Case 1

The City of Iota recently incorporated and, therefore, became a separate legal entity in Bower County. As the first chief administrative officer, your task is to determine how to account for the various activities in which the government is involved.

The first activity is a hotel-motel tax that is dedicated to providing resources for building a new sports arena. The mayor, Phinius T. Bower, feels that these activities should be accounted for in a Capital Projects Fund. He said that he remembered from his college days at Old War-Horse U. that Capital Projects Funds are used for construction of major fixed assets. After examining the situation, you find that the city has arranged temporary financing from the Only National Bank in Cut-Off. Permanent financing will be achieved through a bond issue when the project is completed.

The second activity is a printing office. This office has extensive up-to-date facilities and prepares documents for the city. In addition, to help finance the cost of the equipment and operating costs, the city also does private printing and copying for various companies and citizens. Mayor Bower suggests that you use a Special Revenue Fund for these activities because the revenues from the outside will be used for a specific purpose.

The third is a central purchasing function. In order to ensure that the city obtains the best possible price for its supplies and equipment, all purchases must be made through the Purchasing Department. Mayor Bower also stated that he felt the city could use its Purchasing Department for control purposes. He said that when he attended a meeting of mayors in Gulfberg last year, one of the speakers discussed controlling purchases through a centralized purchasing function.

Write a report to the mayor that offers your suggestions for these items. Please provide the reasoning behind your suggestions.