Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Different types of funds justify different practices as to budgets and commitments. Review the budget note to the Smith City's financial statements presented in the

Different types of funds justify different practices as to budgets and commitments.

Review the budget note to the Smith City's financial statements presented in the previous problem. Assume that the city engaged in the following transactions in 2020 and 2021:

In 2020, it signed a service contract with a private security company. The company agreed to provide security services to the city's for one year at a cost of $72,000 ($6,000 per month.) By year end the company provided, and paid for, services for three months.

In 2021, the company preformed, and the city paid for, the remaining nine months of the contract. However, because of the agreed-upon changes in the services provided by the company, the total charges for 2021 were reduced from $54,000 to $50,000.

  1. The city properly budgeted for the services and appropriated the funds consistent with policies set forth in the note. Prepare all the budgetary, encumbrance, and expenditure entries relating to the service contract that would be required in 2020 and 202 In 1020, when the city signed the contract, it appropriated the entire $72,000. Then, at the start of 2021, inasmuch as the city expended only $18,000 in 2020, it reappropriated $54,000.
  1. Assume first that the contract was accounted for in the smiths general fund.
  2. Assume next that it was accounted for in a capital projects fund established for the construction of its Walnut Creek Amphitheatre. The city prepares annual financial statements for capital project funds, but it does not close out its accounts. Moreover, it prepares budgets for the entire project, not for particular periods. The project was started in 2020 and completed in 2021.
notes information image text in transcribed
image text in transcribed
Note from Smith City Annual Report Budgetary control is exercised in all funds except for the trust and custodial funds. The budget shown in the financial statements is the budget ordinance as amended at the close of the day of June 30. The city is required by the General Statutes of the state to adopt an annual balanced budget by July 1 of each year. The General Statutes also provide for balanced project ordinances for the life of projects, including both capital and grant activities, that are expected to extend beyond the end of the fiscal year. The city council officially adopts the annual budget ordinance and all project ordinances and has the authority to amend such ordinances as necessary to recognize new resources or reallocations of budget. As of June 30, the effect of such amendments, less eliminating transfers, is shown below. Total Amendments General fund Special revenue funds General capital projects funds Proprietary funds Internal service funds Original Budget $145,259,996 49,087,784 135,304,688 145,984,461 845,657 $2,965,856 5,034,632 4,038,509 2,557,523 16,640 Budget June 30 $148,225,852 54,122,416 139,343,197 148,541,984 862,297 All budgets are prepared on the modified accrual basis of accounting, as is required by state law. Appropriations for funds that adopt annual budgets lapse at the end of the budget year. Project budgeted appropriations do not lapse until the completion of the project. Budget control on expenditures is limited to departmental totals and project totals as specified in the budget ordinances. Administrative control is maintained through the establishment of more detailed line-item budgets, which correspond to the specific object of the expenditure. All budget transfers, at both the ordinance and the line-item levels, are approved by the city council. The city manager is authorized to transfer line-item budgeted amounts up to $1,000 within a fund prior to their formal approval by the city council. Encumbrances represent commitments related to unperformed contracts for goods or services. Encum- brance accountingunder which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriationis utilized in all funds. Outstanding encumbrances at year-end for which goods or services are received are reclassified to expendi- tures and accounts payable. All other encumbrances in the annual budgeted funds are reversed at year-end and are either canceled or included as reappropriations of fund balance for the subsequent year. Outstanding encumbrances at year-end in funds that are budgeted on a project basis automatically carry forward along with their related appropriations and are not subject to an annual cancellation and reappropriation

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Retail Industry IRS Audit Technique Guide

Authors: Internal Revenue Service

1st Edition

1304114783, 978-1304114785

More Books

Students also viewed these Accounting questions

Question

State the importance of control

Answered: 1 week ago

Question

What are the functions of top management?

Answered: 1 week ago

Question

Bring out the limitations of planning.

Answered: 1 week ago

Question

Why should a business be socially responsible?

Answered: 1 week ago

Question

friendliness and sincerity;

Answered: 1 week ago