Requirement 9c.
Debits Credits
Cash $ 495,959
Taxes Receivable-Delinquent 377,899
Allowance for Uncollectible Delinquent Taxes $ 32,176
Interest and Penalties Receivable on Taxes 43,269
Allowance for Uncollectible Interest and Penalties 3,772
Due from State Government 150,000
Inventory of Supplies 64,420
Land 4,180,000
Infrastructure 12,412,230
Accumulated Depreciation-Infrastructure 2,812,564
Buildings 6,296,000
Accumulated Depreciation-Buildings 1,919,900
Equipment 3,638,710
Accumulated Depreciation-Equipment 2,298,600
Vouchers Payable 211,634
Due to Federal Government 141,194
Due to State Government 41,860
Accrued Interest Payable on Long-Term Debt 25,000
Internal Payables to Business-Type Activities 2,800
Deferred Serial Bonds Payable 2,000,000
Premium on Deferred Serial Bonds Payable 18,686
Net Position-Net Investment in Capital Assets 17,477,190
Net Position-Restricted for Public Safety 36,000
Net Position-Restricted for Capital Projects 9,470
Net Position-Unrestricted 627,641
Totals for all accounts $ 27,658,487 $ 27,658,487
City of Smithville
Governmental Activities, Governmental-Wide level
Post-closing Trial Balance
For year 2020
Program Revenues-Public Safety-Operating Grants and Contrib
445,000
Program Revenues-Health and Welfare-Operating Grants and C
344,000
Program Revenues-Culture and Recreation-Charges for Services
281,391
General Revenues-Taxes-Real Property 1,841,126
Requirement 9c.
Primary Government
Governmental Business-type Component
Assets Activities Activities Total Units (none)
Cash 495,959$ 297,262$ 793,221$
Receivables, net (Note 1) 535,220 146,721 681,941
Inventories 64,420 74,583 139,003
Capital assets, net (Note 2) 19,495,876 2,263,520 21,759,396
Total assets 20,591,475 2,782,086 23,373,561
Liabilities
Accounts and other payables 419,688 271,664 691,352
Internal balances (Note 3) 2,800 (2,800) –
Short-term notes payable – 100,000 100,000
Noncurrent liabilities 2,018,686 100,000 2,118,686
Total Liabilities 2,441,174 468,864 2,910,038
Net Position
Net investment in capital assets 17,477,190 2,063,520 19,540,710
Restricted for:
Public safety 36,000 36,000
Capital projects 9,470 9,470
Unrestricted 627,641 249,702 877,343
Total Net Position 18,150,301$ 2,313,222$ 20,463,523$
Notes:
1. Receivables consist of: Governmental Activities: Taxes receivable—delinquent of $377,899
and related estimated uncollectible amount of $32,176; Interest and penalties receivable on taxes of
2. Net capital assets consist of: Governmental Activities: Land $4,180,000, Infrastructure $12,412,230,
less accumulated depreciation of $2,812,564; Buildings of $6,296,000, less accumulated depreciation
3. Governmental Activities: the internal payable of $2,800 is reported as an internal balance (payable).
The preferred practice (see Illustration 9-3 in the textbook) is to report the net internal balance (receivable)
as a negative.
Requirement 9c.
Net (Expense) Revenue and
Program Revenues Changes in Net Position
Operating Capital Primary Government
Charges for Grants and Grants and Governmental Business-Type Component
Functions/Programs Expenses Services Contributions
Contributions
Activities Activities Total Units (none)
Governmental Activities:
General government 1,259,143$ 939,192$ –$ –$ (319,951)$ (319,951)$
Public safety 2,493,873 93,798 445,000 (1,955,075) (1,955,075)
Public works 1,073,833 (1,073,833) (1,073,833)
Health and welfare 771,402 344,000 (427,402) (427,402)
Culture and recreation 700,752 281,391 –
Interest expense 36,186 (36,186) (36,186)
City of Smithville
Statement of Activities
As of December 31, 2020
Requirement 9c.
Street
Street Improvement Total
Improvement Debt Service Governmental
Assets General Fund Fund Funds
Cash 461,489$ 9,470$ 25,000$ 495,959$
Taxes receivable delinquent (net) 345,723 345,723
Interest and penalties receivable on taxes (net) 39,497 39,497
Due from state government 150,000 150,000
Inventory of supplies 64,420 64,420
Total Assets 1,061,129$ 9,470$ 25,000$ 1,095,599$
Liabilities, Deferred Inflows of Resources and
Fund Balances
Fund Balances:
Nonspendable—inventory of supplies 64,420 64,420
Restricted for public safety 36,000 36,000
Restricted for capital projects 9,470 9,470
Restricted for debt service 25,000 25,000
Committed for health and welfare 43,000 43,000
City of Smithville
Balance Sheet
Governmental Funds
As of December 31, 2020
Requirement 9-c.
Street
Street Improvement Total
General Improvement Debt Service Governmental
Fund Fund Fund Funds
Revenues
Taxes-real property 1,839,665$ 1,839,665$
Taxes-sales 1,579,203 560,000$ 2,139,203
Interest and penalties on taxes 35,882 35,882
Expenditures
General government 1,166,163 1,166,163
Public safety 2,214,350 2,214,350
Public works 833,280 833,280
Other Financing Sources (Uses)
Interfund transfers in (out) (17,500) 17,500 –
Premium on bonds 20,000 20,000
Proceeds of bonds 2,000,000 2,000,000
City of Smithville
Statement of Revenues, Expenditures, and Changes in Fund Balances
Governmental Funds
For the Year Ended December 31, 2020
Requirement 9c.
Total fund balances 597,576$
Capital assets used in governmental activities are not
City of Smithville
Reconciliation of the Governmental Funds Balance Sheet
to the Government-Wide Statement of Net Position
As of December 31, 2020
Requirement 9c.
Net changes in fund balances—total governmental funds 107,958$
Amounts reported for the governmental activities in the
statement of activities are different because:
Governmental funds report capital outlay as expenditures. 2,632,140
However, in the statement of activities, the cost of these
assets is allocated over their estimated useful lives as
term liabilities in the statement of net position.
Repayment of bond principal is an expenditure in the
governmental funds, but the repayment reduces long-
term liabilities in the statement of net position. There was
no repayment of bond principal during the year but new
For the Year Ended December 31, 2020
City of Smithville
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds
to the Government-wide Statement of Activities
Requirement 9c.
Enterprise Funds
Solid Waste
Disposal Totals
Assets
Current assets:
Cash 297,262$
Customer accounts receivable, net 146,721
Due from other funds 2,800
Inventories 74,583
Total Current Assets 521,366
Noncurrent assets:
Liabilities
Current Liabilities:
Vouchers payable 92,900
Accrued payroll and fringe benefits 175,264
Accrued interest payable 3,500
Business-type Activities—
City of Smithville
Statement of Net Position
Proprietary Funds
As of December 31, 2020
Requirement 9c.
Enterprise Funds
Solid
Waste
Disposal Totals
Operating Revenue:
Charges for services (net of $960 provision for 2,583,702$
doubtful accounts)
Operating Expenses:
Payroll and fringe benefits expense 1,471,923
Materials and supplies expense 875,797
Depreciation expense 175,290
Total Operating Expenses 2,523,010
Operating Income 60,692
Nonoperating Expenses:
Business-type Activities—
City of Smithville
Statement of Revenues, Expenses, and Changes in Fund Net Position
Proprietary Funds
For Year Ended December 31, 2020
Requirement 9c.
Solid
Waste
Disposal Totals
Cash flows from operating activities:
Cash received from customers 2,551,541$
Cash paid to employees (1,463,379)
Cash paid to suppliers (860,600)
Net cash used by operating activities 227,562
Cash flows from capital and related
financing activities:
Business-type Activities—
Enterprise Funds
City of Smithville
Statement of Cash Flows
Proprietary Funds
For Year Ended December 31, 2020
Reconciliation of Operating Income to
Net Cash Used by Operating Activities
Indicator (Ill 10-3) Formula Source Values Calculation
Revenue Measures:
General Fund intergovt revenues General Fund financial statements 789,000$
Total General Fund revenues General Fund financial statements 5,649,381$
Operating Position Measures:
Total operating revenues* Governmental funds financial statements 6,199,911$
Total operating expenditures** Governmental funds financial statements 5,508,693$
General Fund operating surplus/deficit** General Fund financial statements 165,988$
General Fund operating revenues General Fund financial statements 5,649,381$
General Fund balances General Fund financial statements 563,106$
General Fund operating revenues General Fund financial statements 5,649,381$
Cash Governmental funds financial statements 495,959$
Current liabilities Governmental funds financial statements 397,488$
Debt Indicators:
General obligation long-term debt Government-wide financial statements 2,018,686$
Assessed valuation Provided in chapter 6 of problem 323,913,790$
Current liabilities Governmental funds financial statements 397,488$
Operating revenues Governmental funds financial statements 6,209,381$
Interest payment on debt Debt service fund financial statements 25,000$
General Fund operating revenue General Fund financial statements 5,649,381$
Performance Measures (Ill 10-4)
Financial Position:
Unrestricted net position Government-wide financial statements 627,641$
Total governmental activities revenue Government-wide financial statements 6,212,212$
Total governmental activities liabilities Government-wide financial statements 2,441,174$
Total governmental activities assets Government-wide financial statements 20,591,475$
Liquidity
Long-term debt
Current liabilities
Debt service
Unrestricted net position
Debt to assets
1.248
0.006
0.064
0.004
0.101
Chapter 10 – Ratio Analysis
1)
2)
3)
0.119
Intergovernmental revenues
Revenues over expenditures
Operating surplus/deficit
0.140
1.125
0.029
5)
6)
7)
8)
10)
9)
Governmental activities current assets Government-wide financial statements 1,095,599$
Governmental activities current liabilities Government-wide financial statements 422,488$
Financial Performance:
Net governmental activities revenues Government-wide financial statements 6,212,212$
Total governmental activities expenses Government-wide financial statements 6,335,189$
Financial Capability:
General obligation bonded debt Government-wide financial statements 2,018,686$
Population Provided in problem 25,000
General obligation bonded debt Government-wide financial statements 2,018,686$
Legal debt limit Calculated in chapter 6 of problem 25,913,103$
* exclude revenue restricted for captial projects in chapter 5.
**exclude principal payments and capital outlays, recall the $75,000 equipment purchase in chapter 4 and interest payments.
Interperiod equity
Bonded debt per capita
Current ratio 2.593
0.981
80.747
11)
12)
13)
Interpretation of Ratios
(Note to Instructor – It is not expected that your students would need to prepare all of the
following ratios. Ratios that were redundant were not calculated, for example the liquidity ratio
and the quick ratio were not both calculated.)
1) At 14.0% of total revenues, intergovernmental revenues constitute a somewhat significant
portion of total revenues used by Smithville. However, although somewhat significant it
3) Although this ratio is not large, Smithville is operating at a surplus rather than a deficit.
Therefore, this ratio is considered acceptable.
4) At a ratio of .100, the fund balances ratio is greater the .05. Generally, a ratio of .05 or less is
6) With a ratio of .006, Smithville’s long-term debt ratio is well below the ratio of .10 that
7) Smithville is at the margin with a current liabilities ratio of .064. A ratio of .05 is considered
8) Smithville has very little debt in 2020; therefore, the debt service ratio is very low at .004. A
warning value would be .20 or greater.
10) At a ratio of .119, Smithville has a low debt to assets ratio. Only 11.9% of the city’s assets
are held by creditors, the rest of the assets are held by the citizens.
11) The current ratio for Smithville is 2.593, indicating a favorable financial position ratio.
12) The interperiod equity ratio of .981 is less than one, indicating that not all of the expenses are
13) The bonded debt per capita is $80.75. Without additional information about the population
demographics, such as unemployment, average salaries, overlapping debt and taxes per
14) At a ratio of .078, only a small percentage of the available legal debt limit has been used.
Overall the City of Smithville seems to be in an acceptable financial position. The ratios indicate
that the city will be able to cover its obligations in the short term. The financial condition of the
city is also quite favorable, especially with regard to its debt burden and the ability to cover the
debt as it comes due. Given its strong liquidity position, the current liabilities ratio of .064 is not
Chapter 11
An unmodified auditor’s report, similar to that shown in Illustration 11-1, appears to be
appropriate for the City of Smithville for the year ended December 31, 2020. Nevertheless, some
students may have issued a “qualified” report for some perceived reason. If so, it should use the
wording discussed briefly in Chapter 11 and specified in the audit guide. If not, this will provide
you with an opportunity to explain to the student why the specified report wording is critical to
an auditor.
An unmodified audit report on the City of Smithville should appear as follows:
The Honorable Mayor, City Council, and City Manager, City of Smithville
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business–type activities,
each major fund, and the aggregate remaining fund information of the City of Smithville, as of and for the year
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
financial position of the governmental activities, the business–type activities, each major fund, and the aggregate
remaining fund information of the City of Smithville, as of December 31, 2020, and the respective changes in
financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Other Matters
an opinion or provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance.
Additional explanatory sentences may be required if the audit is performed in accordance with
Government Auditing Standards. For the purposes of the audit report, it was assumed that at a
minimum a required management’s discussion and analysis was prepared. It is known that a