Chapter 7 Recording Transactions Affecting the Enterprise Fund and Business-type Activities The City of Smithville accounts for its solid waste collection and disposal activities in an enterprise fund. The balance sheet for the Solid Waste Disposal Fund as of December 31, 2013, appears below. CITY OF SMITHVILLE Solid Waste Disposal Fund Post-closing Trial Balance As of December 31, 2013 Account Title Debits Credits Cash $ 288,000 Customer Accounts Receivable 145,440 Allowance for Doubtful Accounts $ 13,080 Inventories 5,040 Land 600,000 Buildings 1,650,000 Accumulated DepreciationBuildings 750,000 Equipment 1,040,400 Accumulated DepreciationEquipment 651,600 Vouchers Payable 50,280 Accrued Payroll and Fringe Benefits 86,830 Accrued LiabilityEstimated Closure 204,000 /Post Closure Costs Net PositionNet Investment in Capital Assets 1,888,800 Net PositionUnrestricted 84,290 Totals $3,728,880 $3,728,880 Required a. Open a general journal as of December 31, 2013, for the Solid Waste Disposal Fund by entering each of the accounts and amounts shown in the above post-closing trial balance. Enter 2013 from the drop-down [Year] menu. Each of the account titles will be found in the drop down menu [Account (# - Description)] in the [Journal] view of the program. Be sure to enter 7-a as your paragraph number in the [Transaction Description] box and enter the appropriate paragraph number for all subsequent journal entries. Verify the accuracy of your journal entry and post it to the general ledger by clicking [Post Entries]. Unless your instructor specifies e-mail submission, print a post-closing trial balance as of December 31, 2013, and retain it in your cumulative file until directed by your instructor to submit it. Entries in this enterprise fund do not have to be recorded at the government-wide level since enterprise funds and business-type activities at the government-wide level both use the same (accrual) basis of accounting and same (economic resources) measurement focus. Thus, the same information recorded in the accounts of the enterprise fund can also, with only slight modification, be reported as business-type activities at the government-wide level. Please remember that before closing the City of Smithville, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved. b. Record the following events and transactions, which occurred during the year ended December 31, 2014. Be sure that 2014 appears in the [Year] menu. 1. [Para. 7-b-1] Billings to customers of the Solid Waste Disposal Fund totaled $2,268,960 for the year, including $16,500 billed to City of Smithville departments accounted for in the General Fund. For the amount billed to City of Smithville departments you should debit Due from Other Funds. 2. [Para. 7-b-2] Equipment costing $300,000 was purchased on July 1, 2014. Cash in the amount of $200,000 was paid at the time of purchase; the vendor accepted revenue anticipation notes in the amount of $100,000 to finance the remainder of the equipment. Of this amount, $50,000 of the notes will be payable on July 1, 2015; the other $50,000 will be payable on July 1, 2016. All notes bear interest at the rate of 5 percent per year. (Record only the purchase and the related payment of cash and issuance of notes at this time; interest will be recorded in a later transaction.) 3. [Para. 7-b-3] Vouchers for materials and supplies to be used in the operations of the fund were issued in the total amount of $773,500. (Debit Inventories) 4. [Para. 7-b-4] Collections from customers totaled $2,190,900 during 2014. This amount included $10,100 collected from the General Fund (see Transaction 7-b-1 above). 5. [Para. 7-b-5] Payrolls and fringe benefits paid in cash during the year totaled $1,182,800, including the amount accrued at December 31, 2013. 6. [Para. 7-b-6] Accrued salaries and fringe benefits at year-end amounted to $66,720. Inventories of materials and supplies used in operations during the year amounted to $774,480, at cost. 7. [Para. 7-b-7] Vouchers in the amount of $778,600 were paid during the year. 8. [Para. 7-b-8] The city uses the following annual straight-line depreciation rates: Buildings, 2.5 percent; Equipment, 10 percent (equipment purchased during the year need not depreciated because it was not held for more than 6 months of the year). Apply these rates to the original cost of buildings and equipment as of December 31, 2013, assuming no residual or salvage value. 9. [Para. 7-b-9] Interest of $2,500 had accrued on revenue anticipation notes as of year-end (see transaction 7-b-2). 10. [Para. 7-b-10] Management decided to increase the allowance for doubtful accounts by $3,060 at year-end. 11. [Para. 7-b-11] The City of Smithville estimates that for the citys landfill the total current cost for closure and postclosure compliance with the Environmental Protection Agency rules discussed in Chapter 7 will be $1,440,000. Based on the percentage of estimated capacity of the landfill used in the current period, the current period expense and related liability for future closure and post closure costs is $120,000. 12. [Para. 7-b-12] On December 31, 2014, prior to preparing closing entries, the Solid Waste Disposal Fund was charged for materials and supplies expense in the amount of $12,000 that had erroneously been charged as an expenditure of the General Fund (see transaction 15 of the General Fund in Chapter 4 of this cumulative problem). You should credit Due to Other Funds. 13. After verifying the accuracy of all entries for the preceding transactions, post amounts to the general ledger accounts by clicking [Post Entries]. c. Prepare entries to close all operating statement accounts at the end of 2014 and to reclassify the two net asset accounts, as appropriate. Be sure that the check mark for [Closing Entry] is on for each account being closed and that Closing Entries appears in the [Transaction Description] box. When completed, post the closing entries to the general ledger by clicking [Post Entries]. d. Click on [File]-[Export] to export a post-closing trial balance for year 2014, and use Excel to prepare a statement of net position for the Solid Waste Disposal Fund as of December 31, 2014. e. Click on [File]-[Export] to export a pre-closing trial balance for year 2014, and use Excel to prepare a statement of revenues, expenses, and changes in net position for the Solid Waste Disposal Fund for the year ended December 31, 2014. Provision for closure and postclosure costs should be considered an operating expense. Interest expense should be considered a nonoperating item. f. Use the post-closing trial balance for year 2013 from Part a of this chapter and the trial balances from parts d and e above to prepare and save an Excel version statement of cash flows for the Solid Waste Disposal Fund for the year ended December 31, 2014. [Note: Retain a printout of all worksheets and your financial statements in your cumulative file until directed by your instructor to submit them, unless your instructor specifies that you should submit computer files via e-mail.] Chapter 8 Recording Transactions Affecting a Fiduciary Funda Tax Agency Fund The City of Smithville administers a tax agency fund that bills and collects property taxes levied by the governing bodies of the Smithville Consolidated School District (CSD), Smith County, and the Smith County Fire Protection District (FPD), in addition to those levied by the City of Smithville for its General Fund. (Note: Beginning in FY 2015, the tax agency fund will also account for property tax billing and collection for the City of Smithvilles debt service fund. That fund will not levy property taxes for FY 2014.) As permitted by state law, the City of Smithville charges a collection fee of one percent of all taxes collected for the other governments. CITY OF SMITHVILLE Tax Agency Fund Post-closing Trial Balance As of December 31, 2013 Account Title Debits Credits Taxes Receivable for Other Funds and $2,317,075 GovernmentsDelinquent (including related interest and penalties) Due to Other Funds and Governments $2,317,075 Totals $2,317,075 $2,317,075 Required a. Open a general journal as of December 31, 2013, for the Tax Agency Fund by entering the two accounts and amounts shown in the above post-closing trial balance. Enter 2013 from the drop-down [Year] menu. Each of the account titles will be found in the drop down menu [Account (# - Description)] in the [Journal] view of the program. Be sure to enter 8-a as your paragraph number in the [Transaction Description] box. Verify the accuracy of your journal entry and post it to the general ledger by clicking [Post Entries]. Unless your instructor specifies e-mail submission, print a post-closing trial balance as of December 31, 2013 and retain it in your cumulative file until directed by your instructor to submit it. (Note: Entries in this fund do not have to be recorded at the government-wide level. Fiduciary activity information is reported only in the fiduciary fund statements and not at the government-wide level.) b. The following schedule shows the tax rates that have been established by the various taxing authorities for fiscal year 2014. Tax Rates Applicable to Governments Served by the Tax Agency Fund Fiscal Year 2014 (All amounts rounded to next higher dollar) Tax Rate (Per $100 Assessed Tax Governments/Funds of Assessed Valuation) Valuation Levy City of Smithville: General Fund $0.56 $303,035,714 $1,697,000 Total city rate and levy $0.56 $1,697,000 Smithville CSD: General Fund $2.45 $365,090,450 $8,944,717 Debt service fund 0.14 511,127 Total CSD rate and levy $2.59 $9,455,844 Smith County: General Fund $0.27 $458,672,260 $1,238,416 County Road and Bridge Fund 0.33 1,513,619 Total county rate and levy $0.60 $2,752,035 Smith County FPD: General Fund $0.90 $155,336,546 $1,398,029 Fire Station Construction Fund 0.35 543,678 Total county FPD rate and levy $1.25 $1,941,707 Grand Total tax rates and levies* $5.00 $15,846,586 * Note: Each property owner will receive a tax bill equal to the tax rates of all taxing authorities that have jurisdiction over his/her property times the assessed valuation of his/her property. Shown above are the aggregate taxes levied by each government, which are also the total amounts billed by the Tax Agency Fund to all taxpayers in each jurisdiction. Record the following transactions that occurred during 2014 in the general journal of the Tax Agency Fund. Please remember that before closing the City of Smithville, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved. 1. [Para. 8-b-1] On January 2, 2014, the citys tax administrator mailed annual tax bills to all property owners in the total amount of $15,846,586 (see preceding table). The tax administrator maintains a detailed tax ledger to track amounts billed to and collected from each taxpayer and total amounts applicable to each fund and government. You need only record the grand total amount shown in the schedule above in the general journal, as illustrated in Chapter 8 of the Reck, Lowensohn, and Wilson text. 2. [Para. 8-b-2] Delinquent taxes and related interest and penalties were collected during the year for the taxing authorities shown below: Delinquent Interest and Governments/Funds: Taxes Penalties Total City of Smithville General Fund $ 360,000 $ 34,270 $ 394,270 Smithville CSD 722,650 57,810 780,460 Smith County 285,410 22,830 308,240 Smith County FPD 162,560 13,050 175,610 Total collected $1,530,620 $127,960 $1,658,580 Required: Record the collections of delinquent taxes and interest and penalties by recognizing specific liabilities to each fund or government. The 1 percent collection fee should be deducted from the amounts due to other governments; the total amount deducted from other governments should be added to the amount due to the City of Smithville General Fund. (Note: Round all amounts to the nearest whole dollar.) Make these entries only in the Tax Agency Fund general journal. The Tax Agency Fund records the total amount of delinquent taxes and related interest and penalties in the Taxes Receivable for Other Funds and GovernmentsDelinquent account. (Note: All cash receipts and collection fees were recorded in earlier chapters in the journals for the General Fund and governmental activities at the government-wide level. The collection fees, though not separately identified, were included in RevenuesCharges for Services in the General Fund and in Program RevenuesGeneral GovernmentCharges for Services in governmental activities.) 3. [Para. 8-b-3] All cash collected in paragraph 8-b-2 was transferred to the other funds and governments in the amounts calculated, adjusted for collection fees deducted or added (see Para. 8-b-2). 4. [Para. 8-b-4] Current taxes were collected during the year for the funds and governments shown below: Current Taxes Funds/Governments: Collected City of Smithville General Fund $ 1,546,800 Smithville CSD 8,510,260 Smith County 2,476,830 Smith County FPD 1,747,540 Total collected $14,281,430 Required: Record the collections of current taxes and recognize specific liabilities to each fund or government, after deducting the 1 percent collection fee from other governments and adding the total collection fee to the amount due the City of Smithville General Fund. Make these entries only in the Tax Agency Fund general journal. 5. [Para. 8-b-5] All cash collected in paragraph 8-b-4 was transferred to the other funds and governments, adjusted for collection fees deducted or added. 6. [Para. 8-b-6] Taxing authorities notified the tax administrator that delinquent property taxes in the amount of $177,400 and related interest and penalties in the amount of $18,900 ($196,300 in total) have been written off as uncollectible. Record the total amounts in the general journal by debiting Due to Other Funds and Governments and crediting Taxes ReceivableDelinquent for Other Funds and Governments. (Note: The tax administrator updates the detailed tax ledger records for these write offs.) 7. [Para. 8-b-7] Make the year-end journal entry to reclassify all uncollected current taxes as delinquent and to record a receivable for interest and penalties of 8 percent on the reclassified amount (round amount to nearest whole dollar). The interest and penalties portion of the total amount should be debited to Taxes Receivable for Other Funds and GovernmentsDelinquent and credited to Due to Other Funds and Governments. You need only record the aggregate amounts reclassified in the general journal; the tax administrator will update the detailed tax ledger records for these reclassifications. b. Post the journal entries for all the preceding transactions, then export a post-closing trial balance for 2014 to Excel or other spreadsheet software. Use the trial balance to prepare a statement of fiduciary net position for the Tax Agency Fund (for an example, see Illustration A2-10 in Appendix A of Chapter 2 of the text). You should deduct $431,882 of delinquent taxes receivable and related interest and penalties receivable from the amounts recorded as Taxes Receivable for Other Funds and GovernmentsDelinquent. The same amount should be deducted from the liability account Due to Other Funds and Governments. The citys General Fund portion of these account balances must be deducted as only the amounts applicable to other governments can be reported in a fiduciary fund statement. Taxes receivable and interest and penalties receivable that are applicable to the city itself were reported in the General Fund balance sheet that you prepared in Chapter 4 of this project. Retain the post-closing trial balance as of December 31, 2014, and the statement of fiduciary net position in your cumulative folder, unless your instructor requests e-mail submission of your documents. Chapter 9 Adjusting and Closing Entries for Governmental Activities, Government-wide Level; Preparation of Government-wide and Major Fund Financial Statements a. Prior to preparing financial statements at the end of FY 2014, it is necessary to record depreciation expense for the year for governmental activities at the government-wide level. Based on general capital assets assigned to specific functions, depreciation expense related to equipment and infrastructure is allocated to functions as shown below: Equipment Infrastructure General Government $ 42,348 Public Safety 220,212 Public Works 84,696 $118,344 Health and Welfare 21,168 Culture and Recreation 55,056 Totals $423,480 $118,344 In addition, depreciation expense for buildings in the amount of $188,000 is allocated to functions according to the percentage of total floor space of buildings used by each function. The Public Works director has provided the following information for the current year: Percentage of Building Floor Space Used General Government 20% Public Safety 35 Public Works 22 Health and Welfare 10 Culture and Recreation 13 Total 100% Required: [Para. 9-a] Record depreciation expense for the year 2014 in the governmental activities general journal at the government-wide level. Round all amounts to the nearest whole dollar. Verify accuracy of the adjusting entries and post to the general ledger by clicking [Post Entries]. b. Although closing entries were made in each fund in Chapters 4 through 7 of this cumulative problem, they have not yet been recorded at the government-wide level. Required: Closing Entries. Record the journal entries required on December 31, 2014, to close all temporary accounts for governmental activities at the government-wide level. These entries should also recognize changes in the accounts Net PositionNet Investment in Capital Assets, Net PositionRestricted for Public Safety (see General Fund), Net PositionRestricted for Capital Projects, and Net PositionRestricted for Debt Service. (Note: Be sure to deduct accrued interest on long-term debt in calculating the December 31, 2014 balance of Net PositionRestricted for Debt Service.) For each account to be closed or reclassified, be sure and click on the check mark for [Closing Entry] and that Closing Entries appears in the [Transaction Description] box. Post the closing entries to the general ledger by clicking on [Post Entries]. Please remember that before closing the City of Smithville, you must click on [File], and [Save/Save As] to save your work. Your work is NOT automatically saved. b. Use the exportable trial balances used in Chapters 2 through 7 of this problem and export the pre-closing trial balance and post-closing trial balance for governmental activities to prepare all government-wide and fund financial statements that the City of Smithville must present for its basic financial statements to be in conformity with generally accepted accounting principles. (See Illustrations A2-1 through A2-11 of the Reck, Lowensohn, and Wilson textbook for examples of these statements.) We recommend that you use Excel to prepare these financial statements; however, your instructor may want you to do these manually. Since the Solid Waste Disposal Fund is the only fund in the proprietary funds category, you may reprint the statement of net assets; statement of revenues, expenses, and changes in net assets; and the statement of cash flows prepared for the Solid Waste Disposal Fund as the required statements for the proprietary fund basic financial statements, with appropriate changes to the titles of the statements. The information for the Solid Waste Disposal Fund can also be used to complete the Business-type Activities columns of the government-wide financial statements. (Notes: The City of Smithville is a primary government and has no other organizations for which it is accountable as component units. Also, the FY 2015 financial information for the Street Improvement Debt Service Fund is not included in any of the basic financial statements you are preparing, as the statements you are preparing pertain only to FY 2014.)