounts by $973 at year-end.

 

11.          After verifying the accuracy of all entries for the preceding transactions, post amounts to the general ledger accounts by clicking [Post entries]. 

 

c.             Prepare entries to close all operating statement accounts at the end of 2023 and to reclassify the two net position accounts, as appropriate. Be sure that the check mark for [Closing Entry] is on for each account being closed and that “Closing Entries” appears in the [Add description] box. When completed, post the closing entries to the general ledger by clicking [Post entries]. 

 

d.            Click on [File/Export] to export a post-closing trial balance for year 2023 and use Excel to prepare a statement of net position (see Illustration 7-6 in textbook) for the Solid Waste Disposal Fund as of December 31, 2023.

 

e.            Export a pre-closing trial balance for year 2023, and use Excel to prepare a statement of revenues, expenses, and changes in net position (see Illustration 7-7 in textbook) for the Solid Waste Disposal Fund for the year ended December 31, 2023. Interest expense should be considered a nonoperating item.

 

f.             Use the post-closing trial balance for year 2022 from Part a of this chapter and the trial balances from parts d and e above to prepare and save an Excel version statement of cash flows (see Illustration 7-8 in textbook) for the Solid Waste Disposal Fund for the year ended December 31, 2023.

 

[Note: Retain a printout of all worksheets and your financial statements in your cumulative file until directed by your instructor to submit them, unless your instructor specifies that you should submit computer files electronically, in which case you will need to save a .pdf version of you trial balances.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

Chapter 8 Recording Transactions Affecting a Fiduciary Fund—a Tax Custodial Fund

 

The City of Smithville currently administers a tax custodial fund that bills and collects property taxes levied by the governing bodies of the Smithville Consolidated School District (CSD), Smith County, and the Smith County Fire Protection District (FPD), in addition to those levied by the City of Smithville for its General Fund. As permitted by state law, the City of Smithville charges a collection fee of 1 percent of all taxes collected for the other governments. Note that for simplicity, interest and penalties that are imposed on delinquent taxes are included in the calculations but not separately recorded in these transactions.

 

CITY OF SMITHVILLE

Tax Custodial Fund

Post-closing Trial Balance

As of December 31, 2022

 

Account Title      Debits   Credits

Taxes Receivable for Other Funds and   $1,977,075

                Governments—Delinquent       

Due to Other Funds                                        $   443,488

Net Position—Restricted for Other Governments                                             1,533,587

   Totals $1,977,075           $1,977,075

 

Required

 

a.            Open a general journal as of December 31, 2022, for the Tax Custodial Fund by entering the three accounts and amounts shown in the above post-closing trial balance.  Enter 2022 from the drop-down [Year] menu. Each of the account titles will be found in the drop-down menu [Account] in the [Journal] view of the program. Be sure to enter 8-a as your paragraph number in the [Add description] box. Verify the accuracy of your journal entry and post it to the general ledger by clicking [Post entries]. Unless your instructor specifies electronic submission, print a post-closing trial balance as of December 31, 2022 and retain it in your cumulative file until directed by your instructor to submit it. 

 

[Note: Entries in this fund are not recorded at the government-wide level.  Fiduciary activity information is reported only in the fiduciary fund statements and not at the government-wide level.]

 

b.            The following schedule shows the tax rates that have been established by the various taxing authorities for fiscal year 2023. 

 

Tax Rates Applicable to Governments

Served by the Tax Custodial Fund

Fiscal Year 2023

(All amounts rounded to next higher dollar)

                Tax Rate              

                (Per $100             Assessed             Tax

Governments/Funds     of Assessed Valuation)  Valuation             Levy

City of Smithville:

                General Fund    $0.55     $341,581,818      $  1,878,700

                    Total city rate and levy               $0.55                     $  1,878,700

Smithville CSD:

                General Fund    $2.38     $408,024,970      $  9,710,994

                Debt service fund              0.12                      489,630

                  Total CSD rate and levy                $2.52                     $10,200,624       

Smith County:

                General Fund    $0.64     $408,024,970      $  2,611,360        

                  Total county rate and levy          $0.64                     $  2,611,360

Grand Total tax rates and levies*              $3.69                     $14,690,684

 

*             Note: Each property owner will receive a tax bill equal to the tax rates of all taxing authorities that have jurisdiction over his/her property times the assessed valuation of his/her property. Shown above are the aggregate taxes levied by each government, which are also the total amounts billed by the Tax Custodial Fund to all taxpayers in each jurisdiction.   

 

Record the following transactions that occurred during 2023 in the general journal of the Tax Custodial Fund.

 

1.            [Para. 8-b-1] On January 2, 2023, the city’s tax administrator mailed annual tax bills to all property owners in the total amount of $14,690,684 (see preceding table). The tax administrator maintains a detailed tax ledger to track amounts billed to and collected from each taxpayer and total amounts applicable to each fund and government.

 

Required: Record in the general journal the total taxes receivable, the amount due to the city and the total amount added to the net position for property tax collections for the other governments as shown in the schedule above. See the transactions illustrated in Chapter 8 of Reck, Lowensohn, and Neely.

 

2.            [Para. 8-b-2] Delinquent taxes (including any interest and penalties assigned to the delinquent taxes) were collected during the year for the taxing authorities shown below:

                                                                               

Governments/Funds:                    Delinquent Taxes                            

City of Smithville General Fund                  $   421,471

Smithville CSD                   780,460

Smith County                          676,990

    Total collected                               $1,878,921

 

Required: Record the cash collection of delinquent taxes. The Tax Custodial Fund records the total amount of delinquent taxes in the Taxes Receivable for Other Funds and Governments—Delinquent account.

 

3.            [Para. 8-b-3] The 1 percent collection fee was assessed on the Smithville CSD and the Smith County collections made in transaction 8-b-2.

 

Required: Calculate the 1 percent collection fee on the amounts collected for the Smithville CSD and Smith County; the total collection fee for these two governments should be recorded as Deductions—Administrative Fee and as a  Due to Other Funds for the amount due to the City of Smithville. Round all amounts to the nearest whole dollar (.50 is rounded up). Make these entries only in the Tax Custodial Fund general journal. All cash receipts and collection fees were recorded in earlier chapters in the journals for the General Fund and governmental activities at the government-wide level. The collection fees, though not separately identified, were included in Revenues—Charges for Services in the General Fund and in Program Revenues—General Government—Charges for Services in governmental activities.

 

4.            [Para. 8-b-4] All cash collected in paragraph 8-b-2 was transferred to the city and the other two governments in the amounts calculated, adjusted for the 1 percent collection fee deducted from cash distributions to the Smithville CSD and the Smith County. The collection fee is added to the distribution to the City of Smithville (see Para. 8-b-3).

 

Required: Record the payment of cash to the city, Smithville CSD, and Smith County.

 

5.            [Para. 8-b-5] Current taxes were collected during the year for the funds and governments shown below:

                                Current Taxes                   

Funds/Governments:                    Collected                            

City of Smithville General Fund                  $   1,596,895       

Smithville CSD                   8,670,530            

Smith County                         2,219,656        

    Total collected                               $12,487,081       

 

                Required: Record the collection of current taxes, record this entry only in the Tax Custodial Fund general journal.

 

6.            [Para. 8-b-6] The 1 percent collection fee was assessed on the Smithville CSD and the Smith County collections.

 

Required: Calculate the 1 percent collection fee on the amounts due to other governments; the total collection fee from other governments should be recorded as Deductions—Administrative Fee and a Due to Other Funds for the amount due to the City of Smithville. (Note: Round all amounts to the nearest whole dollar.) Make these entries only in the Tax Custodial Fund general journal.

 

7.            [Para. 8-b-7] All cash collected in paragraph 8-b-6 was transferred to the city and the other two governments, adjusted for collection fees deducted or added. (Note: For simplicity, Chapter 4 of Smithville did not address this collection of fees by the custodial fund.)

 

8.            [Para. 8-b-8] Make the year-end journal entry to reclassify all uncollected current taxes as delinquent. Add to the receivable amount interest and penalties of $66,108 on the reclassified amount. The interest and penalties portion of the total amount should be debited to Taxes Receivable for Other Funds and Governments—Delinquent and credited to Due to Other Funds for the City of Smithville portion of $8,454 and Additions—Interest and Penalties Collections for Other Governments for the remaining $57,654. 

 

9.            [Para. 8-b-9] Make the year-end closing journal entry to close deductions and additions to Net Position—Restricted—Other Governments. Be sure that the check mark for [Closing Entry] is on for each account being closed and that “Closing Entries” appears in the [Add description] box. Post the closing entries to the general ledger by clicking on [Post entries].

 

c.             Post the journal entries for all the preceding transactions.

 

Export a post-closing trial balance for 2023 to prepare a statement of fiduciary net position for the Tax Custodial Fund (for an example of a custodial fund statement, see the last column of Illustration 8-6 of the textbook).  You should deduct the city’s General Fund portion of delinquent taxes receivable from the amounts recorded as Taxes Receivable for Other Funds and Governments—Delinquent. The city’s General Fund portion of the account balance must be deducted as only the amounts applicable to other governments can be reported in a fiduciary fund statement. Similarly, the liability Due to Other Funds would not be included on the fiduciary net position. Taxes receivable that are applicable to the city itself were reported in the General Fund balance sheet that you prepared in Chapter 4 of this project.

 

d.            Export a pre-closing 2023 trial balance to prepare a statement of changes in fiduciary net position for the Tax Custodial Fund (for an example of a custodial fund statement, see the last column of Illustration 8-7 of the textbook). 

 

[Note: Retain the post-closing trial balances as of December 31, 2023, the statement of fiduciary net position, and the statement of changes in fiduciary net position in your cumulative folder, unless your instructor requests electronic submission of your documents, in which case you will need to save a .pdf version of you trial balances.]

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

Chapter 9 Adjusting and Closing Entries for Governmental Activities, Government-wide Level; Preparation of Government-wide and Major Fund Financial Statements

 

a.            Prior to preparing financial statements at the end of FY 2023, it is necessary to record depreciation expense for the year for governmental activities at the government-wide level. 

 

Based on general capital assets assigned to specific functions, depreciation expense related to equipment, infrastructure, and buildings is allocated to functions as shown below:

               

                 Equipment         Infrastructure     Buildings 

General Government    $   50,811              $    41,969

Public Safety      203,246 73,446

Public Works      127,029 $   98,020              46,166

Health and Welfare         50,811   20,985

Culture and Recreation     76,217                                                27,280

    Totals                $  508,114            $   98,020              $  209,846

 

 

Required: [Para. 9-a] Record depreciation expense for the year 2023 in the governmental activities general journal at the government-wide level. Verify accuracy of the adjusting entries and post to the general ledger by clicking [Post entries].

 

b.            Closing Entries. Although closing entries were made in each fund in Chapters 4 through 6 of this cumulative problem, they have not yet been recorded at the government-wide level.

 

Required: Record the journal entries required on December 31, 2023, to close all temporary accounts for governmental activities at the government-wide level. These entries should also recognize changes in the accounts Net Position—Net Investment in Capital Assets, Net Position—Restricted for Public Safety (see General Fund), Net Position—Restricted for Capital Projects (see Capital Projects Fund to calculate net position), and Net Position—Restricted for Debt Service (see Debt Service Fund to calculate net position). Be sure to deduct accrued interest on long-term debt in calculating the December 31, 2023 balance of Net Position—Restricted for Debt Service. If accrued interest is greater than net position there is no restriction on net position. For each account to be closed or reclassified, be sure and click on the check mark for [Closing entry] and that “Closing Entries” appears in the [Add description] box. Post the closing entries to the general ledger by clicking on [Post entries].

 

Before closing the City of Smithville it is recommended that you save a backup copy of your work to another location by clicking on [File] and [Save As].

 

c.             Use the exportable trial balances used in Chapters 2 through 7 of this problem and export the pre-closing trial balance and post-closing trial balance for governmental activities to prepare required government-wide, governmental fund financial statements, and reconciliations that the City of Smithville must present for its basic financial statements to be in conformity with generally accepted accounting principles. (See Illustrations 9-3 through 9-8 and A2-1 through A2-9 of the Reck, Lowensohn, and Neely textbook for examples of these statements.) We recommend that you use Excel to prepare these financial statements. Since the Solid Waste Disposal Fund is the only fund in the proprietary funds category, you may reprint the statement of net assets; statement of revenues, expenses, and changes in net assets; and the statement of cash flows prepared for the Solid Waste Disposal Fund as the required statements for the proprietary fund basic financial statements, with appropriate changes to the titles of the statements. The information for the Solid Waste Disposal Fund can also be used to complete the Business-type Activities columns of the government-wide financial statements.

 

[Notes: The City of Smithville is a primary government and has no other organizations for which it is accountable as component units. Also, the FY 2024 financial information for the Street Improvement Debt Service Fund is not included in any of the basic financial statements you are preparing, as the statements you are preparing pertain only to FY 2023.]

 

 

Chapter 10 Analysis of Financial Condition

(Optional, unless assigned by your instructor)

 

Prepare a written evaluation of the City of Bingham’s financial position and condition as of December 31, 2023. Begin by calculating some of the following ratios found in Chapter 10 of the textbook:

 

From Illustration 10-3                     From Illustration 10-4

Revenue Measures:       Financial Position:

Intergovernmental revenues                     Unrestricted net position

                Debt ratio

Operating Position Measures:    Current ratio

Revenues over expenditures

Operating surplus/deficit             Financial Performance:

Fund balances   Interperiod equity

Liquidity

                Financial Capability:

Debt Indicators:                Bonded debt per capita

Current liabilities              Available legal debt limit

Debt service

 

These ratios provide some benchmark information either in the illustrations or in exercise 10-16, part f. For purposes of calculating per capita ratios, assume the population of the City of Smithville is 25,000.

 

Retain a print-out of your evaluation in your cumulative project folder, unless your instructor specifies submission by e-mail. 

 

Chapter 11 Preparation of Audit Report

(Optional, unless assigned)

 

Prepare the audit report you believe would be appropriate for a certified public accountant to express on the financial statements of the City of Smithville, assuming that only generally accepted auditing standards (GAAS) promulgated by the AICPA apply to the City of Smithville. Explain the rationale for the nature of the audit report (unmodified or qualified) rendered.

 

If you have been maintaining a cumulative file, assemble all required printed reports and financial statements in the proper sequence and turn them in to your instructor.  

 

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