4-3
Property taxes are not necessarily recognized as revenue
in the year collected.
The fiscal year of Duchess County ends on
December 31. Property taxes are due March 31 of
the year in which they are levied and intended to
finance.
1. Prepare journal entries (excluding closing
entries) in the general fund (modified accrual
basis) to record the following property tax’
related transactions in which the county
engaged in 2012 and 2013.
a. On January 15, 2012 the county council
levied property taxes of $170 million for
the year ending December 31, 2012. Officials
estimated that 1% were uncollectible.
b. During 2012 it collected $120 million.
c. In January and February 2013, prior to
preparing its 2012 financial statements, it
collected an additional $45 million in 2012
taxes. It reclassified the $5 million of 2012
taxes not yet collected as delinquent.
d. In January 2013 the county levied property
taxes of $190 million to finance activities of
2013; officials estimated that 1.1% were
uncollectible.
e. During the remainder of 2013 the county
collected $2.5 million more in taxes relating
to 2012, $160 million relating to 2013, and
$1.9 million (in advance) applicable to 2014.
f. In December 2013 it wrote off $1 million
of 2012 taxes that it determined was
uncollectible.
2. What amount of property tax revenue should
the county report in its government-wide (full
accrual) statements for 2012 and 2013? Explain.
4-4
Nonexchange revenue can be of four types
The GASB has identifies four classes of exchange revenue
Derive tax
Imposed
Government ‘mandated
Voluntary
1 for each of the following revenue transactions involving
a. In December 2013 the state in which the city
is located announced that it would grant the
city $20 million to bring certain public facilities
into compliance with the state’s recently
enacted disability laws. As of year-end the
city had not yet received the funds, and it had
not yet expended any funds on the statemandated
facility improvements.
b. The city imposes a $100 tax on all sales of
real estate. The tax is collected by the title
companies that process the sales and must
be forwarded to the state within 30 days of
the transaction. In December there were
600 sales of real estate. As of year-end the
city had collected $40,000 of the $60,000
that it was owed.
c. In December 2013 the state announced that
the city’s share of state assistance for the
calendar year 2014 is $120 million.
d. The city imposes a tax on all boats owned by
residents. The tax is equal to 1% of the
assessed value of a boat (determined by the
city, by taking into account the boat’s original
cost and its age). The tax is payable on
the last day of the year prior to the year in
which the tax is intended to finance. In 2013
the city levied $640,000 of 2014 boat taxes,
of which it collected $450,000.
e. A local resident sends to the city a copy of
her will, in which she bequeaths $3 million
to the city museum upon her death.
f. TheU.S. JusticeDepartment announces that
it will reimburse the city, up to $400,000, for
the purchase of telecommunications equipment.
As of year-end the city had incurred
only $200,000 in allowable expenditures.
g. A resident donates $10 million in securities
to the city, to support a cultural center.
Only the income from the securities, not
the principal, can be spent.
2. What amount of revenue should the city recognize
in its government-wide statement of
activities for 2013 for each of the previous
transactions? Explain.
4-5
Grants are not necessarily recognized as revenue when
they are awarded.
Columbus City was awarded a state reimbursement
grant of $150,000 to assist its adult
literacy program. The following were significant
events relating to the grant:
a. The city, which is on a calendar year, was
notified of the award in November 2012.
b. During 2013 it expended $30,000 on the
literacy program and was reimbursed for
$20,000. It expected to receive the balance
in January 2014.
c. In 2014 it expended the remaining
$120,000 and was reimbursed by the state
for the $10,000 owing from 2013 and the
amount spent in 2014.
1. Prepare journal entries to record the events in
a governmental fund.
2. Suppose instead that the city received the
entire $150,000 in cash at the time the award
was announced in 2012. How much revenue
should the city recognize in its governmental
fund statements in each of the three years?
Explain.
3. Suppose that, instead of a reimbursement
grant, the state awarded the city an unrestricted
grant of $150,000, which the city
elected to use to support the adult literacy
program. The city received the entire
$150,000 in cash at the time the award was
announced in 2012. How much revenue
should the city recognize in its governmental
fund statements in each of the three years?
Explain.
4. Assume the same facts as for questions 1, 2,
and 3. How much revenue should the city
recognize in its government-wide statements
for each of the three years? Explain.
4-6
Sales taxes should be recognized when the underlying
event takes place.
A state requires ”large” merchants (those with
sales over a specified dollar amount) to report and
remit their sales taxes within 15 days of the end of
each month. It requires ”small” merchants to report
and remit their taxes within 15 days of the end
of each quarter.
In January 2013 large merchants remitted
sales taxes of $400 million, owing to sales of December
2012. In February 2013 they remitted $280
million of sales taxes, owing to sales of January
2013. In January 2013 small merchants remitted
sales taxes of $150 million, owing to sales of the
fourth quarter of 2012.
1. Prepare a journal entry to indicate the impact
of the transactions on the state’s governmental
fund financial statements for the year ending
December 31, 2012.
2. Suppose, instead, that 10%of the taxes received
by the state were collected on behalf of a city
within the state. It is the policy of the state to
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remit the taxes to the city 30 days after it
receives them. Prepare a journal entry to indicate
the impact of the transactions on the city’s
governmental fund financial statements for the
year ending December 31, 2012.
3. Suppose, instead, that it is the policy of the
state to remit the taxes to the city 90 days after
it receives them. How does your response to
question 2 differ? Explain. Is your response the
same with respect to the city’s governmentwide
statements?
4-9
Exploring Vero Beach’s Financial Report
Refer to the financial statements of the City of
Vero Beach in Chapter 3.
1. Per the government-wide statement of activities,
how much revenue did the city recognize
from property taxes?
2. What amount of property-tax revenue did the
city recognize in the funds? Where is this
amount reported?
3. Per the statement of activities, how much
revenue did the city recognize from state sales
taxes?
4. Per the funds statements, how much revenue
did the city recognize from state sales taxes? If
your answer is different from your answer to
question 3, what is the most likely reason for
the difference?
5. What amount did the city recognize in the
general fund as proceeds of bonds and loans?
This amount increased the fund balance. Did
it also increase the city’s net assets on the
statement of net assets? Explain.
6. What is the total fund balance in the general
fund? Can this amount be appropriated and
spent for any purpose? Explain.
7. Per the government-wide statement of activities,
is the Community and Youth Service
self-supporting? Explain.
4-10
Exploring Vero Beach’s Financial Report
Refer to the financial statements of the City of
Vero Beach in Chapter 3.
1. Per the government-wide statement of activities,
how much revenue did the city recognize
from property taxes?
2. If a home in Vero Beach is assessed for tax
purposes at $500,000, and the tax rate is 1.94
mills, how much should the city bill the owners
for property taxes?
3. Per the statement of activities, what were the
total expenses of the Transportation function?
How did the city finance these expenses?
4. Per the government-wide statement of activities,
is the Public Safety function self-supporting?
Explain.
5. What amount did the city report as capital
contributions in the governmental funds statement
of revenues, expenditures, and changes
in fund balances? Is this contribution assigned
to support a specific program or function?
Explain.
6. What is the total amount of tax revenues
recognized in the statement of activities?
What amount is recognized in the governmental
funds statement of revenues, expenditures,
and changes in fund balances? What is the
most likely reason for the difference