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In preparing its budget proposals, a city's budget committee initially estimated that total revenues would be $12G million and total expenditures would be $123 million.

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In preparing its budget proposals, a city's budget committee initially estimated that total revenues would be $12G million and total expenditures would be $123 million. In light of the balanced budget requirements that the city has to meet, the committee proposed several measures to either increase revenues or decrease expenditures. They included the following: 1. Delay the payment of $D.4 million of city bills from the last week of the scal year covered by the budget to the rst week of the next scal year. 2. Cltange the way property taxes are accotmted for in the budget. Currently, property taxes are counted as revenues only if they are expected to be collected during the budget year. New budgetary principles would permit the city to include as revenues all. taxes expected to be collected within sixty days of the following scal year in addition to those collected during the year. The committee estimates that the change would have a net impact of $1.2 3. Change the way that supplies are accounted for in the budget. Currently, supplies are recognized as expenditures at the time they are ordered. The proposal would delay recognition of the expenditure until they are actually received. The committee estimates a net effect of $0.3 million. 4. Defer indefinitely $1.5 million of maintenance on city roads. Except as just noted with respect to supplies, the city currently prepares its budget on a neaoceuh basis, even though other bases are also legally permissible. It prepares its year- end nancial statements, however, on an accrual basis. a. Indicate the impact that each of the proposals would have on the city's 1] budget, Ejarnrual year-end nancial statements, and 3] "substantive\" economic welhbeing. Be sure to distinguish between direct and indired consequences. b. It is sometimes said that choice of accounting principles doesn't matter in that they affect only the way the entity's fiscal \"story" is told, they have no impact on the entity's actual scal history or current status. Do you agree? Explain

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