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Continuous Problem – City of Monroe
to Accompany
Essentials of Accounting for Governmental
and Not-for-Profit Organizations:
Twelfth 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
Ø General
Ø Special revenue—Street and Highway Fund
Ø Capital projects—City Hall Annex Construction Fund
Ø Debt service—City Jail Annex Debt Service Fund
Ø Debt service—City Hall Debt Service Fund
Proprietary Funds
Ø Internal service—Stores and Services Fund
Ø Enterprise—Water and Sewer Fund
Fiduciary Funds
Ø Private-purpose—Student Scholarship Fund
Ø 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, 2014, follow. These (beginning) balances have been entered in the proper
general ledger accounts, as of 1/1/2015.
CITY OF MONROE
General Fund Balance Sheet
As of December 31, 2014
Assets
Cash
$502,000
Taxes receivable
$210,000
Less: Estimated uncollectible taxes
(42,000)
net
168,000
Interest and penalties receivable on taxes
5,200
Less: Estimated uncollectible interest and penalties (950)
net
4,250
Due from state government
210,000
Total assets
$884,250
Liabilities, Deferred Inflows, and Fund Equity
Liabilities:
Accounts payable
$ 99,000
Due to other funds
27,000
Total liabilities
126,000
Deferred inflows – Property taxes
21,000
Fund equity:
Fund balance—assigned
$17,000
(for outstanding encumbrances)
Fund balance—unassigned
720,250
Total fund balance
737,250
Total liabilities, deferred inflows and fund equity $884,250
CITY OF MONROE
Street and Highway Fund Balance
Sheet
As of December 31, 2014
Assets
Cash
$21,000
Investments
Due from state government
Total assets
Liabilities and Fund Equity
Liabilities:
Accounts payable
Fund equity:
Fund balance—assigned for streets and
59,000
109,000
$189,000
$9,000
180,000
highways
Total liabilities and fund equity
$189,000
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, 2015, the City Council approved and the mayor signed a budget calling for
$11,250,000 in property tax and other revenue, $9,300,000 in appropriations for expenditures,
and $1,700,000 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, 2015, 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 $1,068,000 and appropriations of $1,047,000. 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 2015. 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 $ 17,000 for purchase orders outstanding at the end of 2014 were reestablished.
(2) The January 1, 2015, balance in Deferred Inflows – Property Taxes relates to the amount of
the 2014 levy that was expected to be collected more than 60 days after December 31. This
amount should be recognized as 2015 revenues.
(3) A general tax levy in the amount of $6,800,000 was made. It is estimated that 2 percent of the
tax will be uncollectible.
(4) Tax anticipation notes in the amount of $500,000 were issued.
(5) Goods and supplies related to all encumbrances outstanding as of December 31, 2014 were
received, along with invoices amounting to $16,600; the invoices were approved for
payment. The City maintains immaterial amounts in supply inventories and it is the practice of
the City to charge supplies to expenditure when received.
(6) All accounts payable and the amount due other funds were paid.
(7) The General Fund collected the following ($ 10,811,500) in cash:
oprior year taxes, $158,000;
ointerest and penalties receivable on prior year taxes, $3,500;
ocurrent taxes, $6,400,000;
o$210,000 previously recorded as due from the state government;
olicenses and permits, $800,000;
osales taxes, $2,890,000; and
omiscellaneous revenues, $350,000.
(8) Purchase orders and contracts were issued in the amount of $3,465,000.
(9) Payrolls for the General Fund totaled $5,070,000. 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 $28,000.
(11) Invoices for most of the supplies and services ordered in transaction 8 were received in the
amount of $3,375,300 and approved for payment. The related encumbrance amounted to
$3,407,000.
(12) Tax anticipation notes were paid at maturity, along with interest in the amount of $18,000.
(13) Notification was received that an unrestricted state grant in the amount of $332,000 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 $37,000 and to the Stores and Services Fund for supplies in the amount of $313,200;
$310,000 of the amount due the Stores and Services Fund was paid.
(15) The General Fund recorded an amount due of $52,000 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 accounts payable in the amount of $3,015,000 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 $73,000.
(18) The City Council authorized a write-off of $51,000 in delinquent property taxes and
corresponding interest and penalties amounting to $1,600.
(19) Interest and penalties receivable on taxes were accrued in the amount of $17,200; $1,100 of
this amount is expected to be uncollectible.
(20) It is estimated that $27,500 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, 2015. Confirm that the revenue and expenditure control accounts agree with
the following detail and use this information in the Statement:
Revenues
Expenditure
s
$6,657,500 General Government . . . $1,646,900
2,942,000
Public Safety . . . . . . . . . 3,026,900
Property Taxes . . . . . .
Sales Taxes
Interest and Penalties on Taxes . . . . . . . . . .
16,100
.
Licenses and Permits .
Intergovernmental Revenue . . . . . . . . . . .
Miscellaneous Revenue
Total . . . . . . . . . . . .
Highways and Streets . . 1,441,400
Sanitation . . . . . . . . . . .
.
332,000
Health . . . . . . . . . . . . . .
350,000
Welfare . . . . . . . . . . . . .
$11,097,600 Culture and Recreation .
800,000
591,400
724,100
374,300
917,300
Capital Outlay . . . . . . . .
Total . . . . . . . . . . . . .
492,800
$9,215,100
e. Prepare in good form a Balance Sheet for the General Fund as of the end of fiscal year,
December 31, 2015.
4–C. Part 2. Special Revenue Fund Transactions
Required:
a. Record journal entries for the following transactions for FY 2015 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 $1,072,000 will be available for street and
highway maintenance during 2015 (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 $985,000 was received from the state government.
(3) Contracts, all eligible for payment from the Street and Highway Fund, were signed in the
amount of $1,062,000.
(4) Contractual services (see transaction 3) were received; the related contracts amounted to
$1,043,000. Invoices amounting to $1,030,500 for these items were approved for payment. The
goods and services all were for street and highway maintenance.
(5) Investment revenue of $5,120 was earned and received.
(6) Accounts payable were paid in the amount of $923,000.
(7) All required legal steps were accomplished to increase appropriations in the amount of
$4,500.
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, 2015.
d. Prepare a Balance Sheet for the Street and Highway Fund as of December 31, 2015. Assume
any unexpended net resources are classified as Restricted Fund Balance.
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 $1,320,000 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, 2015, the total face amount of bonds bearing an interest rate of 8 percent was
sold at a $200,000 premium. Principal amounts of $200,000 each will come due annually over a
20-year period commencing January 1, 2016. Interest payment dates are July 1 and January 1.
The first interest payment will be July 1, 2015. 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 $116,000. This
amount had not been encumbered.
(4) Architects were engaged at a fee of $250,000.
(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 $150,000to 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 $4,500,000 was
accepted, and a contract was signed.
(8) The contractor required partial payment of $1,350,000. 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 $439,500.
(11) Payment was made to the contractor for the amount payable (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 approved for
payment and then paid.
(13)The furniture and equipment were received at a total actual installed cost of $439,300.
Invoices were approved for payment.
(14) The remainder of the architects’ fees was approved for payment.
(15) The City Jail Construction Fund paid all outstanding accounts payables ($ 489,300) on
December 31, 2015.
(16) The remaining cash was transferred to the City Jail Debt Service Fund.
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, 2014,
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, 2015, 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 2014 in order to be able to
pay bond principal and interest due on January 1, 2015.) 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.
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, 2015 (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) $ 200,000 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, 2015. 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, 2015. Include
the same funds as listed in requirement a plus the City Jail Construction Fund.
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, 2015:
Debits
Credits
Cash
$31,000
Due from other funds
27,000
Inventory of supplies
27,500
Land
18,000
Buildings
84,000
Accumulated depreciation—buildings $33,000
Equipment
46,000
Accumulated depreciation—equipment 25,000
Accounts payable
19,000
Advance from water utility fund
30,000
Net assets
126,500
Totals
$233,500 $233,500
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 2015. 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, 2015, was collected in full.
(3) During the year, supplies were ordered and received in the amount of $303,500. This
amount was posted to accounts payable.
(4) $15,000 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, $15,000; Warehousing, $16,000; Delivery, $17,500; and
Administrative, $9,200.
(7) Cash was received from the General Fund in the amount of $310,000 and from the
Water Utility Fund in the amount of $50,000.
(8) Accounts payable were paid in the amount of $355,700.
(9) Depreciation in the amount of $11,000 was recorded for buildings and $4,600 for
equipment.
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 Assets. Compute the
balance in the net asset accounts, assuming there are no Restricted Net Assets.
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, 2015, the City of Monroe Water and Sewer Fund had the
followin …
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