CPA …The City of Point Sparrow is preparing its government-wide financial statements for the year ended December 31, and reports total fund balances in its governmental funds of $1,200,000 The City had fixed assets of $4,000,000 and accumulated depreciation of $2,750,000, along with long term debt of $2,000,000 related to its governmental funds In addition, the government had a sales tax levy of 4% that is routinely collected by the State by the 30th of the month following the month of reported sales revenue and remitted by the State to the benefiting jurisdictions within 45 days of collection Both the merchants and the State fully complied with the law in the months of October, November and December when sales were 3,000,000, $4,000,000 and $5,000,000 respectively What would the City of Point Sparrow display as its governmental activities Net Assets at December 31? Answer: The fund balances of governmental funds reconcile to the net assets of the governmental activities column of the government-wide financial statement using the GALS BARE mnemonic Consideration of assets net of accumulated depreciation and non-current debt as shown below represent the measurement focus issues, while the accrual of December revenues represent basis of accounting issues December revenues are received by the city 75 days after year-end and therefore would not be accrued for modified accrual accounting since earnings are not available However, these revenues would be recognized under accrual accounting since the earnings process is complete Government-wide net assets are computed as follows: GRASSP - Fund Balance Assets (non-current) $1,200,000 Total non-current assets4,000,000 Accumulated depreciation(2,750,000) Liabilities (non-current) (2,000,000) Service Internal Net Assets Basis of accounting Accrued Revenue December sales 5,000,000 Sales tax 4.0% Accrual of sales tax revenue200,000 Expense Government-wide Net Assets $650,000 CPA The City of Eagle Rock reported an increase in fund balances of $350,000 for all governmental funds for the year ended December 31 The city has capital outlay expenditures of $275,000 partially funded by debt proceeds of $125,000 at December 31 City records include computed depreciation of $75,000 The city paid $80,000 on debt service expenditures during the year including interest payments of $35,000 The due dates associated with debt issues correspond to the City’s fiscal year The city has 10 percent gas tax based on gasoline sales in the jurisdiction By law, the taxes are collected by the state on the 45th day after the end of the month in which the revenue is reported by the merchant and then remitted by the State to the befitting municipality within 30 days of collection Both the merchants and the state consistently comply with the law on the due dates In the months of October, November and December, reported sales were $500,000, $800,000, and $1,000,000 respectively What would the City of Eagle Rock display as its governmental activities change in net assets for the year ended December 31? the calculation below using the GOES BARE mnemonic The accrual of additional revenues relates to sales tax revenues earned at December 31 but not accrued under modified accrual accounting October earnings would have been recognized under the modified accrual basis of accounting (remitted on December 15, received within 60 days of year end on January 15) and November earnings would have been recognized under the modified accrual basis of accounting (remitted on January 15, received within 60 days of year end on February 15) December earnings would not have been recognized under the modified accrual basis of accounting since they would not have been available within 60 days of year-end (remitted on February 15 and received on March 15): GRASSP - Net Changes in Fund Balance$350,000 Other Financing Sources Debt proceeds (125,000) Expenditures (Capital Outlay, Principal Payments) Capital Outlay $275,000 Depreciation expense (75,000) Debt service expenditures 80,000 Interest expenditures(35,000) Principal payments 45,000 245,000 Service Internal Fund Net Income Basis of accounting Additional accrued Revenues and December sales1,000,000 x 10%100,000 Expense Government-wide Change in Net Assets$570,000 CPA …The Town of Blue Skies has assessed $600,000 in fines on BelchSmoke Industries for violations of environmental regulations as of January 1, Year in accordance with the laws of its state The law allows the assessing jurisdiction to place a lien on revenues and properties on the date of assessment but only allows use of the funds collected upon development and approval of a formal spending plan reviewed by the state for the year subsequent to the assessment Assuming BelchSmoke arranges to pay its fine in full on July 1, Year 3, for the year ended December 31, Year 2, the town would ANSWER : Imposed non-exchange receivables are generally recorded when there is an enforceable claim The revenue is deferred and recognized in the period first permitted for use General Rule: Fines for violations, including violations of environmental laws, generally meet the definition of imposed nonexchange revenues Revenues should be recognized when the government has an enforceable legal claim Revenues should be recognized at the same time as the asset or in the period the use of the resources is required or first permitted Fines received or receivable before revenue is recognized should be reported as deferred revenue CPA …Dugger County appropriated $45,000 in its General Fund for miscellaneous supplies for its fiscal year ended September 30, Year The County found that it had paid $15,000 for miscellaneous supplies in November Year and issued a $30,000 purchase order to a sole source vendor for miscellaneous supplies in December Year By August Year 2, the County had received $20,000 related to the order but did not pay the vendor until October pending tax receipts Appropriations not lapse What entry would Dugger County make at year-end to close its books on September 30, Year 2? ANSWER Dugger County would use BAE BAE accounting in its governmental funds by recording budget, activity and encumbrances separately and then reversing budget, activity and encumbrances separately The County would reverse the full amount of the budgeted amount of the appropriations, originally recorded as a credit, as a debit of $45,000 CPA …The City of Sharpton budgeted $230,000 for capital equipment purchases in its police department for the current budget year The City issued a purchase order on January for the acquisition of five police cars Each vehicle is priced at $40,000 The City received four of the vehicles on June 30 for $180,000 On its June 30 interim General Fund financial statements, the City would report The City of Sharpton would record capital acquisitions in its General Fund as capital outlay expenditures The amount of the capital outlay expenditure is equal to the amount spent or obligated, $180,000 Choice is incorrect Property and equipment would not be displayed in the governmental funds Choice is incorrect An internal account titled reserve for encumbrances would be equal to the amount of the unused encumbrance, $40,000 Reserve for encumbrance ($40,000 x 5)$200,000 Less: Completed order ($40,000 x 4) $160,000 Reserve for encumbrance $ 40,000 Reserve for encumbrances would not appear on the face of the financial statements Encumbrance amounts would likely appear in a line item titled "assigned" fund balance Choice is incorrect The City’s available appropriations in its capital outlay line item are computed as follows: Appropriations $230,000 Capital Outlay expenditures $180,000 Reserve for encumbrance 40,000 Less: Total expended or encumbered 220,000 Available Appropriations $ 10,000 ...Answer: The fund balances of governmental funds reconcile to the net assets of the governmental activities column of the government- wide financial statement using the GALS... Internal Net Assets Basis of accounting Accrued Revenue December sales 5,000,000 Sales tax 4.0% Accrual of sales tax revenue200,000 Expense Government- wide Net Assets $650,000 CPA The City of Eagle... Internal Fund Net Income Basis of accounting Additional accrued Revenues and December sales1,000,000 x 10%100,000 Expense Government- wide Change in Net Assets$570,000 CPA …The Town of Blue Skies has