21 Sep Statement Reporting

The Board of Alderman of the Hayville approved the Appropriations budget for its General Fund for the year ending December 31st as shown below.

General Government: $500,000

Public Safety 2: $800,000

Public Works: $1,200,000

Health and Welfare: $1,300,000

Culture and Recreation: $700,000

Contributions to Retirement Fund: $600,000

Total General Fund Appropriations: $7,100,000

Explain how the term expenditure can be employed and defined differently in the following given situations:

a.        Expense

b.       Disbursement

c.        Encumbrance

d.       Other financing use

e.        The fund equity section of the interim balance sheet of the Freeman Town’s General Fund, as of June 30, 2005, was:

Fund Equity:

            A.  Appropriations: $2,551,600

 B.  Less: Expenditures $1,349,000

C.   Encumbrances: #1 – $112,000 and #2 – $1,461,000

            D.  Available Appropriations: $1,090,600

e.  Reserve for Encumbrances: $112,000

F. Fund Balance: $122,600

g.Total Fund Equity: $1,325,200

The fund equity section of the balance sheet for the same fund as of December 31, 2005, the end of the fiscal year, was:

Fund Equity:

a.        Reserve for Encumbrances: $32,000

b.       Reserve for Inventory of Supplies: $60,000

c.        Total Reserved Fund Equity: $92,000

d.       Fund Balance: $81,600

Total Fund Equity: $173,600

A local newspaper ran a feature article and an editorial on the incompetence of city administrators in “running the General Fund at a loss of over $1,150,000 in the last six months of 2005,” since the Total Fund Equity decreased from $1,325,200 to $173,600.

Is the newspaper correct? Why or why not? If you need additional information to be sure of your answer, explain what additional information you need.

Johnstown is considering a capital project. For each of the following legally feasible alternatives, compare and contrast the desirability of each from the viewpoint of (1) the official in charge of administering capital projects funds, and (2) taxpayers residing in the governmental unit.

$5,000,000 face value of 10-year special assessment bonds can be sold at 98 with a semiannual interest at the normal annual rate of 6%. The discount would be borne by a debt service fund.

Same as Item (a), except the discount would be borne by the capital projects fund.

Same bond issue can be sold at 103 with semiannual interest at the nominal rate of 9%; the premium would be transferred to the debt service fund.

Same as Item (c), except the premium would be retained by the capital projects fund.

One of the common objections to computing depreciation of general capital assets has been that the assets are used for activities that are not expected to generate revenues sufficient to replace the assets; therefore, depreciation expense is not relevant to decisions about the acquisition or use of general capital assets. Evaluate this argument as a conclusion to your paper.