EX. 5-3 Transactions may have signi cantly different impacts on a government’s b
ID: 2732992 • Letter: E
Question
EX. 5-3
Transactions may have signi cantly different impacts on a government’s budget, governmental fund state- ments, and government-wide statements.
A city prepares its budget on a cash basis. For each of the following indicate the amount (if any) of an expenditure/expense that the city would be recognize in (1) its budget, (2) its fund statements, and (3) its governmentwide statements. Provide a brief explanation of your response.
When permitted an option, the city uses the purchases method to account for its inventory.
It is the policy of the city to take a full year’s depreciation in the year of acquisition and no depreciation in the year of sale or retirement. It recognizes depreciation on a straightline basis.
1. As budgeted, the city ordered supplies that cost $8 million, received supplies (including those ordered in a prior year) that cost $9 million, paid for supplies that cost $7 million, and used supplies that cost $7.5 million. The city began the year with a supplies inventory that cost $1.5 million.
2. In the prior year the city signed a five year lease of telecommunications equipment. The equipment had a fairmarket value of $5 million. In the current year the city made its first required annual rent payment of $1,252,282. This amount reflected an implicit interest rate of 8 percent. The lease qualified as a capital lease.
3.The government of the state in which the city is located is responsible for making 50 percent of the city’s required contribution to a firefighters’ life insurance fund. In the current year the state and the city each contributed $4 million of the required $8 million.
4. In December the city transferred $3 million from the general fund to a debt service fund to cover interest on 30year bonds, which were issued 10 years earlier. Interest of $6 million on the bonds is due each September 30th and March 31st and the $3 million transfer is intended to cover the interest
Explanation / Answer
1) In budget: - $ 8 Million - Because it is budgeted
In Funds Statement - $7 million - Because it is the actual amount which is paid to the supplier.
In Govt.Wide Statement - $6 Million - Because actually use $ 1.5 Million(7.5 - 1.5) during the year.
2) In budget - $1 Million - Budgeted figure is $5 million for 5 years. Therefore $1 million per year.
In Funds statement - $1,252,282 - It is the actual amount paid.
In Govt. Wide Statement -
3) City will recognise $4 million in all there statement as it is the amount budgeted, paid and accepted by the government.
4) In budget: $12 Million as it is the predetermined amount of interest which is due twice a year.
In funds Statement: $3 Million as it is the actual amount transferred.
In Govt. wide statement - $3 Million.
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