Problem Set 2

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PADM 5387 Problem Set 2

Due May 6, 2020 There is a total of 11 questions, which consist of 4 questions each worth 1 point and 7 questions each worth 3 points, total 25 percent points counted toward your final grade. Answer all the questions and show all your problem-solving process. A simple answer without appropriate reasoning will result in partial or no credit to be earned for the question. Include question numbers and your answers. Identify student name(s) and the course number and section in the title page. Questions worth 3 points must be solved first through your estimation report by referring to the template tables provided here, and then the answers are moved to the answer sheet, followed by explanations of the answers. In Excel, use a separate sheet for each answer and name it the question number. Extra Credit (2pts): Q12 is for extra points you can choose to earn. For those who consider their final score might fall under a letter grade threshold between B and C or between A and B, this 2 percent extra credit chance is recommended to get it over to the higher grade. Note: Do not copy any of the questions. Type the question numbers and your answers only. Copying questions in any way is strictly prohibited. Q1 (1pt). Explain the order of assets shown on the balance sheet. How are they listed in that order? Q2 (1pt). For each of the transactions in the below table, record whether it would result in an increase or decrease in assets and/or liabilities. Assets Liabilities Transaction Up Down Up Down

1. Purchases supplies with cash.

2. Purchases supplies on account.

3. Takes out a loan.

4. Repays loan principal.

5. Receives payment on a pledge.

6. Makes a payment on an amount it owes.

7. Prepays for insurance.

8. Pays employee wages. 9. Begins using office space with a 10-year lease for the property.

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Q3 (3pts). You just started up a new animal shelter service organization. Record the below transactions for the first month of operations in the transaction worksheet below. The beginning balance for all accounts is $0.

• Transaction 1: Borrows $50,000 from a local bank. • Transaction 2: Signs a contract with a local carpenter to build a fence at a $250 service fee per hour. It is

scheduled to be built next month and will take 10 hours to complete. • Transaction 3: Buys 50 bags of dog food and 25 bags of cat food. Dog food costs $20 per bag, while cat

food costs $30 per bag. The food was bought on credit which is to be paid soon. • Transaction 4: Pays $5,000 to buy an office sign to hang in front of its building. It was received when

paid. • Transaction 5: Purchases office computers, server, printers, and a copier, all of which were received.

They cost total $10,000, half of which was paid and the other half is to be paid soon.

Assets = Liabilities and Net Assets

Liabilities Net Assets

Cash Supplies Office Equipment

Office Sign

Accounts Payable

Loan Payable

Without Donor Restrictions

With Donor Restrictions

Beginning Balance $0 $0 $0 $0 $0 $0 $0 $0

Transaction # 1

Transaction # 2

Transaction # 3

Transaction # 4

Transaction # 5

Ending Balance =

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Q4 (3pts). Continuing from Q3, prepare a balance sheet with the transactions. Statement of Financial Position as of the End of the First Month Assets Current assets Cash Supplies Total current assets Long-term assets Office equipment Office sign Total long-term assets Total Assets Liabilities & Net Assets Liabilities Short-term liabilities Accounts payable Total short-term liabilities Long-term liabilities Loan payable Total long-term liabilities Total Liabilities Net assets Without donor restrictions With donor restrictions Total net assets Liabilities and Net Assets

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Q5 (1pt). What is depreciation in terms of a capital asset? Explain specifics of its primary logic and function, accounting basis, and process. Q6 (1pt). For each of the transactions in the below table, record whether it would result in an increase or decrease in assets, liabilities, and/or net assets. Assets Liabilities Net Assets Transaction Up Down Up Down Up Down 1. Earns revenue by satisfying a performance obligation.

2. Uses supplies.

3. Uses a capital asset.

4. Receives cash in advance.

5. Provide service against cash advance.

6. Employs workers who earn wages.

7. Pays interest on a loan.

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Q7 (3pts). The American Research Council for Humanities (ARCH) had the following financial events during the current year. Record the transactions 1 through 6 of the organization in the transaction worksheet below. Refer to the beginning balances in their accounts.

• Transaction 1: January 12. Received a $300,000 payment from a pledge made last year. • Transaction 2: March 1. Paid out a $50,000 grant to the Governmental Archeological Research

Committee for History. This was a new grant made in the current fiscal year. • Transaction 3: May 29. Paid a $5,000 deposit out of $15,000 for new cubicle partitions ordered on

February 4. • Transaction 4: June 12. Collected $80,000 in new donations. • Transaction 5: September 1. Bought $60,000 of books ARCH has sponsored in the past to sell in its

online bookstore. It paid half now, and still owes the other half, to be paid at the end of the year. ARCH has budgeted to sell the books for $100,000 total.

• Transaction 6: October 15. The partitions ordered on February 4 arrived, and ARCH paid for the balance owed.

Q8 (3pts). Continuing for ARCH from Q7, record the remaining transactions of the year in the same transaction worksheet. Continue with Transaction 7 and end with the ending balance.

• Transaction 7: November 10. Borrowed $75,000 from its bank on a note payable. • Transaction 8: December 5. Repaid $25,000 on the note payable and also $3,000 in interest expenses. • Transaction 9: December 28. Paid its employees $75,000 of wages in cash for the year, $70,000 of

which was for the current year and $5,000 of which was for the outstanding balance owed. Employees earned $90,000 in wages for the year.

• Transaction 10: December 31. Book sales from the internet bookstore totaled $110,000, and the cost of the books sold was $58,000. ARCH has not collected $12,000 of the sales. The balance owed for the inventory was paid.

• Transaction 11: ARCH expects that of the $12,000 not collected to date, it will collect $10,000. • Transaction 12: December 31. Depreciation on ARCH’s building for the year is $40,000.

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Q7 & Q8 Assets = Liabilities and Net Assets

Liabilities Net Assets

Cash Pledges Receivable

Accounts Receivable

Inventory Deposits Plant & Equipment

Accounts Payable

Wages Payable

Notes Payable

Without Donor Restrictions

With Donor Restrictions

Beginning Balance

$10,000 $350,000 $26,000 $25,000 $0 $350,000 $27,000 $32,000 $270,000 $302,000 $130,000

Transaction #1

Transaction #2

Transaction #3

Transaction #4

Transaction #5

Transaction #6

Transaction #7

Transaction #8

Transaction #9

Transaction #10

Transaction #10 (cont.)

Transaction #10 (cont.)

Transaction #11

Transaction #12

Ending Balance

=

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Q9 (3pts). For ARCH, prepare an operating statement for the year with the transactions in Q7 and Q8. ARCH Operating Statement for the Year Ending December 31 Revenues and support:

Donation revenue

Sales revenue

Total revenues and support Expenses: Grant Expense Cost of goods sold Wage expense Interest expense Bad debts Depreciation

Total expenses

Increase/(Decrease) in net assets

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Q10 (3pts). For the Simonsen Village government, record the below transactions in the transaction worksheets for the current fiscal year ending December 31. Refer to the beginning balances in their accounts. Use the modified accrual basis of accounting. Make a separate section for each fund as shown below.

• Transaction 1: Employees of the village government earned $400,000 for the year. At the end of the year, the salaries payable balance was $10,000. Note that $200,000 of wages was related to the general government department, $140,000 was for the education department, and $60,000 was for the public works, safety, and sanitation department.

• Transaction 2: Inventory was ordered by the village government. The entire order was received. The bill for the inventory purchase was $10,000. By the end of the fiscal year, it had used $6,000 of the inventory, but no payment had been made. Each of the three departments had used $2,000 of inventory. The remaining inventory was all earmarked for education.

• Transaction 3: The village government’s major source of funds is real estate taxes. Total tax bills issued were for $300,000. Total collections were the $20,000 from the previous year’s ending balance in taxes receivable and $260,000 of this year’s taxes. Eighty percent of the outstanding balance at yearend is expected to be collected early in the next fiscal year.

• Transaction 4: The village government is entitled to receive unrestricted grants from the state. During the year, grants in the amount of $100,000 were made. The total collections on grants were just $20,000. This $20,000 consisted of $10,000 that the state owed for the previous year and $10,000 for the current year’s grant. The state will be paying the balance owed to the village government within 30 days after the year ends.

• Transaction 5: During the year, the village government was legally required to transfer $60,000 to its debt service fund. A total of $70,000 of cash was paid to the debt service fund. In years when the full required transfer is not made, the debt service fund has a receivable (Due from General Fund.) If more than the required amount is paid, the debt service fund’s receivable declines.

• Transaction 6: The village government acquired a new fire truck early in the year for $200,000. The fire truck is expected to last 10 years and has no salvage value. It was financed by a long-term note for the full amount. The village government has a capital projects fund.

• Transaction 7: The interest and principal due on the village government’s debt during the year and paid from the debt service fund were $8,000 and $30,000, respectively. The interest covers all long-term borrowing by the village government. The principal relates to the fire truck purchased during the year.

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General Fund—Modified Accrual Transactions Worksheet

Assets = Liabilities and Fund Balance

Liabilities Fund Balance and Changes in Fund

Balance Cash Real Estate

Taxes Receivable

State Grants Receivable

Inventory Accounts Payable

Due to Debt Service Fund

Deferred Tax Revenue

Salaries Payable

Fund Balance

Beginning Balance

$300,000 $20,000 $10,000 $0

$0 $16,000 $0 $90,000

$224,000

Transaction # 1

Transaction # 2

Transaction # 3a

Transaction # 3b

Transaction # 4a

Transaction # 4b

Transaction # 5

Transaction # 6a

Transaction # 6b

Transaction # 7

Ending Balance

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Capital Projects Fund

Assets = Liabilities and Fund Balance

Liabilities Fund Balance and Changes in Fund Balance

Cash Due from General Fund

Fund Balance

Beginning Balance $0 $0 $0 $0

Transaction # 1

Transaction # 2

Transaction # 3

Transaction # 4

Transaction # 5

Transaction # 6a

Transaction # 6b

Transaction # 7

Ending Balance =

Debt Service Fund

Assets = Liabilities and Fund Balance

Liabilities Fund Balance and Changes in Fund Balance

Cash Due from General Fund

Fund Balance

Beginning Balance $4,000 $16,000 $0 $20,000

Transaction # 1

Transaction # 2

Transaction # 3

Transaction # 4

Transaction # 5

Transaction # 6

Transaction # 7

Ending Balance =

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Q11 (3pts). For Simonsen Village, prepare a governmental funds statement of revenues, expenditures, and changes in fund balances for the year with the transactions in Q10. Simonsen Village

Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds

for the Year Ended December 31

General Fund

Debt Service Fund

Capital Projects Fund

Total Governmental Funds

Revenues Real estate taxes Intergovernmental—grants Total revenues Expenditures Current: General government Education Public Works, Safety, & Sanitation Debt service: Principal Interest Capital outlay: Total expenditures Excess of revenues over expenditures Other Financing Sources (Uses) Proceeds from long-term capital related debt

Transfers in Transfers out Total other financing sources and uses Net change in fund balances Fund balances—beginning Fund balances—ending

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Q 12. (Optional extra 2pts). Using Finkler et al.’s example of Exhibit 13-1 on pp.466-467 , 1) calculate the current ratios for Smith City for governmental activities, business-type activities, and total (excluding component units), and 2) calculate the solvency ratio of long-term debt to total net position for the governmental activities.