Chapter 3: Budgetary Considerations in Governmental Accounting
Multiple Choice
1. When the chief executive of a governmental unit submits a “balanced budget” to
the legislative body, it usually means that:
a. the budget is balanced on the full accrual basis of accounting
b. the budget is balanced in accordance with generally accepted accounting principles
c. proposed expenditures do not exceed estimated monies available for the year
d. proposed expenditures do not exceed estimated tax revenues to be raised
during the year
2. Which statement most accurately describes the use of cash forecasts in
government?
a. cash forecasts are not needed because legislatively-approved budgets are
sufficient to manage the use of governmental resources
b. cash forecasts are needed to plan for borrowing and investing because the
timing of cash inflows does not necessarily match the timing of cash
outflows
c. cash forecasts are not needed because they do not require the approval of
legislative bodies
d. cash forecasts are needed because they provide the details necessary to
support certain approaches to budgeting like performance budgeting
3. Which of the following approaches to budgeting is most likely to contain the
details of salaries (such as number of personnel within each position) as well as
the details of each type of expenditure other than salaries (such as supplies and
travel)?
a. object-of-expenditure approach
b. performance approach
c. planning-programming-budgeting approach
d. zero-based budgeting approach
4. Which type of budget is concerned with day-to-day spending and financing
activities?
a. general budget
b. operating budget
c. capital budget
d. balanced budget
5. Which of the following approaches to budgeting requires each activity to be
justified each year?
a. object-of-expenditure approach
b. performance approach
c. planning-programming-budgeting approach
d. zero-based budgeting approach
6. Which of the following is expected to occur first in the budget process?
a. determine the property tax (millage) rate
b. hold public hearings on the budget
c. prepare revenue estimates
d. prepare departmental expenditure requests
7. Which of the following activities occurs closest to the completion of the
budgetary process?
a. preparing revenue estimates
b. holding public budget hearings
c. preparing the capital outlay request summary
d. revising the budget calendar
8. Which of the following factors is the most important consideration in estimating
sales tax collections for the year?
a. the projected volume of sales subject to the sales tax
b. the projected elementary school enrollment
c. the projected number of housing starts
d. the amount expected to be budgeted on the highway maintenance program
9. When preparing a fund budget for the next fiscal year, which of the following are
important to consider when projecting the amount of resources that will be
available for spending in the next year?
a. the projected fund expenditures for next year
b. the probable fund balance at the end of the current year
c. the projected transfers out of the fund for the next year
d. the projected fund revenues to be realized for the next year
e. both b and d
10. If a City Manager is looking at the cash forecast, he or she is most likely
concerned about which of the following issues?
a. anticipated police overtime pay resulting from the 4th of July parade next summer
b. the expected cost of bridge repairs in the coming five years
c. anticipated short-term borrowing to cover the end of month payroll
d. the total amount to be spent for Fire Department operations in the current year
11. Which of the following classifications will not appear in the annual budget for a
General Fund?
a. depreciation
b. capital outlay
c. debt service
d. current operating
12. The document that lists the steps of the budget process is the
a. budget request
b. budget summary
c. budget calendar
d. budget worksheet
13. For a typical city government, the budget has an important influence on the
determination of the annual
a. income tax rate
b. hotel/motel tax rate
c. sales tax rate
d. property tax rate
14. The largest revenue source in a city government’s General Fund normally is
a. fines and forfeits
b. property taxes
c. interest on investments
d. charges for building inspections
15. Which of the following is an estimated amount?
a. encumbrance
b. appropriation
c. expenditure
d. tax levy
16. If the balance in the Estimated revenues account exceeds the balance in the
Appropriations account
a. the Budgetary fund balance account will have a credit balance
b. expenditures will be less than revenues
c. revenues will be less than expenditures
d. the Budgetary fund balance account will have a debit balance
17. A property tax millage rate is calculated by:
a. dividing the required tax levy by the total assessed value of property
b. multiplying the required tax levy by the total assessed value of property
c. dividing the required tax levy by the net assessed value of property
d. multiplying the required tax levy by the net assessed value of property
18. The Governmental Accounting Standards Board requires governments to include
budgetary comparison schedules or statements for which of the following funds?
a. All governmental funds
b. All funds
c. General fund, major special revenue funds, and major capital projects funds
d. General Fund and major special revenue funds
e. none of the above
19. If actual revenues are less than estimated revenues and expenditures are less than
appropriations (by the same amount), at the end of the fiscal year
a. the actual change in fund balance will equal the budgeted change in fund
balance
b. the actual change in fund balance will exceed the budgeted change in fund
balance
c. the actual change in fund balance will be less than the budgeted change in
fund balance
d. actual fund balance will remain unchanged
20. The City of Kent has estimated that it will spend $4,500,000 and have revenues of
$4,800,000 next year. At the beginning of its new fiscal year, it will need to:
a. debit estimated expenditures for $4,500,000
b. debit estimated revenues for $4,800,000
c. debit budgetary fund balance for $300,000
d. debit appropriations for $4,500,000
e. none of the above.
21. The City of Kent’s police department needs a new police car. A police car is
ordered at an estimated cost of $34,000 and the appropriate budgetary control
journal entry is made. When the car is received, the actual cost is $35,000.
Which of the following is a part of the budgetary entry that should be made when
the police car is received?
a. debit encumbrances for $34,000
b. credit encumbrances for $34,000
c. debit encumbrances for $35,000
d. credit encumbrances for $35,000
22. Which of the following classifications represents the lowest legal level of
budgetary control?
a. function/program
b. department
c. object
d. activity
23. Which of the following classifications represents the highest legal level of
budgetary control?
a. fund
b. department
c. object
d. activity
24. The legal level of budgetary control is best described as
a. the maximum amount that can be spent without incurring an unfavorable
variance
b. the classification or subclassification at which expenditures cannot exceed
appropriations
c. the status of the budget officer within the hierarchy of top government
officials
d. the sum of favorable budget variances minus the sum of unfavorable
budget variances
25. Which of the following is not a “character” classification?
a. activity
b. current operating
c. capital outlay
d. debt service
26. The term “line item” refers to which of the following budget/expenditure
classifications?
a. function/program
b. object
c. organizational unit
d. fund
27. Which of the following sequences correctly portrays expenditure account coding
from the highest to lowest level of summarization?
a. program, department, activity, object
b. department, object, activity, program
c. activity, department, object, program
d. object, activity, department, program
Problems
28. (Determination of property tax rate)
The City of Weston is preparing its budget for calendar year 2013. After
estimating revenues from all other sources, the City calculates that it must raise
$7,000,000 from property taxes. You are given the following information
regarding the tax rate:
Property taxes to be collected $7,000,000
Estimated uncollectible property taxes $70,707
Total assessed value of property at beginning of 2013 $65,000,000
Expected reduction in assessed value from appeals $200,000
Assessed value of City property, not subject to tax $1,400,000
Adjustments to assessed values for senior citizen exemptions $1,000,000
Required:
a. Compute the gross amount of property taxes required to be levied.
b. Compute the tax rate per $100 of net assessed valuation.
c. Determine the amount of property tax that a home owner whose
property is assessed at $35,000 will have to pay.
29. (Recording the budget and a budget revision)
The council of the Town of Tulia approved the 2013 budget as follows:
Budgeted 2013 revenues from:
Property taxes $5,000,000
Sales taxes $1,000,000
Appropriations for 2013:
Salaries $4,600,000
Materials $1,200,000
Equipment $100,000
During 2013, the town’s mayor presented the council with a budget revision to
increase the amount of appropriation for salaries by $10,000. The council
approved this budget revision.
Required:
a. Prepare the general journal entry necessary to initially record the budget.
b. Prepare the general journal entry necessary to record the budget revision.
30. (Encumbrance journal entries)
The Town of Suarez had the following transactions.
1. Placed a purchase order in the amount of $12,000 for supplies.
2. Placed a purchase order with a car dealer to replace the town’s only police
car. The expected cost of the car is $32,000.
3. The police car was delivered to town officials with an invoice of $32,500.
The invoice was approved and paid.
4. Unfortunately, some of the supplies ordered (in #1) were backordered and
could not be shipped. However, supplies that were expected to cost $8,000
were received along with an invoice of $7,900. The invoice was paid when
received.
5. The remaining supplies that were ordered (in #1) were received. The invoice
in the amount of $4,000 was paid.
Required:
Prepare the general journal entries necessary to record the budget and operating
transactions 1- 5.
Answer:
31. (Recording budgetary entries and operating general journal entries and posting
detail to subsidiary ledgers)
The Town of Roscoe Ridge is a small residential community. The Town has two
revenue sources, property taxes and charges for service; and two programs,
administration and public safety. The Town’s fiscal year 2013 is as follows:
Town of Roscoe Ridge
General Fund
Operating Budget
Fiscal Year 2013
Estimated Revenues
Property taxes $1,900,000
Charges for services 360,000 $2,260,000
Appropriations
Administration $ 320,000
Public safety 1,800,000 2,120,000
Budgeted Increase in Fund Balance $ 140,000
Operating transactions during the year consist of the following:
1. Placed orders for materials and supplies for:
Administration 316,000
Public safety 1,440,000
2. Collected revenues of:
Property taxes 1,900,000
Charges for services 287,500
3. Received items on order for:
Administration 200,000
Public safety 730,000
4. Paid cash for items received for:
Administration 201,000
Public safety 730,000
5. Received items on order for:
Administration 116,000
Public safety —
6. Paid cash for items received for:
Administration 114,000
Public safety —
7. Collected revenues of:
Property taxes —
Charges for services 81,000
Required:
1. Prepare the general journal entries necessary to record the budget and operating
transactions 1- 7.
2. Post the details of the budgetary entry and the operating entries to the revenues subsidiary
ledger and the appropriations subsidiary ledger, as applicable. Subsidiary ledgers are set
up for your use.
Town of Roscoe Ridge
General Fund / Revenues Ledger
Fiscal Year 2013
Source: Property Taxes
Entry
no.
Item
Estimated Revenue
Dr
Actual Revenue
Cr
Difference
Dr (Cr)
Source: Charges for services
Entry
no.
Item
Estimated Revenue
Dr
Actual Revenue
Cr
Difference
Dr (Cr)
General Fund / Appropriations Ledger
Fiscal Year 2013
Function: Administration
Item
Appropriation
Cr
Encumbrances
Dr Cr
Dr Cr
Expenditures
Dr
Available
Appropriation
Cr
Function: Public Safety
Item
Appropriation
Cr
Encumbrances
Dr Cr
Dr Cr
Expenditures
Dr
Available
Appropriation
Cr
Answers:
Requirement 1
Requirement 2 Town of Roscoe Ridge