4-8 Part B. Additional Operating Transactions, Special Topics, and End-of-Year G

Question

4-8 Part B. Additional Operating Transactions, Special Topics, and End-of-Year General Fund Balance Sheet. Part B continues transactions of the City of Macon's General Fund. The following transactions occurred during the last half of the fiscal year 1. Because of a change in a state law, the City of Macon has been informed that it will receive $80,000 less in state revenue than was budgeted. 2. Purchase orders and other commitment documents in the amount of $1,032,000 were issued during the six months ended April 30, 2008 3. Property taxes of S6,500 and interest and penalties receivable of S1,340, which had been written off in prior years, were collected. Additional inter- est of S250 that had accrued since the write-off was collected at the same time

Explanation / Answer

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Q. No. Journal Entries Dr Amount Cr Amount 01 Dr. Loss in state revenue           80,000 Cr. Receivable from State Revenue          80,000 ( City of Macon General Fund will no longer received the budgeted amount from state revenue due to change in law. Therefore, we need to reverse the receivable Ledger with the amount that will not to be received.) 02 No journal entry is required for the purchase order - - and other commitment documents issued. Only when the goods/services are received then the entity is required to record those transactions in the accounting records. 03 Dr. Cash             8,090 Cr. Bad Debts recovered             7,840 Cr. Interest on Taxes Due Received                250 (The property tax and the interest and penalties recoverable were written off as bad debt which means that the receivable amount were transferred from Assets (Receivables) by charging them to Profit and Loss. Now on receipt of those amounts, we debit Cash for the amount received and credit Bad Debts Recovered which will be charged to Profit & Loss. The Interest on Taxes received will also be charged to Profit & Loss.) 04 Dr. Personnel Cost       3,38,420 Cr. FICA employees Federal Income Tax          25,890 Cr. State Withholding Tax          14,400 Cr. Cash       2,98,130 (FICA requires the employer's to withhold employees share of tax liability from the employees wages. The amount so withheld i.e. $25,890 will be shown as liability in City of Macon's General Fund. Similarly, the state withholding tax of $14,400 will be shown as liability. These liability will be written off from books once they are paid.) 05 Dr. Personnel Cost           25,890 Cr. FICA tax          25,890 (FICA requires the employer's to contribute towards the social security of employees. This cost is in addition to the Wages paid. This cost will form part of personnel cost which is charged to Profit & Loss.) 06 Dr. Taxes receivable           25,000 Cr. Property tax          25,000 (The unassessed properties were taxed at $25,000 i.e. $500,000/100*5. The tax levied to the property owners are income and subsequently the other ledger will be "cash" if tax recovered or "Taxes Receivable" if cash not yet recovered from owners. Since the question has not specified about cash collection, it shall be shown as receivable in books) 07 Dr. Cash     15,71,300 Cr. Current Taxes       9,27,000 Cr. Delinquent          43,270 Cr. Interest and Penalties             7,330 Cr. Revenue from other sources       5,93,700 (The cash received are general revenue sources for government body and all these credit ledgers will be shown in Profit and loss account.) 08 Dr. Provision for bad debt             6,960 Cr. Accrued Interest and Penalties             6,960 (Interest and Penalties that were due for either current or past period but were not collected are represented by the Accrued Interest and Penalties Ledger. Now, the board believes that 30% of the due amount would not be collected and therefore provision for unrecoverable amount has to be prepared. This provision amount of $6960 i.e. 23200x30% will reduce the Accrued Interest and Penalties Ledger. Therefore, Financial statement will only represent the balance of accrued interest and penalties which is more probable of being collected.) 09 Journal entry is not required as it is only - - reclassification. However, you may be required to pass a Journal if the current year uncollected tax and the delinquent tax ledgers are present in the books. In that case you will Debit the Delinquent Tax Ledger and Credit the Uncollected Tax. 10 No Journal required 11 Dr. Goods and Service     10,92,670 Cr. Cash    10,92,670 (Encumbrance is a projection made for spending. No journals are required for encumbrance of expenditure. You only require journal for actual spending. Here, the actual invoiced amount is $1092670 and since the question is silent, we have assumed that the invoice has been paid. If unpaid then you need to credit "Outstanding Goods and Service" Ledger.) 12 Dr. Receivables Written off           39,940 Cr. Property tax receivables          39,940 Cr. Interest and Penalties receivables             4,180 (The amount of unrecoverable amount is written off from the books by reversing the receivable amounts. The ledger "Receivables Written Off" will be charged to Profit and Loss account.) 13 No Journal required as the purchase journal would - - have been passed at the time of receiving the material and supplies. 14 No journal required as the payment journals would - - be recorded in books at the time of the payments.

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