Revenue Accounting-Governmental Funds: Answers To Questions Question 5-1

CHAPTER 5
REVENUE ACCOUNTINGGOVERNMENTAL FUNDS

ANSWERS TO QUESTIONS
Question 5-1
The term "available" means the revenue item is both
1.
earned by year end and/or legally available to finance current period expenditures, that is,
not restricted for use in the following year(s), and
2. collected within the current year or soon enough thereafter (not more than 60 days) to be
used to pay the liabilities incurred for current year expenditures.
If a revenue item that is objectively measurable meets the "available" criterion, it is
recognized as "revenue"; if not, it is recorded as "deferred revenue" until it becomes
"available."
Question 5-2
"Objectively measurable" means "reasonably estimable" and relates to the ability of the accountant
to estimate (prior to collection) the amount that ultimately will be collected. Property taxes and
other billed revenues, such as for charges for services, usually are reasonably estimable prior to
collection, as are interest earnings, and thus are considered "objectively measurable." But many
revenues of governments are difficult to estimate prior to collection and do not meet the
"objectively measurable" criterion of revenue recognition.
Question 5-3
The term "deferred revenues"as used in governmental fund accountingrefers to the
nonrecognition of revenue items as revenue currently because they are (1) legally restricted to
financing future year expenditures, such as taxes levied for next year that are collected or must be
recorded as receivables currently; (2) unearned, as in the case of expenditure-driven grants,
though grant cash has been received; or (3) not "available," that is, the related financial resources
are not expected to be collected during the fiscal year or soon enough thereafter (within not more
than 60 days) to be used to pay the liabilities incurred for current year expenditures. When these
revenue items meet the revenue recognition criteria, they are reported as revenues and the
deferred revenues accounts are reduced accordingly.
2011 Pearson Education, Inc. publishing as Prentice Hall

94
Question 5-4
When using the cash basis of revenue recognition, revenue is recognized when cash is received.
Modified accrual accounting is accrual accounting for net expendable current financial resources
and changes therein. When using the modified accrual basis of revenue recognition, revenue is
recognized when it is collected in the current period or soon enough thereafter (usually not more
than 60 days into the new fiscal year) to pay liabilities of the current period. On the other hand,
when using the accrual basis of recognizing revenue under the flow of economic resources
measurement focus, revenue is recognized when earned (net economic resources are increased),
regardless of when the cash is received. Since both cash and modified accrual have an element of
cash collection as part of the revenue recognition criterion and both are reporting some measure
of expendable financial resources instead of economic resources, they are similar measurement
focuses and bases of accounting. That would mean that modified accrual is closer to the cash
basis of accounting (near cash basis) than it is to what is commonly referred to as accrual
accountingi.e., accrual accounting for the flow of economic resources.
Question 5-5
a.
Estimated losses on uncollectible taxes receivable should be accounted for as direct

deductions from revenues. Taxes that are uncollectible never provide expendable financial
resources, and thus are not revenues. Further, if they were considered expenditures, it would
be necessary to make appropriations for them. Such a procedure might result in legal and
budgetary complications, and it might not be possible to make such appropriations. Finally,
note that uncollectible amounts never meet the revenue recognition criterion of collected
within not more than 60 days after the end of the fiscal year.
b.
Discounts on taxes should be accounted for as direct deductions from revenues rather than as
expenditures. In most cases discounts are established to encourage early (or prompt)
payment of taxes and only the net receipts should be considered revenue. Further, if
discounts were considered to be expenditures, it would be necessary to make appropriations
for themwhich complicates the budgeting procedure. Finally, as with uncollectible
amounts, discounts granted never meet the revenue recognition criterion of collected within
not more than 60 days after the end of the fiscal year.
Another factor that was an important determinant of this treatment of uncollectibles and discounts is that
from a budgetary perspective uncollectibles and discounts are treated as reductions of estimated revenues.
Even in some fairly recent standards, such as that requiring fair value accounting for investments, the
GASBs treatment of certain amounts as deductions from revenues was based on the normal budgetary
view of those amounts according to the GASBs basis for conclusions.

95
Question 5-6
a.
"Expenditure driven" intergovernmental grants are those where qualifying expenditures must
be incurred by the grantee to "earn" the related grant revenues. These grants are not only
restricted but can be used only for expenditures that comply with extensive guidelines
regarding which expenditures qualify for reimbursement under the grant.
b.
Revenues are recognized when qualifying expenditures are incurred by the grantee. The
amount of revenues recognized depends on the terms of the grantand may be more than,
less than, or equal to the qualifying expenditures incurred.
Question 5-7
The term deferred revenues may be used appropriately to refer to any resource inflows that
ultimately will be recognized as revenues but have not yet met the criteria for revenue recognition.
The inflows may not meet the criteria because they were not collected within the appropriate time
period, because they are not legally available, because they have not been earned, etc.
The term unearned revenues is used by some governments to refer to that subset of deferred
revenues that can not be recognized as revenues because they have not been earned.
Question 5-8
The auditor. The taxes that will not be collected within 60 days are not "available" per GASB
revenue recognition standards and should be reported as "deferred revenues" rather than as
"revenues." The fact that an asset can be the basis for borrowing (e.g., collateral) is not relevant
to the revenue recognition issue. The borrowing provides an additional asset (i.e., cash) but also
creates a corresponding liability (i.e., notes payable). It has nothing to do with when the property
taxes will be collected or with when the related revenue should be recognized.
Question 5-9
a.
Unless the payment in lieu of taxes from the Enterprise Fund is a payment for services (of
that value) rendered by General Fund departments, the payment should be reported as a
Transfer In in the General Fund. It should be reported as a Transfer Out in the
Enterprise Fund.
b.
If the payment were from the county, it should be reported as intergovernmental revenues.
(This again presumes that it is a payment in lieu of taxes, not charges for services rendered.)

96
Question 5-10
GASB Statement No. 31 requires that most types of investments be reported at fair value in both
the balance sheet and the operating statement of investor funds. However, it permits the use of
cost-based methods such as amortized cost or the lower of amortized cost or fair value in two
types of exempt investments:
1.
nonparticipating interest-earning investment contracts, and
2.
money market investments and participating interest-earning investment contracts that

have a remaining maturity when purchased of one year or less.
The propriety of the investment accounting differences in the two counties in this question
depends on both their investment portfolios and their preferences.
1.
A government that invests only in exempt investments may properly use a cost-based
accounting and reporting method (or it may choose to use the fair value method).
2.
A government that invests only in nonexempt investments must follow the fair value
provisions of GASB Statement No. 31.
3.
A government that invests in both exempt and non-exempt investments may choose to
(a) account for its exempt portfolio under a cost-based method and report its nonexempt portfolio using the fair value method, or (b) report all of its investments at fair
value.
SOLUTIONS TO EXERCISES
Exercise 5-1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
e
d
a (The tax was levied for a future period and is not legally usable in the current period.)
a
e $1,841,000 ($1,788,000 + $53,000)
e
c
a
b
b

97
Exercise 5-2
1.
2.
3.
4.
5.
6.
7.
d
b
b
e
e
a
c (To be exempt these investments must have an original maturity when purchased of
less than one year, not a remaining maturity in relation to the reporting period end.)
8. d
9. b
10. d
Exercise 5-3
Aslan County
General Fund
General Journal
#
a.
1.
2.
3a.
3b.
Accounts
Investments............................................................................
Accrued Interest Receivable...................................................
Cash................................................................................
To record purchase of investment.
Dr.
3,060,000
80,000
Cash........................................................................................
Accrued Interest Receivable............................................
RevenuesInterest.........................................................
To record receipt of interest.
120,000
Cash........................................................................................
120,000
Accrued Interest Receivable...................................................

To record accrued interest at year end.
40,000
Investments............................................................................
RevenuesIncrease in Fair Value of Investments..........
To record change in investments' fair value.
5,000
Cr.
3,140,000
80,000
40,000
120,000
40,000
5,000
Note that accrued interest is recognized as revenue even though cash will not be collected until
more than 60 days after year end. The 60-day rule does not apply to investments accounted for
using the fair value method.
b.
Interest income ($40,000 + $120,000 + $40,000).................

Net increase in fair value of investments................................
Investment income..........................................................
98
$200,000
5,000
$205,000
Exercise 5-4 (a)

City of Yonker
Tax Levies for 20X7
General Fund (.01)($88,400,000) .........................................
Library Fund (.0009)($88,400,000) ......................................
Municipal BondsRedemptions
(.002)($88,400,000) .........................................................
Total ......................................................................................
$ 884,000
79,560
176,800
$1,140,360
Exercise 5-4 (b)

City of Yonker
Distribution of Taxes Collected in 20X7 by Funds
20X
7
General Fund
Library Fund
Municipal Bonds
Redemptions
20X
6
Tax
Rate
Percent
of Total
Tax
Rate
Collections
Applicable
This Year
$1.00
.09
77.52
6.98
.
20
$1.29
20X
5
Tax
Rate
Percent
of Total
Tax
Rate
Collections
Applicable
This Year
Tax
Rate
Percent
of Total
Tax
Rate
$ 775,200
69,800
$1.10
.09
80.29
6.57
$ 80,290
6,570
$1.20
.09
82.76
6.21
$ 41,380
3,105
15.50
155,000
13.14
13,140
.16
11.03
5,515
100.00
$1,000,000
.
18
$1.37
100.00
$100,000
$1.45
100.00
$ 50,000
Collections
Applicable
This Year
Exercise 5-5
1.
2.
3.
4.
Investments.....................................................................
Cash.........................................................................
To record purchase of bond investment.
350,000
Cash................................................................................
RevenuesInterest..................................................
To record bond interest revenue collections.
23,000
Investments.....................................................................
RevenuesIncrease in Fair Value of
Investments...........................................................
To record change in investment fair value.
10,000
Investments.....................................................................
RevenuesInterest..................................................
To record bond interest revenue collections.
23,000

99
350,000
23,000
10,000
23,000
Exercise 5-5 (Continued)

5.
RevenuesDecrease in Fair Value of Investments.........

Investments..............................................................
To record change in investment fair value.
15,000
15,000
Exercise 5-5 (b)

Interest received.....................................................
Net change in fair value of investments.................
Total investment income
20X6
$23,000
10,000
$33,000
20X7
$23,000
(15,000
)
$ 8,000
Exercise 5-6
a.
No, the General Fund entry should have been:

Expenditures ..........................................................................
Allowance for Uncollectible Tax Liens Receivable ...............
Tax Liens Receivable ......................................................
To record retaining land bid in a tax sale.
Expenditures Ledger (Expenditures):
Capital Outlay ........................................................................
12,000
3,000
15,000
12,000
Also, the land should be recorded in the General Capital Assets and General Long-Term Liabilities
accounts at $12,000, the lower of its fair market value and the "cost" of the Tax Liens Receivable
relinquished.
b.
If the land could be sold for $18,000, the transaction should be recorded at $15,000, the
lower of its fair market value and the related receivable. Thus, the General Fund entry would
be:
Expenditures ..........................................................................
Tax Liens Receivable ......................................................
To record retaining land bid in a tax sale.
Expenditures Ledger (Expenditures):
Capital Outlay ........................................................................
15,000
15,000
15,000
In this case, there is not a write-off of tax liens receivable. The receivable has been fully satisfied.
Also, the land would be capitalized at $15,000 in the General Capital Assets and General LongTerm Liabilities accounts.

100
Exercise 5-7
1.
Taxes ReceivableCurrent.............................................
Allowance for Uncollectible Current Taxes.............
Allowance for Discounts on Taxes...........................
Revenues..................................................................
Deferred Revenues...................................................
To record tax levy.
12,000,000
80,000
180,000
10,204,000
1,536,000
Computations:
Discounts$12,000,000 x .75 x.98 = $180,000
Revenues:
Expected collections in discount period ($12,000,000 x .75 x.98)
Expected collections after discount period and before year end
Collections in first 60 days of 20X7:
($12,000,000 - 9,000,000- $1,000,000 -$80,000) x 2/10
Total property tax revenues.....................................
2a.
Cash ($9,100,000 x .98)..................................................

Allowance for Discounts on Taxes..................................
Revenues.........................................................................
Taxes ReceivableCurrent......................................
To record tax collections in the discount period.
$ 8,820,000
1,000,000
384,000
$10,204,000
8,918,000
180,000
2,000
9,100,000
Note that when actual discounts are more (or less) than the estimated amount this difference
results in decreasing (or increasing) revenues. This adjustment makes revenues equal to the
amount that would have been recorded initially had the estimate proved correct.
2b.
3.
4.
Taxes ReceivableDelinquent........................................
Allowance for Uncollectible Current Taxes....................
Taxes ReceivableCurrent......................................
Allowance for Uncollectible
Delinquent Taxes...................................................
To reclassify past due taxes as delinquent.
2,900,000
80,000
Allowance for Uncollectible Delinquent Taxes...............

Taxes ReceivableDelinquent................................
To record write-off of taxes as uncollectible.
30,000
Cash................................................................................
Taxes ReceivableDelinquent................................
To record tax collections.
900,000

101
2,900,000
80,000
30,000
900,000
Exercise 5-8
Year End
Operating
Balance
Statement
Sheet
Taxes
Deferred
Tax
Case Receivable Revenues Revenues
A
20X5
20X5
20X6
B
20X5
20X5
C
20X5
20X5
20X6
D
*
20X5
20X6
E
20X6
20X6
F
20X6
20X6
20X7
*Cash was collected during 20X5, therefore
there is not a receivable for this amount.
Exercise 5-9
1. No entry required. Nothing has been paid or is owed at this time.
2. Expenditures...................................................................
Cash.........................................................................
To record payment of grants.
3,000,000
3. Expenditures...................................................................
Cash.........................................................................
To record payment of salaries to employees.
125,000
4. Due from State................................................................

Revenues..................................................................
To record billing state grantor for qualifying expenditures.
3,000,000
125,000
3,125,000
3,125,000
Note that revenues are recognized because collection is expected within 45 days. If cash were not
expected to be received from the state before the end of the revenue cutoff period, deferred
revenues would be recorded and reported.

102
SOLUTIONS TO PROBLEMS
Problem 5-1 (a)
City of Asher
General Fund
General Journal
#
1.
General Ledger
Dr.
Cr.
Accounts
Budgetary Entry
Estimated Revenues ..............................................................
Unreserved Fund Balance ..............................................
To record estimated revenues.
Revenues Ledger (Estimated Revenues):
Property Taxes .......................................................................
Parking Meters ......................................................................
Business Licenses ..................................................................
Amusement Licenses .............................................................
Charges for Services ..............................................................
Other Revenues .....................................................................
2.
Taxes ReceivableCurrent ...................................................

Allowance for Uncollectible Current Taxes ...................
Revenues ........................................................................
To record property tax levy.
210,000
210,000
150,000
5,000
30,000
10,000
8,000
7,000
210,000
152,000
2,000
150,000
Revenues Ledger (Revenues):

Property Taxes .......................................................................
3.
Budgetary Entry
Estimated Revenues. ......................................................
To record budget revisions.

103
150,000
2,000
2,000
2,000
2,000
Problem 5-1 (a) (continued)

4.
Cash........................................................................................
Taxes ReceivableCurrent ............................................
Revenues ........................................................................
To record taxes and other revenues collected.
202,000
140,000
62,000

Parking Meters ......................................................................
Other Revenues .....................................................................
5.
6.
5,500
28,000
9,500
9,000
10,000
62,000
Cash ...........................................................................
Transfer from Capital Projects Fund...................
To record transfer from Capital Projects Fund.
4,800
Cash ...........................................................................
Transfer from Enterprise Fund............................
To record transfer from Enterprise Fund.
5,000
4,800
5,000
Problem 5-1 (b)

Revenues Subsidiary Ledger (Not Required)
Accounts
Property Taxes............................................................
Parking Meters...........................................................
Business Licenses.......................................................
Amusement Licenses..................................................
Charges for Services...................................................
Other Revenues..........................................................
Dr.
Cr.
150,000 (1)
5,000 (1)
30,000 (1)
(2,000)(3)
10,000 (1)
2,000 (3)
8,000 (1)
7,000 (1)
150,000(2)
5,500(4)

104
Balance
Dr. (Cr.)
(500)
28,000(4)
9,500(4)
2,500
9,000(4)
10,000(4)
(1,000)
(3,000)
(2,000)
Problem 5-1 (b) (continued)

City of Asher
General Fund
Trial BalanceRevenues Subsidiary Ledger
At 20X7 Year End
Dr.
Property Taxes ...................................................................................
Parking Meters ..................................................................................
Business Licenses ..............................................................................
Amusement Licenses .........................................................................
Charges for Services ..........................................................................
Other Revenues .................................................................................
Cr.
2,500
2,500
Proof from General Ledger:

Revenues
Estimated Revenues
500
1,000
3,000
4,500
(2,500)
2,000
$212,000
210,000
$ 2,000
Problem 5-1 (c)

#
C1.
General Ledger
Dr.
Cr.
Accounts
General Ledger
Revenues ...............................................................................
Unreserved Fund Balance ..............................................
Estimated Revenues .......................................................
To close revenue-related accounts.
Parking Meters ......................................................................
Other Revenues .....................................................................
212,000
2,000
210,000
500
2,500
1,000
3,000
4,500

105
2,500
Problem 5-2 (a) [Note: Parts b and d follow Part C]

1.
Budgetary Entry
Unreserved Fund Balance...............................................
To record estimated revenues.
Taxes .....................................................................................
Interest and Penalties .............................................................
Fines and Fees .......................................................................
Permits ..................................................................................
Animal Licenses ....................................................................
Rents .....................................................................................
Other Licenses .......................................................................
Interest ..................................................................................
2.
Cash .......................................................................................
Revenues ........................................................................
To record receipts during the month of January.
183,900
183,900
175,000
2,000
700
300
900
500
3,500
1,000
183,900
94,035
94,035

Taxes .....................................................................................
Fines and Fees .......................................................................
Permits ..................................................................................
Animal Licenses ....................................................................
Rents .....................................................................................
Other Licenses .......................................................................
3.
Cash .......................................................................................
Revenues ........................................................................
To record receipts of an unanticipated grant-in-aid.
90,000
1,000
50
140
800
45
2,000
94,035
5,000
5,000

State Grant-in-Aid .................................................................
4.
Cash .......................................................................................
Revenues ........................................................................
To record collections for months of February to
December, 20X5.

106
5,000
72,955
72,955
Problem 5-2 (a) (continued)

Taxes .....................................................................................
Fines and Fees .......................................................................
Permits ..................................................................................
Animal Licenses ....................................................................
Rents .....................................................................................
Other Licenses .......................................................................
Interest ..................................................................................
5.
Accrued Taxes Receivable .....................................................

Accrued Interest and Penalties Receivable ............................
Accrued Rent Receivable ......................................................
Accrued Interest Receivable ..................................................
Revenues ........................................................................
Deferred Revenues .........................................................
To record accrued revenues at year end.
70,000
800
400
30
70
455
300
900
72,955
20,000
300
10
50
10,210
10,150

Taxes .....................................................................................
Rents .....................................................................................
Interest ..................................................................................
10,000
150
10
50
10,210
Problem 5-2 (c)

6.
General Ledger
Revenues ...............................................................................
Unreserved Fund Balance ......................................................
Estimated Revenues .......................................................
To close revenue-related accounts.
Revenues Ledger (Balance):
Taxes .....................................................................................
Fines and Fees .......................................................................
Permits ..................................................................................
Animal Licenses ....................................................................
Rents .....................................................................................
Other Licenses .......................................................................
Interest ..................................................................................
State Grant-in-Aid .................................................................

107
182,200
1,700
183,900
5,000
50
250
130
30
10
1,200
50
5,000
5,010
6,710
Problem 5-2 (c) (continued)

General Ledger Comparison:
Revenues ....................................
Estimated Revenues ...................
Proof:
$182,200
183,900
($ 1,700)
$ 5,010
- 6,710
($ 1,700)
Problem 5-2 (b) and (d)

General Ledger Accounts
Estimated Revenues
(1) 183,900
183,900 (6)
Unreserved Fund Balance

183,900 (1)
(6)
1,700
182,200
Revenues
94,035
5,000
72,955
10,210
(6) 182,200 182,200
(2)
(3)
(4)
(5)
Cash
94,035
(2)
(3)
5,000
(4) 72,955
171,99
0
Accrued Taxes Receivable

(5) 20,000
Accrued Interest and

Penalties Receivable
(5)
300
Accrued Rents Receivable

(5)
10
Accrued Interest Receivable

(5)
50
Deferred Revenues
10,150 (5)

108
Problem 5-2 (b and d) (continued)

Grader Note: Complete ledger accounts are presented here for purposes of illustration. The problem
requirements may be met by a worksheet listing of the accounts (down the page) and the Date, Debit,
Credit, and Balance columns (across the page).
Revenues Subsidiary Ledger Accounts
CITY OF MARCELLE
Revenues Ledger
Account Name: Taxes
Date
20X5
Jan. l
31
Dec. 31
31
31
Reference
Folio
Budget Estimate
Collections for Month
Collections for Eleven Months
Accrual
Closing Entry
1
2
4
5
6
Debit
Credit
Balance
175,000
90,000
70,000
10,000
5,000
175,000
85,000
15,000
5,000
CITY OF MARCELLE
Revenues Ledger
Account Name: Interest and Penalties
Date
20X5
Jan. l
31
Dec. 31
31
31
Reference
Folio
Budget Estimate
Accrual
Closing Entry
1
2
4
5
6
Debit
Credit
Balance
2,000
2,000
1,000
200
50
1,000
800
150
50
CITY OF MARCELLE
Revenues Ledger
Account Name: Fines and Fees
Date
20X5
Jan. l
31
Dec. 31
31
Reference
Folio
Budget Estimate
Closing Entry
1
2
4
6
Debit
Credit
Balance
700

109
50
400
250
700
650
250

CITY OF MARCELLE
Revenues Ledger
Account Name: Permits
Date
20X5
Jan. l
31
Dec. 31
31
Reference
Folio
Budget Estimate
Closing Entry
1
2
4
6
Debit
Credit
Balance
300
300
160
130
140
30
130
CITY OF MARCELLE
Revenues Ledger
Account Name: Animal Licenses
Date
20X5
Jan. l
31
Dec. 31
31
Reference
Folio
Budget Estimate
Closing Entry
1
2
4
6
Debit
Credit
Balance
900
900
100
30
800
70
30
CITY OF MARCELLE
Revenues Ledger
Account Name: Rents
Date
20X5
Jan. l
31
Dec. 31
31
31
Reference
Folio
Budget Estimate
Accrual
Closing Entry
1
2
4
5
6
Debit
Credit
Balance
500
45
455
10
10

110
500
455
(10)

CITY OF MARCELLE
Revenues Ledger
Account Name: Other Licenses
Date
20X5
Jan. l
31
Dec. 31
31
Reference
Folio
Budget Estimate
Closing Entry
1
2
4
6
Debit
Credit
Balance
3,500
3,500
1,500
1,200
2,000
300
1,200
CITY OF MARCELLE
Revenues Ledger
Account Name: Interest
Date
Reference
20X5
Jan. l Budget Estimate
Dec. 31 Collections for Year Accrual
31 Accrual
Closing Entry
Folio
Debit
1
4
5
6
Credit
Balance
1,000
1,000
100
50
900
50
50
CITY OF MARCELLE
Revenues Ledger
Account Name: Intergovernmental
Date
20X5
Feb.
1
Dec. 31
Reference
Receipts from State
Closing Entry
Folio
3
6
Debit
Credit
5,000
5,000

111
Balance
(5,000)
Problem 5-2 (e)

City of Marcelle
General Fund
Statement of RevenuesEstimated and Actual
For the Year Ended December 31, 20X5
Estimated
Revenues
Taxes ...............................................................................
Interest and Penalties .......................................................
Fines and Fees ..................................................................
Permits .............................................................................
Animal Licenses ...............................................................
Rents ................................................................................
Other Licenses .................................................................
Interest .............................................................................
State Grant-In-Aid ...........................................................
$l75,000
2,000
700
300
900
500
3,500
1,000
$183,900
Actual
Revenues
$l70,000
1,950
450
170
870
510
2,300
950
5,000
$182,200
Variance
Favorable
(Unfavorable)
($5,000)
(50)
(250)
(130)
(30)
10
(1,200)
(50)
5,000
($1,700)
Problem 5-3 (a)

Item
Recommendation
20X4
Revenues
Reasons
Property Taxes:
1. a. Revenue
$800,000
b. 20X5 Revenue
Not legally available in 20X4; levied in 20X4 for

20X5; available (collected) in 20X5.
c. 20X3 Revenue
Levied for 20X3 and collected soon enough in

20X4 to be available in 20X3
d. Revenue
137,000
Levied for 20X4; collected early in 20X5.
e. 20X5 Revenue
Levied for 20X5; collected in advance.

legally available in 20X4.
f. Deferred Revenue
Legally available for 20X4 but not collected

before revenue recognition cut-off date.

112
Not
Problem 5-3 (Continued)

Item
Recommendation
20X4
Revenues
Reasons
Bond Issue Proceeds:

2.
Other Financing Sources

Bonds
Not revenue, but nonrevenue (other) financing

source.
Sales Taxes:
3. a. Revenue
42,000
Measurable and available in 20X4.
b. Revenue
7,400
Not 20X3 revenue as collected in mid-20X4;

therefore 20X4 revenue.
c. Revenue
6,200
Filed in 20X4 and collected early in 20X5.
Note Proceeds:
4.
Notes Payable
Not revenue, but current liability.
Grant:
5. a. Deferred Revenue
b. Revenue
Restricted grant proceeds not revenues until

qualifying expenditures made. (See b.)
172,000
Qualifying expenditures made.

deferred revenues from a.)
(This reduces
Special Revenue Fund Payment:

6.
Transfer In
Not revenue, nonrevenue financing source.
Interest and Penalties:

7. a Revenue
2,200
Available and measurable in 20X4.
b. Revenue
7,800
Available and measurable in 20X4.
c. Revenue
3,400
Related to 20X4 and collected early in 20X5.
d. Deferred Revenue
Not available in 20X4.
Problem 5-3 (b)

Total Revenue
$1,178,000

113
Problem 5-4
Situation A:
1.
Cash........................................................................................
Deferred Revenues..........................................................
To record receipt of grant.
2.
3.
4.
5.
3.
4.
5.
5,000,000
Expenditures...........................................................................
Vouchers Payable............................................................
To record purchase of computers and software.
75,000
Expenditures...........................................................................
Cash................................................................................
To record payroll.
112,000
Expenditures...........................................................................
To record purchase of materials.
1,420,000
Deferred Revenues.................................................................
Revenues ($75,000 + $112,000 + $1,420,000)...............
To record grant revenues equal to qualifying expenditures.
1,607,000
Situation B:
1.
Cash........................................................................................
Due to General Fund.......................................................
To record receipt of short-term interfund loan proceeds.
2.
5,000,000
75,000
112,000
1,420,000
1,607,000
1,700,000
1,700,000
Expenditures...........................................................................
To record purchase of computers and software.
75,000
Expenditures...........................................................................
Cash................................................................................
To record payroll.
112,000
Expenditures...........................................................................
To record purchase of materials.
1,420,000
75,000
112,000
Cash
.................................................................................1,300,000
Revenues ($75,000 + $112,000 + $1,420,000)...............
To record receipt of grant proceeds.

114
1,420,000
1,300,000
Problem 5-4 Situation B (continued)

6.
Due from Federal Government

($1,607,000 - $1,300,000)...........................................
Deferred Grant Revenues................................................
Revenues.........................................................................
To accrue grant revenues and receivables from grantor.
307,000
30,000
277,000
Problem 5-5
Stem Independent School District
Special Revenue Fund
General Journal
Ref
1a.
1b.
2.
Accounts
Dr.
Revenues ..............................................................
Correction of Prior Year Error ......................
To correct error in recording prior year
equipment sale.
20,000
Correction of Prior Year Error .............................

Deferred Revenues (or Revenues) .................
To correct error in recording prior year
property tax revenues.
150,000
Deferred Revenues ...............................................

Prior Period Adjustment--Change in
Accounting Principle ...............................
Revenues .......................................................
To record change in accounting principle
for state minimum assistance grants.
300,000
Computation:
Total effect ($400,000-$100,000).............. = $300,000
Cumulative effect through end of
20X3 ($300,000-$75,000) ...................... = 225,000
20X4 effect ............................................... = $ 75,000

115
Cr.
20,000
150,000
225,000
75,000
Problem 5-5 (continued)

Ref
3a.
Accounts
Due from General Fund ........................................
Expenditures ..................................................
To record reimbursement for expenditures
properly chargeable to the General Fund.
Dr.
Cr.
8,000
8,000
3b.
Due from Federal Government .............................

130,000
Correction of Prior Year Errors .....................
130,000
To correct failure to record receivable and
20X3 federal grant revenues.
(Assumes available criterion met in 20X3. Otherwise, the credit should be to
Deferred Revenues.)
3c.
Revenues ..................................................
Transfer from General Fund ..........................
To correct error in recording operating
transfer.
85,000
Revenues - Other...................................................
Revenues - Interest.........................................
To properly classify interest revenues.
15,000
Expenditures .........................................................
Revenues .......................................................
To correct recording of federal payments
in lieu of taxes.
50,000
Revenues ..............................................................
Deferred Revenues ........................................
To defer unearned revenues.
200,000
Due from State .....................................................

Revenues .......................................................
To accrue sales tax revenues.
300,000
3d.
3e.
4a.
4b.

116
85,000
15,000
50,000
200,000
300,000
Problem 5-6 (1a)Specific Identification Method
Investment
A
B
C
D
E
Beginning
Fair Value
7/1/X3
Cost of
Purchases
Sale
Proceeds
Balance
Ending
Fair
Value
6/30/X4
10,000
5,000
20,000
35,000
20,000
13,000
43,000
76,000
7,000
19,000
26,000
3,000
25,000
1,000
13,000
43,000
85,000
4,000
29,000
15,000
40,000
88,000
Change
in
Fair
Value
1,000
4,000
(1,000)
2,000
(3,000)
3,000
Problem 5-6 (1b)Aggregate Method

Ending Fair Value of Investments at 6/30/X4 ....................................................
Add: Fiscal Year X3-X4 Investment Sale Proceeds ............................................
Less: Cost of Fiscal Year X3-X4 Investment Purchases .....................................
Less: Fair Value of Investments at 7/1/X3 .........................................................
Changes in Fair Value of Investments ................................................................
$88,000
26,000
(76,000)
(35,000)
$ 3,000
Problem 5-6 (2)General Fund Journal Entry

Investments ...............................................................................................
Investment IncomeNet Increase in the Fair
Value of Investments ......................................................................
To record the net change in the fair value of the investment portfolio.
3,000
3,000
Problem 5-7
Summary reports on this research and analysis problem should be evaluated in terms of the
specific requirements. The depth of analysis and understanding should be apparentparticularly
if several reports are evaluated concurrently.
SOLUTIONS TO CASES
117
Case 5-1 (a)

Ref
Accounts
1. Cash
Dr.
$21,000,000
Investments....................................................
Interest Receivable.........................................
Revenues........................................................
To record sale of investments and receipt of
interest.
$20,000,000
71,000
929,000
Revenues Ledger (Revenues)

Investment Income (Interest)................................
2. Investments......................................................................
Cash................................................................
To record purchase of investments.
3. Cash
929,000
98,978,000
98,978,000
19,157,000
Revenues........................................................
To record receipt of interest.
19,157,000

$19,157,000
4. Interest Receivable...........................................................
Revenues........................................................
To record accrual of interest earned.
129,000
129,000

5. Revenues ........................................................................6,337,000
Investments....................................................
To record change in fair value of investments.
Investment Income (Decrease in Fair Value).........
Cr.
129,000
6,337,000
$ 6,337,000
Not Required:
The income reported for the City of Phoenix for the fiscal year will be:
Interest........................................................... $20,215,000
Less: Decrease in investments fair value........
(6,337,000)
Total investment income............................ $13,878,000
Case 5-1 (b) Because the investment income is not committed or assigned, it will increase
unassigned fund balance.
Case 5-2 (Part a) (An alternative journal entry sequence for this problem is presented on
the following page.)
118
Ref
1a.
1b.
Accounts
Cash.......................................................................
Property Taxes Receivable.............................
To record collection of 20X4-20X5 receivables
collected in the first 60 days of FY 20X6 and
collection of 20X5-20X6 receivables.
Dr.
3,800,000
Deferred Revenues................................................
Revenues........................................................
To record tax revenues for the current fiscal year.
2,407,407
Cr.
3,800,000
2,407,407
Note to the Instructor:....................................................................... Notice that the difference

between the net receivable at June 30, 20X5, and the deferred revenue at that date is the amount
of fiscal year 20X5 taxes collected in the first 60 days of fiscal year 20X6 (i.e., $1,392,593).
2a.
2b.
3a.
4.
4b.
4c.
Cash.......................................................................
To record collection of current year taxes.
$36,000,000
Revenues........................................................
36,000,000
Property Taxes Receivable.....................................

Allowance for Uncollectible Taxes.................
Deferred Revenues.........................................
To record tax levy for fiscal year 20X6-20X7.
53,000,000
Cash.......................................................................
and 20X6-20X7 taxes collected in advance.
6,800,000
Revenues........................................................
5,000,000
$36,000,000
36,000,000
2,000,000
51,000,000
6,800,000
1,500,000
Revenues........................................................
To record tax revenues for the current fiscal year
for current year taxes to be collected in the first 60 days of
the next fiscal year.

119
5,000,000
1,500,000
Case 5-2
Part a.
Ref
1a.
1b.
Accounts
Dr.
Revenues........................................................
To reverse the deferral of current year revenues
recorded when levy was made in March 20X5.
$47,622,447
Cash.......................................................................
collected in the first 60 days of FY 20X6 and
collection of 20X5-20X6 receivables.
3,800,000
Cr.
$47,622,447
3,800,000
Note to the Instructor:....................................................................... Notice that the difference

between the net receivable at June 30, 20X5, and the deferred revenue at that date is the amount
of fiscal 20X5 taxes collected in the first 60 days of fiscal 20X6 (i.e., $1,392,593).
2.
3.
4.
Cash.......................................................................
To record collection of current year taxes.
$36,000,000
Property Taxes Receivable.....................................

Allowance for Uncollectible Taxes.................
To record tax levy for fiscal year 20X6-20X7.
53,000,000
Cash.......................................................................
and 20X6-20X7 taxes collected in advance.
6,800,000
Revenues...............................................................
To record deferral of fiscal year 20X5-20X6 taxes
not collected in current year and not expected to
be collected in first 60 days of fiscal year 20X620X7.
($47,622,447 - $2,407,407 - $36,000,000
$5,000,000 - $1,500,000)
2,715,040
$36,000,000

120
2,000,000
51,000,000
6,800,000
2,715,040
Case 5-2 (continued)

Part b
Tax Revenues for Fiscal Year 20X5-20X6:

Taxes collected in first 60 days (see entry 1c)....... $ 2,407,407
Taxes collected between August and March
(see entry 2).................................................... 36,000,000
Taxes collected between March and June
(see entry 4)....................................................
5,000,000
Taxes expected to be collected in first 60 days of
fiscal year 20X6-20X7...................................
1,500,000
Tax Revenues for Fiscal Year 20X5-20X6............ $44,907,407
Part c
Deferred Revenues at June 30, 20X6:

Deferred from fiscal year 20X6-20X7 levy
(see entry 3).................................................... $51,000,000
Fiscal year 20X5-20X6 taxes not expected to be
collected in first 60 days of fiscal year
20X6-20X7 (see entry 4)...............................
2,715,040
Deferred Revenues at June 30, 20X6.................... $53,715,040

121

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CHAPTER 5

REVENUE ACCOUNTINGGOVERNMENTAL FUNDS

2011 Pearson Education, Inc. publishing as Prentice Hall

Estimated losses on uncollectible taxes receivable should be accounted for as direct

2011 Pearson Education, Inc. publishing as Prentice Hall

2011 Pearson Education, Inc. publishing as Prentice Hall

nonparticipating interest-earning investment contracts, and

money market investments and participating interest-earning investment contracts that

2011 Pearson Education, Inc. publishing as Prentice Hall

Accrued Interest Receivable...................................................

Interest income ($40,000 + $120,000 + $40,000).................

Exercise 5-4 (a)

Exercise 5-4 (b)

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Exercise 5-5 (Continued)

RevenuesDecrease in Fair Value of Investments.........

Exercise 5-5 (b)

No, the General Fund entry should have been:

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Cash ($9,100,000 x .98)..................................................

Allowance for Uncollectible Delinquent Taxes...............

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4. Due from State................................................................

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Taxes ReceivableCurrent ...................................................

Revenues Ledger (Revenues):

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Problem 5-1 (a) (continued)

Revenues Ledger (Revenues):

Problem 5-1 (b)

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Problem 5-1 (b) (continued)

Proof from General Ledger:

Problem 5-1 (c)

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Problem 5-2 (a) [Note: Parts b and d follow Part C]

Revenues Ledger (Revenues):

Revenues Ledger (Revenues):

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Problem 5-2 (a) (continued)

Accrued Taxes Receivable .....................................................

Revenues Ledger (Revenues):

Problem 5-2 (c)

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Problem 5-2 (c) (continued)

Problem 5-2 (b) and (d)

Unreserved Fund Balance

Accrued Taxes Receivable

Accrued Interest and

Accrued Rents Receivable

Accrued Interest Receivable

2011 Pearson Education, Inc. publishing as Prentice Hall

Problem 5-2 (b and d) (continued)

2011 Pearson Education, Inc. publishing as Prentice Hall

Problem 5-2 (b and d) (continued)

2011 Pearson Education, Inc. publishing as Prentice Hall

Problem 5-2 (b and d) (continued)

2011 Pearson Education, Inc. publishing as Prentice Hall

Problem 5-2 (e)

Problem 5-3 (a)

Not legally available in 20X4; levied in 20X4 for

Levied for 20X3 and collected soon enough in

Levied for 20X4; collected early in 20X5.