Home » Statistics-The town of Wolfeboro determines that it requires $11.25

Statistics-The town of Wolfeboro determines that it requires $11.25

Problem
# 1
The town of Wolfeboro determines that it requires $11.25
million in property tax revenues to balance its budget. According to the town’s
property tax assessor, the town contains taxable property that it assessed at
$450 million. However, the town permits discounts for early payment, which
generally average about 1 percent of the amount levied. Further, the town
grants homestead and similar exemptions equal to 1.5 percent of the property’s
assessed value.
1. Calculate the required tax rate, expressed in mils.
2. A resident’s home is assessed at $150,000. He is
permitted a homestead exemption of $5,000 and a senior citizen’s exemption of
$2,500. What is the resident’s required tax payment prior to allowable
discounts for early payment?
3. Wolfeboro assesses property at 100 percent of its fair
market value. New Durham, a nearby town in the same county, assesses property
at only 80 percent of fair market value. The county bases its own tax
assessments on the assessments of the individual towns. However, the county
grants no exemptions or discounts. Its tax rate is 4 mils.
a. A tax
payer in New Durham owns a home with a market value of $150,000—the same as
that of the Wolfeboro resident. Compute and compare the amount of county tax
that would be paid by each resident.
b.
Comment on why governments find it necessary to ‘‘equalize’’ tax assessments
based on assessments of other governments.

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Problem
# 2
A city levies property taxes of $2 billion in
June 2015 for its fiscal year beginning July 1, 2015. The taxes are due by
January 31, 2016. The following (in millions) indicates actual and anticipated
cash collections relating to the levy:
June
2015
$ 50
July
2015 through June 2016 $1,800
July
2016 through August 2016 $ 40
September
2016 through June 2017 $ 75
The city estimates that $15 million will
eventually have to be refunded, owing to taxpayer appeals of the assessed valuation
of their property, and that $35 million will be uncollectible.
1. Prepare a journal entry that summarizes the
city’s property tax activity for the fiscal year ending June 30, 2016, based on:
a. The
modified accrual basis (i.e., for fund statements)
b. The
full accrual basis (i.e., for government-wide statements)
2. Indicate the differences in amounts that
would be reported on both the statement of net position and the statement of
activities on a full accrual basis.
3. Suppose that in the following year the tax
levy and pattern of collections were identical to those of the previous year.
What would now be the difference in amounts reported on the statement of net
position and the statement of activities on a full accrual basis?

Problem # 3

The following
schedule indicates selected accounts from a city’s pre-closing 2015 and
post-closing 2014 general fund trial balances:
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All of the
amounts shown relate only to supplies. All purchases during the year were paid
in cash.
1. Assume that
the city uses the consumption method to account for supplies.
a. Reconstruct all journal entries
relating to supplies that were made in 2015.
b. Make any additional entries that
would be required at year-end 2015 to close the accounts.
2. Assume instead
that the city uses the purchases method to account for supplies. Assume also
that the supplies inventory balance as reported on the pre-losing December 31,
2015, balance sheet is $108,000 (not $162,000 as shown in the schedule), even
though actual supplies on hand are still $162,000. (This adjustment is
necessary because under the purchases method inventory is maintained throughout
the year at the beginning of year balance; it is adjusted only at year-end when
the closing entries are made.)
a. Reconstruct all journal entries
relating to supplies that were made in 2015.
b. Make any additional entries that
would be required at year-end 2015 to close the accounts.

Problem # 4
The following is an excerpt from a note to
the financial statements of the city of Boston (dates changed): The city
prepares its annual appropriated general fund, debt service fund, and
proprietary operating funds budgets on a basis (budget basis)
which differs from
generally accepted accounting
principles (GAAP basis) . . . The major
differences between the budget and GAAP bases are that encumbrances are recorded
as the equivalent of expenditures (budget) rather than a commitment of fund
balance (GAAP) in the governmental funds. The city accounts for inventories on
the purchases basis. One of the city’s departments, which is accounted for in
the general fund, budgeted $390,000 in supplies expenditures for fiscal 2015. It
began the 2015 fiscal year with $60,000 of supplies on hand. It also had $24,000
of supplies on order. During the year it ordered an additional $360,000 of
supplies, received (and paid for in cash) $370,000 of supplies, and consumed
$356,000 of supplies.
1. Prepare all journal entries,
consistent with GAAP, including budgetary and encumbrance entries that the department
should make in 2015.
2. Indicate the accounts and amounts
related to supplies that the city would report on its year-end statement of revenues,
expenditures, and changes in fund balance and balance sheet.
3. By how much did the department
over-or underspend its supplies budget (on a budget basis)?
4. Comment on the extent to which the
city’s statement provides a basis to:
a. Assess the ‘‘true’’ economic costs
associated with supplies
b. Determine whether the city adhered to
budgetary spending mandates
5. Suppose that in the last quarter of
the year, department officials realized that the department was about to overspend
its supplies budget. They therefore ceased placing new orders for supplies.
However, they imposed no restrictions on the use of supplies and there by allowed
the supplies inventory to decline to near zero.
a. What impact would these cost-cutting measures
have on supplies expenditures as reported in an actual-to budget comparison (on
a budget basis)?
b. What impact would the year-end
measures have on reported supplies expenditures (per GAAP)? Would your response
be different if the city accounted for supplies on the consumption basis?

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