P. 1-3 The dual objectives of assessing interperiod equity and ensuring budgetary compliance may necessitate different accounting practices. A city engages in the transactions that follow. For each transaction, indicate the amount of revenue or expenditure that it should report in 2020. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a "modified" cash basis (that is, it expands the definition of cash to include short-term marketable securities), and its fiscal year ends on December 31. 1. Employees earned $128,ooo in salaries and wages for the last five days in December 2020. They were paid on January 5, 2021. 2. A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225, ooo to its firefighters' pension fund for benefits earned in 2020. However, the city contributed only $170,000, the amount budgeted at the start of the year. 3. The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years. 4. On December 1, 2020, the city invested $99,000 in short-term commercial paper (promissory notes). The notes matured on January 1, 2021. The city received $100,000. The $1,000 difference between the two amounts represents the city's return (interest) on the investment. 5 . On January 3, 2020, the city acquired a new $10 million office building, financing it with 25-year serial bonds. The bonds are to be repaid evenly over the period they are outstanding-that is, \$400,ooo per year. The useful life of the building is 25 years. 6. On January 4, 2020, the city acquired another $10 million office building, financing this facility with 25-year term bonds. These bonds will be repaid entirely when they mature on January 1, 2042. The useful life of this building is also 25 years. 7. City restaurants are required to pay a $1,200 annual license fee, the proceeds of which the city uses to fund its restaurant inspection program. The license covers the period July 1 through June 30. In 2020, the city collected $120,000 in fees for the license period beginning July 1, 2020. 8 . The city borrowed $300,000 in November 2020 to cover a temporary shortage of cash. It expects to repay the loan in February 2021. Choice of accounting principles may have significant economic consequences. In preparing its budget proposals, a city's budget committee initially estimated that total revenues would be $120 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 $0.4 million of city bills from the last week of the fiscal year covered by the budget to the first week of the next fiscal year. 2. Change the way property taxes are accounted 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 60 days of the following fiscal year in addition to thos collected during the year. The committee estimates that the change would have a net impact of $1.2 million. 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 expenditures until they are actually received. The committee estimates a net effect of $0.8 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 near-cash basis, even though other bases are also legally permissible. It prepare its year-end financial statements, however, on an accrual basis. a. Indicate the impact that each of the proposals would have on the city's (1) budget, (2) annual year-end financial statements, and (3) "substantive" economic well-being. Be sure to distinguish between direct and indirect 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 fiscal history or current status. Do you agree? Explain