1. Employees of the City of Hastings are paid from the general fund semi-monthly on the 15th day and the last day of the month. The City provides numerous employee benefits. Employees earn ten vacation days for each 12 months of employment. The employee can take the vacation during any summer months (May-September) prior to retirement. The employees also earn one sick day for each month of employment. Sick pay vests at the completion of five years of continuous service. Vested unused sick pay will be paid upon retirement or termination. The City contributes to a retirement plan that is administered by the State. Each year the City gets a statement from the State explaining the actuarially determined contribution required. The City recognizes revenues/expenditures when collected/paid or if collected/paid within 60 days of year-end. The City’s fiscal year end is December 31. At the beginning of the current year employees had $.4 of earned vacation time and $7 million of vested earned sick leave. The City uses the FIFO method of accounting for vacation and sick days. REQUIRED: Assuming that the City maintains its books and records in a manner to facilitate the preparation of its fund financial statements record the following transactions related to employee salaries and benefits. Be sure to make ALL necessary entries. a. During the year employees of the City earned $50 million. At year-end all but $2 had been paid to the employees. b. During the year the employees of the City earn $2 million in vacation pay. By year-end the employees had taken $1.5 million of vacation. Of the balance of vacation pay due to the employees the City estimates that $.3 will be taken during the next year and $.2 will be deferred until later. c. During the year the employees of the City earned $3 million in sick pay of which $2.5 is expected to vest. Of the 2.5 million employees are expected to take $2.0 million and $.5 is expected to be paid to employees upon their termination or retirement. During the year employees took $1 million in sick days. d. The City received a statement from the State requiring a contribution to the Retirement Plan of $7 million for the current year. Because of a cash shortage the City paid $5 of the required contribution during the year $1.5 million on February 15 of the following year and $.5 in June of the following year. 2. During the year the City of Hamburg engaged in the following transactions. The City uses the consumption method of recording inventories and prepayments. The City has a 6/30 fiscal year end. REQUIRED: Record the following transactions related to supplies prepaid items and fixed asset acquisitions. Be sure to make ALL necessary entries. a. During the year the City purchases $600 000 of expendable supplies. b. On September 1 the City paid $360 000 for a three-year insurance policy to cover some assets used in general government activities. c. On December 1 the City purchased four pickup trucks for general government activities. The trucks cost $100 000 in total. d. On January 1 the City leased some office equipment for use in the administrative offices. The lease qualified as a capital lease. The present value of the minimum lease payments is $96 000. e. On April 1 the City leased a copying machine. The lease qualified as an operating lease. The terms of the lease require yearly payments of $2 000 each April 1 for 5 years. The City prepaid the entire five years of the lease. 3. The City of Jonesboro engaged in the following transactions during the fiscal year ended September 30 2007. REQUIRED: Record the following transactions related to interfund transfers. Be sure to make ALL necessary entries and to indicate in which fund the entry is being made. a. The City transferred $300 000 from the General Fund to the Debt Service Fund to make the interest payments due during the fiscal year. The payments due during the fiscal year were paid. The City also transferred $150 000 from the General Fund to the Debt Service Fund to advance fund the $150 000 interest payment due October 15 2006. b. The City transferred $75 000 from the Air Operations Special Revenue Fund to the General Fund to close out the operations of that fund. c. The City transferred $130 000 from the General Fund to the City Electric Utility Enterprise Fund to pay for the utilities used by the general and administrative offices during the year. d. The City transferred the actuarially determined pension contribution of $2 million from the General Fund to the City’s Pension Trust Fund. e. The City deposited into the General Fund the proceeds of a $5.5 million dollar bond issue. The bonds were sold for $5.6 million. 4. During the year the City of Pittsboro engaged in the following transactions. The City has a 12/31 fiscal year end. REQUIRED: assuming that the City maintains its books and records in a manner to facilitate the preparation of its fund financial statements record the following transactions related to fixed asset acquisition and payments on long-term debt. a. On April 1 2007 the City acquired a piece of equipment for $140 000. The equipment will be used by the Street Department. The City financed the purchases by borrowing $140 000 from the local bank at 5% interest. Principal payments of $20 000 plus interest are due yearly each April 1. b. The City paid $30 000 to employees who retired during the current year. These payments were made to compensate the employees for sick pay that had been earned but unused over the many years of the employees’ service to the City c. The City transferred $1 500 000 from the General Fund to the Debt Service Fund to make principal and interest payments during the current year. d. The City made payments of $1 million principal and $500 000 interest on bonds that had been outstanding for several years. e. On June 1 the City paid $4 000 on account. The City owed for supplies purchased in May. f. On September 1 2007 the City acquired several computers through a leasing agreement that qualified as a capital lease. The terms of the lease require yearly annual payments. The present value of the minimum lease payments is $50 000. 5. A State has the following transactions during its fiscal year ending June 30 2007. The State defines available as within 60 days of year-end. REQUIRED: Prepare journal entries to record each of these transactions in the State’s General Fund. Comment on how each of these transactions would be different when reported in the State’s government-wide financial statements. a. The State issues $50 million of 30-year debt to finance renovations to its capitol building. Due to changes in interest rates the State receives only $49.2 million in cash. b. The State workers earn $45 million in wages during the year. However in an effort to balance its budget the State defers payment of $2 million in wages until July 5 2007. c. Required contributions for pension benefits for 2007 are $7 million which the state transfers to its pension trust fund. d. The State makes grants of $5.5 million based on a formula to school districts within its boundaries. The schools must use these grants to finance operating expenditures incurred during the current fiscal year. e. The State agrees to share $6.0 million of its 2007 sales (derived tax) revenues with all towns within its boundaries based on a formula established by the legislature. The resources must be used by the towns during the state’s next fiscal year (2008). f. The state makes interest and principal payments on its bonded debt during the period of $17.0 million. 6. The Sadie School District is considering six different options for purchasing new computer equipment. REQUIRED: Show the journal entries that would be required in the District’s General Fund to both recognize the acquisition of the new computers and to pay for it under each of these options. Which of these options would best achieve interperiod equity for the District? Why? a. Buy the computers outright with cash; cost will be $60 000 b. Buy the computers and finance them with a $60 000 three-year 10% note. The District will repay the note and pay the entire interest with a single payment of $79 860 when the note matures. c. Buy the computers and finance them with a $60 000 three-year 10% installment note. The district will repay the note (plus interest) in three annual installments of $24 127 each. d. Lease the computers under an operating lease but prepay the entire rent ($60 000) in advance. (Assume it is the District’s policy to use the purchases method for reporting prepayments.) e. Lease the computers under a capital lease requiring three end-of-year payments of $24 127. f. Lease the computers under an operating lease making three end-of-year payments of $24 127. 7. The following schedule shows the amounts related to supplies that a city debited and credited to the indicated accounts during a year (not necessarily the year-end balances) excluding closing entries. The organization records its budget encumbers all of its expenditures and initially vouchers all payments. It accounts for supplies on a purchases basis. D. Some information is missing. By reconstructing the entries that the organization made during the year you are to determine the missing data. You need not show the entries; simply fill in the blanks. The city began the year with $5 000 of supplies in inventory and ended the year with $6 500. Debits Credits (in thousands) Cash $ 0 $ 70 Vouchers payable ___ ___ Appropriations 0 115 Encumbrances ___ ___ Expenditures 58 0 Reserve for encumbrances 58 93 Fund balance ___ 0 Reserve for supplies inventory ___ ___ E. Assume instead that the city accounts for supplies on a consumption basis. 1. Which of the above amounts (assuming that appropriations remained unchanged) would be different. What would be the new value(s)? 2. When applying the consumption method some governments either elect or are required to offset “supplies inventory” with “fund balance – reserved for inventory” rather than “fund balance – unreserved.” What is the rationale for such practice? C. The mayor of the city requests your advice as to whether it is actually necessary to (1) incorporate the budget into the accounting system and (2) use fund accounting. What would be your response? 8. The following relate to the Central School District. In January 2007 the district acquires $300 000 of equipment by way of a capital lease. The lease which incorporates an annual interest rate of 6 percent requires the district to make four annual payments of $86 577. The equipment has a useful life of four years with no expected salvage value. In 2007 the district makes the first of the required payments. 1. Prepare all journal entries that the district should make in an appropriate governmental fund to record the acquisition of the equipment and the first lease payment. 2. How much expense relating to the equipment should the district recognize in its 2007 government-wide statements? Specify the account or accounts to be charged and the amount to be charged to each account.
