4-3 Property taxes are not necessarily recognized as revenue in the year collected. The fiscal year of Duchess County ends on December 31. Property taxes are due March 31 of the year in which they are levied and intended to finance. 1. Prepare journal entries (excluding closing entries) in the general fund (modified accrual basis) to record the following property tax related transactions in which the county engaged in 2012 and 2013. a. On January 15, 2012 the county council levied property taxes of $170 million for the year ending December 31, 2012. Officials estimated that 1% were uncollectible. b. During 2012 it collected $120 million. c. In January and February 2013, prior to preparing its 2012 financial statements, it collected an additional $45 million in 2012 taxes. It reclassified the $5 million of 2012 taxes not yet collected as delinquent. d. In January 2013 the county levied property taxes of $190 million to finance activities of 2013; officials estimated that 1.1% were uncollectible. e. During the remainder of 2013 the county collected $2.5 million more in taxes relating to 2012, $160 million relating to 2013, and $1.9 million (in advance) applicable to 2014. f. In December 2013 it wrote off $1 million of 2012 taxes that it determined was uncollectible. 2. What amount of property tax revenue should the county report in its government-wide (full accrual) statements for 2012 and 2013? Explain. 4-4 Nonexchange revenue can be of four types The GASB has identifies four classes of exchange revenue Derive tax Imposed Government mandated Voluntary 1 for each of the following revenue transactions involving a. In December 2013 the state in which the city is located announced that it would grant the city $20 million to bring certain public facilities into compliance with the states recently enacted disability laws. As of year-end the city had not yet received the funds, and it had not yet expended any funds on the statemandated facility improvements. b. The city imposes a $100 tax on all sales of real estate. The tax is collected by the title companies that process the sales and must be forwarded to the state within 30 days of the transaction. In December there were 600 sales of real estate. As of year-end the city had collected $40,000 of the $60,000 that it was owed. c. In December 2013 the state announced that the citys share of state assistance for the calendar year 2014 is $120 million. d. The city imposes a tax on all boats owned by residents. The tax is equal to 1% of the assessed value of a boat (determined by the city, by taking into account the boats original cost and its age). The tax is payable on the last day of the year prior to the year in which the tax is intended to finance. In 2013 the city levied $640,000 of 2014 boat taxes, of which it collected $450,000. e. A local resident sends to the city a copy of her will, in which she bequeaths $3 million to the city museum upon her death. f. TheU.S. JusticeDepartment announces that it will reimburse the city, up to $400,000, for the purchase of telecommunications equipment. As of year-end the city had incurred only $200,000 in allowable expenditures. g. A resident donates $10 million in securities to the city, to support a cultural center. Only the income from the securities, not the principal, can be spent. 2. What amount of revenue should the city recognize in its government-wide statement of activities for 2013 for each of the previous transactions? Explain. 4-5 Grants are not necessarily recognized as revenue when they are awarded. Columbus City was awarded a state reimbursement grant of $150,000 to assist its adult literacy program. The following were significant events relating to the grant: a. The city, which is on a calendar year, was notified of the award in November 2012. b. During 2013 it expended $30,000 on the literacy program and was reimbursed for $20,000. It expected to receive the balance in January 2014. c. In 2014 it expended the remaining $120,000 and was reimbursed by the state for the $10,000 owing from 2013 and the amount spent in 2014. 1. Prepare journal entries to record the events in a governmental fund. 2. Suppose instead that the city received the entire $150,000 in cash at the time the award was announced in 2012. How much revenue should the city recognize in its governmental fund statements in each of the three years? Explain. 3. Suppose that, instead of a reimbursement grant, the state awarded the city an unrestricted grant of $150,000, which the city elected to use to support the adult literacy program. The city received the entire $150,000 in cash at the time the award was announced in 2012. How much revenue should the city recognize in its governmental fund statements in each of the three years? Explain. 4. Assume the same facts as for questions 1, 2, and 3. How much revenue should the city recognize in its government-wide statements for each of the three years? Explain. 4-6 Sales taxes should be recognized when the underlying event takes place. A state requires large merchants (those with sales over a specified dollar amount) to report and remit their sales taxes within 15 days of the end of each month. It requires small merchants to report and remit their taxes within 15 days of the end of each quarter. In January 2013 large merchants remitted sales taxes of $400 million, owing to sales of December 2012. In February 2013 they remitted $280 million of sales taxes, owing to sales of January 2013. In January 2013 small merchants remitted sales taxes of $150 million, owing to sales of the fourth quarter of 2012. 1. Prepare a journal entry to indicate the impact of the transactions on the states governmental fund financial statements for the year ending December 31, 2012. 2. Suppose, instead, that 10%of the taxes received by the state were collected on behalf of a city within the state. It is the policy of the state to EXERCISES AND PROBLEMS 89 E1C04 03/29/2010 11:32:28 Page 90 remit the taxes to the city 30 days after it receives them. Prepare a journal entry to indicate the impact of the transactions on the citys governmental fund financial statements for the year ending December 31, 2012. 3. Suppose, instead, that it is the policy of the state to remit the taxes to the city 90 days after it receives them. How does your response to question 2 differ? Explain. Is your response the same with respect to the citys governmentwide statements? 4-9 Exploring Vero Beachs Financial Report Refer to the financial statements of the City of Vero Beach in Chapter 3. 1. Per the government-wide statement of activities, how much revenue did the city recognize from property taxes? 2. What amount of property-tax revenue did the city recognize in the funds? Where is this amount reported? 3. Per the statement of activities, how much revenue did the city recognize from state sales taxes? 4. Per the funds statements, how much revenue did the city recognize from state sales taxes? If your answer is different from your answer to question 3, what is the most likely reason for the difference? 5. What amount did the city recognize in the general fund as proceeds of bonds and loans? This amount increased the fund balance. Did it also increase the citys net assets on the statement of net assets? Explain. 6. What is the total fund balance in the general fund? Can this amount be appropriated and spent for any purpose? Explain. 7. Per the government-wide statement of activities, is the Community and Youth Service self-supporting? Explain. 4-10 Exploring Vero Beachs Financial Report Refer to the financial statements of the City of Vero Beach in Chapter 3. 1. Per the government-wide statement of activities, how much revenue did the city recognize from property taxes? 2. If a home in Vero Beach is assessed for tax purposes at $500,000, and the tax rate is 1.94 mills, how much should the city bill the owners for property taxes? 3. Per the statement of activities, what were the total expenses of the Transportation function? How did the city finance these expenses? 4. Per the government-wide statement of activities, is the Public Safety function self-supporting? Explain. 5. What amount did the city report as capital contributions in the governmental funds statement of revenues, expenditures, and changes in fund balances? Is this contribution assigned to support a specific program or function? Explain. 6. What is the total amount of tax revenues recognized in the statement of activities? What amount is recognized in the governmental funds statement of revenues, expenditures, and changes in fund balances? What is the most likely reason for the difference