Problem # 2

The following information was drawn from a county’s general fund budgets and accounts for a particular year (in millions):

 

You also learn the following:

 

 

• For purposes of budgeting, the county recognizes encumbrances as the equivalent of expenditures in the year established; for ?nancial reporting, it recognizes expenditures when the goods or services are received, as required by GAAP.

• For purposes of budgeting, it recognizes supplies expenditures when the supplies are acquired for ?nancial reporting, it recognizes the expenditure when the supplies are consumed.

• For purposes of budgeting, it recognizes wages and salaries when paid; for ?nancial reporting, it recognizes the expenditures when the employees perform their services.

• For purposes of budgeting, it recognizes as revenues only taxes actually collected during the year; for ?nancial reporting, it recognizes taxes expected to be collected within the ?rst sixty days of the following year.

1. Prepare the following four separate schedules in which you compare the budget-to-actual results and compute the budget variance. You need to present only the total revenues, total expenditures, and excess of revenues over expenditures.

a. Actual results on a budget basis to the amended budget

b. Actual results on a budget basis to the original budget

c. Actual results as would be re?ected in the ?nancial statements to the amended budget restated so that it is on a ?nancial reporting basis

d. Actual results as would be re?ected in the ?nancial statements to the original budget restated so that it is on a ?nancial reporting basis

2. The county executive has boasted that the ‘‘better than anticipated results’’ (based on the comparison of the schedule that appears in the ?nancial statements) are evidence of ‘‘sound ?scal management and effective cost controls’’ on the part of the county administration. Do you agree?

3. Which of the three schedules best demonstrates legal compliance? Explain.

4. Which schedule best demonstrates effective management? Explain.

 

 

Problem # 3

The data presented below were taken from the books and records of the Village of Maxieville. All amounts are in millions. The village encumbers all outlays. As is evident from the data, some goods or services that were ordered and encumbered have not yet been received. City regulations require that all appropriations lapse at year-end.

 

1. Prepare summary entries to record

A. the budget

B. the encumbrance of the goods and services

C. the receipt of the goods and services. All invoices were paid in cash.

D. the actual revenues (all cash receipts)

2. Prepare summary entries to close the accounts

3. What would be the year-end?

A. fund balance (unassigned)

B. Reserve for encumbrance balance (irrespective of how classi?ed)

4. Prepare a schedule in which you compare budgeted to actual revenues and expenditures.

5. A citizen reviews the budget to actual schedule that you have prepared. She comments on the rather substantial favorable variance between budgeted and actual expenditures and questions why the government did not spend the full amount of money that it appropriated. Brie?y explain to her the nature of the variance.