The data presented below were taken from the books and records of the village of Denaville. All amounts are in millions. The village encumbers all outlays. As is evident from the data, some goods or services that were ordered and encumbered have not yet been received. City regulations require that all appropriations lapse at year-end.

Amounts Received Estimated/ Amounts Estimated Actual Actual Appropriated Encumbered Cost Cost Revenues

Revenues

Property taxes $8,900 $8,800

Sales taxes 3,900 3,600 Licenses 300 200

Other 700 400 $13,800 $13,000

Expenditures/Appropriations General government $3,500 $3,100 $2,900 $3,300

Public safety 6,000 5,900 5,000 4,900

Recreation 1,200 1,200 800 900

Health and sanitation 2,300 2,200 2,200 2,100 $13,000 $12,400 $10,900 $11,200

Excess of estimated revenues over appropriations $800

Beginning fund balance 1,500

Estimated ending fund balance $2,300

I. Prepare summary entries to record: a) the encumbrance of the goods and services and b) the receipt of the goods and services assuming all invoices were paid in cash.

II. What would be the year-end: a) fund balance (unassigned) b) reserve for encumbrances balance

III. Suppose a city accountant prepared a schedule comparing budgeted to actual revenues and expenditures. The citys mayor notes (correctly) that the very favorable variance between budgeted and actual expenditures was not merely a matter of luck e.g., attributable to factors beyond the control of the city, such as less than usual snowfall and hence lower than usual snow removal costs. Rather, he boasts, it was due to a concerted effort on the part of his administration to hold the line on expenditures. Why, in governments and not-for-profit organizations might favorable expenditure variances be an indication of inept rather than competent management?