Problem # 1

The transactions that follow relate to the Danville County Comptroller’s Department over a two-year period.

Year 1

• The county appropriated $36,000 for employee education and training.

• The department signed contracts with outside consultants to conduct accounting and auditing workshops. Total cost was $30,000.

• The consultants conducted the workshops and were paid $30,000.

• The department ordered books and training materials, which it estimated would cost $5,400. As of year-end, the materials had not been received.

Year 2

• The county appropriated $40,500 for employee education and training.

• The department received and paid for the books and training materials that it ordered the previous year. Actual cost was only $5,100. The county’s accounting policies require that the books and training materials be charged as an expenditure when they are received (as opposed to being recorded as inventory and charged as an expenditure when used).

• It authorized employees to attend various conferences and training sessions. Estimated cost was $31,000.

• Employees submitted $32,400 in reimbursement requests for the conferences and training sessions they attended. The department paid them the requested amounts and at year-end did not expect to receive any additional reimbursement requests.

1. Prepare all required journal entries that would affect the expenditure subaccount ‘‘education and training,’’ including budgetary and closing entries. Assume that all appropriations lapse at year-end (thus, all expenditures in Year 2 would be charged against that year’s appropriation of $40,500, even if the goods and services were ordered in Year 1).

2. Indicate (specifying accounts and dollar amounts) how the transactions would be reported in the county’s general fund:

a. Balance sheet

b. Statement of revenues and expenditures

3. Alternatively, suppose that the county did not record its budget and did not encumber its commitments. What would be the difference in the year-end ?nancial statements?

4. Assume instead that appropriations for goods on order at year-end do not lapse. When the goods are received they are charged as expenditures against the budget of the year in which they were encumbered. How would this change affect your entries and the year end ?nancial statements? How would it affect the amount that the department had available to spend in Year 2 on goods or services not previously ordered?

 

 

 

Problem # 2

The following information was drawn from a county’sgeneral fund budgets and accounts for a particular year (inmillions):

 

 

You also learn the following:

 

 

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

• For purposes of budgeting, it recognizes suppliesexpenditureswhenthesuppliesareacquiredfor?nancial reporting, it recognizes the expenditure when thesupplies are consumed.

• For purposes of budgeting, it recognizes wages and salarieswhenpaid;for?nancialreporting, it recognizesthe expenditures when the employees perform theirservices.

• For purposes of budgeting, it recognizes as revenuesonly taxes actually collected during the year; for?nancial reporting, it recognizes taxes expected tobe collected within the ?rst sixty days of the followingyear.

1. Prepare the following four separate schedules in whichyou compare the budget-to-actual results and computethe budget variance. You need to present only the totalrevenues, total expenditures, and excess ofrevenues overexpenditures.

a. Actual results on a budget basis to the amendedbudget

b. Actualresultsonabudgetbasistotheoriginalbudget

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

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

2. The county executive has boasted that the ‘‘better thananticipated results’’ (based on the comparison of theschedule that appears in the ?nancial statements) areevidence of ‘‘sound ?scal management and effective costcontrols’’ on the part of the county administration. Doyou agree?

3. Which of the three schedules best demonstrates legalcompliance? Explain.

4. Which schedule best demonstrates effective management? Explain.