Sec 2-23 (2nd tab)

Middleboro Township plans to order supplies every quarter of the year. It expects to receive the supplies in the quarter after they are ordered. It expects to use them the quarter after that and pay for them the quarter after that. For example, if it orders supplies in the first quarter of the year, it will receive them in the second quarter, use them in the third quarter, and pay for them in the fourth quarter. The township pays salaries in the quarter that the employees work. The township earns its income tax revenues equally throughout the year. However, it receives substantially more cash in April, when tax returns are filed. It plans to borrow $ 35,000 on a 20- year, 5 per-cent annual interest note, on the first day of the fourth quarter. Interest will be paid once each year at the end of the third quarter.

	Jan-Mar	Apr-Jun	Jul-Sep	Oct-Dec	Total
Supply orders	$300,000	$360,000	$390,000	$330,000	$1,380,000
Salaries	600,000	750,000	825,000	720,000	2,895,000
Income tax cash receipts	600,000	600,000	1,200,000	600,000	3,000,000

The town prepares its operating budget following the unique rules of modified accrual accounting employed by governments. Under these rules expenses are recorded when the town receives goods or ser-vices and becomes legally obligated to pay for them. It does not matter if they have been used or not. Also, cash inflows or proceeds from long- term loans are treated as if they were revenues. Using the information from the table above, prepare an operating budget and a cash budget for Middleboro Township for the fourth quarter only. Assume the town has $ 300,000 in cash when the fourth quarterstarts.

PROBLEM 2-21 (Capital Assets and Depreciation Expense) Cost Building: Equipment: Total Depreciable Base (Cost - Salvage) Salvage Useful Life Annual Depreciation 0 $0 40 $0 $0 $0 10 $0 $0 PROBLEM 2-23 (Cash and Operating Budgets) Middleboro Township Operating Budget Fourth Quarter Revenues Income Tax Loan Total Revenue Expenditures Salaries Interest Supplies Total Expend. Excess of Rev. over Exp. Beginning Cash Tax Receipts Loan Receipt Cash Available Salaries Supplies Ending Cash $0 390,000 $390,000 ($390,000) Middleboro Township Cash Budget Fourth Quarter $300,000 35,000 $335,000 $335,000 Note that operating budget and cash budget results are not the same, because of timing differences of when things are recorded under an accrual approach. Middleboro Township Operating Budget Fourth Quarter (earned equally throughout year) (revenue under modified accrual) ($35,000 x 5% - $2,800 /4 = $437.50 per quarter (expenditure when legal obligation to pay; i.e., when supplies received) Middleboro Township Cash Budget Fourth Quarter Given Cash rather than accrual basis From first quarter due to payment lag t results are not the same, because of timing differences of when ach. PROBLEM 2-24 (Special Purpose Budget) Budget Revenue Supermarket Subsidy Total Revenue $1,000 Less Expenses Equipment rental Nurses $50 10 hours 7 days Test Costs 700 $1 Total Expenses 700 $700 Surplus/loss $300 No, it is not necessarily financially bad. This program may discover patients with hypertension or other medical problems who will become patients of the hospital, generating additional revenues. Also it provides the hospital with a way to advertise their services, generating future patient volume and revenue. PROBLEM 2-25 (Cash Budget) January Beginning Balance Cash Receipts Property tax Sales Tax Total Cash Available February $4,500,000 March $8,100,000 4,500,000 0 $4,500,000 3,600,000 0 $8,100,000 2,250,000 230,000 $10,580,000 $4,500,000 0 $4,500,000 $8,100,000 0 $8,100,000 $10,580,000 -10,480,000 $100,000 Less Cash Disbursements Net Cash Available Borrow/(repay) Ending Cash Balance Property Tax billed Sept. 2011 Sales Tax October November December $45,000,000 $50,000 $68,000 $112,000 PROBLEM 2-28 (Capital Budget) Item to be Acquired Garbage Trucks Bulldozer Riding Mowers Activity Center Total Estimated Useful Lifetime Quantity 2 1 3 1 10 8 5 40 Cost Total Cost $0 0 0 0 $0