CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS; BUDGETARY ACCOUNTING

OUTLINE

|Number |Topic |Type/Task |Status |
| | | |(re: 15/e) |
|Questions: | | | |
|3-1 |Distinguishing characteristics of fund-based and government-wide |Identify and describe |New |
| |financial statements | | |
|3-2 |Distinguishing direct and indirect expenses |Define and describe |New |
|3-3 |Statement of activities format |Describe |3-2 revised |
|3-4 |Program and general revenue |Distinguish |Same |
|3-5 |Extraordinary compared with special items |Define and compare |3-5 expanded |
|3-6 |Expenditure classifications—examples |Classify |Same |
|3-7 |Temporary and permanent accounts |Distinguish |3-7 revised |
|3-8 |Revenue classifications |Classify |Same |
|3-9 |Budgetary comparison schedules/statements |Explain |Same |
|3-10 |Public school systems |Explain |Same |
|Cases: | | | |
|3-1 |Revenue and expense/expenditure classification |Internet, examine, describe |Same |
|3-2 |Budgetary comparison schedule |Internet, examine, describe |Same |
|3-3 |Estimating the required property tax rate; economic and political |Analyze, calculate, and explain |New |
| |considerations | | |
|3-4 |Standardized accounting and reporting for Texas public schools |Internet, examine, describe |New |
|Exercises/Problems: |
|3-1 |CAFR |Examine |Revised |
|3-2 |Various |Multiple Choice |5 items are new; rest |
| | | |are same/revised |
|3-3 |Town of Truesdale—beginning and ending spendable fund balances |Explain and calculate |3-3 revised |
|3-4 |Budgetary control over expenditures |Examine, explain, journal entries|New |
|3-5 |Recording budget |Journal entries |3-4 revised |
|3-6 |Recording encumbrances |Journal entries |3-5 revised |
|3-7 |Recording budgetary and operating transactions |Journal entries, calculate |3-9 |
|3-8 |Subsidiary ledgers |Calculate |3-6 |
|3-9 |Computerized accounting system—depart-mental budgetary comparison |Analyze and explain |Same |
| |report | | |
|3-10 |Government-wide statement of activities |Prepare |3-10 revised |
CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS; BUDGETARY ACCOUNTING

Answers to Questions

3-1. The governmental fund financial statements report detailed current financial resources information intended to help users assess current period fiscal accountability—whether revenues were raised only from authorized sources and expended for authorized purposes. Government-wide financial statements, on the other hand, are intended to provide a broad overview of the governmental and business-type activities for the government as a whole. The government-wide statements focus on economic resources recognized on the accrual basis of accounting—similar to the focus and basis of accounting used in business entity reporting. The governmental operating statement (statement of revenues, expenditures and changes in fund balances) reports the inflows and outflows of current financial resources and changes in fund balances during the fiscal period. The government-wide operating statement (statement of activities) reports net function/program inflows/outflows of economic resources (i.e., function/program revenues and expenses) and the inflow of general (non-function/program) revenues. The bottom line is the change in net position for the period.

2. Using the net (expense) or revenue format recommended by GASB standards requires reporting of expenses that are directly related to a function or program on the same line as that function or program. Indirect expenses, those that are not directly related to a function or program, such as interest on long-term debt, should be reported on a separate line. It is important to correctly identify the nature of the expenses so they will be reported on the line of the right function or program, or as a separate line item. Otherwise, incorrect amounts will be reported for particular functions/program costs.

3. GASB recommends using a “cost of programs” format for the statement of activities. Using this format, the direct expenses of each function or program are reported on the same line as revenues related to that function or program; the difference is reported as net (expense) revenue. General revenues are added at the bottom of the statement to report the change in net position for the period. Using the net (expense) or revenue format reports the extent to which each function or program is self-supporting from fees and intergovernmental aid, or must be subsidized by general revenues of the government. This is important information for assessing cost of services and evaluating whether to continue to provide services or outsource them.

3-4. a. General revenues. b. Program revenues. c. Program revenues. d. Program revenues. e. Program revenues. f. General revenues. g. General revenues. Ch. 3, Answers (Cont’d)

3-5. Extraordinary items are those items (gains or losses) that are both unusual in nature and infrequent in occurrence. Special items are either unusual in nature or infrequent in occurrence, but not both. Special items also differ from extraordinary items in that they are within the control of management. Both types of items are reported as separate line items below General Revenues in the statement of activities. Such items that also affect governmental funds should be reported in a “special and extraordinary items” section immediately below the “Other financing sources and uses” section of the governmental funds statement of revenues, expenditures, and changes in fund balances.

3-6. a. Organization unit f. Both character and object b. Function g. Program c. Activity h. Function d. Activity i. Organization unit e. Object j. Object

3-7. Definitions of these terms are given in the Glossary of the text. Below are briefer statements:

a. Expenditures and encumbrances are both charges against appropriations. An encumbrance is a charge for an estimated amount at the time goods are ordered; an expenditure is a charge for an actual amount at the time the goods are received (accrual and modified accrual basis) or paid (cash basis). Encumbrance accounting is used only in those funds where it is needed to achieve budgetary control over expenditures.

b. Revenues are increases in net position of the government as a whole or of a fund other than from interfund transfers or debt issue proceeds, recognized at the time the increase is earned (accrual basis), available for use (modified accrual basis) or received in cash (cash basis). Estimated revenues are amounts expected to be available for use or received under enabling legislation during a budget period. Estimated Revenues is a budgetary account representing the expected amount of revenues to be realized from various sources.

c. The term encumbrances is defined in a above. Encumbrances Outstanding is a memorandum account that permits double-entry bookkeeping of encumbrances. It always has the same but opposite balance of the control account Encumbrances.

d. Expenditures is defined in a above. An appropriation is an authorization by the legislative branch for administrators to incur expenditures for specified purposes not to exceed specified amounts. Usually the authorization is for a limited time. Appropriations is a budgetary account. Ch. 3, Answers, 3-7 (Cont’d)

e. Expenditures, defined in a above, represent outflow of current financial resources for asset acquisition as well as for salaries, supplies for immediate consumption, travel, and so forth—whatever is specified in the appropriations. The term is used in fund financial statements. Expenses, in governmental accounting as well as business accounting, are expired costs; the full cost of services or goods consumed in providing services to citizens and others. Expenses are found in the government-wide financial statements as well as in the proprietary financial statements.

3-8. a. Taxes e. Intergovernmental revenue b. Charges for services f. Miscellaneous revenues c. Licenses and permits g. Charges for services d. Fines and forfeits h. Licenses and permits

9. Budgetary comparison schedules (or statements) must be provided for the General Fund and each major special revenue fund for which a budget is adopted. In order for budget to actual comparisons to be meaningful, actual revenues and expenditures must be reported in the same manner as the budgeted amounts. Actual revenues and expenditures reported in the statement of revenues, expenditures, and changes in fund balances should be on the GAAP basis. GASB standards identify several possible differences between GAAP and budgetary financial accounting. These include basis, timing, perspective, and entity. GASB requires reconciliation of the differences between amounts reported in the GAAP basis operating statement and those reported in the budgetary comparison schedule, either on the face of the budgetary comparison schedule or on a separate page.

10. Public school systems are expected to follow the classification system specified by the National Center for Education Statistics (NCES), as refined or mandated by a state education oversight body. The NCES system combines the GASB expenditure classification structure into nine categories, most of which are necessary for adequate internal management and comparable financial reporting across schools.

The NCES revenue classification scheme also groups classifications into numerous categories, but are generally classified by fund, source, and project/reporting code. The NCES expenditure and revenue dimensions should be compared with the corresponding GASB expenditure and revenue classifications described in this chapter. GASB standards require that expenditures be classified by fund, function or program, organization unit, activity, character, and object and that revenues be classified by fund and source. Comparison of the NCES and GASB classification shows that they are generally compatible, but the NCES classification structure is considerably more detailed to meet the unique reporting needs of public school systems. Solutions to Cases

3-1. Students should easily be able to locate a city’s Web site, then explore the Finance Department (or comparable name) link and look for links to financial reports. Responses to each of the questions in this case will depend on how a particular city classifies its revenues and expenses/expenditures.

a. Occasionally, one may find a city that classifies its program revenues and direct expenses by program, but functional classifications, similar to those described in this chapter, are much more common. In most cases, all function or program line items on the statement of activities will report a net expense, with numbers in parentheses. This is not a problem since most functions are supported in part from general revenues reported at the bottom of the statement of activities. b. On the statement of revenues, expenditures, and changes in fund balances, revenues and expenditures are reported in separate columns for the General Fund and other major governmental funds. Information for all nonmajor governmental funds is reported in aggregate in a single column. Students will likely find that the revenues reported on this statement are classified by source (taxes, licenses and permits, charges for services, etc.). Some cities will report a different amount for tax revenues on their statement of activities than on their statement of revenues, expenditures, and changes in fund balances because all tax revenues levied for the year will be reported on the former statement, while those that will not be collected during the current fiscal year or within 60 days thereafter will be reported as deferred taxes on the latter statement. c. Expenditures will generally be classified by function on the statement of revenues, expenditures, and changes in fund balances and, infrequently, by program. Students are almost certain to find different amounts reported for expenses on the statement of activities and expenditures on statement of revenues, expenditures, and changes in fund balances. Among other explanations, expenses exclude outlays for capitalized assets, but include depreciation expense; expenditures include capital outlays but exclude depreciation expense. Generally, expenses and expenditures will not be the same amounts for the reasons just explained.

2. Again the responses to individual questions will depend on the practices of the particular city selected. Some general expectations for each question include:

a. Typically more detail is provided for revenues and expenditures in the budgetary comparison schedule, though not always. The reason for including more detail in the budgetary comparison schedule, both for revenues and expenditures, is to better match the level of detail used in the budget document. For revenues, cities often report budget and actual information for subclasses of sources, such as various types of taxes. For expenditures, cities often report budget and actual information for organization units and objects.
Ch. 3, Solutions, Case 3-2 (Cont’d)

b. Students will probably find that actual revenues on the budgetary comparison schedule agree in amount with those reported on the GAAP operating statement. If a difference is noted between these amounts, it is likely attributable to revenues being recognized on a cash basis for budgetary purposes, rather than modified accrual. c. Some students will discover that actual expenditures on the budgetary comparison schedule differ from those reported on the GAAP operating statement. The explanation given in most of these cases will be that expenditures on the budgetary comparison schedule also include encumbrances outstanding at year-end. d. If actual revenues and/or expenditures are prepared on a non-GAAP budgetary basis, the budgetary comparison schedule should indicate such, either in the schedule heading or the Actual column heading. e. Although a variance column is not required by GASB standards, it is difficult to imagine a city not providing a column showing the variance between the actual and the final budget amounts.

3. a. The estimated amount of the required property tax levy is calculated, in good form, as follows:

University City
General Fund
Estimate of Amount to Be Raised by Property Taxes
For Fiscal Year Ending June 30, 20X2
As of Current Date—May 1, 20X1
Estimated resource requirements: Estimated expenditures, remainder of FY 20X1 $ 12,786,000 Appropriations proposed for FY 20X2 76,115,000 Estimated spendable fund balances required, beginning of FY 20X3 15,223,000 Total estimated resource requirements 104,124,000

Estimated resources available and to be raised, other than from property taxes: Actual spendable fund balances, May 1 of FY 20X1 $16,201,000 From estimated revenues, remainder of FY 20X1 12,702,000 From revenues in FY 20X2, other than property taxes 66,414,000 Total estimated resources available, other than property taxes 95,317,000
Amount required from property taxes in FY 20X2 $ 8,807,000

b. Calculation of the required tax rate (assuming the full tax levy will be collected): Since University City’s legal tax rate is expressed as $ per $100 of assessed valuation, the first step is to divide the assessed valuation by 100, giving $49,477,528. The required tax rate = $8,807,000 / $49,477,528 = $0.178, or $0.18 (rounded up as is customary) per $100 of assessed valuation. Ch. 3, Solutions, Case 3-3 (Cont’d)

c. From an economic viewpoint, the city manager should have little difficulty selling the city council on the required one cent tax increase in FY 20X2 property taxes. She/he should point out that the assessed valuation of property has decreased by 5 percent from last year. A comparative analysis shows the following results.

FY 20X1 tax levy: $0.17 X ($49,477,528 / .95) = $8,853,873.43

FY 20X2 tax levy: $0.18 X $49,477,528 = $8,905,955.04, which is only $52,081.61, or 0.6 percent, larger than the FY 20X1 tax levy.

So, the key point the city manager should make is that although the tax rate will be one cent higher, the proposed FY 20X2 tax levy is only slightly higher than the FY 20X1 levy, because of the 5 percent decrease in assessed valuation.

Despite the only slight increase in the actual tax levy, political considerations could make it difficult for the city manager to convince the city council to accept the one cent increase in property tax rate. They may view the proposal as “a tax increase is a tax increase, regardless of the amount.” If so, city officials may have to look for additional cuts in proposed spending for the forthcoming fiscal year.

4. a. The reader can hardly help but notice the extensive coding scheme reflected by the code structure shown in Exhibit 30 of the Texas Education Agency’s (TEA) Financial Accounting and Reporting (FAR) document. As described in Chapter 3 of the text, both the GASB and NCES require revenues to be classified by fund and source. For financial reporting purposes, governments generally report governmental fund revenues from major sources, such as those discussed in the chapter. However, for internal budgeting and financial management purposes, governmental accounting records typically record revenues from numerous detailed sources as well. Appendix B of this chapter shows the extensive source classifications defined by NCES. In addition, NCES classifies revenues by project/reporting code. Exhibit 30 shows that the first three positions in the code structure identify funds and account groups, the latter being used to report capital assets and long-term liabilities. Positions 6-9 of the code report the “object.” Position 6 identifies the account classification. Revenue accounts are identified by a 5 in the account classification position. For example, page 377 of the TEA FAR document shows that object code 5700 is used to report revenues from local and intermediate sources. Thus, the TEA revenue code 5700 combines the NCES 1000 and 2000 classifications (see Appendix B of Chapter 3). Under object 5700, specific revenue accounts are denoted by numbers in the last two positions of the object code. For example, Taxes, Current Year Levy are reported in object code 5711. As one peruses all the coding under object 5700, it should be apparent that the coding structure captures both GASB and NCES requirements.

Similarly, page 412, Exhibit 37, of the TEA FAR document shows that expenditures/expenses are reported using a 6 in the account classification position, Ch. 3, Solutions, Case 3-4 (Cont’d)

so all expenditures/ expenses are reported using 6xxx in the object code positions. The summary coding table on p. 413 shows the extensive expenditure/expenses object classifications.

What about the other GASB expenditure classification categories; i.e., by fund, function/program, organization unit, activity, and character? The TEA fund code classification (positions 1-3) has already been discussed. The function code classification (positions 4-5) is very extensive (see summary table on page 294 of the TEA FAR document) and essentially follows the NCES function classifications described in Appendix B, Chapter 3 of the text. The function codes, described in detail in the many pages following page 294 of the TEA FAR document, align primarily with what GASB describes as activity and character classifications. In addition, as shown in Exhibits 30, code positions 12-14 report organizational units and positions 16-17 report program codes. Reviewing the documentation for those codes, as well as the function and object codes previously described, it is apparent that the TEA coding structure facilitates both GASB and NCES classification requirements for expenditures.

b. Reviewing the TEA FAR documentation for the object and program intent codes, it should be apparent that they reflect the NCES classifications discussed in Appendix B of the text.

Solutions to Exercises and Problems

3-1. Each student should have a different governmental annual report, so will have different answers to the questions in this exercise. Some time spent in class to allow students to report on their own answers and to get an idea of the range of answers of other students is useful.

3-2. 1. c. 6. c. 2. d. 7. b. 3. b. 8. c. 4. a. 9. d. 5. a. 10. a.

3-3. a. The answer is no to both parts of the question. Subject to an ordinance or policy that requires a minimum end-of-year fund balance, any spendable fund balances above that amount can be considered available for appropriation in the same manner as revenues and other financing sources. Consequently, if the sum of any excess fund balances and estimated revenues exceeds appropriations, then town officials would be in compliance with any balanced budget requirement. In fact, legislative bodies often budget the use of a portion of fund balance if it exceeds any minimum requirement established by law or policy. Chapter 3, Solutions, 3-3 (Cont’d)

b. Fund Balance—Unassigned at 6-30-2013 after all closing entries will be $615,000, as shown below:

SPENDABLE FUND BALANCES

Fund Balance—Unassigned as of 6-30-2012 $ 600,000

To close revenues for the year 3,190,000

To close expenditures for the year (3,175,000)

Fund Balance—Unassigned as of 6-30-2013 $ 615,000

Note: Estimated Revenues and Appropriations are closed to Budgetary Fund Balance by reversing the original budgetary entry. So the balance of Budgetary Fund Balance will be zero.

3-4. Town of Hillsboro

a. Yes, barely. After the equipment item that was purchased on January 30, the available appropriation balance is $1,510 which provides sufficient legal authorization to order the new computer that is estimated to cost $1,500.

b. Yes. The new computer is estimated to cost $1,500. Actual costs often exceed the estimated cost because of unexpected price increases, shipping charges, and setup costs. Since the actual cost might exceed the available appropriation of $1,510, you would be well advised to at least notify the police chief of this possibility before ordering the computer. This would avoid a surprise later should the chief, or other authorized official, need to transfer a small amount of appropriations from another line item to cover the excess cost.

c. If the available appropriation were less than $1,500, you should notify the police chief so he/she, or other authorized official, can make a decision to not order the computer or else transfer appropriations from another line item to cover the excess cost. Local government budget policies often permit the finance director, upon recommendation of the department head, to transfer appropriation amounts from one line item to another within the same department. Any overall increase in an appropriation must be approved by ordinance of the governing body. Chapter 3, Solutions (Cont’d)

3-5. City of Jackson

a. Estimated revenues total—FY 2014 $ 4,650,000 Appropriations total—FY 2014 4,850,000 Therefore, unassigned fund balances at the end of FY 2013 must be at least $ (200,000) or else the fund would be thrown into a deficit.

General Ledger Subsidiary Ledger Debits Credits Debits Credits
b. ESTIMATED REVENUES 4,650,000

BUDGETARY FUND

BALANCE 200,000

APPROPRIATIONS 4,850,000

Estimated Revenues Ledger: TAXES 3,000,000 INTERGOVERNMENTAL REVENUES 1,000,000

LICENSES AND PERMITS 400,000

FINES AND FORFEITS 150,000 MISCELLANEOUS REVENUES 100,000

Appropriations Ledger: GENERAL GOVERNMENT 1,000,000

PUBLIC SAFETY 2,000,000

PUBLIC WORKS 950,000 HEALTH AND WELFARE 850,000

MISCELLANEOUS 50,000

Ch. 3, Solutions (Cont'd)

3-6. City of Jackson (Cont’d) General Ledger Subsidiary Ledger Debits Credits Debits Credits
a. ENCUMBRANCES(2014 395,000 ENCUMBRANCES OUTSTANDING(2014 395,000

Encumbrances Ledger:

GENERAL GOVERNMENT 50,000

PUBLIC SAFETY 200,000 PUBLIC WORKS 75,000 HEALTH AND WELFARE 65,000 MISCELLANEOUS 5,000

b. Purchase orders issued by a governmental fund have the effect of using all or a portion of one or more appropriations for that fund. Issuance of purchase orders or other commitment documents is a step in the expenditure of an appropriation; administrators may be subject to legal penalties if they expend more resources than were appropriated. Recording encumbrances helps administrators avoid overexpending appropriations.

The same legal issues do not exist in business organizations, although a well-managed business should certainly keep track of outstanding purchase orders and contracts to have a clear understanding of what transactions are in process that will result in the acquisition of assets, the incurring of expenses, and the incurring of liabilities.

Ch. 3, Solutions (Cont'd)
3-7.
General Ledger Subsidiary Ledger Debits Credits Debits Credits
a. ESTIMATED REVENUES 2,700,000

BUDGETARY FUND

BALANCE 50,000

APPROPRIATIONS 2,650,000

Estimated Revenues Ledger: TAXES 1,900,000

LICENSES AND PERMITS 350,000

FINES AND FORFEITS 250,000 INTERGOVERNMENTAL REVENUES 200,000 Appropriations Ledger: GENERAL GOVERNMENT 500,000

PUBLIC SAFETY 1,600,000

PUBLIC WORKS 350,000 PARKS AND RECREATION 150,000 MISCELLANEOUS 50,000

b. General Ledger Subsidiary Ledger Debits Credits Debits Credits
1. CASH 43,000 REVENUES 43,000 Revenues Ledger: LICENSES AND PERMITS 31,000 FINES AND FORFEITS 12,000
Ch. 3, Solutions, 3-7 (Cont'd) General Ledger Subsidiary Ledger Debits Credits Debits Credits
2. ENCUMBRANCES—2014 29,900 ENCUMBRANCES OUTSTANDING—2014 29,900 Encumbrances Ledger: GENERAL GOVERNMENT 7,400 PUBLIC SAFETY 11,300 PUBLIC WORKS 6,100 PARKS AND RECREATION 4,200 MISCELLANEOUS 900

3. ENCUMBRANCES OUTSTANDING—2014 29,100 ENCUMBRANCES—2014 29,100 EXPENDITURES—2014 29,200 CASH 29,200 Encumbrances Ledger: GENERAL GOVERNMENT 7,400 PUBLIC SAFETY 10,700 PUBLIC WORKS 5,900 PARKS AND RECREATION 4,200 MISCELLANEOUS 900 Expenditures Ledger: GENERAL GOVERNMENT 7,300 PUBLIC SAFETY 10,800 PUBLIC WORKS 6,100 PARKS AND RECREATION 4,100 MISCELLANEOUS 900
Ch. 3, Solutions, 3-7 (Cont'd)

c. CALCULATION OF BUDGETED BUT UNREALIZED REVENUES AS OF JULY 31, 2013 UNREALIZED SOURCE BUDGETED ACTUAL REVENUE PROPERTY TAXES $1,900,000 $ -0- $1,900,000 LICENSES AND PERMITS 350,000 31,000 319,000 FINES AND FORFEITS 250,000 12,000 238,000 INTERGOVERNMENTAL 200,000 -0- 200,000 TOTAL $2,700,000 $43,000 $2,657,000
Ch. 3, Solutions, 3-7 (Cont'd)
d. CALCULATION OF AVAILABLE APPROPRIATIONS, AS OF JULY 31, 2013 AVAILABLE APPROPRIATIONS ENCUMBRANCES EXPENDITURES APPROPRIATIONS
GENERAL GOVERNMENT $ 500,000 $ -0- $ 7,300 $ 492,700
PUBLIC SAFETY 1,600,000 600 10,800 1,588,600
PUBLIC WORKS 350,000 200 6,100 343,700
PARKS AND RECREATION 150,000 -0- 4,100 145,900
MISCELLANEOUS 50,000 -0- 900 49,100 TOTAL $2,650,000 $800 $29,200 $2,620,000
Ch. 3, Solutions (Cont'd)
3-8. City of Salem
a. $14,980,000 (the sum of the amounts presently in the Estimated Revenues column of the subsidiary ledgers).
b. $15,000,000 (the sum of the 01/01 entries in the Estimated Revenues column)
c. 1. Yes 2. 02/28 (45 6 folio entry to Property Taxes) 3. $20,000 4. Decreased
d. $12,080,000 (the sum of the amounts in the Revenues column)
e. Property tax revenue is being accrued; revenue from the other three sources is being recognized when the cash is received. That is, when it is first measurable and available according to the modified accrual basis of accounting.

3-9. Lincoln City
a. Apparently, Lincoln City uses a 10-digit account number structure having three segments. As is customary, the first segment is the fund code, with 01 representing the General Fund. As the heading implies, the second segment (divided into two sub-segments) is the organization unit, with 08-00 assigned to the Parks and Recreation Department. The zeros in the second sub-segment can be replaced with numbers representing activities within the department, such as parks, aquatic recreation, athletic facilities, administration, and so forth. The third segment represents the object of expenditure. This segment can be further subdivided to provide greater expenditure detail, such as 7120 for building materials, 7130 for maintenance supplies, and 7140 for office supplies. This account structure appears to meet the GASB’s expenditure classification requirements.
Ch. 3, Solutions, 3-9 (Cont'd)

b. Encumbrance control procedures are generally used only for purchases of goods and services for which there is delay between placing the order or contract and receipt of the goods or services. Recurring expenditure requirements such as payroll and utilities are fairly predictable, so encumbrance procedures are generally not necessary to adequately control these expenditures. Conferences and training are usually not “ordered” in advance in the sense of a purchase order or contract for future service. Even if conference registrations or airline reservations are made in advance, those are usually paid at the time of the registration or reservation and thus are actual, not estimated, expenditures.
c. At the mid-point of FY 2013, the Parks and Recreation Department has expended or encumbered the following percentages of its appropriations:

Personnel Services 45.5% Materials and Supplies 62.5% Conferences and Training 37.5% Contractual Services 69.5% Utilities 51.1% Capital Outlay 43.1% Other 72.1% At first glance, it appears that the Materials and Supplies, Contractual Services, and Other accounts could expend their appropriations well before the end of the fiscal year. Additional information about normal seasonal usage patterns would be required, however, to confirm if the spending rate is too rapid for these accounts. Larger quantities of materials and supplies may be used every spring and early summer in preparing parks and recreation facilities for heavy summer use. Contractual services may have involved a larger than average service contract that was fulfilled early in the year and contracts may have been signed early in the year for services to be
Ch. 3, Solutions, 3-9, c. (Cont'd)

provided later in the year. Other is a miscellaneous category, albeit a large one, for which analysis of what it entails and expected spending rates would need to be undertaken before any conclusions can be reached.
d. It may appear that the Personnel Services, Conferences and Training, and Capital Outlay accounts could get by with lower appropriations. This is likely not the case, however, since departments typically have to defend their appropriation requests during the budgeting process. Parks and recreation departments often require more labor in the summer for grounds maintenance, swimming pool lifeguards, recreational activity instructors, and for other purposes. Consequently, personnel expenditures will likely be greater in the second half of the fiscal year. Similarly, many conferences are held in late summer and fall so it may be that department officers and staff will be attending conferences or training events later in the year. The relatively small budget authorization for capital outlay suggests that the purpose of the account is to acquire equipment. Late acquisition of equipment might reflect a strategy to hold off until it is known whether these monies might be needed for other purposes, or perhaps management is simply waiting for a good deal or the latest model of equipment to be released.
e. Possible explanations for the observed over- and under-spending patterns have been provided in parts c and d. These explanations make it clear that one needs to analyze past spending patterns and evaluate specific spending plans within individual accounts before it can be determined whether spending patterns are unreasonable. Such analysis yields a budgeted spending rate to which the actual spending rate can be compared.

Ch. 3, Solutions (Cont'd)
3-10.
WESTOVER VILLAGE
Statement of Activities (partial)
For the Year Ended June 30, 2014
| | | | | |Net (Expense) Revenue and Changes in|
| | | | | |Net Assets |
| | | Program Revenues | |
| | |Charges for |Operating |Capital |Governmental |
| |Expenses |Services |Grants |Grants |Activities |
|Functions/Programs | | | | | |
|Primary Government | | | | | |
|General government |$ 9,571 |$ 3,146 |$ 843 | |$ (5,582) |
|Public safety |34,844 |1,198 |1,307 |$ 62 |(32,277) |
|Health and sanitation |6,738 |5,612 | | |(1,126) |
|Culture and recreation |12,352 |3,995 | 2,450 | |(5,907) |
|Interest on long-term debt | 6,068 |_______ | _____ |____ | (6,068) |
| Total governmental activities |$ 69,573 |$ 13,951 |$4,600 |$ 62 |(50,960) |
| | | | | | |
| |General revenues: | | | |
| |Property taxes | |56,300 |
| |Unrestricted grants and contributions | |1,200 |
| |Investment earnings | | 1,958 |
| | Total general revenues | |59,458 |
| |Special item—gain on sale of park land | | 3,473 |
| | Total general revenues and special items | | 62,931 |
| |Change in net position | | |11,971 |
| |Net position—July 1, 2013 | | | 1,643,000 |
| |Net position—June 30, 2014 | | |$1,654,971 |