Question 1

Which of the following occurs before the other three in the budget enactment process?

Accepted Answer

Collecting departmental expenditure requests is one of the first steps in building a budget. Each department identifies and justifies any new activities it would like to perform and considers existing activities that it wants to maintain or perhaps scale back. These are added together to calculate the estimated expenditures for each department. Next, non-departmental expenditure estimates and proposed capital outlays are added to complete an initial budget, which will be the subject of public hearings.

Question 2

Stoppard City uses service efforts and accomplishments (SEA) reporting in addition to its annual financial report to inform citizens. Stoppard operates early intervention services for elementary school children. One of the SEA measures it reported was this: The percentage of children who were functioning within age expectations by the time they exited the program-68%. Which type of SEA measure is this reporting?

Accepted Answer

Outcomes measures report on the results achieved as a result of efforts made.

Question 3

The budget director of a large city is reviewing her staff's calculation of the city's property tax millage rate. She examines the deductions from the total assessed value of property to determine the net assessed value of property. Which of the following is most likely to be a mistake?

Accepted Answer

Property held by other governments is not subject to property taxes and should be deducted from the assessed value of property to determine net assessed value of property.

Question 4

The County legislature approved its 2020 budget. Revenues from property taxes are estimated to be $800,000. The assessed value of all the property in the county is $40 million. The County has received certificates for property tax exemption of consisting of $3 million for homestead exemptions, $1.3 million for veterans, $700,000 for old age, and $5 million for nonprofits. In addition, the County believes all property taxes will be collectible. What property tax rate per $1,000 of net assessed value must the County charge to collect sufficient property taxes to meet its $800,000 estimate?

Accepted Answer

The County's net assessed value is gross assessed value of $40 million less $10 million of property tax exemptions, or $30 million. The tax rate equals $800,000 / $30,000,000 or 0.0266667. The rate for each $1,000 of net assessed value is $26.67.

Question 5

Which of the following statements is typical of the requirements enacted by governments regarding the execution phase of the budget process?

Accepted Answer

Limitations on the spending of appropriations, whether imposed on individual departments or the government as a whole create the need for accounting systems to provide information for administering the execution phase of governmental budgets.

Question 6

The GASB requires governments to present budgetary comparisons in their external annual financial statements (either as an additional financial statement or as schedules in required supplementary information). What does the GASB require these statements/schedules to include?

Accepted Answer

These budgetary comparison statements/schedules should show (1) the original adopted budget, (2) the final appropriated budget, and (3) actual revenues and expenditures on the budgetary basis of accounting.

Question 7

The City of Big Boot approved its budget for calendar year 2019. In that budget, the annual appropriation for salaries in the General Fund is $6,000,000. At the end of June 2019, the General Fund reported salary expenditures well over $3,000,000. Assuming that the City incurs salaries ratably throughout the year and does not hire extra personnel, for example, for summer services, what actions could the City take in light of actual salaries expenditures at June 30?

Accepted Answer

Comparing budgeted amounts to actual for salaries tells us that the City has spent $250,000 more than budgeted at mid-year for General Fund salaries. The City can correct the problem by placing a freeze on open positions with annual salaries of $500,000. Seeking out new revenue sources likely would not be effective for correcting the excess spending by year end. City managers cannot assume they will be permitted to use unassigned fund balance at December 31, 2018. This would require the City's legislature to pass a budget revision.

Question 8

Which of the following sequences correctly portrays expenditure subclassifications from the highest to lowest level of summarization?

Accepted Answer

There are five possible subclassification levels for expenditures, with the highest to the lowest as follows: fund, function/program, organizational unit, activity, and object.

Question 9

In its 2019 budget, a city authorized expenditures of $40,000 for replacing police patrolmen's uniforms with more modern, functional uniforms. What five expenditure subclassifications would the city use to record this budgetary appropriation to be able to capture expenditure data in its records, assuming the police activities are reported in the General Fund?

Accepted Answer

We were told that the fund used was the General Fund; this is the first subclassification. The second subclassification is function/program; The Public Safety function/program typically includes the police and fire departments (organizational units). Activities subclassifications are generally the major operating functions within a department. The object (object-of-expenditure) subclassification refers to the physical description of items purchased or services received, in this case, uniforms.

Question 10

In classifying expenditures, which of the following is an illustration of an "object"?

Accepted Answer

The object (object-of-expenditure) classification refers to the physical description of items purchased or services received; for example, regular salaries and wages, contractual services such as rent payments, and materials and supplies.

Question 11

At the beginning of the year, the Cortlandt City Council adopts a budget calling for estimated revenues of $480,000 and appropriations of $470,000. When the City prepares its journal entry to record the budget

Accepted Answer

When budgetary appropriations are less than estimated annual revenues, it means that when the budgetary journal entry is recorded at the beginning of the year, budgetary fund balance is expected to increase. An increase in fund balance must be a credit.

Question 12

During the year, the Cortlandt City Council approves a budgetary interchange, increasing fire department overtime by $8,000 and decreasing fire department supplies by $8,000. As a result

Accepted Answer

In a budgetary interchange, the total amount budgeted for the department itself does not change. The changes take place within two objects of expenditure for the same department. When journal entries are made to record an adopted budget, estimated appropriations are recorded using the opposite of the entry for actual expenditures.

Question 13

A City Council approves its 2020 budget. The City experienced serve drought conditions during 2020, as a result the fire department had paid excess overtime of $8,000 for fighting wildfires as of mid-year. The City's budget officer estimated that total 2020 fire department overtime expenditures would be $13,000 compared to budgeted overtime appropriations of $5,000. The budget officer suggests deferring a portion of the City police department's planned new radio purchases by $8,000.
After consulting the police department, the City Council approves budgetary revision. What journal entry would be used to record this revision?

Accepted Answer

When a budgetary revision takes place, the budgetary appropriation for one department may be reduced to supplement the appropriation amount for another department. In some cases, estimated revenues may be reduced and department appropriations reduced or estimated fund balance reduced to maintain a balanced budget. In other cases, fund balance may be reduced to supplement the appropriation amount for a shortfall within a department. When original budgetary appropriations are recorded in a government's records, they are credited. When appropriations must be reduced in budgetary accounts, they are debited.

Question 14

During the year, the Cortlandt City Council approves a budget revision, reducing estimated revenues-sales taxes by $10,000 and increasing appropriations--fire department overtime by $5,000. As a result:

Accepted Answer

When a budgetary revision takes place, the budgetary appropriation for one department may be reduced to supplement the appropriation amount for another department. In some cases, estimated revenues may be reduced and department appropriations or estimated fund balance reduced to maintain a balanced budget. In other cases, fund balance may be reduced to supplement the appropriation amount for a shortfall within a department. When original budgetary appropriations are recorded in a government's records, they are credited. When appropriations must be reduced in budgetary accounts, they are debited.

Question 15

The City of Snow's 2020 annual budget included an appropriation of $65,000 for snow removal. By the end of January, the City had experienced 3 Nor'easters with total snow accumulation of 65 inches, equal to the amount anticipated for January and February. The City approves a budget revision to increase the appropriation for snow removal to $90,000 and reduce budgetary fund balance by an equal amount. The Waste Removal Department also receives invoices for and makes payments for January snow removal of $55,000. What was the effect on budgetary fund balance?

Accepted Answer

The City's budget revision increased the Waste Removal Department's appropriation for snow removal to $90,000. Because the original appropriation was $65,000, it reduces (debits) budgetary fund balance by $25,000.

Question 16

One of the important functions of governmental accounting systems is to aid in the budgetary process both for departmental budget managers and the central budget office. Governmental accounting systems do this by recording:

Accepted Answer

Governmental accounting systems record (a) estimated and actual revenues and (b) appropriations and spending against the appropriations. Encumbrances are used to show that a portion of appropriations is effectively used up.

Question 17

During the year, the City of Kent finds that, because of an economic contraction, its sales tax revenues are likely to be $100,000 less than anticipated and that police department expenditures are likely to exceed authorized appropriations by $100,000. The City of Kent needs to:

Accepted Answer

When a budgetary revision takes place, the budgetary appropriation for one department may be reduced to supplement the appropriation amount for another department. In other cases, estimated revenues may be reduced and department appropriations or estimated fund balance reduced to maintain a balanced budget. In this case, the City chose to reduce budgetary fund balance.

Question 18

Under budgetary accounting, at what point in the accounting cycle is a portion of an entity's appropriation initially considered to be used up?

Accepted Answer

From a government's budgetary perspective, a portion of the appropriation effectively is "used up," or encumbered, at the point it orders supplies-even though the supplies have not yet been received.

Question 19

What journal entry is made when a purchase order is placed with a supplier?

Accepted Answer

The government gives formal accounting recognition to the cost of a purchase order by recording an encumbrance equal to the purchase order amount. The "budgetary fund balance reserved for encumbrances" is, in effect, a placeholder for the liability that will be incurred.

Question 20

The City of Snow's 2020 annual budget included an appropriation of $65,000 for snow removal. The Waste Removal Department placed purchase orders with 10 snow plow operators for January, February, March, and April totaling $50,000. By the end of January, the City had experienced 3 Nor'easters with total snow accumulation of 65 inches, equal to the amount anticipated for January and February. The City approves a budget revision to increase the appropriation for snow removal to $90,000 and reduce budgetary fund balance by an equal amount. The Department also receives invoices for and makes payments for January snow removal of $55,000. At that point, how much of the appropriation was available for spending?

Accepted Answer

The City's budget revision increased the Waste Removal Department's appropriation for snow removal to $90,000. At the end of January, the City received invoices of $55,000 and no new purchase orders had been issued.

Quiz 3: Budgetary Considerations in Governmental Accounting