Problem # 1
The town of Wolfeboro determines that it requires $11.25 million in property tax revenues to balance its budget. According to the town’s property tax assessor, the town contains taxable property that it assessed at $450 million. However, the town permits discounts for early payment, which generally average about 1 percent of the amount levied. Further, the town grants homestead and similar exemptions equal to 1.5 percent of the property’s assessed value.
1. Calculate the required tax rate, expressed in mils.
2. A resident’s home is assessed at $150,000. He is permitted a homestead exemption of $5,000 and a senior citizen’s exemption of $2,500. What is the resident’s required tax payment prior to allowable discounts for early payment?
3. Wolfeboro assesses property at 100 percent of its fair market value. New Durham, a nearby town in the same county, assesses property at only 80 percent of fair market value. The county bases its own tax assessments on the assessments of the individual towns. However, the county grants no exemptions or discounts. Its tax rate is 4 mils.
a. Ataxpayerin New Durham ownsahomewithamarketvalueof $150,000—the same as that of the Wolfeboro resident.Compute and compare the amount of county tax thatwould be paid by each resident.
b. Comment on why governments find it necessary to‘‘equalize’’ tax assessments based on assessments ofother governments.
Problem # 2
A city levies property taxes of $2 billion in June 2015for its fiscal year beginning July 1, 2015. The taxes are dueby January 31, 2016. The following (in millions) indicatesactual and anticipated cash collections relating to the levy:
June 2015 $ 50
July 2015 through June 2016$1,800
July 2016 through August 2016 $ 40
September 2016 through June 2017 $ 75
The city estimates that $15 million will eventually haveto be refunded, owing to taxpayer appeals of the assessedvaluation of their property, and that $35 million will beuncollectible.
1. Prepare a journal entry that summarizes the city’s property tax activity for the fiscal year ending June 30, 2016,based on:
a. The modified accrual basis (i.e., for fund statements)
b. The full accrual basis (i.e., for government-widestatements)
2. Indicate the differences in amounts that would bereported on both the statement of net position andthe statement of activities on a full accrual basis.
3. Suppose that in the following year the tax levy andpattern of collections were identical to those of theprevious year. What would now be the difference inamounts reported on the statement of net position andthe statement of activities on a full accrual basis?
Problem # 3
The following schedule indicates selected accounts from a city’s pre-closing 2015 and post-closing 2014 general fund trial balances:
All of the amounts shown relate only to supplies. All purchases during the year were paid in cash.
1. Assume that the city uses the consumption method to account for supplies.
a. Reconstruct all journal entries relating to supplies that were made in 2015.
b. Make any additional entries that would be required at year-end 2015 to close the accounts.
2. Assume instead that the city uses the purchases method to account for supplies. Assume also that the supplies inventory balance as reported on the pre-losing December 31, 2015, balance sheet is $108,000 (not $162,000 as shown in the schedule), even though actual supplies on hand are still $162,000. (This adjustment is necessary because under the purchases method inventory is maintained throughout the year at the beginning of year balance; it is adjusted only at year-end when the closing entries are made.)
a. Reconstruct all journal entries relating to supplies that were made in 2015.
b. Make any additional entries that would be required at year-end 2015 to close the accounts.
Problem # 4
Thefollowingisanexcerptfromanotetothefinancialstatements of the city of Boston (dates changed):The city prepares its annual appropriated general fund, debtservice fund, and proprietary operating funds budgets on abasis (budget basis) which differs from generally acceptedaccounting principles (GAAP basis) . . . The major differencesbetween the budget and GAAP bases are that encumbrances arerecorded as the equivalent of expenditures (budget) rather thana commitment of fund balance (GAAP) in the governmentalfunds.The city accounts for inventories on the purchases basis.One of the city’s departments, which is accounted for in thegeneral fund, budgeted $390,000 in supplies expenditures forfiscal 2015. It began the 2015 fiscal year with $60,000 of supplieson hand. It also had $24,000 of supplies on order. During theyear it ordered an additional $360,000 of supplies, received(and paid for in cash) $370,000 of supplies, and consumed
$356,000 of supplies.
1. Prepare all journal entries, consistent with GAAP,including budgetary and encumbrance entries that thedepartment should make in 2015.
2. Indicate the accounts and amounts related to suppliesthat the city would report on its year-end statement ofrevenues,expenditures,andchangesinfundbalanceandbalance sheet.
3. By how much did the department over-or underspendits supplies budget (on a budget basis)?
4. Comment on the extent to which the city’s statementprovides a basis to:
a. Assess the ‘‘true’’ economic costs associated withsupplies
b. Determine whether the city adhered to budgetaryspending mandates
5. Suppose that in the last quarter of the year, department officials realized that the department was aboutto overspend its supplies budget. They therefore ceasedplacing new orders for supplies. However, they imposednorestrictionsontheuseofsuppliesandtherebyallowedthe supplies inventory to decline to near zero.
a. Whatimpactwouldthesecost-cuttingmeasureshaveon supplies expenditures as reported in an actual-tobudget comparison (on a budget basis)?
b. What impact would the year-end measures have onreported supplies expenditures (per GAAP)? Wouldyour response be different if the city accounted forsupplies on the consumption basis?