Question details

Continuous Problem - City of Monroe Chapters 3-8 2
$ 60.00

Continuous Problem – City of Monroe
TO ACCOMPANY

ESSENTIALS OF ACCOUNTING FOR GOVERNMENTAL
AND NOT-FOR-PROFIT ORGANIZATIONS:
ELEVENTH EDITION
Chapters 2 through 8 describe accounting and financial reporting by state and local
governments. A continuous problem is presented to provide an overview of the reporting
process, including preparation of fund basis and government-wide statements. The problem
assumes the government is using fund accounting for its internal record-keeping and then at
year-end makes necessary adjustments to prepare the government-wide statements. The
problem that follows is presented in the same order as the textbook (beginning with Chapters
3, and 4).
Each chapter requires the preparation of journal entries to record the events and transactions
of governmental, proprietary, or fiduciary funds. For the General Fund, use control accounts
for the budgetary accounts, revenues, expenditures and encumbrances. For all other funds,
use separate accounts for each type of revenue and expenditure/expense. At appropriate
stages, preparation of the fund and government-wide statements are required. The following
funds are included in this series of problems:
Governmental Funds
General
Special revenue—Street and Highway Fund
Capital projects—City Hall Annex Construction Fund
Debt service—City Jail Annex Debt Service Fund
Debt service—City Hall Debt Service Fund
Proprietary Funds
Internal service—Stores and Services Fund
Enterprise—Water and Sewer Fund
Fiduciary Funds
Private-purpose—Student Scholarship Fund
Pension trust—Fire and Police Retirement Fund

Chapters 3 & 4
The Balance Sheets of the General Fund and the Street and Highway Fund of the City of
Monroe as of December 31, 2013, follow. These (beginning) balances have been entered in
the proper general ledger accounts, as of 1/1/2014.

1

Continuous Problem – City of Monroe

CITY OF MONROE
General Fund Balance Sheet
As of December 31, 2013
Assets
Cash
Taxes receivable—delinquent
Less: Estimated uncollectible delinquent taxes

$490,000
$210,000
(21,000)
189,000

Interest and penalties receivable on taxes
Less: Estimated uncollectible interest and penalties
Due from state government
Total assets
Liabilities and Fund Equity
Liabilities:
Accounts payable
Due to other funds
Deferred revenues—property taxes
Total liabilities
Fund equity:
Fund balance—assigned
(for outstanding encumbrances)
Fund balance—unassigned
Total fund balance
Total liabilities and fund equity

5,200
(950)
4,250
210,000
$893,250

$104,000
27,000
19,000
150,000

$12,000
731,250
743,250
$893,250

CITY OF MONROE
Street and Highway Fund Balance Sheet
As of December 31, 2013
Assets
Cash
Investments
Due from state government
Total assets
Liabilities and Fund Equity
Liabilities:
Accounts payable
Fund equity:
Fund balance—assigned for streets and
highways
Total liabilities and fund equity

2

$16,500
65,000
109,000
$190,500

$8,500

182,000
$190,500

Continuous Problem – City of Monroe
3–C. This portion of the continuous problem continues the General Fund and special revenue
fund examples by requiring the recording and posting of the budgetary entries. To
reduce clerical effort required for the solution use control accounts for the budgetary
accounts, revenues, expenditures and encumbrances. Subsidiary accounts are not
required. Budget information for the City includes:
a) As of January 1, 2014, the City Council approved and the mayor signed a budget
calling for $10,750,000 in property tax and other revenue, $9,255,000 in
appropriations for expenditures, and $1,280,000 to be transferred to two debt service
funds for the payment of principal and interest. Record the budget for the General
Fund and post to the ledger.
b) Also as of January 1, 2014, the City Council approved and the mayor signed a budget
for the Street and Highway Fund that provided for estimated revenues from the state
government in the amount of $1,070,000 and appropriations of $1,065,000. Record
the budget and post to the ledger.
4–C. Part 1. General Fund Transactions
Required:
a. Record journal entries for the following transactions for FY 2014. Make any computations
to the nearest dollar. Journal entry explanations are not required. Use control accounts for
revenues, expenditures and budgetary accounts. It is not necessary to reflect subsidiary
ledger entries.
(1) Encumbrances of $ 12,000 for purchase orders outstanding at the end of 2013
were re-established.
(2) The January 1, 2014, balance in Deferred Revenues relates to the amount of the
2013 levy that was expected to be collected more than 60 days after December
31. This amount should be recognized as 2014 revenues.
(3) A general tax levy in the amount of $6,350,000 was made. It is estimated that 2
percent of the tax will be uncollectible.
(4) Tax anticipation notes in the amount of $400,000 were issued.
(5) Goods and supplies related to all encumbrances outstanding as of December 31,
2013 were received, along with invoices amounting to $11,800; the invoices
were approved for payment. The City maintains immaterial amounts in supply
inventories and it is the practice of the City to charge supplies to expenditure
when received.
(6) All vouchers and the amount due other funds were paid.
(7) The General Fund collected the following in cash:
o prior year taxes, $160,000;
o interest and penalties receivable on prior year taxes, $3,500;
o current taxes, $5,900,000;
o $210,000 previously recorded as due from the state government;
o licenses and permits, $780,000;
o sales taxes, $2,870,000; and
o miscellaneous revenues, $330,000.

3

Continuous Problem – City of Monroe

(8) Purchase orders and contracts were issued in the amount of $3,476,000.
(9) Payrolls for the General Fund totaled $5,065,000. Of that amount, $498,000
were withheld for employees’ federal income taxes and $357,000 were
withheld for employees’ FICA and Medicare tax liability; the balance was paid
in cash. The encumbrance system is not used for payrolls.
(10) The liability for the city’s share of FICA and Medicare taxes, $357,000, was
recorded as was the liability for state unemployment taxes in the amount of
$33,000.
(11) Invoices for most of the supplies and services ordered in transaction 8 were
received in the amount of $3,370,300 and approved for payment. The related
encumbrance amounted to $3,385,000.
(12) Tax anticipation notes were paid at maturity, along with interest in the amount
of $16,000.
(13) Notification was received that an unrestricted state grant in the amount of
$312,000 would be received during the first month of the next year.
(14) The General Fund recorded a liability to the Water and Sewer Fund for services
in the amount of $45,000 and to the Stores and Services Fund for supplies in
the amount of $313,200; $300,000 of the amount due the Stores and Services
Fund was paid.
(15) The General Fund recorded an amount due of $42,000 from the state
government, representing sales taxes to be collected from retail sales taking
place during the last week of the year.
(16) The General Fund paid vouchers in the amount of $3,007,000 and paid the
amounts due the federal and state governments. The General Fund also
transferred to the debt service funds cash in the amount of $1,662,000 for the
recurring payment of principal and interest.
(17) All required legal steps were accomplished to increase appropriations by the
net amount of $212,000. Estimated revenues were increased by $203,000.
(18) The City Council authorized a write-off of $83,200 in delinquent property taxes
and corresponding interest and penalties amounting to $400.
(19) Interest and penalties receivable on taxes were accrued in the amount of
$13,000; $1,100 of this amount is expected to be uncollectible.
(20) It is estimated that $26,000 of the outstanding taxes receivable will be collected
more than 60 days beyond the fiscal year-end.
b. Post the entries to the general ledger.
c. Prepare and post the closing entries for the General Fund. Outstanding encumbrances at
year end are classified as Assigned Fund Balance and all remaining net resources are
classified as Unassigned Fund Balance.
d. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the year
ended December 31, 2014. Confirm that the revenue and expenditure control accounts
agree with the following detail and use this information in the Statement:

4

Continuous Problem – City of Monroe

Revenues
Property Taxes . . . . . . $6,216,000
Sales Taxes
2,912,000
Interest and Penalties
on Taxes . . . . . . . . . .
11,900
Licenses and Permits . .
780,000
Intergovernmental
Revenue . . . . . . . . . .
312,000
Miscellaneous Revenue
330,000
Total . . . . . . . . . . . .
$10,561,900

Expenditures
General Government . . . $1,645,600
Public Safety . . . . . . . . . 3,026,400
Highways and Streets . . 1,441,400
Sanitation . . . . . . . . . . . . 591,400
Health . . . . . . . . . . . . . .
723,600
Welfare . . . . . . . . . . . . .
373,800
Culture and Recreation .
916,800
Capital Outlay . . . . . . . .
492,300
Total . . . . . . . . . . . . .
$9,211,300

e. Prepare in good form a Balance Sheet for the General Fund as of the end of fiscal year,
December 31, 2014.
4–C. Part 2. Special Revenue Fund Transactions
Required:
a. Record journal entries for the following transactions for FY 2014 and post to the general
ledger. As there are relatively few revenues and expenditures, the use of control accounts
is not necessary. (Make entries directly to individual revenue and expenditure accounts).
(1) The state government notified the City that $1,085,000 will be available for
street and highway maintenance during 2014 (i.e. the City has met eligibility
requirements). The funds are not considered reimbursement-type as defined by
GASB standards.
(2) Cash in the total amount of $990,000 was received from the state government.
(3) Contracts, all eligible for payment from the Street and Highway Fund, were
signed in the amount of $1,044,000.
(4) Contractual services (see transaction 3) were received; the related contracts
amounted to $1,037,500. Invoices amounting to $1,026,000 for these items
were approved for payment. The goods and services all were for street and
highway maintenance.
(5) Investment revenue of $6,000 was earned and received.
(6) Vouchers were paid in the amount of $956,000.
(7) All required legal steps were accomplished to increase appropriations in the
amount of $12,500.
b. Prepare and post the necessary closing entries for the Street and Highway Fund.
c. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balances for the
Street and Highway Fund for the fiscal year ended December 31, 2014.
d. Prepare a Balance Sheet for the Street and Highway Fund as of December 31, 2014.
Assume any unexpended net resources are classified as Restricted Fund Balance.
5

Continuous Problem – City of Monroe

Chapter 5
5–C. Part 1. Capital Projects Fund Transactions
The voters of the City of Monroe approved the issuance of tax-supported bonds in the face
amount of $4,000,000 for the construction and equipping of a new City Jail. Architects were
to be retained, and construction was to be completed by outside contractors. In addition to the
bond proceeds, a $1,000,000 grant was expected from the state government.
Required:
a. Open a general journal for the City Jail Annex Construction Fund. Record the following
transactions and post to the general ledger. Control accounts are not necessary.
(1) On January 1, 2014, the total face amount of bonds bearing an interest rate of 8
percent was sold at a $120,000 premium. The bonds are to mature in blocks of
$200,000 each year over a 20-year period commencing January 1, 2015.
Interest payment dates are July 1 and January 1. The first interest payment will
be July 1, 2014. The premium was transferred to the City Jail Debt Service
Fund for the future payment of principal on the bonds.
(2) The receivable from the state government was recorded.
(3) Legal and engineering fees early in the project were paid in the amount of
$77,000. This amount had not been encumbered.
(4) Architects were engaged at a fee of $176,000.
(5) Preliminary plans were approved, and the architects were paid 20 percent of the
fee.
(6) The complete plans and specifications were received from the architects and
approved. A liability in the amount of $105,600 (60% of the contract) to the
architects was approved and paid.
(7) Bids were received and opened in public session. After considerable discussion
in City Council, the low bid from Hardhat Construction Company in the
amount of $4,300,000 was accepted, and a contract was signed.
(8) The contractor required partial payment of $1,500,000. Payment was approved
and vouchered with the exception of a 5 percent retainage.
(9) Cash in the full amount of the grant was received from the state government.
(10) Furniture and equipment for the annex were ordered at a total cost of $450,000.
(11) Payment was made to the contractor for the amount vouchered (see 8 above).
(12) The contractor completed construction and requested payment of the balance
due on the contract. After inspection of the work, the amount, including the past
retainage, was vouchered and paid.
(13)The furniture and equipment were received at a total actual installed cost of
$439,300. Invoices were approved for payment.
(14) The remaining 20% of the architects’ fees was approved for payment.
(15) The City Jail Construction Fund paid all outstanding accounts payables ($
474,500) on December 31, 2014.
(16) The remaining cash was transferred to the City Jail Debt Service Fund.

6

Continuous Problem – City of Monroe
b. Post the entries to the City Jail Construction Fund general ledger.
c. Prepare and post an entry closing all nominal accounts to Fund Balance.

5–C. Part 2. Existing Debt Service Fund Transactions
The City Hall Debt Service Fund of the City of Monroe has been open for five years; it was
created to service an $16,000,000, 3 percent tax-supported bond issue. As of December 31,
2013, this serial bond issue had a balance of $12,000,000. Semiannual interest payments are
made on January 1 and July 1, and a principal payment of $400,000 is due on January 1 and
July 1 of each year.
As this is a regular serial bond debt service fund, the only accounts with balances as of
January 1, 2014, were Cash with Fiscal Agent and Fund Balance—Assigned for Debt
Service, each with balances of $580,000. (Revenues were raised and collected in cash in
2013 in order to be able to pay bond principal and interest due on January 1, 2014.) The
government chose not to accrue interest payable.
Required:
a. Open a general journal for the City Hall Debt Service Fund and prepare journal entries for
the following transactions. Control accounts are not necessary
(1) The fiscal agent reported that $180,000 in checks had been mailed to
bondholders for interest due on January 1, and $400,000 in checks were mailed
for bonds maturing that day.
(2) Cash in the amount of $574,000 was received from the General Fund on June 30
and was transferred to the fiscal agent.
(3) The fiscal agent reported that checks dated July 1 had been mailed to
bondholders for interest of $ 174,000 due that day and $400,000 in checks were
mailed for bonds maturing that day.
(4) Cash in the amount of $568,000 was received from the General Fund on
December 31 and transferred to the fiscal agent to be used for the interest and
principal due on January 1 (next fiscal year). The government elected to not
accrue the interest or principal at year-end.
b. Post the entries to the City Hall Debt Service Fund ledger (t-accounts).
c. Prepare and post an entry closing all nominal accounts to Fund Balance.

7

Continuous Problem – City of Monroe
5–C. Part 3. New Debt Service Fund Transactions
On the advice of the city attorney, a City Jail Debt Service Fund is opened to account for
debt service transactions related to the bond issue sold on January 1, 2014 (see Part 1).
Required:
a. Open a general journal for the City Jail Debt Service Fund. Record the following
transactions, as necessary. Control accounts are not necessary
(1) The premium described in transaction 1 of Part 1 was received as a transfer from
the capital projects fund.
(2) Cash in the amount of $160,000 was received from the General Fund on June 30
and was transferred to the fiscal agent.
(3) The fiscal agent reported that checks dated July 1 had been mailed to
bondholders for interest due that day.
(4) The transfer described in part c of Part 1 was received.
(5) Cash in the amount of $360,000 was received from the General Fund on
December 31 and transferred to the fiscal agent to be used for interest and
principal payments due on January 1 (next fiscal year). The government elected
to not accrue the interest at year-end.
(6) $ 120,000 of the remaining cash on hand was invested.
b. Post the entries to the City Jail Debt Service Fund ledger (t-accounts).
c. Prepare and post an entry closing all nominal accounts to Fund Balance. Assume any
remaining net resources are classified as Fund Balance – Assigned for Debt Service.
5–C. Part 4. Governmental Funds Financial Statements
Required:
a. Prepare a Balance Sheet for the governmental funds for the City of Monroe as of
December 31, 2014. Include the General Fund, the Street and Highway Fund (P4–C), the
City Hall Debt Service Fund, and the City Jail Debt Service Fund. Use the balances
computed in 4-C for the General Fund and special revenue fund portions of this statement.
b. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balances for the
governmental funds for the City of Monroe for the Year Ended December 31, 2014.
Include the same funds as listed in requirement a plus the City Jail Construction Fund.

8

Continuous Problem – City of Monroe

Chapter 6 – Proprietary Funds
6–C. Part 1. Internal Service Fund Transactions
The Stores and Service Fund of the City of Monroe had the following account balances as of
January 1, 2014:

Cash
Due from other funds
Inventory of supplies
Land
Buildings
Accumulated depreciation—buildings
Equipment
Accumulated depreciation—equipment
Accounts payable
Advance from water utility fund
Net position
Totals

Debits
$17,000
25,000
35,000
19,000
82,000

Credits

$21,500
46,000

$224,000

18,000
13,500
30,000
141,000
$224,000

Required:
a. Open a general journal for the City of Monroe Stores and Service Fund and record the
following transactions.
(1) A budget was prepared for FY 2014. It was estimated that the price charged
other departments for supplies should be 1.25% of cost to achieve the desired
breakeven for the year.
(2) The amount due from other funds as of January 1, 2014, was collected in full.
(3) During the year, supplies were ordered and received in the amount of $302,000.
This amount was vouchered.
(4) $10,000 of the advance from the Water Utility Fund, originally provided for
construction, was repaid. No interest is charged.
(5) During the year, supplies costing $250,560 were issued to the General Fund, and
supplies costing $46,400 were issued to the Water Utility Fund. These funds
were charged based on the previously determined markup ($ 313,200 to
General Fund and 58,000 to the Water Utility Fund).
(6) Operating expenses, exclusive of depreciation, were recorded in accounts
payable as follows: Purchasing, $11,500; Warehousing, $16,000; Delivery,
$17,500; and Administrative, $8,800.
(7) Cash was received from the General Fund in the amount of $300,000 and from
the Water Utility Fund in the amount of $50,000.
(8) Accounts payable were paid in the amount of $357,000.
(9) Depreciation in the amount of $8,200 was recorded for buildings and $11,000
for equipment.

9

Continuous Problem – City of Monroe
b. Post the entries to the Stores and Service Fund ledger (t-accounts).
c. Prepare and post an entry closing all nominal accounts to Net Position. Compute the
balance in the net position accounts, assuming there is no Restricted net position.

6–C. Part 2. Enterprise Fund Transactions
The City of Monroe maintains a Water and Sewer Fund to provide utility services to its
citizens. As of January 1, 2014, the City of Monroe Water and Sewer Fund had the following
account balances:

Cash
Customer Accounts Receivable
Estimated Uncollectible Accounts Receivable
Materials and Supplies
Advance to Stores and Services Fund
Restricted Assets
Water Treatment Plant in Service
Construction Work in Progress
Accumulated Depreciation - Utility Plant
Accounts Payable
Revenue Bonds Payable
Net position
Totals

Debits
$112,600
89,000

Credits

$3,600
96,300
30,000
117,000
4,075,000
203,000

$4,722,900

687,500
132,000
2,500,000
1,399,800
$4,722,900

Required:
a. Open a general journal for the City of Monroe Water and Sewer Utility Fund and record
the following transactions.
(1) During the year, sales of water to non-government customers amounted to
$997,900 and sales of water to the General Fund amounted to $45,000.
(2) Collections from non-government customers amounted to $935,000.
(3) The Stores and Services Fund repaid $10,000 of the long-term advance to the
Water and Sewer Fund.
(4) Materials and supplies in the amount of $263,000 were received. A liability in
that amount was recorded.
(5) Materials and supplies were issued and were charged to the following accounts:
cost of sales and services, $165,000; selling, $15,000; administration, $18,000;
construction work in progress, $62,000.
(6) Payroll costs for the year totaled $416,200. Of that amount, $351,900 was paid
in cash, and the remainder was withheld for taxes. In addition, taxes that are
expenses of the utility amounted to $34,200. The $450,400 (416,200 + 34,200)
was distributed as follows: cost of sales and services, $265,800; sales, $49,900;
administration, $91,400; construction work in progress, $43,300.
10

Continuous Problem – City of Monroe
(7) Bond interest (6½%) in the amount of $162,500 was paid.
(8) Interest in the amount of $17,000 (included in 7 above) was reclassified to
Construction Work in Progress.
(9) Construction projects at the water treatment plant were completed in the amount
of $235,000, and the assets were placed in service. Payment was not yet made.
(10) Collection efforts were discontinued on bills totaling $4,260. The unpaid
receivables were written off.
(11) An analysis of customer receivable balances indicated the Estimated
Uncollectible Accounts needed to be increased by $6,300.
(12) Payment of accounts payable amounted to $305,500. Payments of payroll taxes
totaled $95,200.
(13) Supplies transferred from the Stores and Services Fund amounted to $58,000.
Cash in the amount of $50,000 was paid to the Stores and Services Fund for
supplies.
(14) Depreciation expense for the year was computed to be $275,000.
(15) In accord with the revenue bond indenture, $17,500 cash was transferred from
operating cash to restricted assets.
b. Post the entries to the Water and Sewer Fund ledger (t-accounts).
c. Prepare and post an entry closing all nominal accounts to Net Position. Compute the
balance in the net aposition accounts, assuming the only restricted amounts are those
identified with the bond indenture and the outstanding bonds are associated with the
purchase of capital assets.

6–C. Part 3. Proprietary Fund Financial Statements
Required:
Prepare, in good form, for the proprietary funds accounted for in Parts 1 and 2, the following:
(1) A Statement of Revenues, Expenses, and Changes in Fund Net Position for the Year
Ended December 31, 2014.
(2) A Statement of Net Position, as of December 31, 2014.
(3) A Statement of Cash Flows for the Year Ended December 31, 2014. Include restricted
assets as a part of cash and cash equivalents for this statement. (Assume any materials and
labor attributable to construction in process were paid by year end).

11

Continuous Problem – City of Monroe

Chapter 7 – Fiduciary Funds
7–C. Part 1. Private Purpose Trust Fund Transactions
The City of Monroe Scholarship Foundation private-purpose trust fund had the following
account balances on January 1, 2014:
Debits
Credits
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,000
Accrued Interest Receivable . . . . . . . . . . . . . . . . . .
7,500
Investments in MNO Company Bonds . . . . . . . . . .
750,000
Net Position: Resources Held in Trust ……………… . . . . . . . . .
$ 792,500
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 792,500 $ 792,500
Required:
a. Open a general journal for the City of Monroe Community Foundation Trust Fund and
record the following transactions for the year ending December 31, 2014:
(1) On May 1, the first semiannual interest payment was received on the MNO
Company bonds. The bonds pay 6 percent annual interest, semiannually on
May 1 and November 1.
(2) During the first half of the year, additional contributions from individuals and
foundations amounted to $200,000, in cash. These funds were invested i...

Available solutions