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