The following applies to Q 7-8 A spocial period it engaged in the following tran
ID: 2521780 • Letter: T
Question
The following applies to Q 7-8 A spocial period it engaged in the following transactions: district accounts for its general fund Cits only fund) on a modified acrual basis. In a particular It acquired several tacts of land at a total cost of S4 million, paying the entire amount in cash. so.3 milotof the land for Si million, receiv ing cash for the entire amount. The tract sold had co It issued $20 million in long - term bonds. . It repaid $2 million of the bonds. It lost a lawsuit and was ordered to pay $9 million over three years. It million. made its first cash payment of s3 7. The total Expenditure reported in the General Fund is b. $3 Mill e. $4 Mill d. $7 Mill 8. The total "Other Finance Source" reported in the General Fund is a. $20 reported in General Fund's Balance Sheet b. $20 reported in General Fund's Revenue, Expenditures and Changes in Fund Statement c. $21 reported in General Fund's Balance Sheet d. $21 reported in General Fund's Revenue, Expenditures and Changes in Fund Statement 9.Missing data can be derived, and journal entries constructed, from information in the accounts. 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 city records its budget, encumbers all its expenditures, and initially vouchers all payments. All revenue was collected in cash. Some in formation is missing. By reconstructing the entries that the city made during the year, you are to Determine the missing data and construct the journal entries (in summary form), excluding closing entries. (in Debits $117 Credits Cash S? Estimated revenues 70 54 Vouchers payable Appropriations Encumbrances Expenditures Reserved for encumbrances Fund balance-unassigned 58 ? 115 93 120 Revenue- Credit should be a $117 b. $115 c. $120Explanation / Answer
Modified Accrual Basis Method:
Modified accrual accounting combines aspects of accrual basis accounting with cash basis accounting. The standards for modified accrual accounting are set by the Government Accounting Standards Board (GASB). Under this method, revenues are recognised when ther are available for expenditure to be paid within 60 days and can be measured. Whereas, the expenditures are recognised just like full accrual basis i.e when the liability is incurred. This method is used in Government Accounting.
Q.7 Solution: Total Expenditure reported in General Fund is $ 4 million+ $ 3million = 7 million.
Explanation:
The special district has acquired several tracts of lands for amount of $4 million which is paid entirely in cash. Under modified accrual method, depreciation is not recorded. Instead entire asset amount is expensed out when purchased. Hence, the entire amount of $4 million will be expensed out on the date of acquisition.
Further, the special district has lost a lawsuit and made first cash payment of $3 million. Under this method, expenditures are recognized in the fiscal year in which they are expended or when they are subject to accrual. Hence, the payment of $3 million will also be considered in calculation of total expenditure. Balance $ 6 million will be recognized as liability to the extent they are normally expected to be liquidated with expendable available financial resources.
Repayment of Bonds -$ 2million will not be considered since it is mere repayment of long term liability.
Q.8 Solution:
The total "other finance source" reported in general fund is
a. $ 20 million in General Fund's Balance Sheet
Explanation:
According to the explanation by GASB in interpretation no. 6,
"A government’s unmatured long-term indebtedness (other than ?specific fund debt? of proprietary and trust funds) should be reported as general long-term liabilities, rather than governmental fund liabilities. This requirement applies not only to formal debt issues, such as bonds, but also to other forms of general long-term indebtedness, including compensated absences, claims and judgments, special termination benefits, landfill closure and postclosure care costs, and ?other obligations? that are not due for payment in the current period."
In this case, the unmatured long-term indebtedness is long term bonds and hence, it will bre recognised as general long-term liability in the General Fund's Balance Sheet.
Q.9 Solution:
Revenue credit should be $117 since all revenue was collected in cash.
1. Cash A/c Dr. $117
To Revenue A/c $117
(being revenue recorded)
2. Reserved for encumbrances A/c Dr. $93
To Encumbrances A/c $93
(being order of supplies recorded)
3. Encumbrances A/c Dr. $58
To Reserved for encumbrances A/c $58
(being unencumbered the amount pertaining to the order received)
4. Expenditure A/c Dr. $ 58
To Cash A/c $4
To Vouchers Payable A/c $54
(being receipt of supplies recorded)
5. Vouchers Payable A/c Dr. $70
To Cash A/c $70
(being payments made for outstanding vouchers)
6. Expenditure A/c Dr $5
To Appropriations A/c $5
(being amount transferred to fund)
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